Lexi Holdings Plc v Luqman & Ors

Relief from a sanction for non-compliance with a court order requires an overall assessment of the factors in the Civil Procedure Rules 1998 (CPR) 3.9 and all the circumstances. Deliberate disobedience of an Unless Order weighs heavily against relief, especially where the order supports a freezing injunction and preserves evidence. A court deciding whether to set aside an order for defective notice may consider actual receipt and the merits. Although deemed-service rules govern calculation of the notice period, earlier actual receipt may make a technical defect insufficient to justify setting aside the order. The court will not interfere with a discretionary decision that properly addresses the relevant factors and imposes a proportionate response to deliberate non-compliance.

The administrators of Lexi Holdings Plc alleged that Mr McGarry had received substantial company funds without legitimate basis and sought relief including a constructive trust and equitable compensation. Freezing and disclosure orders were made. Following deliberate non-compliance, Blackburne J made an Unless Order and entered judgment when Mr McGarry failed to comply.

Mr McGarry applied to Pumfrey J to set aside the judgment and obtain relief from sanctions. The application was refused. Before the Court of Appeal, he argued that the Unless Order was irregular because the application notice had not been served at least three days before the hearing under CPR 23.7(1)(b), and that striking out his defence was disproportionate. The central issues were the effect of deemed service and the proper exercise of the discretion to grant relief.

The Court of Appeal, in the judgment of Lawrence Collins LJ agreed by Hughes LJ, refused the application and declined to interfere with Pumfrey J’s refusal of relief from sanctions or with the judgment entered after non-compliance.

1. Service of the application notice. Under CPR 23.7(1)(b), three days’ notice was required. The deemed service provisions in the Civil Procedure Rules 1998 applied for calculating the period, notwithstanding that Mr McGarry had actually received the couriered copy earlier. Saturdays and Sundays were excluded under CPR 2.8(4). The point was therefore arguable, but actual receipt and the merits could be considered when deciding whether to set aside an order in the exercise of a discretion. This differed from cases where the deemed date of service was determinative, such as limitation cases. The technical defect did not justify setting aside the order.
2. Relief from sanctions. The judge correctly began with the factors in CPR 3.9 and the overall assessment required by CIBC Mellon Trust Co Ltd v Stolzenberg [2004] EWCA Civ 827. The breaches were deliberate. Mr McGarry had made no attempt to comply, had relied on a misconceived plea of self-incrimination, had produced only redacted bank statements and had materially changed his account of the transactions. The gravity of non-compliance was increased because the orders supported a freezing injunction and were intended to preserve evidence for trial.
3. The sanction was a proportionate and reasonable response to repeated, conscious breaches. There was no proper basis for interfering with the exercise of discretion. The application was refused.

• Court of Appeal (Civil Division): in [2007] EWCA Civ 1070, the application was refused and the court declined to interfere with the High Court’s discretionary refusal of relief from sanctions.
• High Court: Blackburne J made an Unless Order after non-compliance with disclosure obligations and entered judgment on 15 March 2007. Pumfrey J subsequently refused to set aside the judgment, strike out the claim or grant relief from sanctions.