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Penal notices are sometimes seen as a tool by aggressive litigators to instil fear into the subjects of court orders to try and achieve compliance, but are they being used correctly? This question has arisen because the rules around when and how to add a penal notice to a court order has been somewhat muddied over the past few years.
In this blog we consider the recent case of Wintermute Trading Ltd v Terraform Labs Pte Ltd [2024] EWHC 141(KB) (Wintermute Trading Ltd) and the future position of adding penal notices to orders once the Civil Procedure (Amendment) Rules 2024 (the 2024 Rules) come into force on 6 April 2024.
What are penal notices?
A penal notice is a prominent notice on the front of a court order warning the person against whom the order is made (and, in the case of a corporate body, a director or officer of that body) that if they disobey the court's order, that person may be held in contempt of court and punished by a fine, imprisonment, confiscation of assets or other punishment under the law. Therefore, penal notices have wide-ranging consequences and so it is important that they are only used in the correct circumstances.
Recent decisions of the court
The position set out in Taray Brokering Ltd, Re [2022] EWHC 2958 (Ch), is that a party cannot simply add a penal notice to a court order of its own motion. Instead a party must ask the court for permission to add the penal notice when seeking the order or apply to court for permission to vary an existing order if it wants a penal notice to be added.
In Wintermute Trading Ltd, Mr Justice Lavender considered whether it was appropriate for a claimant to add a penal notice to an order for disclosure. The first order, which did not contain a penal notice, directed that affidavits be served with the disclosure list. However, after the defendant had served its disclosure list and affidavit the claimant argued that the list was incomplete and that the defendant had failed to produce all the documents. The claimant then obtained a second order from the court, this time with a penal notice, requiring the defendant to comply with the first order. The defendant applied to set aside the second order.
Mr Justice Lavender found that it was inappropriate to attach a penal notice to the second order and set it aside on the basis it offended the principle that orders should be unambiguous so that the subject knows precisely what is forbidden or required, and from the outset what the consequences of any non-compliance is. Therefore, Lavender J instead made an order giving directions for the determination of the dispute to decide whether the defendant had complied with the first order.
This decision provides at least some clarity on what types of orders it might be appropriate, or at least on what types of orders it is inappropriate, to add a penal notice to. However, this might be all about to change…
Changes coming with the 2024 Rules
The 2024 Rules come into force on 6 April 2024 and will revise the rules relating to penal notices. CPR r.81.2 will be amended to read:
“A “penal notice” is a prominent notice added to the front of an order by or at the request of a party warning”.
The guidance notes are somewhat unclear but it appears this amendment will allow a party to add a penal notice to an order without permission from the court.
The current position, pursuant to the case of Wintermute Trading Ltd, appears to be that in certain circumstances the court will have to consider, and determine, whether an order has been complied with, before giving permission to add a penal notice to an order. This places a burden on courts to determine compliance with an order and then having to make a further order including a penal notice if the order has not been adhered to.
However, it appears from 6 April 2024 that if a party wants to add a penal notice to a court order they can simply add it. This change is perhaps bringing the rules in line with the thinking that all court orders should be complied with, and requirements under CPR r.81.4 for bringing a contempt application (i.e. that the order has been served personally and the application for contempt accompanied by a witness statement, affidavit or affirmation confirming compliance with the CPR r.81.4) acting as a safeguard against abuse.
It is therefore hoped that this change should provide some certainty for practitioners, although it will be interesting to see how this change is applied in practice so watch this space!
further information
For further information on the issues raised in this blog, please contact Laurence Clarke from our Dispute Resolution team.
about the author
Laurence Clarke is a senior associate in the Dispute Resolution Team. He has broad experience as a general commercial litigator with a focus on complex large scale civil fraud and financial disputes. He often works as part of a team of global professional advisors on matters with multi-jurisdictional elements.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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