Michael Wilson & Partners Ltd v Sinclair & Ors

A court may, under its inherent jurisdiction, make payment of unpaid interim costs the condition of a party continuing to defend proceedings. The discretion requires consideration of all relevant circumstances, including the policy of encouraging responsible litigation, the availability of effective enforcement, and the risk of denying access to justice under Article 6 of the European Convention on Human Rights.

A party relying on inability to pay must provide detailed, cogent and frank evidence of its financial position and its ability to raise funds. Where enforcement is unlikely to be effective and that evidence is absent, an unless order will ordinarily be appropriate. Equitable set-off requires mutual debts between the same parties and cannot rest on a general assessment of fairness across related disputes.

MWP brought the Max and Temujin Actions against Mr Sinclair and Sokol. In the Max Action it alleged, among other matters, wrongdoing connected with Max Petroleum shares and a payment made during a transaction in which MWP had acted.

MWP applied for an unless order after the defendants failed to pay costs and interest totalling £1,173,111.53, principally arising from their unsuccessful strike-out litigation. It also sought disclosure pursuant to an earlier case-management order. The defendants relied on alleged inability to pay, MWP’s financial position and enforcement obligations arising from related arbitration proceedings.

The court had to decide whether non-payment should bar the defendants from defending the Max Action, and whether they were obliged to comply with the outstanding disclosure order.

1. The unless order application was granted in respect of the Max Action. The court’s inherent jurisdiction permits a sanction for failure to pay an interim costs order. The discretion is exercised in light of the purpose of immediate costs orders: discouraging irresponsible interlocutory litigation and preserving the effectiveness of the costs sanction. The approach in Crystal Decisions UK Limited v Vedatech Corp [2006] EWHC 3500 (Ch) and Musion Systems v Activ8-3D [2012] EWPCC 5 supported that conclusion.

2. The defendants had not provided detailed, cogent and frank evidence that they could not pay. Such evidence had to address both available resources and realistic prospects of raising funds. They were outside the jurisdiction, their English assets were not established in value, and effective execution was therefore remote. Article 6 was not engaged on the evidence.

3. The defendants could not resist the order by setting the costs debt against MWP’s obligations to Mr Emmott or by invoking a broad notion of fairness. Equitable set-off requires debts between the same parties. Nor could the trial court revisit the Court of Appeal’s conclusion that the arbitral liability award did not render the Max Action an abuse of process.

4. Unless Mr Sinclair and Sokol paid £1,173,111.53 within 28 days, they would be debarred from defending the Max Action. The court did not extend that order to the Temujin Action at that stage, because the application notice sought only relief concerning the Max Action and no sufficient justification for wider relief had been advanced.

5. The disclosure application succeeded. Having failed to use the liberty to apply under Flaux J’s order, the defendants were obliged to disclose documents within MWP’s schedule that had not already been disclosed in the specified prior proceedings. They could identify previously disclosed documents by reference to earlier disclosure lists.

This was a first-instance decision on interlocutory applications.

• Supreme Court: the judgment records that a petition for permission to appeal from the Court of Appeal’s decision in the Max Action was dismissed on 5 September 2017.
• Court of Appeal: the judgment records that MWP’s appeal against Teare J’s strike-out order was allowed, restoring the Max Action and producing the principal costs orders at issue.
• High Court: Teare J had struck out the claims concerning the shares and payment as an abuse of process; that order was subsequently set aside on appeal.