Changtel Solutions UK Ltd v Tsai

An application to extend time for serving a defence is governed by CPR 3.9 where the application is made after the deadline. The court must assess the seriousness and significance of the default, whether there is a good reason for it, and all the circumstances, including efficient and proportionate litigation and compliance with court orders.

An application to vary a freezing order to release funds carries a burden of persuasion on the applicant. That burden may be assessed with substantial scepticism where the funds are arguably company property and there is an established risk of dissipation.

The liquidators of Changtel Solutions UK Ltd brought proceedings against its former sole director under sections 212, 213 and 214 of the Insolvency Act 1986. They sought recovery of nearly £35 million.

The respondent applied for further extensions of time to serve Points of Defence and for access to frozen funds to pay legal costs. He remained in breach of freezing orders and had previously been sentenced for contempt. The applications required the court to determine the applicable test for extending time and the principles governing variation of the freezing order.

1. The court refused both applications. Although the respondent’s continuing contempt raised a threshold question about whether he should be heard, the judge preferred to determine the applications on their merits. That approach was not intended to encourage other contemnors to seek relief while remaining in breach of court orders.

2. The application for an extension was made on 27 July 2017, after the deadline for serving Points of Defence. It was therefore an out-of-time application to which CPR 3.9 applied.

3. The failure was serious and significant. The defence was the next essential step in shaping the litigation, and there had already been substantial delay. No good reason had been shown. The matters requiring an answer were largely within the respondent’s knowledge and did not depend on unavailable documents.

4. Considering all the circumstances, including the need for efficient and proportionate litigation and compliance with court orders, it would not be just to extend time. The respondent’s conduct, including dishonesty in related proceedings and repeated breaches of orders, supported refusal of the extension.

5. The application to release a further £333,000 from frozen funds was also refused. Applying the principles summarised in Tidewater Marine v Phoenixtide Offshore Nigeria Limited [2015] EWHC 2748 (Commercial), the burden of persuasion lay on the applicant seeking variation. The court was entitled to approach assertions about other available assets with healthy scepticism.

6. The funds in the Hong Kong accounts were provisionally regarded as company money, and there was a real risk of dissipation. The respondent failed to establish that access to those funds was justified. Both applications were accordingly declined.