Case: Derby &amp; Co Ltd v Weldon (Nos. 3 and 4) [1990] 1 Ch 65
Outcome: discussed
The contention of the applicant in the present case that the Court could debar the respondents from defending the proceeding, and strike out their defences, is based on a comment of Lord Donaldson of Lymington MR in Derby &amp; Co Ltd v Weldon (Nos. 3 and 4) [1990] 1 Ch 65 at 81. In that case, the English Court of Appeal was considering whether it was appropriate for a court to grant a Mareva -type injunction in respect of assets beyond the jurisdiction of the court. Relevant to that question was the question whether such an injunction could be enforced in any event. The Master of the Rolls said: 'in the context of the grant of the Mareva injunction, I think that a sufficient sanction exists in the fact that, in the event of disobedience, the court could bar the defendant's right to defend. This is not a consequence which it could contemplate lightly as it would become a fugitive from a final judgment given against it without its explanations having been heard and which might well be enforced against it by other courts.' Neill LJ at 87 and Butler-Sloss LJ at 96 expressed agreement with the judgment of the Master of the Rolls. Each went on to deal with the issues in the case, with Neill LJ at 95 expressing specific agreement with what the Master of the Rolls had said about enforceability. Butler-Sloss LJ did not comment specifically on that issue. It is unnecessary in the present case to debate the question whether barring the right to defend a proceeding falls within the range of penalties the Court could impose for contempt of court. Order 35A of the Federal Court Rules contains specific provisions about the powers of the Court in the event of default of a party in complying with an order. Order 35A r 2(2)(d) provides that a respondent is in default by failing to comply with an order of the Court in a proceeding. Order 35A r 3(2)(c) provides that, if a respondent is in default, the Court may: 'if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings -- give judgment against the respondent for the relief that: (i) the applicant appears entitled to on the statement of claim; and (ii) the Court is satisfied it has power to grant'. Order 35A r 3(2)(d) also provides that, if a respondent is in default, the Court may give judgment or make any other order against the respondent. Order 35A r 4 specifically provides that O 35A does not limit the power of the Court to punish for contempt. It must be the case, however, that, if the Court exercises its power to give judgment against a respondent, on the ground that the respondent has failed to comply with an order of the Court, and the giving of judgment has significant consequences for the respondent, those consequences could be taken into account as factors mitigating the exercise of the Court's powers to punish for contempt. 52 The contempt in this case is a serious one. It involved a significant sum of money, $73 987.57. As I have said, Ms Bell was well aware that an injunction had been granted, restricting her freedom of action in relation to the sale of the Mariners Place property, and her freedom of action to deal with the proceeds of sale if a sale were effected. She chose not to have regard to the terms of that order. She preferred to satisfy her obligations, or perceived obligations, and to spend the money for her own purposes, instead of complying with the injunction. In short, she preferred her own interests, and even her own whims, to her duty to comply with the injunction. The effect of the contempt on the administration of justice is also of major significance. If Ms Bell had complied with the injunction, the applicant would have been secure in the knowledge that he could bring the proceeding to its conclusion and, if he were to be successful, there would be a substantial asset available to satisfy the judgment and to augment the estate of the bankrupt, for the benefit of the bankrupt's creditors. There is now a powerful disincentive to the applicant in proceeding to a conclusion, because the execution of any judgment is much less likely to prove fruitful. This consequence can be ameliorated to some extent by exercising the power to give judgment summarily against Ms Bell, thereby saving the applicant from the need to expend further costs in the proceeding, but it still renders the proceeding largely fruitless for the applicant if, as appears to be the case, Ms Bell has no means of satisfying a judgment. The effect of the contempt, therefore, is to tilt the balance in the litigation heavily against the applicant. 53 There can be little doubt that a contempt of this magnitude, coupled with the degree of culpability of Ms Bell (amounting to wilful blindness as to the terms of the order, as I have said, and to preferring to satisfy her own needs and desires) would warrant a significant term of imprisonment. Only if there are powerful mitigating factors would it be appropriate to consider a course other than imprisonment as a minimum step. It is therefore necessary to turn to the mitigating factors. 54 Ms Bell claims that she did not understand the nature of the order and therefore that she did not intend to commit a breach of it or to demonstrate any disrespect for the Court. She has expressed her contrition for her failure to comply, and has apologised to the Court. I accept that she did not in fact understand the terms of the order, although they had been explained to her by her then counsel, and she was in possession of a copy of the order. Although I do not consider that the order is a particularly complex one, I can accept that legal terminology and drafting techniques can make an order less than wholly comprehensible to some people. 55 The fact is, however, as I have found, that Ms Bell did not pay any heed to the order at all. She did not take the trouble to read it in the context of the conduct of the auction of the Mariners Place property, or in the context of her disposal of the proceeds of sale. She did not provide the agent responsible for the sale, or the auctioneer, with the copy of the order that she had, either for the purpose of guiding their conduct, or for the purpose of seeking guidance from them as to her own. She did not seek advice from Kelly &amp; Chapman, who were then acting for her in the principal proceeding. She simply decided not to have regard to the order. Even when her contravention of it was pointed out to her, she took no immediate steps to remedy the contravention. Her initial explanation, in her affidavit of 21 September 2006, was anything but frank as to what had happened to the proceeds. It was necessary for me to make a further order on 25 September 2006, requiring Ms Bell to make an affidavit, explaining specifically the manner in which the sum of $73 987.57 had been expended. Even then, in her affidavit of 9 October 2006, she was vague about a number of the payments she had made. Both of these affidavits were prepared by her without legal assistance, which is a partial explanation for their inadequacy. Even when she swore her affidavit of 18 December 2006, prepared with the assistance of her pro bono lawyers, no further detail was provided. Only in her oral evidence, and under cross-examination, was further detail about the payments obtained. Her expression of contrition and her formal apology to the Court only came about after she had received the advice of her counsel as to the seriousness of her position.