Tarn Insurance Services Ltd v Kirby & Ors

The Court of Appeal considered applications and interlocutory orders arising from claims by the administrators of Tarn against former controllers of the company and related entities alleging breaches of fiduciary duty, receipt of secret commissions and unjust enrichment. The key legal principles concerned the proper exercise of the court's discretion under the Civil Procedure Rules to relieve a party from the sanction of an "unless order" (CPR 3.9), the purposes and importance of freezing orders and orders for disclosure and tracing information, and the availability of summary judgment where there is no real prospect of defence.

The court held that the judge at first instance erred in granting relief from the sanction imposed by an unless order which had required delivery of tracing information and documents to protect asserted proprietary claims: there was no evidence that legal advice excused non-compliance, non‑compliance was deliberate and persistent, and the purposes of the earlier freezing orders (to preserve and trace assets and documentation) were obstructed. The Court of Appeal therefore set aside the paragraph of the order which had effectively relieved Mr Kirby from the debarment sanction.

As to the substantive summary judgment applications, the appellant administrators had been entitled to summary judgment against STS in respect of sums paid under the STS Agreement (the court indicated Tarn was entitled to an order for repayment of £1,566,440 and permitted further submissions on form). By contrast, summary judgment was properly refused in respect of the bribery/secret commission claims against Mr Rodriguez and Outtake because those issues raised genuine questions of fact (knowledge, concealment and the contractual/approval mechanics) unsuitable for determination on summary disposal.

Background and parties: Tarn (in administration) acted as intermediary for small loans made by Euro/HCA to facilitate local authority tenants exercising "right‑to‑buy" rights. Many loans did not complete and Tarn became liable to repay advance fees. Administrators sued persons who had controlled Tarn and related companies (including Mr Kirby, Mr Bennett, Mr Hirst, Mr Holden, STS, Legal 4 Life and Outtake) seeking repayment of substantial sums alleged to have been paid without regard to Tarn's interests or as secret commissions.

Procedural posture: Proceedings began in April 2008 after applications under section 236 Insolvency Act 1986 for documents and information. His Honour Judge Pelling QC took undertakings; an application before Mr Justice Evans‑Lombe produced freezing orders and an unless order requiring tracing information, affidavits and documents. Non‑compliance by Mr Kirby led to debarment sanctions. On 2 July 2008 Mr Justice Norris varied the unless order and relieved Mr Kirby from the debarment sanction and refused summary judgment in several respects. Tarn appealed to the Court of Appeal.

Nature of the claims and relief sought: (i) Claims for equitable compensation/repayment arising from the STS Agreement (about £3.1m said to have been paid under it); (ii) claims for damages/repayment for secret commission/bribery in relation to payments said to be consultancy fees (£185,850) and consequential losses; (iii) orders for disclosure, delivery of documents and tracing information to protect proprietary claims; and (iv) an interim payment application under CPR 25.1(1)(k) against STS.

Issues framed by the court:

• Whether Mr Kirby should be relieved from the debarment sanction of the unless order given his non‑compliance with freezing and disclosure orders.
• Whether summary judgment was appropriate against the several defendants on the pleaded causes of action, including whether there were real prospects of defence.
• Whether an interim payment should be ordered against STS.

Court’s reasoning and conclusions: The Court of Appeal emphasised the protective functions of freezing orders and of orders compelling tracing information and documents. It found no evidential basis for attributing Mr Kirby’s non‑compliance to legal advice; his non‑compliance was deliberate and persistent and obstructed the tracing/delivery aims of the freezing regime. Applying CPR 3.9 in the correct way — that is, assessing whether the unless order remained properly to take effect in the light of circumstances known when relief was sought — the court concluded relief should be refused and set aside the paragraph of the 2 July 2008 order which had relieved Mr Kirby from debarment. On the substantive claims the court found the first group (payments under the STS Agreement) presented compelling grounds for summary judgment against STS for repayment (the court indicated entitlement to £1,566,440 and invited further submissions on form). By contrast, bribery/secret commission claims raised disputed facts (disclosure, who knew, approval mechanics) unsuitable for summary determination, and summary judgment was rightly refused as to Mr Rodriguez and Outtake.

Wider context: The court reiterated the seriousness of deliberate non‑compliance with freezing and unless orders and the court’s role in preserving assets and documentation in insolvency/fraud‑type litigation; it stressed that relief from debarment is exceptional where non‑compliance is deliberate and obstructive.

Appeal allowed in part. The Court of Appeal set aside the part of the 2 July 2008 order which had relieved Mr Kirby from the debarment sanction imposed by the 16 April 2008 unless order because non‑compliance was deliberate, there was no evidential basis to attribute it to legal advice and allowing relief would frustrate the protective purposes of the freezing and disclosure regime. The Court of Appeal confirmed that summary judgment should not be entered against Mr Rodriguez and Outtake on the bribery/secret commission claims (questions of knowledge and concealment are matters of fact). The court indicated that Tarn was entitled to repayment by STS of £1,566,440 under the STS Agreement and invited submissions on the form of relief.

Appeal from order of Mr Justice Norris (Chancery Division, High Court of Justice), HC08C00984. Applications and freezing orders originally made before His Honour Judge Pelling QC and Mr Justice Evans‑Lombe (orders of 8 and 16 April 2008). Appeal heard in the Court of Appeal, reported as [2009] EWCA Civ 19 (this judgment).