Defendants debarred from contesting a claim because they had failed to pay costs that had been ordered earlier in the proceedings have failed in an application for relief from sanctions.
Andrew Henshaw QC, sitting as a High Court judge, found that the failure to pay the costs had itself led to further costs being incurred that were also unpaid.
Consult II SRO and Ors v Shire Warwick Lewis Capital Ltd and Ors  EWHC 286 (Comm) was a €4.5m claim for fraudulent misrepresentation, conspiracy and breach of contract arising from currency trading transactions.
The costs order came from a hearing before Mr Justice Jacobs at which the defendants failed to discharge a freezing injunction. Three months later, by consent, Mrs Justice Moulder made the unless order.
The defendants failed to make any payment by the deadline and then Mr Justice Tear, in dealing with the claimants’ application to vary the freezing injunction in certain respects, added consequences to the defendants not applying for relief against sanctions by a certain date.
He also directed that any application for relief “be supported by a witness statement which is to include such documents as the defendants are able to supply copies of in relation to that application”.
Going through the Denton test, the defendants did not “seriously seek to contest” that their failure to comply with the unless order was serious and significant.
As to why the breach occurred, Mr Henshaw accepted that the applicable standard of evidence to explain the failure to comply “should be no lower than the standard that applies when the court decides whether to impose a sanction in the first place”.
Despite what Teare J had ordered, the defendant only supplied a single witness statement that contained no details of the defendants’ general financial position, save that the freezing injunction had caused great difficulty in accessing funds.
The defendants said they were trying to raise funds, but Mr Henshaw said they had failed, “by a considerable margin”, to provide any adequate explanation of the reasons why the costs order had not been satisfied, whether from their own assets or from third-party funding, “still less full and frank disclosure of such reasons”.
Finally, evaluating all the circumstances of the case, the judge said the failure to pay the costs order had hampered “the efficient conduct of the proceedings, seriously interrupting the flow of pleadings and thus progress towards trial”, and substantially and unreasonably increased the costs of the litigation.
Further, in all £203,000 in costs orders were unpaid; in addition to the £102,500 subject to the unless order, a further £75,000 directly or indirectly resulted from the failure to pay that order.
“Viewing the matter in the round, I conclude that relief from sanctions should not be granted. The defendants, having consented to the making of the unless order, have now been in breach of it for three months.
“No adequate explanation has been provided for the breach, nor full and frank disclosure made. On the contrary, such explanations as have been provided have been highly unsatisfactory… and almost completely unsupported by documentary evidence even on matters where it is probable that (were the account correct) documents would exist.
“The breach of the Jacobs costs order has delayed the litigation significantly and given rise to further costs, both of which constitute prejudice to the claimants.
“The defendants’ record of compliance with previous orders, in particular in relation to asset disclosure is poor.
“In all the circumstances, and even making allowance for the defendants’ lack of legal representation, it would not be just to grant relief from the sanctions imposed by the order of Moulder J.”
Mr Henshaw added that his provisional view was that the measures set out in Teare J’s order should also apply as a result.
Andrew Fletcher QC (instructed by Bryan Cave Leighton Paisner) for the third and fourth claimants and Perry Lewis (acting in person) for the first to fourth defendants. The first and second claimants did not appear and were not represented.