McTear & Anor v Engelhard & Ors (Rev 1)

The Court of Appeal considered whether the judge below had properly applied the principles governing relief from sanctions when he excluded the defendants' witnesses and refused to admit documents served shortly before trial. The court applied the guidance in Mitchell and Denton on relief from sanctions and held that the judge had erred by treating the 50-minute late service of witness statements and the late disclosure of documents as inextricably linked and by inferring deliberate impropriety from the defendants' method of disclosure. The court concluded that the 50-minute delay was trivial in the relevant sense, that the excuse (including the solicitor's bereavement) was not wholly devoid of explanation, that the late documents were largely confirmatory or already in the claimants' possession, and that exclusion of the defendants' evidence was disproportionate and prevented a fair trial. The appeal was therefore allowed, the defendants were permitted to call the excluded witnesses and to rely on the late documents, and a re-trial was ordered.

Background and parties:

The claimants were assignees of causes of action arising from the affairs of Broadland Wineries Limited (BWL). They alleged that a sum of 412,739.17 had been advanced by BWL to Engelhard Holdings Limited (EHL) and that a subsequent credit entry of 424,109.58 (the "Credit") improperly reduced the debt. The defendants (appellants) contended the payments were accruals of an agreed annual management charge of 450,000 and alternatively relied on set-off, estoppel and other defences. The claim involved alleged breaches of fiduciary duty, an improper exercise of management power contrary to paragraph 64(1) of Schedule B1 to the Insolvency Act 1986 and potentially voidable preference under sections 239-241 of the Insolvency Act 1986.

Procedural posture:

• The proceedings were issued on 24 February 2012. Following case management orders the defendants served witness statements 50 minutes late on 21 February 2014 and served a supplemental list of documents disclosing a number of items found after earlier disclosure was completed. The judge below (Deputy High Court Judge Spearman QC) refused relief from sanctions, excluded the late witness evidence and refused permission to rely on certain newly discovered documents and proposed re-amendments. The defendants appealed.

Issues framed by the Court of Appeal:

• Whether the judge had correctly applied the three-stage test for relief from sanctions as explained in Mitchell and Denton;
• whether the late service of witness statements and the late disclosure should have led to exclusion of the witnesses and documents;
• whether the judge was entitled to infer a deliberate plan to manipulate proceedings from the manner of disclosure;
• whether the exclusion prevented a fair trial and if a retrial was required.

Court's reasoning and decision:

The Court of Appeal (Vos LJ, Ryder LJ and Moore-Bick LJ) held that the judge had conflated the separate questions posed by CPR Part 32.10 (permission for calling a witness whose statement was served late) and the court's discretion under Part 31 and Part 31.21 to permit reliance on late-disclosed documents. The court applied Denton to explain that the seriousness of the breach must be assessed without, at the first stage, factoring in unrelated past defaults, and that at the third stage the court must consider all circumstances including the need to conduct litigation efficiently and to encourage compliance.

The appellate court considered the relevance and effect of the late documents and concluded they were largely confirmatory or already in the claimants' possession and would not have required adjournment or prevented the claimants from dealing fairly with them at trial. The 50-minute delay was trivial in context; the solicitor's bereavement provided some (imperfect) explanation; and there was insufficient evidence to infer deliberate impropriety. Because the allegations impugned the directors' integrity, exclusion of their evidence was disproportionate and risked denying a fair hearing. For these reasons the Court of Appeal allowed the appeal, permitted the defendants to call the excluded witnesses and to rely on the late documents, ordered a re-trial of all substantive issues and left any application to re-amend the defence to case management for the new trial.

Appeal allowed. The judge below erred in excluding the defendants' witnesses and treating the late service of witness statements and late disclosure as inextricably linked. Applying the three-stage test in Denton, the Court of Appeal concluded the 50-minute delay was trivial in context, the defendants offered at least some explanation, the late documents were largely confirmatory and their admission would not have required adjournment, and exclusion was disproportionate and precluded a fair trial. The defendants were permitted to call the witnesses and rely on the late documents; a re-trial of the substantive issues was ordered and permission to re-amend was left to case management for the new trial.

Appeal from Mr Richard Spearman QC sitting as a Deputy Judge of the High Court, Chancery Division (Case No: HC12C00705). First instance determinations comprised an ex tempore judgment on 7 March 2014, a reserved detailed judgment on 14 March 2014 dealing with relief from sanctions, and a further substantive judgment on 10 April 2014. The present appeal was heard in the Court of Appeal and allowed on 24 May 2016 ([2016] EWCA Civ 487).