Debarring orders: the enforcement of interlocutory costs orders

22-05-2020

This article first appeared on Practical Law on 20 May 2020.

In this article, Chris Felton and Katie Dyson at Gardner Leader LLP, and Teniola Onabanjo at 3VB, consider the circumstances in which the court may debar a litigant in breach of a costs order from participating in proceedings.

Introduction

There are important policy reasons why courts make interlocutory costs orders. The prospect of an adverse costs order discourages unreasonable conduct such as making unmeritorious applications or resisting reasonable applications on unmeritorious grounds. As Sir John Chadwick noted in Crystal Decision (UK) Limited v Vedatech Corporation 2 [2008] EWCA Civ 848, interlocutory costs orders are intended to “bring home to a party… that [such conduct] may carry a price which will have to be paid at once” (paragraph 17).

It is within the courts’ inherent jurisdiction to make an order debarring a party in default of an interlocutory costs order from participating in the proceedings. The courts have repeatedly demonstrated their willingness to make such orders where this has proved necessary to secure compliance. Thus, compliance with the costs order becomes the “price” to be paid for continued participation in the proceedings.

Michael Wilson & Partners v Sinclair

In Michael Wilson & Partners v Sinclair [2017] EWHC 2424 (Comm) (see Practice note, Recovery of costs: overview: Enforcement), Sir Richard Field (sitting as a deputy judge of the High Court) reviewed the authorities on the making of debarring orders for failure to comply with an interlocutory costs order. Having reviewed the authorities, Sir Richard, at paragraph 29, set out the following six principles which he considered applicable when the court is dealing with an application for a debarring order:

Resisting a debarring order: the evidential foundation

Once an interlocutory costs order has been made, it is generally difficult to persuade a court to go behind that decision. The proper route for challenge is by way of an appeal or an application to vary the order; the court will generally take a dim view of retrospective arguments against enforcement after the order has been breached. This is particularly so where the court perceives a party in default to be the architect of its own misfortune. It is to be presumed that a litigant who chooses to engage in what the court determines to be unreasonable conduct must have appreciated the risk that it would be penalised in costs (and if it did not foresee that risk, then a sanction may well be what is required to encourage the necessary shift in perspective). Given this, it is perhaps unsurprising that debarment has been described as the “default rule” for a party in breach of a costs order (Siddiqi v Aidiniantz [2020] EWHC 699 (QB) (paragraphs 28 to 30), where the court was considering an application to stay proceedings pending the defaulting party’s compliance with a costs order; see Practice note, Recovery of costs: overview: Enforcement).

While a court will consider all of the relevant circumstances, a party who wishes to avoid the making of a debarring order against it will usually have to establish that such an order would amount to breach of Article 6 ECHR or other denial of justice. Defaulting litigants often seek to establish this by claiming impecuniosity. A party may also argue against a debarring order on the basis that there are alternative means of enforcing the order. The courts will not accept such claims at face value. “Detailed, cogent and proper evidence” is required (Michael Wilson & Partners v Sinclair [2017] EWHC 2424 (Comm) at paragraph 29).

In Hangar 8 v Taleveras [2019] EWHC 2483 (Comm) (see Practice note, Recovery of costs: overview: Enforcement), HHJ Pelling QC, at paragraph 19, noted the extensive evidence that a corporate litigant asserting impecuniosity must adduce:

“[the evidence should include]… not merely the accounts of the particular company concerned, but where, as here, the company forms part of a greater group, both the consolidated accounts and possibly the individual accounts of the other group companies as well since support could be provided by other group companies… Where it is alleged that a corporate defendant is part of the group that is controlled by an individual, it is necessary to consider the wealth available to the individual for the purposes of assessing whether or not that individual is able to support the company if it is unable itself to meet its obligations”.

Similarly, submissions to the effect that a party with the benefit of a costs order should pursue other mechanisms of enforcement are bound to fail unless the defaulting party adduces cogent evidence of the alternatives and their effectiveness.

In short, the onus falls squarely upon the defaulting party to provide an “evidential foundation” for any legal arguments against the making of a debarring order (Hangar 8 v Taleveras [2019] EWHC 2483 (Comm) at paragraph 26). In the absence of such evidence, the defaulting party’s submissions are unlikely to gain traction with the court.

Proportionality

In exercising their discretion, courts take into account the principle of proportionality. This consideration of proportionality is reflected in the sixth principle set out by Sir Richard Field in Michael Wilson & Partners v Sinclair: a debarring order will usually be deployed on unless terms except where there are strong reasons for imposing an immediate order. The making of a debarring order brings home the gravity of continued non-compliance to a party who has failed to persuade the court that there is a good reason to excuse their breach. However, the making of the order on unless terms gives the defaulting party a further chance to comply with the order and thereby secure their continued participation in the litigation.

Proportionality may also be relevant to the scope of the debarring order. In Tonstate Group Ltd and others v Wojakovski and others [2020] EWHC 1004 (Ch), Zacaroli J made a debarring order on unless terms against a party who had failed to comply with various costs orders made over the course of the litigation. He declined, however, to make an order debarring the party from participating in other related actions (which were being case managed together with the action in relation to which a costs orders were made) as such an order would have been disproportionate (paragraph 47).

Practice points

The severity of a debarring order as a sanction must be viewed in light of the policy reasons for making interlocutory costs orders. If interlocutory costs orders play a role in discouraging irresponsible litigation then debarring orders are an important tool for achieving the policy objectives. In practice, however, the severity of the sanction is tempered by the courts’ propensity for making debarring orders on unless terms. Absent strong reasons for imposing an immediate order, a defaulting party will generally be afforded a final opportunity to cure their breach.

A defaulting party that wishes to persuade the court not to make a debarring order must accept that they will begin this exercise on the back foot. The onus is very much on the defaulting party to present the court with full and frank disclosure in support of their arguments. Bare assertions will not suffice.

Where a party seeks to rely on their impecuniosity to persuade a court that a debarring order would breach their rights under Article 6 ECHR, or would otherwise amount to a denial of justice, their evidence should explore all potential avenues for funding and explain why they are not viable (see Practice note, Funding options for civil litigation in England and Wales). Similarly, submissions as to the availability of alternative means of enforcement should offer pragmatic solutions; to that end, the defaulting party must always keep in mind that the burden of discharging the debt rests with them, not their creditor. Anything less than this is likely to be met with short shrift.


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