Tarn Insurance Services Ltd v Kirby & Ors

When relief is sought from a sanction imposed by an unless order, the court must start from the premise that the order properly furthered the overriding objective when made. The question is whether later circumstances make it inappropriate for the sanction to take effect. A defence with a real prospect of success is not, without more, decisive.

Deliberate and persistent breach of orders requiring information and documents to safeguard proprietary claims ordinarily requires the sanction to take effect, save in very exceptional circumstances. Summary judgment may nevertheless be appropriate on allegations of fraud or breach of fiduciary duty where the evidence is overwhelming. A civil bribery claim against the payer requires proof that the payer knew, or was wilfully blind to whether, the agent had concealed the commission from the principal.

Tarn Insurance Services Ltd, acting by its administrators, claimed recovery of substantial payments made under an agreement with STS Insurance Services Ltd and damages arising from an alleged secret commission. It alleged breaches of fiduciary duty by persons said to be de facto directors and knowing participation by recipients.

Mr Kirby failed to comply with orders requiring asset and tracing information and documents. An unless order therefore debarred him from defending. On 2 July 2008 Norris J granted relief from that sanction and refused Tarn's applications for summary judgment against Mr Kirby, Mr Holden, STS, Mr Rodriguez and Outtake Ltd.

Tarn appealed. The principal issues were whether relief from sanction had been granted under the correct test, whether summary judgment should have been entered on the fiduciary-duty claims, and whether the bribery claims against Mr Rodriguez and Outtake required a trial.

1. Appeal allowed in part. Paragraph 1 of the order of 2 July 2008, which relieved Mr Kirby from the sanction imposed by the unless order, was set aside. The appeal concerning the refusal of summary judgment against Mr Rodriguez and Outtake was dismissed. The appeal concerning Mr Kirby, Mr Holden and STS was allowed, subject to further submissions about the form of the order. Thomas and Waller LJJ agreed with Sir John Chadwick.

2. The judge's exercise under rule 3.9 of the Civil Procedure Rules 1998 was flawed. He wrongly attributed non-compliance to legal advice without evidential support, understated the prejudice caused by the failure to provide tracing information and documents, and failed to give sufficient weight to the deliberate breach of orders supporting freezing and proprietary injunctions. The existence of a freezing order did not fulfil the separate purposes of locating proprietary assets and preserving evidence.

3. The correct inquiry was whether, accepting that the unless order properly furthered the overriding objective when made, it remained appropriate in the circumstances existing when relief was sought to let the sanction take effect. A real prospect of successfully defending was not decisive because that prospect was implicit when the unless order, rather than summary judgment, was originally imposed.

4. Relief was refused. There had been no material change of circumstances, good reason for the continuing default, or realistic basis for expecting compliance. In cases of deliberate and persistent failure to obey information and document orders safeguarding proprietary claims, the proper administration of justice requires the sanction to take effect save in very exceptional circumstances.

5. The evidence supporting the first group of claims was overwhelming. The business model inevitably produced increasing insolvency. Those controlling Tarn caused it to enter an agreement calculated to extract its cash for their own benefit, despite their experience of the failed predecessor scheme. They owed fiduciary duties as de facto directors and appreciated that the arrangement was a fraud on Tarn and its creditors. The case was suitable for summary judgment notwithstanding the seriousness of the allegations.

6. The bribery claims against Mr Rodriguez and Outtake required a trial. Tarn had to prove that Mr Rodriguez knew, or was wilfully blind to whether, Mr Kirby had concealed the commission arrangement from Tarn. Whether disclosure occurred and whether Mr Rodriguez knew of any non-disclosure were disputed factual questions unsuitable for summary determination.

1. Court of Appeal (Civil Division): The court allowed the appeal against relief from sanction and against the refusal of summary judgment concerning Mr Kirby, Mr Holden and STS. It dismissed the appeal concerning Mr Rodriguez and Outtake Ltd: [2009] EWCA Civ 19.

2. High Court, Chancery Division: On 2 July 2008 Norris J relieved Mr Kirby from the sanction imposed by the unless order and dismissed Tarn's applications for summary judgment. No citation is stated in the judgment.