Relief from sanctions: how far has the pendulum swung back?

In recent months we have seen a number of decisions which show a greater willingness to grant relief from sanctions for breaches of rules and court orders, compared to the more draconian judgments of the immediate post-Mitchell era, and which illustrate the risks for those who seek to hold their opponents to strict compliance - though there clearly remain risks for those who flout the rules as well. It seems there is also a continuing lack of certainty as to when relief from sanctions is in fact required.

In Michael Wilson & Partners Limited v Sinclair and others [2015] EWCA Civ 774 the Court of Appeal set aside its previous order refusing to lift a stay imposed for failure to provide security for costs and striking out the appeal. The court concluded that in making the previous order, the single lord justice had taken an overly draconian approach, based on his understanding of the principles laid down in Mitchell. It was not until the Court of Appeal's restatement of the Mitchell guidance in Denton (see post) that it became clear that approach was mistaken.

In Viridor Waste Management v Veolia Environmental Services [2015] EWHC 2321 (Comm), following Denton, the Commercial Court not only granted relief from sanctions to a claimant who had served particulars of claim late as a result of an administrative error, in circumstances where a new claim would have been time barred, but penalised the defendant in indemnity costs for contesting the point. This contrasts sharply with a previous Commercial Court decision to strike out a claim for late service of particulars following the guidance in Mitchell (in Associated Electrical Industries Limited v Alstom UK [2014] EWHC 430 (Comm) - see post).

In Solland International Limited v Clifford Harris & Co [2015] EWHC 2018 (Ch) a Chancery Master held that relief from sanction was not required where claimants were 31 months late in filing their allocation questionnaire (now a directions questionnaire). There was no automatic sanction for the failure - the rules gave the court a complete discretion as to what, if any, sanction to apply - nor was there an implied sanction (as, for example, where a party fails to file a notice of appeal in time and therefore cannot pursue the appeal absent an extension). However, the claim was struck out as an abuse of process.

Each of these decisions is considered further below.

Michael Wilson & Partners Limited v Sinclair and others

In this case, the claimant's claims for breach of contract and fiduciary duty had been struck out by the Commercial Court. Rix LJ granted permission to appeal against the strike out order. He ordered the claimant to pay certain sums in to the Court Funds Office by certain dates, including as security for costs of the appeal, failing which the appeal would be stayed. He refused to make an "unless order" that the appeal be dismissed unless the sums were paid, but he indicated that the claimant was "likely to find itself in grave difficulties" if it missed the deadlines and the appeal was stayed.

The claimant made the payments some 16 weeks late and then applied to lift the stay. The defendant applied to strike out the appeal.

At a hearing in December 2013, Lewison LJ refused the application to lift the stay, saying it was in effect an application for relief from sanction. He applied the Mitchell guidance, as he understood it at the time: it was not a trivial breach and there was no good reason for it; the paramount considerations were as stated in CPR 3.9 (the need to conduct litigation efficiently, and enforce compliance with rules and orders); and there was no conceivable ground on which the stay should be lifted. Therefore the appeal should be struck out.

Shortly after the Court of Appeal's judgment in Denton, in July 2014, the claimant applied to revoke Lewison LJ's order under CPR 3.1(7).

Decision

The Court of Appeal (Richards and Christopher Clarke LJJ) set aside the order and granted relief from sanction, thereby reinstating the appeal.

Applying Denton, although the breach was "significant or serious", and there was no good reason for it, applying the third stage of the Denton test meant relief should be granted. The problem with Lewison LJ's approach was that he went beyond attaching particular importance to the two CPR 3.9 factors, as Denton required; he treated them as paramount considerations which were effectively determinative against the grant of relief. He did not have regard to all the circumstances of the case, as Denton had stressed must be done.

Considering all the circumstances, it was appropriate to grant relief. The court noted in particular that Rix LJ had imposed only a stay, not a strike-out, as the consequence of missing the deadline, and that strike-out is a sanction of last resort. The court would therefore not have expected Lewison LJ to move straight from the stay to a strike-out unless there was a continuing default and a further opportunity, by way of a specific unless order, to remedy the default. Lewison LJ had given no separate consideration to whether a strike-out was a proportionate sanction.

It was appropriate to exercise the court's discretion under CPR 3.1(7) to revisit Lewison LJ's order. Although a change in the law, or the understanding of the law, would not generally provide a good reason for allowing earlier appellate decisions to be reopened, the circumstances of this case were, the court said, exceptional. Mitchell, as the first decision of the Court of Appeal on the new wording of CPR 3.9, gave important guidance as to the proper approach in dealing with applications for relief from sanctions. But as the court made clear in Denton, that guidance, or the way it was widely understood, led to decisions that were manifestly unjust and disproportionate. It was also important that the application had been made promptly after the judgment in Denton was handed down.

Viridor Waste Management v Veolia Environmental Services

The claimants issued a claim form asserting a claim for unjust enrichment in respect of payments made in excess of what had been due to the defendant, as a result of a Court of Appeal decision in relation to tax issues nearly six years earlier. Shortly afterward, the defendant issued a separate claim against the claimant on similar grounds.

Under the terms of a consent order, the particulars of claim had to be filed and served by 14 January 2015. They were filed with the court on 12 January, but in error were posted by second-class post on 13 January, arriving at the defendant's solicitors offices on 15 January. There was some dispute as to whether this meant service was effected on 15 January, or at the latest 19 January (further service copies having been sent by various methods once the error was discovered).

The claimant applied for a retrospective extension of time for service, the defendant having refused to consent to an extension. The defendant applied to strike out the claim.

It was common ground that the application was for relief from sanctions under CPR 3.9 and that the Mitchell and Denton guidance applied.

Decision

The court (Popplewell J) granted relief from sanctions and awarded indemnity costs against the defendant.

Regardless of the precise date on which service was effected, what mattered in considering whether the breach was serious or significant was that the particulars had been received by the defendant's solicitors by lunchtime on 15 January. This was only a few working hours after the deadline. The delay had no real impact on the course of the litigation, the court, or other court users. It had not disrupted the process, save as a result of the application for relief and the resistance to that application. It was not a serious or significant breach.

The court rejected the defendant's argument that the delay was significant because of the limitation position, and that an extension would be tantamount to extending the limitation period. The court noted that it is the issue of the claim form that stops time running for limitation purposes. Service of particulars is, it said, a subsequent step in the proceedings which does not validate or invalidate the effect of issue of the claim form for limitation purposes.

Although it was not necessary to consider the other stages of the Denton test, the court considered them briefly for the sake of completeness. Although there was no good reason for the default, it was an accidental administrative error which was at the lower end of the scale of culpability. In considering all the circumstances of the case, the most significant factor was that if no extension was granted the claimant would be at risk of losing the benefit of a claim worth £27 million in circumstances where the defendant would be able to advance its mirror claim for around £32 million (unless the claimant was able to advance its claim as a counterclaim in the separate proceedings, though it was arguable that this would be an abuse of process). If the judge had concluded that the breach was serious or significant, he would have concluded the justice of the case required an extension to be granted.

The court also referred to the Court of Appeal's comments in Denton that it is wholly inappropriate for litigants to take advantage of mistakes by opposing parties in the hope that relief from sanctions would be denied and they would obtain a windfall strike-out or other litigation advantage. Popplewell J that this was just such a case - the defendant had sought to take "opportunistic and unreasonable advantage" of the claimant's mistake when it was obvious that an extension of time was appropriate. As a result, it was appropriate to award the claimant costs on the indemnity basis.

Solland International Limited v Clifford Harris & Co

The claimants issued proceedings against the defendant for alleged negligence in the conduct of earlier High Court litigation.

Allocation questionnaires were due to be lodged by 3 April 2012. The defendant lodged its questionnaire on that date, but the claimants did not lodge their questionnaire or take any further step in the action, other than lodging a notice of change of solicitors, until after the defendant applied to strike out the claim in August 2014. In November 2014 the claimants filed their allocation questionnaire and retrospective application for an extension of time and, as necessary, relief from sanction.

Decision

The court (Master Bowles) struck out the claim as an abuse of process.

He first considered whether the delay of 31 months in filing the allocation questionnaire gave rise to a sanction in respect of which relief must be sought and granted before the claimants could continue their claim. He concluded that it did not. The only sanction for failure to file an allocation questionnaire was that the court would give any direction it considered appropriate; here no direction had been made as a result of the breach.

The Master said that where, as here, there was an express sanction provided by the rules, albeit that it was in the broad gift of the court, there could be no room for an implied sanction. Further, it was not a default which, absent an appropriate extension, had the effect of precluding a claim being advanced so that an implicit sanction arose. This was in contrast to, for example, a notice of appeal (as considered in R (Hysaj) v Secretary of State for the Home Department [2014] EWCA Civ 1633 - see post).

Interestingly, another example the Master gave was a failure to file a defence in time which, he said, would mean that the defence simply could not be pursued unless an extension was given. Arguably, however, there is an express sanction for failure to file a defence in time, which is to leave open the possibility of judgment in default being entered; if default judgment is not filed, it is not clear that relief is needed. Further, the question of whether entering judgment in default amounts to a sanction for the purposes of CPR 3.9, and whether an application to set aside default judgment should be treated as an application for relief from sanction, is one on which there is conflicting authority. The whole question of when there is an implied sanction, from which relief must be given, remains a difficult area, as discussed in our post on Hysaj linked above.

In this case, however, although the Master held there was no need to obtain relief from sanction, it was appropriate to strike out the claim as an abuse of process. This was principally on the ground that the claimants had pursued the litigation without any settled intention to progress the claim to a trial or other proper conclusion, in knowing disregard of the rules and their obligation to pursue the claim diligently.