Theverajah v Riordan

The Court of Appeal allowed the appellant's appeal against parts of the Deputy Judge's order. The court held that the Deputy Judge had erred by treating the hearing as if judgment in default could be entered mechanically and by failing to give effect to the pleaded and agreed structure of the sale agreement, in particular the agreed extrication of The Castle and the apportionment of the Bank of Cyprus borrowing between The Jewel and The Castle. The court emphasised that debarment from defending does not erase the evidential and pleading context that defines the ambit of the dispute and that the court conducting a trial must determine entitlement to specific relief rather than substitute a non-judicial default process. As a result the court set aside parts of the deputy judge's order and substituted an order providing for transfer of the shares in Prestige to the appellant only on payment by the respondents of a quantified sum (subject to reduction if the bank restructures the borrowing), and awarded the appellant costs of the Part 7 and Part 8 proceedings.

Background and parties: The dispute concerned the appellant's intended acquisition of shares in companies owning three public houses (The Jewel, The Jester and The Devonshire) by purchase from the first, second and fourth respondents, and the agreed treatment of a fourth property (The Castle) which was to be extricated from the target company, Prestige Property Developer UK Limited. The appellant had paid substantial sums and taken possession and carried out works to The Jewel. Relations broke down and both sides sought specific performance and alternative damages.

Procedural history: Proceedings included Part 8 and Part 7 claims in the Chancery Division (the hearing before Mr D. Donaldson QC is reported at [2014] EWHC 725 (Ch)). There were interlocutory orders by Henderson J (21 June 2013) requiring disclosure and by Hildyard J (9 August 2013) striking out the defence and debarment for non-compliance; a subsequent relief-from-sanction order by a deputy judge was set aside by the Court of Appeal in December 2013, and the matter proceeded to directions and a final hearing before Mr Donaldson, whose order of 21 March 2014 is the subject of this appeal to the Court of Appeal.

Nature of the claim and relief sought: The appellant sought specific performance of the share purchase agreement (insofar as practicable in respect of The Jewel and Prestige), orders for transfer of shares, declarations and various alternative claims for damages (including sums to discharge indebtedness) and proprietary/constructive trust relief. The appellant also sought recovery of costs incurred in a Part 8 ancillary claim.

Issues before the Court of Appeal:

• Whether the Deputy Judge was entitled to implement an arrangement when an important element of the agreement (treatment of The Castle and the apportionment of bank borrowing) had not been agreed or could not be effected without third-party (bank) consent.
• Whether the Deputy Judge misapplied default-judgment-type procedures (CPR 3.5 / Part 12/PD26 concepts) when the relief sought required a judicial determination at trial.
• Whether debarment from defending and strike-out meant the Defence could not be used to understand the ambit of the pleaded claim.
• Whether the Particulars of Claim sufficiently pleaded the agreement that The Jewel would be acquired free of the Castle's encumbrances and the price abated to reflect the borrowing to be assumed.

Court's reasoning and conclusions: The court concluded that the Deputy Judge had misunderstood the nature of the hearing, treating it analogously to a default judgment procedure and thereby ignoring relevant pleaded material and correspondence which showed that the parties had always contemplated that The Castle and its associated borrowing would be extricated from Prestige and that the price for Prestige would be reduced to reflect the borrowing to be assumed in respect of The Jewel. The Court of Appeal held that debarment did not obliterate the Defence as a source of context for the issues to be tried; the Particulars of Claim, together with the Defence and correspondence, sufficiently pleaded the agreement. The Deputy Judge's orders had the unintended effect of transferring to the appellant a company encumbered by indebtedness which the parties had agreed would not pass to him without monetary adjustment. The Court therefore allowed the appeal, set aside specified paragraphs of the deputy judge's order and substituted an order requiring payment by the respondents of a quantified sum (subject to reduction if the bank restructures the borrowing) before transfer of shares and dealing with the Castle; it also ordered that costs of the Part 7 and Part 8 proceedings should follow the appeal result.

The appeal was allowed. The Court of Appeal held that the Deputy Judge erred in treating the hearing as if default-judgment mechanics could be applied and in failing to give effect to the pleaded intention that The Castle and its borrowing would be extricated from Prestige and that the purchase price of Prestige would be abated to reflect the borrowing to be assumed in respect of The Jewel. The court set aside parts of the deputy judge's order and substituted an order requiring the respondents to pay a specified sum (subject to reduction if the Bank of Cyprus restructured the borrowing) before transfer of the shares in Prestige and awarded costs of both Part 7 and Part 8 proceedings to the appellant.

Appeal from the order of Mr D. Donaldson QC, Deputy Judge of the Chancery Division (High Court of Justice) [2014] EWHC 725 (Ch). The proceedings included interlocutory orders by Henderson J (21 June 2013) and Hildyard J (9 August 2013) (the latter striking out the defence and debarment for non-compliance); a subsequent relief-from-sanction order by a deputy judge was set aside by the Court of Appeal on 13 December 2013, reinstating the earlier orders. The decision under appeal is [2015] EWCA Civ 41 (this judgment).