Re Guidezone Ltd

The case concerned an unfair prejudice petition under s.994 of the Companies Act 2006 and an application by the respondents for an extension of time to serve their Defences pursuant to CPR r 3.1(2)(a). The principal legal issue was whether the stricter approach in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 (applying the amended CPR r 3.9) applied to an in-time application for an extension, or whether Robert v Momentum Services Ltd [2003] EWCA Civ 299 continued to govern such applications.

The court held that Mitchell and the r 3.9 guidance apply to applications for relief from sanctions and to many out-of-time applications for extensions, but do not displace the authority of Robert for in-time applications. An in-time application is to be decided by reference to the overriding objective (CPR r 1.1), now amended to include enforcement of compliance with rules and orders, rather than by the Mitchell checklist.

Applying the overriding objective, the judge found that refusing an extension would risk depriving the respondents of the opportunity to defend substantial issues (including a disputed claim to a shareholding arguably worth a very large sum) and would therefore be disproportionate. The extension of time for service of Defences was granted; the petitioner’s cross-application to debar the respondents (which sought to determine the preliminary issues in the petitioner’s favour) fell away.

This was a first-instance hearing of competing procedural applications in a s.994 unfair prejudice petition concerning Guidezone Limited. The petitioner, Dilip Kaneria, alleged that family members had agreed he should have a 10% shareholding and equal total income, and claimed breach of those arrangements; the respondents (his family members and the company) applied for an extension of time to serve Defences on preliminary issues. The petitioner cross-applied to debar the respondents from defending.

Procedural posture and issues:

• Nature of claim: unfair prejudice petition under s.994 Companies Act 2006.
• Primary procedural issues: (i) whether Mitchell (the Court of Appeal's guidance on relief from sanctions under amended CPR r 3.9) applies to an in-time application for an extension of time; (ii) whether the respondents should be granted an extension to serve their Defences; (iii) whether the respondents should be debarred from defending.

Court’s reasoning:

• The Unfair Prejudice Rules incorporate the CPR with necessary modifications; the respondents’ application was made under CPR r 3.1(2)(a).
• Mitchell sets out a stricter approach where relief from sanctions (CPR r 3.9) is sought and applies to many out-of-time applications; however, the Court of Appeal in Robert had held that an in-time application for an extension is not to be treated as an application for relief from sanctions and should be decided by reference to the overriding objective. The judge held Robert remains binding and that Mitchell does not displace it for in-time extension applications of the kind before the court.
• The overriding objective has been amended to include explicitly the enforcement of compliance with rules and orders (r 1.1(f)). The court must therefore weigh that factor against the need to deal justly between the parties and at proportionate cost. The judge accepted that enforcement is important but is not given the paramount status it has in r 3.9 contexts.
• Applying the overriding objective, the judge concluded that substantial and potentially disproportionate prejudice would follow from refusing the extension — namely the respondents might be deprived of the opportunity to put forward a defence on preliminary issues involving significant value — whereas granting the extension caused no material prejudice to other court users or to the petitioner. The extension was therefore granted and the petitioner’s cross-application (to debar) fell away.

The judgment also commented on the practical policy balance between strict enforcement of timetables and sensible co-operation to avoid disproportionate satellite litigation, noting the Jackson reforms’ aim to promote compliance but rejecting an approach that would turn ordinary timetabled orders into automatic 'trip wires'.

Application by the Respondents for an extension of time to serve their Defences is allowed. The court held that the Mitchell r 3.9 principles apply to relief from sanctions and many out-of-time applications, but do not displace Robert for in-time extension applications; such in-time applications are to be judged by the overriding objective (CPR r 1.1), including the new sub-paragraph (f) about enforcing compliance, without giving it paramount status. Applying the overriding objective, the Judge concluded that refusing the extension would produce disproportionate prejudice to the Respondents and therefore granted the extension; the Petitioner’s cross-application to debar the Respondents falls away and the parties will be heard on the form of the consequential order.