Kliers v Schmerler & Anor (Rev 2)

A defendant debarred from defending has no absolute right to cross-examine or make submissions. Subject to any earlier order, the trial judge retains a case-management discretion to permit participation where justice and the overriding objective require it. The discretion is fact-sensitive and must not allow a debarred party to advance a positive case or use the process oppressively.

In disputes involving an illegal purpose, the court may raise manifest illegality of its own motion. Relief is determined by the flexible, principled approach in Patel v Mirza, including the policy behind the illegality, other public policies and proportionality. Declaratory relief may therefore be granted where refusing it would preserve or encourage the illegality, particularly where the claimant acted under undue influence and undertakes to remedy the consequences.

The claimant sought declarations that her brother held the matrimonial home as nominee and bare trustee for her and her former husband, who had supplied the purchase money. Her brother had repeatedly failed to comply with disclosure orders and was debarred from defending. At the outset of trial, the court determined whether he could cross-examine the claimant and make further submissions.

After hearing the claimant’s uncontested evidence, the court considered the nominee trust, the parties’ respective beneficial interests, and the effect of an arrangement allegedly designed to obtain mortgage finance and housing benefit through misleading documentation. The central issues were the scope of participation after debarring, the parties’ common intention, and whether illegality barred declaratory relief.

1. Participation after debarring. The application to cross-examine and make further submissions was refused. A debarring order does not automatically determine whether participation is permitted in every respect. Subject to the terms of the order, the trial judge retains a residual case-management discretion, exercised consistently with fairness, justice, expedition and the overriding objective. The discretion is fact-sensitive. The pleadings may define the real dispute, but the debarred party cannot seek adjudication of its own positive case.
2. The alleged inconsistencies were slight and the proposed illegality issues arose from the claimant’s own evidence. Cross-examination risked harassment and intimidation and would not assist a just outcome. The solicitor could remain and assist later if specifically invited.
3. Trust and beneficial ownership. On the evidence, the first defendant was a bare trustee and nominee. A mortgage assumed by a nominee does not necessarily count as a contribution to the purchase price for the purpose of apportioning beneficial interests. The parties’ common intention governed the interests between the former spouses. Although financial contributions were not determinative, they were the best evidence here, supporting a 75 per cent interest for the claimant and 25 per cent for her former husband.
4. Illegality. Manifest illegality must be considered by the court of its own motion. Applying Patel v Mirza, the relevant matters included the policy behind the illegality, other public-policy considerations and proportionality. The illegal purpose did not bar declarations. The claimant had acted under undue influence, the parties were not on an equal footing, and refusal would leave the frauds and unlawful arrangements in place. The claimant’s undertakings to disclose the position and repay the mortgage and public benefits supported granting relief.
5. Declarations as to beneficial ownership were granted. Further directions were to address the property, repayment and disclosure to the relevant authorities.

The judgment describes repeated procedural orders, including the first defendant’s earlier debarring, conditional relief from sanctions, and a further debarring order made by Hildyard J on 23 April 2018. This was a first-instance determination of the claimant’s beneficial-ownership claim and the defendant’s participation at trial.