Buchanan v Metamorphosis Management Ltd & ors
Although the late service of a defence was always a serious matter, a 15 day delay where the defendant was going through the turmoil of a creditor's voluntary liquidation did not require a sanction and an extension of time for service would be granted.
The claimant applied for judgment in default of a defence against the fourth defendant, a company in liquidation. The fourth defendant, by its liquidators, applied for an extension of time to serve its defence and for a stay of the proceedings.
The claimant was a singer-songwriter and claimed damages against the defendants for alleged breaches of duty in relation to her participation in and departure from a band known as the Sugababes. The fourth defendant had provided administration services to artist managers in the music industry. Around the time that its defence was due to be served the fourth defendant's director, the third defendant, had instructed insolvency practitioners to assist in placing the company in creditor's voluntary liquidation. The liquidators on behalf of the fourth defendant served its defence 15 days late.
The fourth defendant argued that it should be granted an extension of time to file its defence and that the proceeding should be stayed because it would be bound by any decision against the other defendants, there were no assets in the company to fund the litigation and the liquidator was prepared to undertake to provide discovery and be bound by any findings of fact.
(1) The right approach was to equate an application for an extension of time to an application for relief from sanctions, R. (on the application of Hysaj) v Secretary of State for the Home Department  EWCA Civ 1633 followed. That approach would apply to extensions of time for filing a defence. Where a party had failed to serve a defence within the time permitted by the CPR or an agreed extension, it was necessary to satisfy the three-stage test in Denton v TH White Ltd  EWCA Civ 906, Denton applied. Late service of a defence was serious; there was a fundamental obligation to serve pleadings on time, but there were grades of seriousness. Service of a defence 15 days late was at the lower end of the scale and was something to be taken into account when looking at the overall circumstances. There was an explanation for the lateness. The fourth defendant had been going through turmoil when the creditor's voluntary liquidation had been proposed. There must have been a degree of uncertainty and it was always difficult for a director to decide how to proceed when his company was about to be wound-up. It did not appear to be a clever move to try to avoid a director's loan being called in. Looking at all the circumstances, the delay was a short period which did not really affect the litigation. If not for the proposed liquidation an extension of time would have been obtained. It was not necessary to mark the conduct by a sanction. An extension of time was granted and judgment in default of defence was refused.
(2) Under the Insolvency Act 1986 s.112 the court had a discretion to order a stay of proceedings. The matter was seriously contested, so the normal course would be to not order a stay, Currie v Consolidated Kent Collieries Corp  1 K.B. 134 followed. There were unusual factors; it was not simply a case against a company in liquidation, there were other companies and a director who would have to defend the action. The liquidator had not satisfied the burden of establishing that a stay should be granted.