Marcan Shipping (London) Ltd v Kefalas

The Court of Appeal held that an "unless" order made under the Civil Procedure Rules (CPR) takes effect automatically if the party to whom it is addressed fails to comply and that the onus is on the defaulting party to apply under CPR r.3.8 for relief from the sanction. The court analysed Part 3 (in particular rules 3.1, 3.4, 3.5, 3.8 and 3.9) and the Practice Direction (para. 1.9) and concluded that no further order is required to render the sanction effective. The judge below was entitled to strike out the claim and award costs on the indemnity basis because Marcan materially breached the disclosure and security-for-costs order, had a history of non-compliance and did not seek relief under r.3.8.

Although the judge approached the matter as if he were exercising a discretion to strike out under r.3.4(2)(c), the court found his operative order to be correct. Applications to admit further evidence on appeal were refused because the breach found below was not challenged and relief under r.3.8 could not properly be advanced for the first time on appeal.

Background and parties: Marcan Shipping (London) Ltd, a long-standing shipbroker controlled by Mr Dimitrios Yamvrias, sued Mr George Kefalas and Candida Corporation for wrongful termination of an alleged oral general agency agreement made in 1982 and for misrepresentations said to have caused loss. The defendants denied the existence of such an agreement and alleged that any general instructions were episodic and that allegations of misrepresentation were without foundation.

Procedural history: Directions were given for trial, Langley J permitted an amendment to the defence and counterclaim and ordered further disclosure and security for costs of £80,000, with disclosure by 23 June 2006. Marcan failed to comply. Morison J on 21 July 2006 made an "unless" order dismissing the claim unless disclosure and the security for costs were provided by 26 July 2006. Marcan served a materially defective list of documents. The defendants applied under CPR rule 3.5 for the claim to be dismissed and for indemnity costs. At the hearing on 5 September 2006 Morison J found a clear breach and struck out the claim, awarding indemnity costs; Marcan did not apply for relief under r.3.8.

Issues framed: (i) Whether an "unless" order operates automatically under the CPR or whether the court must re-consider and only strike out for breaches that make a fair trial impossible; (ii) Whether the judge erred in taking account of prior conduct and other litigation; (iii) Whether relief could properly be advanced without an application under CPR r.3.8 and whether further evidence should be admitted on appeal.

Court’s reasoning: The Court of Appeal reviewed the history of conditional "unless" orders and explained that CPR Part 3 expressly permits the court to specify consequences of non-compliance and provides that sanctions have effect unless relief is obtained (r.3.8). Rule 3.5 permits a party to obtain judgment when a defence is struck out and rule 3.9 sets out the matters to be considered on an application for relief. The Practice Direction para. 1.9 confirms that where an order states a statement of case "shall be struck out" this is automatic. The court held that once a material breach was established the sanction in the conditional order became effective; the defaulting party must apply for relief under r.3.8 and present evidence addressing the matters in r.3.9. The judge was entitled to activate the sanction in light of the clear breach and the claimant’s prior failures. The Court refused applications to admit further evidence because the appellant had not sought relief below and was attempting to raise an application for relief for the first time on appeal, which would be unfair to the respondents.

Wider context: The judgment emphasises that conditional orders are a powerful case-management tool under the CPR, that they must be precise, and that judges should consider carefully whether the severe sanction of striking out is appropriate when making such orders.

Appeal dismissed. The Court of Appeal held that the "unless" order operated automatically under CPR Part 3 once Marcan materially failed to comply, that Marcan had not applied for relief under r.3.8 and that the judge was therefore entitled to strike out the claim and award indemnity costs. The court accepted that the judge had framed his reasoning imperfectly but concluded the operative order was correct and that further evidence raising relief arguments could not properly be admitted for the first time on appeal.

Appeal from the High Court of Justice, Queen's Bench Division (Commercial Court) (Morison J), order dated 5 September 2006 dismissing the claim and awarding costs on the indemnity basis; permission to appeal was given (see remarks of Sir Henry Brooke). The appeal was heard in the Court of Appeal and the judgment delivered on 17 May 2007 ([2007] EWCA Civ 463).