Supreme Court decision confirms second attempt at relief from sanctions will be uphill battle

The Supreme Court has upheld the Court of Appeal's decision overturning the grant of a second application for relief from sanctions for failure to comply with an unless order: Thevarajah v Riordan [2015] UKSC 78 (and see our blog post on the Court of Appeal's decision).

The second application for relief was, in substance, an application under CPR 3.1(7) to vary or set aside the previous order refusing relief. Therefore, applying established principles, it should not have been granted unless there had been a material change of circumstance since the previous order was made.

Interestingly, the Supreme Court commented that, even if CPR 3.1(7) did not apply, it would not normally be open to a party to ask for relief from sanction which required a previous interlocutory order to be varied or set aside unless there had been a material change of circumstance since the order was made. The impact of the Supreme Court's decision may therefore extend more widely than to second applications for relief from sanctions.

In terms of what might amount to a material change of circumstance, the decision confirms that the mere fact an order has been complied with, albeit late, will not ordinarily be sufficient. However, the court did not rule out the possibility, particularly where late compliance is accompanied by an explanation as to why the party could only comply belatedly.

Background

The defendants were in breach of an “unless” order to provide information pursuant to a worldwide freezing order and associated disclosure order by 4 pm on 1 July 2013, failing which they would be debarred from defending the claim. On 9 August Hildyard J refused relief from sanctions and ordered that the defendants were debarred from defending the claim.

There was no appeal against that order. Instead, the defendants instructed new solicitors and made a fresh application for relief from sanctions on 1 October, two days before trial was due to begin. They said (amongst other things) that the breach of the unless order had been remedied, they had made considerable efforts to comply, the failings were at least in part due to their former solicitors, and to refuse the application would lead to an unjust result as these were substantial claims involving allegations of dishonesty which turned on witness evidence and the court could not assess the merits based on the documentation alone.

The court (Mr Andrew Sutcliffe QC sitting as a Deputy Judge) granted the application for relief from sanctions and reinstated the defence. However, the Court of Appeal allowed an appeal against the grant of relief and restored the debarring order.

Decision

The Supreme Court unanimously dismissed the appeal. The court agreed with the Court of Appeal that the Deputy Judge should not have considered the second relief application on its merits, because CPR 3.1(7) applied and the relevant test was not satisfied.

The Deputy Judge was, in substance, being asked to vary or revoke the order made by Hildyard J, who had refused relief from sanctions and thereby confirmed the debarring order. That meant the criteria laid down in Tibbles v SIG Plc [2012] EWCA Civ 518 applied, ie it would normally be appropriate to exercise the discretion only where (i) there had been a material change of circumstances since the order was made; (ii) the facts on which the original decision was made had been misstated; or (iii) there had been a manifest mistake on the part of the judge in formulating the order.

The Supreme Court added that, even if CPR 3.1(7) did not apply:

"as a matter of ordinary principle, where the court has made an interlocutory order, it is not normally open to a party subsequently to ask for relief which effectively requires that order to be varied or rescinded, save if there has been a material change in circumstances since the order was made".

Here there was no question of the facts having been misstated or a manifest mistake having been made. So the defendants had to establish a material change in circumstance since the hearing before Hildyard J. There was no material change, on the facts. The court rejected the defendant's argument that its late (alleged) compliance with the unless order was a material change.

The court commented that where a party fails to comply with an "unless" order, and relief from sanctions is refused at a time when he is still in default, the mere fact that he then complies with the "unless" order cannot amount to a material change of circumstances justifying a second application for relief. By refusing the first application for relief, the court would effectively have said it was too late to comply with the "unless" order and obtain relief.

The court did not however completely rule out the possibility that late compliance might give rise to a successful second application for relief from sanctions. It gave an example of where a second application might (though not necessarily would) be justified, namely where there was an unless order requiring payment of money and the relevant party was only able to raise the necessary funds after the hearing of the first application (eg through an inheritance, or because the company had gone into liquidation and, unlike the directors, the liquidator was now able to raise money). Here, however, compliance with the order was not accompanied by any explanation that could possibly have justified a court concluding that there was a material change of circumstances.