McTear & Anor v Engelhard & Ors (Rev 1)

At the first stage of the Denton approach, the seriousness or significance of the particular breach must be assessed without treating unrelated defaults as aggravating it. Those defaults may be considered at the final, all-the-circumstances stage. Excluding material witness evidence for a short, non-disruptive delay is disproportionate where there is no deliberate attempt to subvert the process and the evidence may affect allegations impugning the witnesses’ integrity.

Late-discovered documents should not automatically be excluded as a sanctions issue. The court should decide whether reliance is fair in all the circumstances, including their relevance, the reason for late disclosure, and whether the opposing party can deal with them at trial.

The claimants, as assignees of claims formerly held by Broadland Wineries Ltd, alleged that payments to its parent company, Engelhard Holdings Ltd, were loans. The defendants contended that the payments were made on account of accrued management charges and also advanced an estoppel case.

Shortly before trial, the defendants served witness statements 50 minutes late and disclosed further documents found at home. The High Court refused relief from sanctions, refused permission to rely on the documents and re-amend the defence, and then determined the substantive claim without the defendants’ principal evidence.

The defendants appealed. The central question was whether their witnesses had been properly excluded, and whether the newly disclosed documents should have been admitted.

Appeals allowed. Vos LJ, with whom Ryder and Moore-Bick LJJ agreed, held that the defendants should have been permitted to call Michael, Sylvia and Mr Scarlett, and to rely on the new documents. A re-trial of all substantive issues was ordered before a new judge.

1. The judge had wrongly treated the late witness statements and late disclosure as inextricably linked. Under the three-stage approach in Denton, the 50-minute delay in serving the statements was neither serious nor significant. Other defaults could be considered only at the third stage, with all the circumstances.

2. The solicitor’s bereavement was a poor but not wholly absent excuse. More importantly, there was no evidential basis for inferring a deliberate plan to disrupt the litigation. The documents were of limited relevance to the pleaded dispute, were largely confirmatory or already likely to be available to the claimants, and could not have required an adjournment. Excluding the Directors’ evidence was disproportionate and unjust, particularly because the allegations impugned their integrity and the evidence could affect the result.

3. The defendants should have notified the claimants immediately after discovering the documents. However, the question was whether they should be permitted to rely on them fairly at trial, not solely whether relief from a sanction should be granted. They should have been admitted.

4. Whether the defence could be re-amended was remitted as a case-management issue. The court observed that set-off is generally a matter of law and that the existing plea that the debt was extinguished might already encompass it. The new trial must determine all issues afresh, without regard to the first-instance findings reached after the exclusion of the evidence.

• Court of Appeal (Civil Division): Allowed the appeal and ordered a re-trial before a new judge: [2016] EWCA Civ 487.
• High Court, Chancery Division: Mr Richard Spearman QC, sitting as a deputy judge, refused relief from sanctions for late witness statements, refused reliance on late-disclosed documents and refused permission to re-amend the defence. Following trial without the defendants’ principal evidence, he determined the substantive claims for the claimants.