CFC 26 Ltd & Anor v Brown Shipley & Co Ltd & Ors

Factual and Procedural Background

This judgment concerns whether a civil restraint order ("CRO") should be made against the Defendant, who was added as the sixth defendant to the proceedings on 29 November 2016. The first and second defendants have applied for an extended civil restraint order ("ECRO"), which the Defendant resists.

The litigation arises from an underlease of a property referred to as Sofia House. The Defendant applied for an injunction on 10 October 2014 to restrain the Receivers from selling Sofia House; this was dismissed on 15 October 2014 with costs awarded against him.

The Defendant had issued a 2014 Claim involving the Receivers and Banks as defendants, but this claim was struck out on 19 January 2015 for failure to serve particulars of claim, with judgment entered for the counterclaimant and costs awarded against the Defendant.

On 10 February 2015, the Defendant sought to have the applications before Birss J re-listed and relief from sanctions, which was dismissed on 15 July 2015 by a Deputy High Court Judge, who also ordered the Defendant to pay costs on an indemnity basis and described the application as totally without merit.

At the same time, Company A, ultimately beneficially owned by the Defendant, issued a 2015 Claim against the Receivers and Banks but failed to provide security for costs, resulting in the claim being struck out.

On 25 February 2016, a 2016 Claim was issued on the basis that Company A and the Defendant had assigned their claims to Company B, also ultimately owned by the Defendant. The defendants in this claim were the Banks, Company C, and the Council.

The defendants applied for the claims against them to be struck out or for summary judgment. At the hearing, it was conceded that the assignment was ineffective, and Company A applied to be joined as claimant.

On 29 November 2016, the court dismissed the claims against the Banks and Company C and struck out the claims against the Council, certifying the claims as totally without merit. The court found that the Defendant was effectively controlling and supporting the litigation with a view to obtaining personal benefit and joined him as the sixth defendant for the purpose of considering a CRO application.

Legal Issues Presented

1. Whether an extended civil restraint order ("ECRO") requires at least three totally without merit claims or applications to have been made.
2. Whether a civil restraint order ("CRO") can be based wholly or partly on claims or applications made in the name of persons other than the subject of the CRO.
3. Whether, on the facts of the present case, it is appropriate to make an ECRO against the Defendant.

Arguments of the Parties

Appellant's Arguments

• The Defendant's counsel submitted that the term "persistently" in Practice Direction 3C implies that at least three totally without merit claims or applications must be made before an ECRO can be imposed.
• The Defendant argued that claims or applications made in the names of third parties should not be considered when deciding whether to impose a CRO against him.
• The Defendant contended that imposing an ECRO would be excessive, noting that he and his companies had legal representation and that CRO cases typically involve worse conduct than his.
• It was also argued that the Defendant had moderated his behaviour and posed no real risk of inappropriate conduct in the future.

Respondent's Arguments

• The first and second defendants contended that an ECRO should be imposed against the Defendant due to his persistent issuance of totally without merit claims or applications.
• The respondents argued that claims or applications made in the names of associated companies or entities controlled by the Defendant could be relevant to the CRO application.
• They submitted that the Defendant’s litigation conduct spanned multiple proceedings and that he had been effectively controlling the litigation with a view to personal benefit.
• The respondents noted the Defendant had not provided evidence to counter the application and relied on a witness statement indicating the Defendant’s persistence despite stress and hardship.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Courtman v Ludlam [2009] EWHC 2067 (Ch)	Defined "persistence" as requiring at least three wholly unmeritorious claims or applications for an ECRO.	The court adopted this interpretation, requiring at least three totally without merit applications for persistence under Practice Direction 3C.
Lilley v Euromoney Institutional Investor plc [2014] EWHC 2364 (Ch)	Confirmed that persistence requires more than two totally without merit claims or applications.	The court followed this authority to support the threshold for an ECRO.
Richards v Investigatory Powers Tribunal [2017] EWHC 560 (QB)	Accepted that at least three totally without merit claims or applications are necessary for persistence.	The court cited this as further support for the required threshold.
Connah v Plymouth Hospitals NHS Trust [2006] EWCA Civ 1616	Held that an ECRO targets litigants who issue unmeritorious claims or applications in more than one set of proceedings.	The court considered this but concluded that persistence also requires a minimum number of unmeritorious claims, not just spread across proceedings.
Swynson Ltd v Lowick Rose LLP [2017] UKSC 32	Emphasized the distinct legal personality of companies.	The court considered the principle when deciding whether claims made in companies’ names could be attributed to the Defendant.
Mephistopheles Debt Collection Service v Lotay [1994] 1 WLR 1064	Addressed the potential for circumventing civil restraint orders via associated entities.	The court used this to support looking beyond named parties to the real party behind litigation.
Attorney General v Flack (29 November 2000, Divisional Court)	Considered whether acts done by a company could be attributed to an individual controlling it for civil proceedings orders.	The court referenced this to justify considering the Defendant as the real party behind claims made by associated companies.
Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39	Established that a non-party who funds and controls litigation may be treated as the real party to it for costs and related orders.	The court applied this principle analogously to CROs, considering the Defendant as the real party behind the claims.

Court's Reasoning and Analysis

The court began by reviewing the legal framework under CPR 3.11 and Practice Direction 3C, which allows for three types of CRO: limited, extended (ECRO), and general.

The court considered the meaning of "persistently" in paragraph 3.1 of Practice Direction 3C, concluding that it requires at least three totally without merit claims or applications, consistent with the authorities in Courtman v Ludlam, Lilley v Euromoney, and Richards v Investigatory Powers Tribunal. The court rejected the submission that persistence could be established simply by unmeritorious claims spread over more than one set of proceedings without meeting the minimum number.

The court then addressed whether claims or applications made in the names of third parties could be considered in making a CRO against the Defendant. It recognized the principle of separate legal personality but also acknowledged established case law permitting courts to look beyond formal party names to the "real" party controlling or benefiting from the litigation. The court found that the Defendant had been effectively controlling and supporting the litigation through associated companies and was the real party behind the claims and applications.

The court identified at least three totally without merit applications and claims associated with the Defendant, including applications to re-list matters, appeals against orders, and claims in the 2016 proceedings. It concluded that the Defendant had persistently issued totally without merit claims or applications.

Regarding the Defendant’s argument against making an ECRO, the court noted the absence of evidence from the Defendant opposing the application and found that the Defendant’s own witness statement indicated a refusal to accept adverse outcomes and persistence in litigation despite stress.

Balancing all factors, the court determined that the Defendant’s conduct amounted to persistent vexatious litigation, justifying the imposition of a two-year ECRO.

Holding and Implications

The court MADE AN EXTENDED CIVIL RESTRAINT ORDER (ECRO) against the Defendant for a period of two years.

The effect of this order is that the Defendant is restrained from issuing claims or making applications related to the proceedings without first obtaining permission from a specified judge. This decision directly restricts the Defendant’s ability to continue vexatious litigation concerning Sofia House. No broader precedent beyond the application of established principles to the facts of this case was established.