Smailes & Anor v McNally & Anor

Relief from an unless-order sanction requires the court to apply the three-stage approach in Denton v TH White Ltd: assess seriousness and significance, identify the reason for default, and evaluate all the circumstances. The court must examine the whole scope of the breaches relied upon. A defective electronic disclosure process may constitute a serious and significant failure where a substantial body of documents remains unexamined and its reliability is unproved. Repeated disclosure failures, delay, increased costs and the need to enforce compliance may justify refusing relief, even where individual defects could be cured.

The joint liquidators of Atrium Training Services Ltd and Kimberley Scott Services Ltd sought relief from the automatic strike-out sanction imposed by an unless order made by Henderson J. The order required a fresh search and compliant disclosure under CPR Part 31. Birss J later held that the liquidators had sufficiently complied, but the Court of Appeal allowed the respondents’ appeal because the scripts had not been found by a reasonable search and declared that the proceedings had been struck out: [2014] EWCA Civ 1047.

The present application concerned the scripts, deficiencies in the disclosure list, and an alleged failure in the OCR and keyword-search process. The central issues were the scope and seriousness of the breaches and whether relief was just under CPR r.3.9.

1. The application for relief from sanctions was dismissed. The court assessed all breaches relied upon, including the OCR issue, omission of the scripts and bank statements, and non-compliance with CPR r.31.10.

2. The court applied the three stages in Denton v TH White Ltd. The scripts omission was serious but, standing alone, not significant and would have attracted conditional relief. The inadequate descriptions in the disclosure list were serious and significant but readily curable.

3. The OCR process left 86,055 documents physically unexamined. The evidence did not establish that keyword searches reliably identified disclosable material. Applying CPR r.31.7(2), the court held that a reasonable search had not been completed and that this breach was both serious and significant.

4. There was no satisfactory explanation for failing to expand the manual review or seek an extension. The gravity of the allegations, the sums claimed, the age of the proceedings, the freezing relief obtained, and the serial history of disclosure failures weighed against relief. The proceedings had been conducted inefficiently and at disproportionate cost.

5. Following P & O Nedlloyd BV v Arab Metals Co, an order set aside on appeal ceases to have effect and cannot create an issue estoppel. Birss J’s order therefore supplied no issue estoppel and no basis for judicial comity.

1. Court of Appeal allowed the respondents’ appeal from Birss J’s decision and declared that the proceedings had been automatically struck out for failure to comply with the unless order: [2014] EWCA Civ 1047.

2. High Court (Chancery Division) dismissed the subsequent application for relief from sanctions.