Practice and procedure – Civil restraint order – Possession – Claimant lender executing possession warrant against defendant and selling property – Claimant issuing statutory demands to recover shortfall – Defendant seeking to set aside demands and commencing county court proceedings – Defendant making multiple applications in course of proceedings – Claimant applying for civil restraint order – Whether defendant satisfying criteria for making order – application granted
In 2015, the claimant made two short-term bridging loans totalling £2,150,000 to the defendant and his former wife. The loans were secured against their home by way of second and third legal charges. The defendant defaulted on repayment of the loans and possession proceedings were issued. A warrant of possession was executed by the claimant in November 2016 which then marketed the property for sale.
In December 2017, the defendant obtained an urgent without notice interim injunction in the county court, restraining the sale of the property. His underlying claim was, in essence, that the claimant had fraudulently delayed selling the property which had reduced substantially in value while the interest payable under the loans had correspondingly increased. The property was sold for £2.75 million in January 2018. The claimant claimed that a shortfall was due of some £2 million under the loans and issued statutory demands against the defendant.
In July 2018, the defendant applied to have those demands set aside on the grounds that the debt was disputed. Shortly before the hearing of the set-aside application, the defendant commenced county court proceedings seeking an order under section 140B of the Consumer Credit Act 1974 and claiming over £2.7 million plus interest against the claimant on the basis it had delayed the sale of the property in a fraudulent scheme to maximise the amount of interest accruing under the loans.
The set-aside application was adjourned pending the determination of the county court proceedings. Neither of those matters had been determined when the claimant applied for an extended civil restraint order (ECRO) or, alternatively, a limited civil restraint order (LCRO) against the defendant. The application was based upon a number of applications made by the defendant in the course of the insolvency and county court proceedings.
Held: The application was granted.
(1) The power to make a civil restraint order was contained in CPR rule 3.11 and Practice Direction 3C made pursuant to it. By paragraph 2.1 of the practice direction, an LCRO might be made “where a party has made two or more applications which are totally without merit”. An LCRO restrained a party from making any further applications in the proceedings in which the order was made without obtaining the permission of a judge identified in the order.
By paragraph 3.1 of the practice direction, an ECRO might be made “where a party has persistently issued claims or made applications which are totally without merit”. Where the ECRO was made by a High Court judge, it restrained the party from “issuing claims or making applications in the High Court or county court concerning any matter involving or relating to or touching upon or leading to the proceedings in which the order is made without first obtaining the permission of the judge identified in the order”.
(2) A claim or application was totally without merit if it was bound to fail in the sense that there was no rational basis on which it could succeed. It need not be abusive, made in bad faith or supported by false evidence or documents in order to be totally without merit, but if it was, that would reinforce the case for a civil restraint order. Persistence required at least three applications that were made totally without merit. However, the test was not merely numerical. Three such claims or applications were the minimum required for making an ECRO, but in each case the question was whether the party concerned was acting persistently which required an evaluation of the party’s overall conduct. It might be easier to conclude that a party was persistently issuing claims or applications which were totally without merit if it sought repeatedly to litigate issues which had been decided than if there were three or more unrelated applications many years apart. The latter situation would not necessarily constitute persistence: CFC 26 Ltd v Brown Shipley & Co Ltd [2017] EWHC 1594 (Ch) and Sartipy v Tigris Industries Inc [2019] EWCA Civ 225 followed.
When considering whether a party had made claims or applications that were totally without merit, the court was not confined to instances where a court had certified them as such. The court might also take into account any previous claims or applications that it concluded were totally without merit, provided that it was satisfied that it knew sufficient about the previous claim or application. In doing so, however, the court should not substitute its own views for those of the judge who heard the previous claim or application. The most important factor in the exercise of discretion was the threat level of continued issue of wholly unmeritorious claims or applications: Courtman (Trustee in Bankruptcy) v Ludlam [2009] EWHC 2067 (Ch) followed.
(3) In the present case, on the evidence, there were seven applications made by the defendant in the period September 2019 to May 2020 that were totally without merit, three of which were certified as such by the relevant judge. In considering whether that amounted to persistence, as required by paragraph 3.1 of practice direction 3C, in addition to the relatively small timescale within which those seven applications were made, the court took account of the fact that the applications included repeated attempts to re-open both the question whether the statutory demands should be set aside, notwithstanding the adjournment of the first set-aside application and the question whether the claimant should have permission to amend its defence. On four separate occasions the defendant had sought to commit directors of the claimant and/or its solicitors to prison. That had continued notwithstanding comments by the judge as to the considerable difficulty such an application faced and that the one application for committal pursued to a hearing was totally without merit.
Stepping back from the detail and considering the seven instances of applications that were totally without merit as a whole, the court was satisfied that they demonstrated a degree of persistence that justified the making of an ECRO which related specifically to applications in the county court proceedings and the insolvency proceedings which, although separate, both related to the same subject matter.
Dawn McCambley (instructed by Shakespeare Martineau) appeared for the claimant; The respondent appeared in person.
Eileen O’Grady, barrister
Click here to read a transcript of Central Bridging Loans Ltd v Anwer
