{"id":821907,"date":"2026-05-03T06:05:16","date_gmt":"2026-05-03T04:05:16","guid":{"rendered":"https:\/\/kohenavocats.com\/jurisprudences\/micheal-ors-v-phillips-ors\/"},"modified":"2026-05-03T06:05:16","modified_gmt":"2026-05-03T04:05:16","slug":"micheal-ors-v-phillips-ors","status":"publish","type":"kji_decision","link":"https:\/\/kohenavocats.com\/ru\/jurisprudences\/micheal-ors-v-phillips-ors\/","title":{"rendered":"Micheal & Ors v Phillips & Ors"},"content":{"rendered":"
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A. Introduction 1. There is before the Court an application by the Claimants for an Order striking out the First and Second Defendants\u2019 Defence and Counterclaim in accordance with the provisions of an Unless Order dated the 14th October 2016 and an Order debarring those Defendants from defending the claim. There is, moreover, an application by the Claimants for an order that the First and Second Defendants permit the Claimants and their experts to inspect the Defendants computer systems in order to search for and take copies of electronic documents. For their part the Defendants have applied for permission to amend their Defence and Counterclaim and they seek relief from sanctions. B. Outline of Facts 2. In order to understand the case it is necessary to summarise albeit briefly the relevant facts. On the 23rd December 2010 Havering Radio Cars UK Limited (\u201cHRC\u201d), the Third Claimant, entered into an agreement (\u201cthe Management Agreement\u201d) pursuant to which A1 Group (UK) Limited (\u201cA1 Group\u201d), the Second Defendant, agreed to provide certain services to HRC. Pursuant to this Management Agreement the First and Second Claimants, Mr and Mrs Micheal, were to be paid monthly salaries (\u00a32,919, and \u00a32,667 respectively) and shareholder payments of \u00a36,000. Further A1 Group agreed to provide certain management services set out in Schedule 1 to the Agreement. The First Defendant, Mr Phillips, assumed day-to-day control of HRC and pursuant to Clause 3.5 of the Management Agreement, was to be appointed a director thereof. A1 Group was entitled to fees equal to the net profits of HRC after payment of wages, shareholder payments, expenses and costs. The Agreement terminated for cause or on 31st May 2011. In addition a Purchase Option Agreement was entered into between Mr and Mrs Micheal, and A1 Group, pursuant to which A1 Group was granted an option to compel Mr and Mrs Micheal to sell their shares within the Option Period or upon delivery of specified notices. The price, as defined in Heads of Terms, was \u00a31.94m. An Option Expiry Date of the 31st May 2011 was provided for. 3. It is common ground that the First Defendant, Mr Phillips, assumed control of HRC by no later than the 3rd January 2011. It is also common ground that although provided for in the Management Agreement Mr Phillips was never formally appointed as a Director of HRC. There is no dispute that he, nonetheless, controlled and directed the business of HRC. 4. The nub of the dispute concerns the minicab business run by HRC from its premises at 142 South Street, Romford. HRC was incorporated on the 26th September 2009 by Mr and Mrs Micheal who are 50% shareholders each. Mr Micheal had run a number of minicab businesses in the area over the course of the previous three decades. In 2010 Mr Micheal decided to sell the HRC business to Mr Phillips who also operated and owned minicab businesses in the locality. Mr Phillips incorporated A1 Group to implement the purchase. It was agreed that the business would be acquired through the payment of instalments generated from the profits of HRC. This was the context in which the Management Agreement and the Purchase Option Agreement were entered into. 5. It is the Claimants\u2019 case that even though these Agreements terminated on the 31st May 2011 the parties continued to conduct themselves as if the Agreements remained in place. The First Defendant, Mr Phillips, continued to operate and control HRC and Mr and Mrs Micheal continued to receive salaries and shareholder payments. This continued whilst they attempted to negotiate the terms of a new arrangement. 6. It is also the Claimants\u2019 case that in the course of such further ongoing negotiations Mr Phillips and his wife, who subsequently became the Third Defendant, acquired the freehold of 142 South Street from the then owner Mr Marks. Mr Micheal had been in discussion with Mr Marks since about 2009\/2010 and it is the Claimants\u2019 case that it was duly agreed that Mr Phillips could acquire the freehold in Mr Micheal\u2019s place upon condition that if the share sale did not proceed to completion Mr Phillips would transfer the premises to Mr Micheal for the price that he had paid for it. Upon this basis the Claimants allege that Mr and Mrs Phillips hold the freehold on trust for them. It is, in any event, the Claimants\u2019 case that HRC had a protected tenancy of 142 South Street and was always in actual occupation. 7. A dispute arose as to the performance by Mr Phillips of his obligations pursuant to the Management Agreement. In June 2014 Mr Phillips ceased making shareholder payments to the Claimants. On the 29th August 2014 the Claimants\u2019 solicitors terminated the Management Agreement, or whatever alternative agreement said to be similar in effect that had operated in the interim. The Claimants sought delivery up of HRC and its assets and documents. The Defendants ignored the demand. C. The Claim 8. A Particulars of Claim was issued on the 15th October 2014. It is helpful, in order to place the present dispute into context, to provide a short summary of the allegations contained within the pleading. It is possible to group the allegations into a series of claims. 9. The first set of claims concern 142 South Street. It is alleged that whilst acting as de facto Director of HRC Mr Phillips acted in breach of duty by failing to convey the freehold to the Claimants and he held the property on constructive trust for the Claimants. It is also alleged that in breach of director\u2019s duties the First Defendant made payments relating to 142 South Street using money belonging to HRC in circumstances where Mr Phillips was seeking the benefit of 142 South Street for himself and not for HRC. It is also pleaded that in breach of duty Mr Phillips procured HRC to pay rent to Mr and Mrs Phillips disguising the nature of the rents in the books as rates demands. Moreover it is contended that in further breach of duty Mr Phillips granted a tenancy or sub-tenancy to a Mr Barker at a rent of \u00a37,000 per annum which was not in the best interests of HRC but was in the best interests of Mr Phillips. It is thus alleged that in acquiring the freehold, by becoming the landlord of HRC and in fixing a rent to be paid by HRC the First Defendant placed himself in a position of conflict of interest with HRC at common law and\/or contrary to section 175 Companies Act 2006. 10. The second set of claims concern the alleged amalgamation and mixing of assets. It is alleged that the First and Second Defendants amalgamated the taxi operations into a single business with the consequence that HRC\u2019s business was mingled with the interests of Mr Phillips and was effectively appropriated by him. This was, it is said, in breach of his duty as a director of HRC and was a breach of the Management Agreement or such other agreement as existed and governed relations between the parties. 11. The third set of allegations concerns the abandonment of the A1 name and the loss of goodwill attached to it and\/or the transfer of the goodwill to the First Defendant or his other companies. This is said to have been a breach of the First Defendant\u2019s director\u2019s duties and\/or of the Management Agreement or other alternative agreements. 12. The fourth set of allegations concern the diversion of bookings from HRC by the First and Second Defendant to the benefit of the First Defendant personally or to the benefit of companies run by or under the control of the First Defendant. 13. The fifth set of allegations concern the misappropriation or misuse of valuable telephone numbers belonging to HRC which customers used to book taxis or place business and which were diverted to the First Defendant\u2019s own business interests. Related allegations concern an averment that Mr Phillips also appropriated valuable domain names and email addresses. 14. The sixth set of allegations concern the unauthorised sale by the First Defendant of assets, such as radios and data-heads, belonging to HRC the proceeds of which were, it is said, then diverted to the benefit of Mr Phillips. 15. On the 12th November 2014 the First and Second Defendants served a Defence and Counterclaim. Subsequently they have served a draft pleading which contains amendments. There has, as of the date hereof, been no ruling on the application for permission to amend the pleading. However, assuming for the sake of argument that permission were granted, the defence of the First and Second Defendants is a combination of admissions of unavoidable facts and denials of all substantive allegations. In particular, Mr Phillips and A1 Group contend that many of the acts or omissions complained of by the Claimants were, in fact, consented to by the Claimants. Further it is denied that Mr Phillips was ever a director of HRC and it is denied that the Management Agreement was relevant after its formal termination. It is said that the Defendants have a good defence to the claims. D. Events Following the Issuance of the Claim 16. Upon the termination of the purported Management Agreement in August 2014 the Claimants\u2019 solicitors sought delivery up of the property and documents of HRC and the repatriation of certain telephone numbers and websites and the repossession of 142 South Street. Undertakings were sought in relation to the control of HRC and its affairs but these demands were ignored by the Defendants. In consequence the Claimants applied for injunctive relief. On the 10th November 2014 Flaux J ordered the First and Second Defendants to provide information about telephone numbers and to transfer those numbers and email addresses and domain names back to HRC. Further the First and Second Defendants were ordered to deliver up HRC\u2019s VAT, tax and other accounting records and not to interfere with the business of HRC. The deadline for compliance was in some instances forthwith and in others within 7 days. Paragraph [6] of the Injunction is of particular significance. Pursuant to this the First and Second Defendants were ordered to \u201c\u2026 preserve, keep safe and not destroy or damage until trial or further order\u201d: \u201cAll electronic files and associated computer hardware within their possession or control containing information and data belonging to the Third Claimant, including all and any emails sent or received for and on behalf of the Third Claimant held on any severs. The books, accounting records and bank statements of the Second Defendant and those of any other company or concern under the control of the First Defendant.\u201d 17. The Defendants, and their solicitors, were well aware of the importance of retaining electronic files and data. On the 4th March 2015 solicitors then acting for the Defendants, in a letter dealing with disclosure matters, stated and represented the following about retention of electronic data and files: \u201cWe confirm that our client has retained all electronic files and data that was stored within the Second Defendant\u2019s computer system and will be kept safe and will not be destroyed pending the finalisation of the trial or further Order.\u201d 18. Subsequently on the 14th November 2014, just days after service of the Defendant\u2019s Defence and Counterclaim, Simler J granted an injunction requiring the First and Second Defendants to refrain from interfering from the business of HRC or occupation of 142 South Street. 19. In the early part of 2015 settlement discussions occurred but were unfruitful. On the 5th April 2016 Master Eastman, at a CMC, gave directions to trial. He granted permission to join Mrs Phillips as a Third Defendant. He gave directions for standard disclosure of documents by list by the 17th June 2016 with inspection on the 1st July 2016. Witness statements were to be exchanged by the 26th August 2016 and permission for expert forensic accountants to be instructed was given with reports to be exchanged by the 18th November 2016. A joint report was to be filed by the same date. The case was set down for trial for six days. It has now been listed in a window between the 27th February 2017 and the 6th March 2017. E. The Unless Order 20. I turn now to summarise the events leading up to the making of the Unless Order. It is the Claimants\u2019 case that the First and Second Defendants failed to give proper disclosure as required by the Order of Master Eastman. On the 25th August 2016 the Claimants issued an application for unless orders requiring the First and Second Defendants to give specific inspection and disclosure and for further directions to adjust the timetable. At that point in time the position of the Claimants was that the Defendants disclosure list was remarkably short and inadequate. It contained just 33 documents. The descriptions of the documents varied from the quite specific to the very general. The Claimants also complained that the First and Second Defendants had not conducted a proper search for documents created before \u201cthe dispute began\u201d. The relevant period which the Claimants said governed disclosure, and which was ultimately obtained in the Unless Order, was the 1st January 2010 (when negotiations for the sale of HRC began) until November 2014 (when control was returned to the Claimants). It was also said that the list omitted documents that had been disclosed earlier pursuant to the Order of Flaux J of the 10th November 2014. Next it was complained that the list failed to identify documents that were once in the possession of the Defendants but which were no longer in their possession; nor was there any explanation of what had become of those documents. It was also complained that the Defendants had failed to give inspection of relevant conveyancing files. 21. The Defendants ultimately agreed to the applied for unless order without the need for a hearing having earlier, in correspondence, described the application as \u201c\u2026 misguided and wholly disingenuous\u201d. I will deal later in this judgment with the issue of data held on the computers of the First and Second Defendants. I observe that at this point in time no reference was made by the Defendants or by their legal advisors to any inability to give disclosure of relevant documents held on computers due to an alleged cyber attack upon the computers belonging to the Second Defendant said to have occurred in May 2016. Nor was there any reference to hard drives, containing relevant evidence, having already been destroyed. The Claimant, and the Court, was under the (mis)apprehension that relevant information held on computers did exist and would be disclosed. 22. Under the Order the First and Second Defendants were required to carry out searches for documents set out in paragraphs [3], [4], [5], [6], [8], [9], [10], [11] and [12] of the Schedule attached to the Order. By 4pm on the 28th October 2016 the First and Second Defendants were required to serve upon the Claimants\u2019 solicitors a supplemental list of documents accompanied by a disclosure statement: (a) listing documents found pursuant to the specified searches; (b) listing documents that had been disclosed by the Defendants to the Claimants since service of the First and Second Defendants list of comments on the 17th June 2016; and (c), \u201c\u2026 listing all documents which have been, which are no longer, in the First and Second [Defendants] control and stating what has happened to them and when they were destroyed or lost (as the case may be)\u2026\u201d. This latter requirement assumes considerable importance in this case because of the facts, described below, in relation to the \u201ccyber attack\u201d (see paragraphs [39ff] below). 23. Paragraph [2] of the Unless Order stated that unless these steps were taken by the stipulated time then \u201c\u2026 [the] Defence and Counterclaim shall be struck out and [the First and Second Defendants] shall be debarred from defending the claim\u201d. 24. In addition it was ordered that unless by 4pm on the 28th October 2016 the First and Second Defendants served upon the Claimants\u2019 solicitors a witness statement providing details of the searches undertaken in accordance with the Order, and confirming the accuracy of the supplemental list of documents, and identifying any documents listed in the Schedule that were said either \u201cnot to exist\u201d and \u201cto have been lost or destroyed\u201d, and stating when such documents were lost or destroyed, then, again, the Defendants defence and counterclaims will be struck out and they will be debarred from defending the Claim. 25. The Schedule to the Unless Order contained a series of both specific and general categories of disclosure to be provided. By way of example of specific items the Defendants were required to provide job figures for all of the First and Second Defendants\u2019 businesses for the relevant period and correspondence and communications relating to the First and Second Defendants dealings with the domain name \u201cwww.a1network.co.uk\u201d and the email address \u201ca1@network.co.uk\u201d. Two specific categories are of greater importance to the present dispute. Paragraph [5] was in the following terms: \u201c5. All underlying accounting documents relating to the accounts of the First and Second [Defendants] businesses, including all of the books, accounts, papers, ledgers, SAGE programmes and nominal ledgers, PAYE records, despatcher and taxi software for the relevant period.\u201d 26. Pursuant to paragraph [12] of the Unless Order the First and Second Defendants were required to disclose: \u201ccopies of all accounting documentation relating to companies owned, operated or controlled by the First [Defendant] during the relevant period\u201d. 27. In the final hour prior to expiry of the deadline set out in the Unless Order (4pm 28th October 2016) the Defendants\u2019 solicitors sent 16 emails to the Claimants\u2019 solicitor in purported compliance with the Unless Order. It was agreed between the parties that hardcopies would be provided by the 1st November 2016. Hardcopies were provided on the 3rd November 2016 together with a data stick. Upon review of the material it was the Claimants\u2019 solicitors position that there remained material non-compliance. 28. On the 9th November 2016 the Claimants\u2019 solicitors wrote to the Defendants\u2019 solicitors and included a document entitled \u201cOutstanding Disclosure\u201d. That document amounted to a detailed three page list of documents, and categories of documents, which had not, so it was said, been provided. 29. By this stage software which had been sent pursuant to an email dated the 28th October 2016 and a data stick had been examined by an independent IT expert instructed on behalf of the Claimants. He confirmed that the software contained shell software programmes and the data stick had upon it no data whatsoever. 30. Solicitors for the Defendants responded on the 15th November 2016 asking for 7 days to respond. The Claimants issued their application that the Defence and Counterclaim be struck out and the First and Second Defendants be debarred from defending the claim on the 21st November 2016. On the 23rd November 2016 the Defendants\u2019 solicitors wrote to the Claimants enclosing a draft application to re-amend the Defence (by substitution). They proposed that the Claimants\u2019 application be adjourned to be dealt with at the same time as the proposed application to amend. 31. On the morning of the hearing of the Claimants\u2019 application set down before Mrs Justice Laing, namely the 19th November 2016, the Defendants served a witness statement by Mr Hayward, a solicitor for the Defendants, indicating that the Defendants would be applying for relief from sanctions. Mrs Justice Laing ordered that the Claimants\u2019 application be adjourned to be heard with the application of the First and Second Defendants for relief from sanctions. An order was made compelling the Defendants to give access to their computers. Once again no reference was made by the Defendants or their advisors to the computer records already having been destroyed. Again the assumption of the Claimants and the Court was that computer records existed. Paragraphs [2] and [3] of the Order stated as follows: \u201c2. The First and Second Defendants shall by 4pm on 7 December 2016 permit the Claimant\u2019s appointed IT and accountancy experts to access and inspect all and any computers and computer systems within their possession or control to search for and take copies of any documents (including any computer software and data): 2.1 Relevant to the issues in the dispute, including: 2.1.1 the documents and data required to be disclosed under the Order of Deputy Master Sullivan dated 14 October 2016 and\/or 2.1.2 the documents and data ordered to be preserved and delivered up by the Order of Mr Justice Flaux dated 10 November 2014; and 2.2 Within the relevant period, namely 1 January 2010 to 24 November 2014 3. The parties\u2019 solicitors shall be present during the inspection and shall endeavour to agree the manner in which the search shall be undertaken and documents retrieved and copied.\u201d 32. The witness statement served by Mr Hayward, dated the 19th November 2016, admits non-compliance with the Unless Order in relation to a series of documents identified in the statement. It is said that the failure earlier to disclose the documents was purely an administrative oversight on the part of the solicitors since the Clients had, in fact, earlier provided these to the solicitors. It is said that the failure was not-deliberate. 33. As observed no reference is made in this statement to any cyber attack or to the wholesale deletion or wiping of emails and other business documents from the Defendants\u2019 computers or to the destruction of hard drives. This was the context in which the Defendants agreed to the Claimants appointing IT experts to access and inspect all of the computers and computer systems within the possession or control of the First and\/or Second Defendants. F. Present Position 34. The present position is that the Defendants admit non-compliance with the Unless Order and accept that the failure is a serious and significant one. It is also accepted that there is no good reason for the failure. This means that, for present purposes, prima facie in accordance with the terms of the Unless Order the Defence and Counterclaim of the First and Second Defendants is to be struck out and those Defendants are to be debarred from defending the claim. G. The Denton Test for Relief from Sanctions 35. What now arises is the Defendants\u2019 application for relief from sanctions. The test for the grant of relief is well known and was set out by the Court of Appeal in Denton v T H White Limited [2014] EWCA Civ 906 (\u201cDenton\u201d). In that case the Court of Appeal established a three stage test that a court should apply when determining an application for relief from sanctions. Under the first stage the court identifies and assesses the seriousness and significance of the failure to comply with any rule, practice, direction or court order which engages CPR 3.9(1). If the breach is neither serious nor significant the court is unlikely to need to spend much time on the second and third stages. Under the second stage a court considers why the failure or default occurred. Under the third stage the court evaluates all of the circumstances of the case in order to enable it to deal justly with the application (CPR 3.9(1)(a)(b)). 36. In broad terms the position advanced by Mr Cobill who appeared on behalf of the Defendants can be summarised as follows. First, the failures amounted to administrative oversight or a misunderstanding of the meaning of the Unless Order on the part of the solicitors acting for the Defendants. Second, the failure caused the Claimants no significant prejudice and has not adversely affected ability to prepare for trial. Third, the failure has now been remedied or is capable of being remedied in the near future. Fourth, the First and Second Defendants have applied to amend their defences and counterclaim and the outcome of the hearing of the application could effect the trial timetable anyway thereby reducing further any forensic prejudice to the Claimants which they might otherwise have sustained. Fifth, the amended pleading sets out strong answers to the Claimants case and they should not be denied the right to advance their case at trial. Sixth, the claim is high value and to prohibit the Defendants from defending their claim would be unjust and disproportionate. H. Analysis: Denton Stage 3 37. I turn now to consider the real dispute between the parties which is whether it is just in all the circumstances to grant the Defendants\u2019 application for relief from sanctions. For all the reasons that I set out below I have come to the conclusion that: there remains serious outstanding breaches of the Unless Order; that I should refuse the application for relief; and, that I should therefore grant the Claimants\u2019 application for an order that the Defence and Counterclaim of the First and Second Defendants be struck out and that they be debarred from defending the claim. 38. I start by considering whether, as of today, in the period shortly prior to trial, the First and Second Defendants have complied with their disclosure obligations pursuant to the Unless Order. As to this I am satisfied that even now there is a substantial failure to comply with the Unless Order. There are many instances of breach. I do not propose to examine every particular instance of non-compliance. Instead I propose to focus upon the principal failings that have been identified in the present case. I also consider below other factors potentially relevant to the analysis. (i) Failure to provide computer records \u2013 the cyber attack 39. First, there is the wholesale failure to give disclosure of documents stored on the First and Second Defendants\u2019 computers and the failure to provide any adequate explanation for their non-retention in accordance with the Unless Order. It will be recalled that in November 2014 Mr Justice Flaux enjoined the Defendants from destroying or removing data from computers and that in March 2015 the Defendants\u2019 solicitors confirmed and represented that both they and their Clients would preserve and not destroy, and keep safe, all such computers (see paragraph [17] above). 40. I have referred above (cf paragraph [31]) to the fact that pursuant to the Order of Mrs Justice Laing the Defendants were required to grant access to their computers. Following the making of that Order an exchange occurred between solicitors and it was agreed that inspection would occur on the 7th December 2016, i.e. just one week before the hearing in this case. The Claimants attended with an IT expert. Upon arrival IT experts instructed by the First and Second Defendants informed the Claimants\u2019 representatives that the Second Defendant had been the subject of a cyber attack in May 2016, i.e. some seven months earlier, which had resulted in these same experts removing all of the hard drives from the computers and replacing them with new ones. Moreover the old hard drives had been drilled through and disposed of. There had been no attempt to download existing data. There were no backup tapes. Accordingly, all computer data prior to May 2016 had been irretrievably lost. The Claimants were unaware of this until the explanation was tendered at the inspection. 41. I start my analysis of this issue by recording that at the outset of the hearing of this application I asked Mr Cobill, acting for the Defendants, to confirm a number of matters. First, I wished to know upon what date the Defendants\u2019 solicitors first became aware of the cyber attack. Second, I sought an explanation as to why the cyber attack had not been disclosed earlier, given the multitude of occasions upon which that information was relevant to issues relating to disclosure. Third, I sought evidence as to whether the Defendants\u2019 solicitors had either themselves or through some independent third party conducted an exercise to verify the accuracy of the information provided to the Claimants. In response to these requests, and having taken instructions, I was informed that the Defendants\u2019 solicitors first came to learn of the cyber attacks after the making of the Order by Mrs Justice Laing on the 29th November 2016, but before the inspection occurred on the 7th December 2016. It was explained that the Defendants\u2019 solicitors took the view that the inspection should proceed in any event because it was their view that the Claimants would wish to view the site and the computers for themselves and to ask questions about the extent and nature of the cyber attack. The Defendants\u2019 solicitors were also anxious to ensure that it could not be said that they had failed to comply with the Order of Mrs Justice Laing. It remains the case however that between the 29th November 2016 and the 7th December 2016 solicitors acting for the Defendants did not notify the Claimants that, in actual fact, the inspection would be a wasted (and costly) exercise in futility since the computers were incapable of generating any relevant disclosable evidence. I should also record that I did not require the Defendants\u2019 solicitors to verify this information by affidavit or witness statement. Mr Hornett, counsel for the Claimants, confirmed that his Clients accepted the evidence given by counsel for the Defendants on instructions. Accordingly I treat the evidence given by Mr Cobill as to the position of the Defendants\u2019 legal advisers as true and common ground between the parties. 42. I turn to the facts relating to the cyber attack. 43. At the commencement of the hearing I was provided with a series of witness statements addressing the cyber attack. A statement was provided by Mr Hayward, the Defendants\u2019 solicitor. Statements were also provided by Mr David Bolton, a self-employed IT consultant who, along with his colleague, Mr Simon Pearse, provided software and system infrastructure services to Mr Phillips\u2019 taxi businesses. A statement was provided by Mr Phillips\u2019 son. The First Defendant did not however produce a witness statement so has not signed a statement of truth about the cyber attack even though it appears that he personally ordered IT experts to destroy the computers. 44. In paragraph [12] of his Statement Mr Bolton refers to an article which he prepared fro the tech-website \u201chttp:\/\/insights.dice.com\/\u201d. The article was published on the 7th June 2016, i.e. very shortly following the alleged \u201ccyber attack\u201d. Mr Bolton states in his witness statement that when he wrote the article the encryption of the database file had not occurred so that he \u201cerroneously put in the article that the damage we suffered was light\u201d. 45. The article is entitled \u201cA case study in a dealing with ransomware\u201d. Mr Bolton in this contemporaneous article describes how a taxi firm in East London \u201cwith 12 networked PCs\u201d (i.e. the Second Defendant) was the subject of a malware problem. Mr Bolton\u2019s \u201cbest guess\u201d was that the malware had penetrated the network via an email attachment. The article states as follows: \u201cThe malware infected 4 PCs at the central office and 2 at satellite offices; the other 6 weren\u2019t touched. The damage to these infected PCs was remarkably light: the log files (.log) were all encrypted, as well as one config file (.txt) that the server used for mapping East London into booking zones. After replacing that file, the server was able to run. The only loss was the log files. The #decryptmyfiles.html contained a message asking for 1.2 Bitcoins (about $500) to recover the PCs, including details on how to pay. No ransom was paid. The taxi firm\u2019s Managing Director already had a plan to replace all PCs in a few months as most were 6 to 8 years old. That plan was accelerated, and all 12 PCs were replaced one week after the initial infection. I returned a week later to help replace the PCs and to my surprise discovered that no further infections had occurred since the first one. It\u2019s my belief that the malware just ran once from one PC and managed to infect 5 others. But it wasn\u2019t permanent, and didn\u2019t reload after a reboot, so the malware was gone.\u201d 46. In the witness statements served at the outset of this hearing various, inconsistent, statements are made by Mr Bolton and his colleague Mr Pearse. I have already referred to the fact that Mr Bolton says that he erroneously described in the article that the damage was light. Mr Pearse, for example, says that because the malware encrypted the log files on the dispatcher the back up was lost meaning that \u201c\u2026 although great lengths had been gone to in order to preserve such files and details, the infection also encrypted these files\u201d. Mr Pearse also says that replacement PCs were refurbished and that they disposed of the old hard drives via the \u201ccorrect protocol\u201d. He says that he demonstrated this to the experts in attendance at the computer inspection on the 7th December 2016. 47. I am wholly unsatisfied by the explanations given by the Defendants to account for the failure, on their part, to provide disclosure and\/or to preserve the hardware. First, the contemporaneous article prepared by Mr Bolton makes it plain that the infection was very light and impaired only a small number of the Defendants\u2019 computers. Second, the effect of the malware was transient and when the system was rebooted it had disappeared. Thirdly, Mr Bolton in his article states that the First Defendant, i.e. Mr Phillips, indicated that he was intending to replace the entire computer system and used the occasion of the malware infection to accelerate that decision. In other words the destruction of the existing computer system was due to a desire to update the system and not the malware. Fourth, Mr Phillips was necessarily aware that this was a breach of the Order for preservation made by Flaux J in November 2014, and confirmed by the Defendants\u2019 solicitors in March 2015 (see paragraph [17] above). There is no conceivable excuse for either the failure to disclose the relevant documents or the destruction of the computers. This is the context in which Mr Phillips has chosen not personally to prepare and sign a witness statement. Fifth, for reasons I set out below the malware infection does not mean that documents were not retrievable (for instance from external servers) and these have not been disclosed even now. 48. I am in no doubt but that the information available on those computers could have been highly relevant to the Claimants\u2019 case. It is a feature of this case that the Defendants most common response to the Claimants\u2019 requests for disclosure involve explanations such as: we no longer have the documents, we never had the documents, we had them but we have now disposed of them, etc. Even if that were, to test the argument, true of hardcopies previously in the possession of the Defendants it would not have been true of records contained on the computer. This is a case, par excellence, whereby evidence of financial transactions would be pivotal. It is in my view inevitable that valuable and relevant information would have been contained on those computers. 49. An additional feature of this incident is that there was a multiplicity of occasions when disclosure of the fact that electronic disclosure could not be given was appropriate. I have identified them above (see paragraphs [21] \u2013 [33] above). It is trite that pursuant to CPR 31.10 a Defendant must explain what has happened to documents that must have existed but which no longer exist and it was in any event required pursuant to the Unless Order (see paragraph [24] above). It was incumbent upon the Defendant to explain that electronic documents had been in the Defendants\u2019 possession as of May 2016 when they served their original list of documents on the 10th June 2016. It was also incumbent upon the First Defendant to bring to the Court\u2019s attention the non availability of computer generated documents when the matter came before Mrs Justice Laing on the 29th November 2016. It was also a culpable failing on the part of the First Defendant to fail to inform his solicitors of the situation. This led those solicitors, manifestly with the knowledge and concurrence of the First Defendant, to prepare witness statements which were used in the proceedings, and to exchange correspondence with the Claimants\u2019 solicitors, which were in material respects misleading by virtue of their failure to explain that electronic disclosure could not be given. 50. In the course of the hearing I asked counsel for the Defendants when the hard drives were destroyed. Having taken instructions he was unable to provide a precise date. I was told that there was no formal record of the date of destruction. 51. Mr Hornett, for the Claimants, described the facts relating to the electronic documents as, variously, \u201cremarkable\u201d, \u201cperplexing\u201d, and \u201chighly damning\u201d. He pointed out a number of additional facts which he said makes the picture get \u201ceven worse\u201d. First, the First Defendant\u2019s personal laptop had no data pre-dating 2016 yet it was not suggested that this had been the subject of a cyber attack. Clearly that data has been deliberately wiped. Second, the server had almost no emails pre-dating 2016 yet the email accounts were all stored remotely and would not have been affected. These emails could have been retrieved but have not been. 52. In short the failure to provide electronic disclosure is a serious breach of the Order of Flaux J of November 2014 and the Unless Order. But most importantly the failure to account for the destruction of the data is a serious breach of the Unless Order. (ii) Cheques, invoices, invoice books and bank statements 53. No cheques, invoices, invoice books or bank statements for the Second Defendant were disclosed. In his Witness Statement, upon instructions from the First Defendant, Mr Hayward, states that Mr Phillips did not have any further documents relating to paragraphs [5] and [12] of the Unless Order. But he also argues that the First and Second Defendants do not regard cheques, invoices, invoice books or bank statements as falling within the scope of the Unless Order. 54. I should state, before analysing this issue, that Mr Cobill, during the hearing, quite properly and candidly accepted (a) that in actual fact Mr Phillips did possess and\/or control a number of cheques, invoices and other documents falling within this category and, (b) that it was not arguable to suggest that their disclosure did not fall within the scope of paragraphs [5] and\/or [12] of the Unless Order. He was driven to argue only that these documents could now be disclosed and that their disclosure would not prejudice the Claimants in preparation for trial. Of significance, at least to the first explanation given, is that the injunction imposed by Flaux J required the First and Second Defendant to preserve the Second Defendant\u2019s bank statements. Accordingly if these statements were in fact no longer in the possession of the Second Defendant that would be an additional breach of the Order of Flaux J. As to the second explanation, which Mr Cobill no longer attempts to support, it is in my judgment plain that these documents fell within the concept of \u201call underlying accounting documents\u201d and\/or \u201cpapers\u201d. Evidence was tendered by an expert accountant on the part of the Claimant that HMRC requires bank statements to be kept as part of a company\u2019s accounting records. HMRC Guidance was placed before the Court which establishes this fact. 55. The failure on the part of the First and Second Defendants to disclose these documents is, in my judgment, highly material and is a serious breach of the Unless Order. This is a case where \u201cmoneys in\u201d and \u201cmoneys out\u201d of accounts may be critical in following money flows and transfers. This will be of the essence in a case in which it is alleged that the Defendants intermingled the finances of various companies and diverted funds to the benefit of the First Defendant. (iii) Romford Minicab Services Limited (\u201cRMSL\u201d) 56. No accounting documents were listed or copies provided for Romford Minicab Services Limited. This is a company of which Mr Phillips is a Director and the Second Defendant the sole shareholder. It was the acquisition of this company that led to the amalgamation of the businesses and it is therefore of at least potential significance. Mr Hayward has, upon instructions from the First Defendant, claimed that the company is dormant. However there are a number of difficulties with this explanation. First, the Defendants have provided details of other dormant companies. So dormancy has not hitherto been used as an excuse for non-disclosure. Second, an analysis of the accounts of RMSL demonstrates that in fact it has creditors and holds significance shareholder funds. As such it does not convey the appearance of being dormant. Third, in the course of the hearing, upon instructions from Mr Phillips, it was explained by counsel that in fact the company was not entirely dormant and: \u201cthere may have been one transaction\u201d. I have recorded in this judgment the words articulated by Mr Cobill upon instructions from the First Defendant. In my judgment this is, both alone and when viewed in conjunction with other failings, significant. Part of the central allegation made by the Claimants is that the First Defendant diverted funds to other companies operated by him. RMSL was one such \u201cother\u201d company which played a part in the narrative relating to the dispute between the parties. Documents before the Court suggest that, at one point in time at least, it did operate minicab services. In my judgment this is a further breach of the Unless Order. (iv) Documents relating to the external book keeper 57. During the inspection of computers on the 7th December 2016 the Claimants were informed that data was held by an external book keeper, Mrs Sparks, and that this material was not under the control or possession of the Defendants and could not be disclosed. In the course of the hearing the issue between the parties narrowed somewhat. Mr Cobill for the Defendants contended that the Defendants had in fact disclosed relevant accounting data generated by Mrs Sparks. However Mrs Sparks used a SAGE book-keeping software which she owned personally. It was not therefore open to the Defendants to require her to disclose it. To this the Claimants had two responses. First, pursuant to CPR 31.4 and the relevant Practice Direction a \u201cdocument\u201d included electronic documents readily accessible from computer systems and electronic devices and servers and documents that had been deleted. Parties were required to give disclosure of electronic documents in their \u201cNative Format\u201d in a manner preserving metadata. Parties are required to provide available searchable OCR with the documents in an Electronic Image. The Defendants were therefore required to give disclosure of electronic documents in their original list and to give inspection by way of electronic copies. This applied to both accounting software and data (for example generated by SAGE or its equivalent). It is argued that even if it were the case that the SAGE software belonged to Mrs Sparks, this did not prevent the Defendants from disclosing in appropriate electronic form data which related to them and which did not, thereby, disclose confidential data and information relating to other clients of Mrs Sparks. Second, and in any event, the Defendants have identified documents which were not, in any event, disclosed even in hard form. And this included PAYE and NI records for the periods 1st January 2010 \u2013 31st December 2010, and, 31st December 2012 \u2013 31st December 2013. 58. I am satisfied that there has been non-disclosure. In my judgment this is a yet further failure to comply with the Unless Order. (v) Details of search 59. Paragraph 4(a) of the Unless Order required the First and Second Defendants to serve a witness statement providing \u201cdetails\u201d of the searches undertaken. The witness statement of the First Defendant dated the 28th October 2016 states, starkly, at paragraph [3] that: \u201cI have searched for documents located at my work premises\u201d. The work premises are not identified. There are no actual details of the searches conducted. Mr Hayward, in his witness statement, observes, again upon instructions from Mr Phillips, that Mr Phillips undertook a search and retrieved documents from his (unidentified) accountants. None of this is referred to in the supplemental list or in Mr Phillips\u2019 witness statement. 60. There is, in my judgment, force in the Claimants\u2019 complaint that the minimalist and skeletal form in which the Defendants purported to comply with the requirement to provide details of the searches undertaken is inadequate. The purpose of that provision in the Unless Order was to enable the other party, and in due course a Court, to know with a reasonable level of detail that the party the subject to the order (viz Mr Phillips), had conducted a proper disclosure exercise. In the particular circumstances of this case, and in particular as the facts have unfolded, the paucity of the information provided by Mr Phillips in his statement becomes ever more unsatisfactory. In my judgment I am driven to the conclusion that the virtual non-answers provided by the Defendants was part of a broader strategy of refusing to provide disclosure. (vi) Other alleged continuing non-disclosure 61. There are a number of other failings that the Claimants rely upon as amounting to breaches of the Unless Order. It is unnecessary for me to address them given the conclusion that I have arrived at which is that the Defendants remain in substantial breach of the Unless Order. (vii) Other matters relating to Denton Stage 3 62. Given the scale of the non-observance of the Order it is unnecessary to dwell in detail upon other matters. However there are a number of additional points to make. First, the failures significantly and unfairly prejudice the ability of the Claimants to prepare for trial. This is a case which will turn upon the forensic analysis of underlying financial data. A great deal of the most important documentation and data has been withheld from the Claimants by the Defendants. Second, the Defendants entered into the Unless Order by consent. The proportionality of the sanction for non-compliance was thus voluntarily accepted by them. It is of little moment to complain now that to visit the consented to sanction upon the Defendants is disproportionate. Third, I take into account the history of this case and the profoundly unsatisfactory way in which electronic data has been suppressed and\/or lost. Fourth, I express no view as to the ultimate merits of the case. I have taken into account the amended pleading which the Defendants wish to rely upon. However this is not a case in which a Court is able to assess the relative merits of the respective arguments in order to factor that into the weighing exercise inherent in Denton Stage 3. H. Conclusion 63. In conclusion, for all the reasons set out above, the First and Second Defendants\u2019 are in material breach of the Unless Order. Their application for relief from sanctions is refused. I strike out the Defendants\u2019 Defence and Counterclaim. I debar the First and Second Defendants from defending the claims. I will now hear submissions from the parties on the consequences of my ruling.<\/p>\n<\/div>\n

\n

Sources officielles :<\/strong> consulter la page source<\/a><\/p>\n

Open Justice Licence (The National Archives).<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

A. Introduction 1. There is before the Court an application by the Claimants for an Order striking out the First and Second Defendants\u2019 Defence and Counterclaim in accordance with the provisions of an Unless Order dated the 14th October 2016 and an Order debarring those Defendants from defending the claim. There is, moreover, an application by the Claimants for an…<\/p>\n","protected":false},"featured_media":0,"template":"","meta":{"_crdt_document":""},"kji_country":[7608],"kji_court":[33569],"kji_chamber":[],"kji_year":[52833],"kji_subject":[7612],"kji_keyword":[7945,7668,9671,7707,9015],"kji_language":[7611],"class_list":["post-821907","kji_decision","type-kji_decision","status-publish","hentry","kji_country-royaume-uni","kji_court-high-court-queens-bench-division","kji_year-52833","kji_subject-fiscal","kji_keyword-claimants","kji_keyword-defendants","kji_keyword-documents","kji_keyword-order","kji_keyword-second","kji_language-anglais"],"yoast_head":"\nMicheal & Ors v Phillips & Ors - Ma\u00eetre Hassan Kohen, avocat en droit p\u00e9nal \u00e0 Paris<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/kohenavocats.com\/ru\/jurisprudences\/micheal-ors-v-phillips-ors\/\" \/>\n<meta property=\"og:locale\" content=\"ru_RU\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Micheal & Ors v Phillips & Ors\" \/>\n<meta property=\"og:description\" content=\"A. 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