7th Nov 2008
The applicant (N), who was the defendant in the main proceedings, applied to discharge a judgment on admissions in respect of some of the claims and a judgment in favour of all the respondents (W) following his failure to comply with an unless order requiring him to give standard disclosure of documents. N had developed a drilling system incorporating technology that could be used in vacuum cleaners. A manufacturer (E) signed a non-disclosure agreement with N under which E was not entitled to disclose or use the design other than for inspection and testing. E concluded its relationship with N but nevertheless produced a vacuum cleaner incorporating N's technology. N brought an action against E alleging breaches of the non-disclosure agreement and E settled the claim in the sum of $17,774,000 in settlement. The central issue concerned the rights of W, each of whom had advanced money to N in connection with the development of the cyclonic technology, to shares in that settlement. N conceded that some of W had obtained interests in the first prototype of the vacuum cleaner by their investments, but continued to resist the other claims on the ground that they related to the development of subsequent prototypes not related to the proceeds of his dispute with E. N subsequently sought to withdraw those admissions on the ground that they undermined his bargaining position in relation to a proposed settlement of all the claims. N sought relief from sanctions under the CPR r.3.9 in order to have the opportunity of dealing on the merits with certain issues previously ordered to be tried. W submitted that the standard term letters, agreed with N, entitled them to an equity interest in N's assets, including a share of the E settlement which was, they asserted, an asset of N's business.
(1) In exercising its power to grant relief from sanctions, the court had to go through the circumstances listed under the CPR r. 3.9 in a systematic and structured way and to take all other relevant circumstances into account. When the sanction imposed had resulted in a default judgment, the court must also be satisfied that the defendant had a real prospect of successfully defending the claim. In the instant case, the question of what percentage one of the respondents (X) was entitled to was a triable issue which could not be resolved on an interlocutory basis. Secondly, the judgment entered had been for a specific sum and so whether N had an arguable defence had to be considered not only in relation to the question of liability, but also on the issue of quantum. (2) While N's failure to comply with the unless order arguably resulted from a breach of professional duty by his solicitors, he had nevertheless failed to comply with the order for disclosure of his dealings with the proceeds of the litigation and had demonstrated a generally unsatisfactory attitude towards the court proceedings. That had had little effect on W, but had deprived N of his opportunity to have his defence adjudicated upon at trial. However, N had no real prospect of establishing that the proceeds of the litigation against E were not assets of his business. W had agreed to an equity share in those assets and were therefore entitled to a specified portion of the net assets of the business as they stood at the time of the investment. (3) N could not go behind his admission that had effectively conceded W's construction of the letter agreements and there was no evidence to support N's contention that the non-disclosure agreement with E was only concerned with the rights to the first prototype. It would therefore not be right to set aside the judgment on the basis that N had lost a realistic chance of establishing that the litigation proceeds were not part of N's relevant business assets. (4) N had, however, lost the opportunity of disputing the size of X's share and of producing material relevant to the issue of quantum. The onus was on N to produce credible evidence of the deductions to be made from the starting point figure of £2,138,000. (5) The effect of granting the relief sought was that W risked losing the benefit of the judgment; however, the order could be varied to allow a trial on quantum and on the size of X's share on the condition that N make a payment into court or into a joint solicitors' account of the sum of £2,138,000. (6) The application to withdraw the admissions was refused. N had authorised his solicitors to concede some of the claims and withdrawal of the admissions would not restore his bargaining position.
Applications granted in part.
Where an application to discharge a default judgment failed to demonstrate a real prospect of successfully defending the claim, but judgment had been entered in a specific sum, whether the applicant had an arguable defence had to be considered not only in relation to the question of liability, but also on the issue of quantum. A variation of the order could be made to permit a trial on certain issues on the condition that an agreed sum be paid into court.