Michael Wilson & Partners Ltd v Sinclair & Ors

Factual and Procedural Background

The appellant, Company A, brought proceedings in the Commercial Court relating to a transaction involving the acquisition and resale of interests in certain oilfields by Company B, ultimately to Company C. Company A alleged that certain shares were issued and payments made for the benefit of a former director of Company A in breach of contractual and fiduciary duties, or as secret commissions, and that Company B and its managing director procured these breaches knowingly. Company B and the managing director denied the claims and counterclaimed for alleged negligence.

Due to an arbitration clause, Company A's claims against the former director were pursued in arbitration, where the former director admitted to accounting for a portion of the payments but the tribunal rejected other claims. Following the tribunal's findings, Company B and the managing director applied to strike out parts of Company A's claims in the court proceedings as an abuse of process, which was granted by the trial judge.

Company A was ordered to pay sums on account of costs and sought permission to appeal the strike-out order, also applying for a stay of execution of the costs order. Company B and the managing director cross-applied for security for costs and to set aside the grant of permission to appeal.

The appeal court judge ordered Company A to pay specified sums by certain deadlines, failing which the appeal was to be stayed. Company A failed to comply with these deadlines, resulting in an automatic stay of the appeal. Company B and the managing director requested the appeal be struck out. Company A applied to lift the stay, which was refused by the judge, who also struck out the appeal. Company A sought reconsideration, which was again refused.

Following a subsequent Court of Appeal decision clarifying the principles applicable to relief from sanctions, Company A applied under CPR rule 3.1(7) for revocation of the order refusing relief from sanction and for a fresh decision. The court considered whether to exercise its discretion to revisit the earlier order in light of the clarified legal principles and the circumstances of the case.

Legal Issues Presented

1. Whether the court should exercise its discretion under CPR rule 3.1(7) to revoke an earlier order refusing relief from sanction and striking out the appeal.
2. Whether the refusal of relief from sanction was correct in law, particularly in light of the restatement of principles in Denton & Others v TH White Ltd as opposed to Mitchell v News Group Newspapers Ltd.
3. Whether the sanction of striking out the appeal was proportionate and justified given the nature of the breach and the procedural history.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Tibbles v SIG plc [2012] EWCA Civ 518	Principles governing the exercise of discretion under CPR rule 3.1(7) to vary or revoke court orders.	Guided the court on the rarity and exceptional nature of revisiting final orders and the importance of finality, two bites at the cherry, and appeal concepts.
Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537	Guidance on relief from sanction under amended CPR rule 3.9, emphasizing the paramount importance of efficient litigation and enforcing compliance.	The court found the earlier judge had applied Mitchell as a "game-changer" treating the factors as paramount, which was later corrected.
Denton & Others v TH White Ltd [2014] EWCA Civ 906	Restatement and clarification of relief from sanction principles under CPR rule 3.9, requiring consideration of all circumstances, not just paramount factors.	The court applied Denton to conclude the earlier refusal of relief was wrong because it failed to consider all circumstances and overemphasized certain factors.
Global Torch Ltd v Apex Global Management Ltd and Others (No.2) [2014] UKSC 64	Sanction of strike-out as a last resort and the importance of giving parties every opportunity to comply before imposing such sanction.	Supported the view that strike-out should not follow directly from a stay without an intervening unless order and opportunity to comply.
Summit Navigation Ltd v Generali Romania Asigurare Reasigurare SA [2014] EWHC 398 (Comm)	Distinction between stay pending compliance with security for costs and strike-out sanctions; stays are generally temporary, strike-outs permanent.	Used to illustrate that the stay ordered was intended to be temporary and that relief from sanction should be granted on that basis.
Walsham Chalet Park (t/s The Dream Lodge Group) v Tallington Lakes Ltd [2014] EWCA Civ 1607	Distinction between imposing a sanction and granting relief from that sanction, with proportionality assessed differently.	Emphasized that relief from sanction applications must assume the sanction was properly imposed and consider proportionality separately.
Taylor v Lawrence [2002] EWCA Civ 90	Principles on finality and re-opening of appeals.	Referenced to explain that the order refusing relief was not a final determination and subject to constraints on reopening.

Court's Reasoning and Analysis

The court analysed the application to revoke the earlier order refusing relief from sanction by first considering whether the circumstances justified revisiting the order under CPR rule 3.1(7). It acknowledged the principles from Tibbles emphasizing finality and the rarity of such revocation, but found the circumstances truly exceptional due to a significant change in the law following the Denton decision.

Applying Denton's three-stage test for relief from sanction, the court found the breach of the order was significant or serious and there was no good reason for the breach, as Company A deliberately chose to pay other creditors instead of complying. These findings aligned with the earlier judge's conclusions under Mitchell.

The critical difference arose at the third stage, where Denton requires consideration of all circumstances to deal justly with the application, not just the paramount factors emphasized in Mitchell. The earlier judge had treated the need for efficient litigation and enforcement of compliance as determinative, neglecting other relevant factors.

The court also noted that the original sanction imposed by the appeal court judge was a stay rather than a strike-out, a distinction of fundamental importance. Strike-out is a last resort sanction and requires prior opportunity to comply via an unless order, which had not occurred here. The subsequent strike-out order was therefore a strong step beyond what was contemplated.

Considering all circumstances, including the delay in payment, the absence of prompt application for relief, the lack of serious prejudice to respondents, and the importance of the appeal issue, the court concluded that relief from sanction should have been granted. The refusal was thus a wrongful exercise of discretion.

Accordingly, the court exercised its discretion under CPR rule 3.1(7) to revoke the earlier order and to make a fresh decision allowing relief from sanction and lifting the stay, permitting the appeal to proceed on terms.

Holding and Implications

The court’s final decision was to REVOKE the order of the judge refusing relief from sanction and striking out the appeal, and to GRANT RELIEF FROM SANCTION by lifting the stay of the appeal, thereby allowing the appeal to proceed.

The direct effect is to reinstate Company A’s appeal, subject to terms as to costs to be determined separately. The decision does not establish new precedent but applies and clarifies the proper approach to relief from sanction following the authoritative restatement in Denton. It underscores the importance of considering all circumstances and the proportionality of sanctions, particularly distinguishing stays from strike-outs. The ruling also highlights the exceptional nature of revisiting appellate orders under CPR rule 3.1(7), emphasizing finality but allowing flexibility where there is a significant change in legal principles and a risk of serious injustice.