Debarring orders and disclosure: when will a defaulting party forfeit their right to participate in proceedings?

17-11-2020


The court has wide case management powers to sanction a party in breach of their disclosure obligations, including the ability to make an order to debar them from participating in the proceedings. Defaulting parties often seek to resist the making of a debarring order on the ground that it would compromise their right to a fair trial pursuant to Article 6 of the European Convention on Human Rights (Article 6 ECHR), and thus render the proceedings inherently unfair.

The defaulting party’s Article 6 ECHR rights will often be at odds with those of its opponent: by withholding disclosable evidence, the defaulting party may jeopardise the fair disposal of the claim and, therefore, its opponent’s own right to a fair trial. It is for the court to strike a fair balance between those competing interests.

Deliberate breach

In JSC BTA v Ablyazov [2012] EWCA Civ 1411, considered in Legal update, Ablyazov: Contempt: Court had jurisdiction to make a surrender order supported by a debarring unless order (Court of Appeal), the defendant appealed against three orders, which: (i) found him guilty of contempt of court; (ii) sentenced him to 22 months’ imprisonment; and (iii) provided that, unless he surrendered into custody and provided proper disclosure of his assets pursuant to a disclosure order made ancillary to a freezing injunction, he would be debarred from defending the claim and his defence would be struck out. As regards point (iii), the defendant contended, inter alia, that the making of a debarring order would curtail his Article 6 ECHR right to a fair trial of the merits of the claim and, in any event, would be unnecessary, unfair and disproportionate.

The Court of Appeal was not persuaded by the defendant’s contentions. In his leading judgment, Rix LJ found that the defendant had been granted the opportunity for a full trial of the merits of the claim, but had then forfeited that right by failing to comply with the court’s orders. In reaching this conclusion, Rix LJ had regard to the observations of Chadwick LJ in Arrow Nominees Inc v Blackledge [2000] 2 B.C.L.C. 167:

“The function of a court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.” (Paragraph 54, judgment.)

On the issues of fairness, necessity and proportionality, the Court of Appeal found that there was a substantial risk that the claimant would be denied justice unless the defendant provided further disclosure of his assets. While the defendant’s inadequate disclosure may not have necessarily compromised the fair determination of the issues in dispute, it would have undoubtedly undermined the claimant’s ability to enforce a judgment made in its favour at the conclusion of the proceedings. Accordingly, Rix LJ found that:

“It is not the case … that there is nothing on a claimant’s side to balance against a defendant’s interest in being permitted to carry on regardless to trial. The interest of a claimant in securing an effective and realistic outcome to his litigation, if he succeeds, may be as important in the balance of things as the interest of the defendant in preserving his right of access to trial despite his refusal to abide by the orders of the court” (Paragraph 185, judgment.)

Serious and culpable, but not wholly inexcusable?

In Ablyazov, the defendant was found to have acted with “cynicism, opportunism and deviousness towards court orders” (Maurice Kay LJ, at paragraph 202). Matters are, however, rarely so clear cut. Defaulting parties will often argue that extenuating circumstances serve to either reduce or extinguish their culpability for their breach.

In Mark Byers, Hugh Dickson and Saad Investments Company Limited v Samba Financial Group [2020] EWHC 853 (Ch), considered in Legal update, Party in breach of disclosure order debarred from defending majority of claim (High Court), the defendant Saudi Arabian bank breached a disclosure order. In doing so, the defendant explained that its regulator, the Saudi Arabian Monetary Authority (SAMA), had not consented to the disclosure of the tranche of documents in question. In the absence of SAMA’s permission to disclose the documents, compliance with the disclosure order would expose the defendant and its employees to the risk of criminal prosecution in Saudi Arabia.

The claimant issued an application for the defendant to be debarred from defending the claim and for its defence to be struck out. The defendant issued a number of applications, one of which sought the variation of the standard disclosure order such that it was not required to disclose documents for which third party consent was needed but could not be obtained.

Fancourt J dismissed the defendant’s application to vary the terms of the disclosure order. In doing so, he noted that the court’s ability to vary or revoke an order will normally only apply where there has been a material change in circumstances since the order was made, or where the facts on which the original decision was made were misstated. The defendant had always known that there was a risk that SAMA would not consent to the disclosure of the documents; SAMA’s refusal to provide its consent could not, therefore, constitute a material change in circumstance. In any event, the defendant had not taken all the steps it should have to secure SAMA’s consent:

“The [defendant] is in my judgment at fault for not having engaged with SAMA in a constructive way – in the way that it promised the Court … that it would do – to explain its obligations and professed desire to be able to comply with them. Instead it has – as I have previously found – sought to shelter to some extent behind the implacable regulation of SAMA.” (Paragraph 104, judgment.)

Further, the claimant had fully complied with its disclosure obligations (the defendant had, in fact, insisted that inspection of the claimant’s documents be provided in circumstances where it was in breach of its own disclosure obligations). While compliance would expose the defendant to a real risk of prosecution, this was outweighed by the potential prejudice to the claimant in the event that the documents were not disclosed. Fancourt J noted that the risks of severe punishment of the defendant or its employees were significantly overstated by the defendant, and that the most likely consequence of compliance with the order was a fine, not imprisonment or revocation or suspension of the defendant’s banking licence.

Fancourt J concluded that the defendant was “in serious breach of the order and [would] remain in breach”. Given that the defendant’s disclosure was necessary for the fair disposal of the claim, the court had little option but to debar the defendant from defending any issues that were “fact sensitive and to which the defendant’s disclosure documents could be relevant”. The question before the court was therefore whether the defendant’s breach was “so serious and inexcusable that the [defendant] must be taken to have forfeited its right to a trial even of issues… where documents of the [defendant] will be irrelevant to the outcome of those issues” (paragraph 122, judgment). In answer to that question, Fancourt J considered the following points:

The defendant was in serious and deliberate breach of the disclosure order. To the extent that it had failed to take all the steps it should have done to secure SAMA’s consent, the breach was also inexcusable. There was, however, a genuine concern on the part of the defendant as to the consequences of complying with the disclosure order in the absence of SAMA’s consent. This rendered the defendant’s breach “serious and culpable” but not “wholly inexcusable” (paragraph 127, judgment), such that the defendant had not forfeited the right to a trial of the issues where the claimant was not prejudiced by the defendant’s default.

Conclusion

A litigant’s failure to comply with its disclosure obligations will inevitably prejudice its opponent and it is right that the court takes steps to mitigate the effect of such a breach. In the case of a recalcitrant party in breach of its disclosure obligations, this may extend to the deployment of a full debarring order. The litigant will have forfeited their right to participate in the trial by dint of their conduct.

In the event that the breach is not wholly inexcusable (and where circumstances allow), the court may favour a more flexible approach whereby the terms of the debarring order are reflective of the nature and extent of the litigant’s breach. This ensures that the sanction is strictly proportionate and necessary for the just disposal of the claim; or, in the words of Rix LJ, that “the sanction fit[s] the breach” (Aktas v Adepta [2010] EWCA Civ 1170, at paragraph 92).

This article was first published by Practical Law on 16 November 2020.


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