The Financial Conduct Authority v London Property Investments & Ors

A clear order debarring a defendant from defending a claim must generally be enforced according to its terms. It normally prevents adducing evidence, cross-examining witnesses or making submissions in order to challenge liability, whether or not the challenge is framed as testing evidential cogency rather than advancing a positive case.

A narrow residual case-management discretion may permit participation for purposes that do not amount to defending the claim, such as assisting the court to understand the claim, addressing the form of order after the substantive decision, or identifying errors in the judgment. A trial may be split where disclosure defaults have compromised preparation for quantum but liability can still be tried justly and proportionately within the existing trial window.

The Financial Conduct Authority brought proceedings under the Financial Services and Markets Act 2000 alleging unauthorised regulated activities, unlawful financial promotions and related unenforceability and restitutionary consequences concerning secured loans and sale-and-rent-back transactions.

Following repeated failures to comply with disclosure orders, the defendants’ defence was struck out and they were debarred from defending the claim. The court considered two applications at a pre-trial review: whether liability should be tried separately from quantum and certain remedial issues, and whether the debarred defendants should be permitted to cross-examine witnesses, address the evidence and make submissions.

1. Split trial. The defendants’ late and inadequate disclosure had materially prejudiced the FCA’s preparation, particularly on quantum. Liability could nevertheless be tried in the existing May window. Splitting the trial would allow the practicable issues to be determined promptly and was consistent with the overriding objective. The liability trial would be followed, if necessary, by an enquiry into profits, losses, restitution and remedial relief concerning the sale-and-rent-back agreements.
2. Effect of the debarring order. The order expressly struck out the defence and debarred the defendants from defending the claim. Such an order means what it says. The defendants could not participate in the ordinary way by adducing evidence, cross-examining the claimant’s witnesses or making submissions directed to liability. Cross-examination challenging the cogency of the claimant’s evidence was still part of defending the claim and could not be permitted.
3. Residual discretion. The narrow residual discretion identified in Times Travel v Pakistan International Airline Group [2019] EWHC 3732 (Ch), and approved in Hirachand v Hirachand [2021] EWCA Civ 1498, concerns participation that does not substantively defend the claim. It may include assistance in understanding the nature and extent of the claim, limited participation in framing the issues, submissions on the form of order after the substantive decision, or pointing out errors in the judgment. In an appropriate case, limited cross-examination may assist the court for those purposes.
4. The authorities did not establish an unrestricted discretion to allow a debarred defendant to test the claimant’s case. Kliers v Schmerler & Anor [2018] EWHC 1350 (Ch) was not applied to the extent it suggested otherwise. MMD Ltd v Wang Kai Lang [2021] EWHC 3264 (Comm) was distinguishable because the claimant consented to limited participation and the relevant order did not itself debar the defendant from defending.
5. The application to split the trial was granted. The participation application was refused in the form sought. The question of participation at any later quantum hearing was adjourned for determination by the trial judge if liability were established.

The judgment records procedural orders made by Deputy Master Bowles, Master Pester and Deputy Master Nurse, including the order striking out the defence and debarring the defendants from defending. This was a first-instance pre-trial review decision of the High Court.