Applications for relief from sanctions

Sharpe Pritchard

Introduction

The Jackson reforms, which came into force in April 2013, heralded a sea change in the conduct of litigation in England and Wales. The reforms were introduced in an attempt to overhaul the court’s then existing approach to case management. Exacting compliance with the rules is the bedrock of the new system – parties are now expected to conduct litigation in an efficient and cost-effective manner.

Relief from sanctions is arguably the most contentious issue to have arisen under the reforms. In the immediate aftermath, courts became far less lenient of breaches of orders and the Civil Procedure Rules (CPR). The landmark decision in Mitchell v News Group Newspapers Ltd alarmed the profession and spearheaded a dramatic increase in the imposition of sanctions for breaches of orders and the rules.

Denton v TH White Ltd introduced a less draconian ‘three-stage’ test under CPR 3.9. Parties had hoped the Denton decision would put an end to the ancillary litigation surrounding relief from sanctions. While courts have shown a greater willingness to grant relief from sanctions, they are less tolerant of serious breaches.

The reforms are still evolving and it remains unclear how the courts will apply them. Parties should be aware of the shift in the culture of case management and, in particular, the remedies available to them in the event that sanctions are imposed.

Sanctions

There are two ways a court may impose sanctions for breach of a court order or the Civil Procedure Rules. In cases where there has been a breach of these rules, a court may impose an automatic sanction, if this is stipulated in the relevant rule. Alternatively, a court may opt to particularise a sanction in an order. The sanction will take effect unless a party applies to the court for relief from the sanction. CPR 3.9 provides that, on an application for relief from sanctions, the court will consider all the circumstances of the case so as to enable it to deal justly with the application. The court is required to consider the need for litigation to be conducted efficiently and at proportionate cost, along with the need to enforce compliance with rules, directions and court orders.

The test in CPR 3.9 was famously applied in the Mitchell case, which spawned the Mitchell guidelines – if the breach was not trivial and there was no good reason for it, relief from sanctions was generally not awarded.

The application and interpretation of the Mitchell guidelines gave rise to a number of harsh or inconsistent judgments. Parties also became increasingly hostile and intransigent in their approach, seeking to make tactical gains where an adversary had committed a minor technical breach.

The Mitchell guidelines were replaced by the more forgiving three-stage test in Denton. The decision on whether to grant relief from sanctions is case-sensitive and discretionary and courts must ask:

  1. Is the breach serious or significant?
  2. If the breach is serious, why did the default occur? and
  3. The details of all the circumstances of the case in order to assess and deal with the application.

Life after Denton

Since Denton, there has been a steady flow of cases concerning relief from sanctions. Unfortunately, there is a lack of conclusive authority as to when and in what context relief from sanctions is required.

In Michael Wilson & Partners Ltd v Sinclair & Ors, the Court of Appeal set aside its earlier order declining to lift a stay prescribed for failure to give security for costs. The court confirmed that, in granting the earlier order, the judge had adopted an excessively harsh approach, based on his perception of the principles laid down in Mitchell.

In Viridor Waste Management v Veolia Environment Services, the claimant had served particulars of claim late, as a result of an administrative error. The Commercial Court granted its application for relief from sanctions in circumstances where a new claim would be time-barred. The court also penalised the defendant in indemnity costs for challenging the issue. The decision serves as a stark warning to parties that seek to use the regime for their own tactical advantage.

In Solland and others v Clifford Harris, the claimants had applied for relief from sanctions and an extension of time in which to file their allocation questionnaire. Master Bowles concluded that relief from sanctions did not apply in this particular situation. The court distinguished failure to lodge an allocation questionnaire with failure to lodge a defence or a notice of appeal. With the latter, a party would effectively be prevented from pursuing its case and the sanction would thus apply. In the former scenario, the oversight would not affect a party’s ability to progress its case and the sanction would not apply. The case seems to suggest that the analysis in CPR 3.9 is not applicable where the sanction in the rule that has been breached does not have the effect of automatically precluding the claim from progressing.

In Tideland Ltd v Westminster City Council, Mr Justice Edwards-Stuart was required to consider an application for relief from sanctions under CPR 3.9, in the context of an application to set aside a default judgment under CPR 3.13. The defendant local authority had failed to file an acknowledgment of service in time, which culminated in the judgment regarding a £7 million claim. The court had to consider whether the defendant authority had acted promptly in applying to set aside a default judgment; it was accepted that the defendant had a real prospect of successfully defending the claim. The defendant had submitted its application two months after the judgment.

Mr Justice Edwards-Stuart held that the defendant had acted promptly in seeking to set aside judgment. In such cases it is sufficient to act with all reasonable speed. In terms of its application for relief from sanctions, the judge pointed out that the defendant authority’s failures were not deliberate, but instead amounted to incompetence. There would also be no procrastination in resolution of the dispute. Finally, permitting the judgment to stand would wrest the defendant of a good defence, on the merits, to a significant claim, and it was likely that the defendant would be uninsured if the judgment was permitted to remain in place.

In Jackson v Thompsons Solicitors and others, the High Court had to consider an application under CPR 3.9 for relief from sanctions in relation to a failure to provide notice of conditional fee arrangements (CFAs). The defendants’ solicitors had entered into CFAs with junior and leading counsel, as well as one with their client. The defendant’s solicitors had failed to serve the claimant with notice of its conditional fee arrangements with counsel (Form N251), as required under the old CPR 44.15(2). Notice with its client was served seven weeks late. Simon J held that relief from sanctions should be granted, in respect of the CFAs with counsel. In applying the test set out in Denton v White, His Lordship pointed to the claimant solicitors’ failure to respond to the correspondence. He also noted that the matter was unlikely to raise any issues until the trial had concluded.

In regard to the ‘client’ conditional fee arrangement, His Lordship noted that the claimant had failed to raise any objections to the notice at the time and concluded that, while the breaches were grave, they had no impact on the progress of the case or on other court users. The decision follows closely in the footsteps of Caliendo and another v Mishcon de Reya and another, which came to a similar ruling.

More recently, in Thevarajah v Riordan and others, the Supreme Court considered an appeal from a decision to reverse an order awarding a second application for relief from sanctions under CPR 3.9 – CPR 3.1(7) gives the court a power to vary or revoke a court order. The Supreme Court held that the Court of Appeal was correct to decide that CPR 3.1(7) applied to the second relief application; it gives the court a power to vary or revoke a court order. The defendants needed to show that one of the requirements of CPR 3.1 (7) applied, for example, that there had been a material change in circumstances since the hearing of the first relief application. On the facts, the defendants could not demonstrate this and the appeal was consequently dismissed. The decision confirms that, where a party who has been unsuccessful in obtaining relief from sanctions makes a second relief application, CPR 3.1(7) will apply to the second application for relief. It also seems to suggest that ‘material change of circumstances’ will be a difficult threshold, serving as a useful reminder of the need to make relief applications promptly and without undue delay.

Conclusion

The Denton decision gave parties some breathing space after the harsh effects of Mitchell. The court has since adopted a more relaxed and flexible approach when considering relief applications.

However, there remains considerable uncertainty as to when and in what situations relief from sanctions may be awarded. The circumstances of each case will inevitably differ on each occasion, making it almost impossible to predict the likely result. It is clear that courts will not ignore serious breaches and parties who fail to comply with orders face a serious risk that they may be reprimanded, or even that their pleadings are struck out.

In this precarious climate, parties are advised to avoid being in a situation in which they have to apply for relief from sanctions. Organisation is key, and parties should be aware of and review looming deadlines to seek to obtain extensions in appropriate situations.

Prevention is often the best medicine.