Thevarajah v Riordan & Ors

Debarring a defendant from defending and striking out its defence does not automatically entitle the claimant to judgment or transform a trial into the default judgment procedure. The claimant must prove the pleaded claim and entitlement to the relief sought.

A struck-out defence cannot be relied upon by the defendant to resist the claim. The court may nevertheless consider it when identifying the ambit of the dispute, including admissions that have influenced the claimant’s pleadings. When granting specific performance, the court must implement the agreement proved as a whole. It cannot impose a materially different bargain by ordering only part of the agreed performance without necessary financial adjustments.

The appellant agreed to acquire interests in several public houses, including all the shares in a company owning two properties. One property and its associated borrowing were to be removed from the company. The purchase price was also to reflect borrowing attributable to the property which the appellant was acquiring.

The respondents breached an unless order. Their defence and counterclaim were struck out, and they were debarred from defending. At the subsequent trial, the deputy judge ordered transfer of the remaining shares and the excluded property, but allowed only £72,000 to the appellant and denied any further payment. That decision was reported as [2014] EWHC 725 (Ch).

The central issues were whether the hearing had been treated incorrectly as analogous to a default judgment procedure, whether the struck-out defence could be consulted to identify the dispute, and whether the pleadings supported the financial adjustments required to implement the parties’ agreement.

1. Appeal allowed. Tomlinson LJ, with whom Newey J and Richards LJ agreed, held that the deputy judge had conducted a trial. The appellant was required to prove the pleaded claim and entitlement to relief. The respondents’ debarring and the striking out of their defence did not confer an automatic entitlement to the orders sought or create a trial process analogous to default judgment.

2. The procedure for judgment without trial under Rule 3.5 of the Civil Procedure Rules 1998 was unavailable because the relief extended beyond the remedies specified in Rule 3.5(2). An application under Rule 3.5(5) could produce judgment without trial, but the parties and court had recognised that the appellant’s substantive entitlement required judicial determination. Part 12 and Rule 12.11 were likewise inapplicable.

3. Although the respondents could not rely upon their defence to contest the claim, the document had not ceased to exist for every purpose. The court and the appellant could use it to understand the ambit of the dispute and the matters admitted. Otherwise, striking out a defence could perversely increase the claimant’s burden by removing admissions on which the preparation of the claimant’s case had depended.

4. On a fair reading, the particulars of claim sufficiently alleged that the appellant would acquire the relevant property free from the unwanted encumbrances, or would receive an adjustment reflecting the borrowing he assumed. They also alleged that the excluded property and its associated indebtedness were to be removed from the company. The defence, correspondence and other documents confirmed that these matters had been common ground.

5. The deputy judge had therefore implemented only part of the agreement and imposed liabilities which the appellant had never agreed to bear. Proper implementation required both transfer of the remaining shares and payments reflecting the relevant borrowing. The court substituted orders requiring payment of £2,204,976.40, subject to adjustment if the bank restructured the borrowing, together with provision for transfer or sale of the excluded property.

6. The deputy judge should also have determined the costs of the related Part 8 proceedings. Those proceedings were neither superfluous nor unnecessary. The appellant was awarded the costs of both the Part 7 and Part 8 proceedings.

1. Court of Appeal (Civil Division): The appeal was allowed. Parts of the deputy judge’s order were set aside and substituted with orders for share transfer, payment and consequential treatment of the excluded property.

2. High Court, Chancery Division: A deputy judge ordered transfer of the remaining shares and the excluded property, repayment of £72,000 and no further payment: [2014] EWHC 725 (Ch).

3. Earlier procedural stages: Following non-compliance with an unless order, the respondents were debarred from defending and their defence and counterclaim were struck out. An order granting relief from sanction was subsequently set aside by the Court of Appeal, restoring the debarring and striking-out orders.