RELIEF FROM SANCTIONS, "MATERIALITY" & CONSIDERING THE MERITS IN A DEFAULT JUDGMENT: APPEAL AGAINST REFUSAL OF RELIEF ALLOWED

January 23, 2016 · by · in Appeals, Applications, Relief from sanctions, Setting aside judgment, Uncategorized

In Joshi & Welch Limited -v- Tay Foods [2015] EWHC 3905 (QB) Mr Justice Green allowed an appeal where the judge a first instance refused to grant relief from sanctions.  Much centred on the definition of the word “material”.  The judge also considered the question of how far the court should consider the underlying merits of the case where the sanction related to a judgment in default.

“The present case is one where, on analysis, the defendants have, in my view, used the rules as a tripwire. They knew or must have known full well what the Defence to the Counterclaim was and they acted upon this basis.  At some point, the defendant identified a clever ruse and deployed it.  With all due respect to the judge, he should have adopted the more nuanced approach advocated by the Court of Appeal in Denton.  Robustness is good but it sometimes needs tempering.”
“In my view, these support my earlier conclusion that, where an application for relief is against a sanction of a proposed default judgment, the leeway recognised in Apex Global Management by Lord Neuberger for courts to consider the merits applies.  As I have said, it will be for the court in each case to control the exercise and to consider how the merits are to be adjudicated upon.”

 

KEY POINTS

  • The issue of “materiality” was an important element of the test for relief from sanctions.
  • When, as in this case, the breach made no material difference to the conduct of the case this was an important element when considering relief from sanctions.
  • When considering applications for relief from sanctions in relation to default judgments the court should, at its discretion, consider the underlying merits of the defence.

THE CASE

  • The defendant had filed a defence and counterclaim.
  • The defence to the counterclaim was due on the 29th January 2015.
  • No defence was filed. However witness statements were served on the 9th January 2015 which put forward the claimant’s case on a defence to counterclaim.
  • On the 23rd April 2015 the claimant sought judgment on the counterclaim.
  • On the 25th April 2015 the defendant made an application for relief from sanctions.
  • That application for relief was refused by the Circuit Judge.
  • The defendant appealed.

THE JUDGMENT ON APPEAL: ANALYSIS OF THE ISSUE OF MATERIALITY

(b) Analysis: The issue of materiality under Denton limb 1
  1. It is right to record that, so far as it goes, the judge’s analysis may be said to be unexceptional. I can detect no significant error in his rendition of the tests in Denton, Hysaj (cited in paragraph 15 above) or Apex.  I am also unpersuaded that there was no delay or that the fact that the appellant was unrepresented is relevant.  Where I part company from the judge is in his analysis of the seriousness of the breach and in the implications of his correct observation at paragraph 9 that the failure had minimal effect upon the proceedings.  I also take issue with the judge in his black and white refusal to countenance any consideration of the merits under Denton limb three. 
  2. On the facts the position seems to be that, upon expiry of the time for service of the Defence to Counterclaim, the claimant served a Witness Statement which addressed squarely the issues arising in the Counterclaim. This was on 9 February 2015 and was only a week or so after expiry of the time for service of a Defence.  It was therefore technically served a breach of the rules for no Defence to Counterclaim to have been served.  However, as I have already recorded, the parties proceeded as if a Defence had been served.  This was because it is plain that the defendant was well aware of the appellant’s answer to the allegations contained within the Counterclaim and had sought to rebut the answer in its own Witness Statement evidence.  In a real and substantive sense issue was joined between the parties on both the Claim and the Counterclaim.
  3. Viewed in this light, the violation upon which the judge entered summary judgment was a violation rooted in appearance only but not substance. When the judge said that it exerted minimal effort upon the proceedings it would have been better to describe the effect as virtually non-existent.  I have in this regard considered the observations of the judgment of the Master of the Rolls and of Vos LJ in Denton at paragraph 26 on the relevance of materiality.  In that case the court stated as follows:
“… we think it would be preferable if in future the focus of the enquiry at the first stage should not be on whether the breach has been trivial.  Rather, it should be on whether the breach has been serious or significant.  It was submitted on behalf of the Law Society and Bar Council that the test of triviality should be replaced by the test of immateriality and that an immaterial breach should be defined as one which ‘neither imperils future hearing dates nor otherwise disrupts the conduct of the litigation’.  Provided that this is understood as including the effect on litigation generally (and not only on the litigation in which the application is made), there are many circumstances in which materiality in this sense will be the most useful measure of whether a breach has been serious or significant.  But it leaves out of account those breaches which are incapable of affecting the efficient progress of the litigation, although they are serious.  The most obvious example of such a breach is a failure to pay court fees.  We therefore prefer simply to say that, in evaluating a breach, judges should assess its seriousness and significance.  We recognise that the concepts of seriousness and significance are not hard-edged and that there are degrees of seriousness and significance, but we hope that, assisted by the guidance given in this decision and its application in individual cases over time, courts will deal with these applications in a consistent manner.”
  1. In my judgment, the Court of Appeal was, at least in some degree, endorsing a test of materiality as a useful guide in determining the seriousness and significance of a violation. Of course, the other side of the coin has to be acknowledged.  Rules exist for good reason.  Non-observance can create adverse ripple effects in the administration of the court service which litigants are rarely cognisant of.  The High Court has repeatedly emphasised the real and practical importance of strict observance of procedural rules on a number of recent occasions: see, for example, Akciné Bendrové Bankas Snoras v Antonov & Yampolskaya [2015] EWHC 2136, paragraphs 20 and 21.  However, whilst in no way under-playing the importance of observance of the rules in Denton, the Master of the Rolls and Vos LJ were, at the end of the day, anxious to emphasise that the CPR was not to be used as a tripwire (see paragraph 37).  The Court of Appeal stated as follows at paragraph 38:
“It seems that some judges are approaching applications for relief on the basis that, unless a default can be characterised as trivial or there is a good reason for it, they are bound to refuse relief.  This is leading to decisions which are manifestly unjust and disproportionate.  It is not the correct approach and is not mandated by what the court said in Mitchell: see in particular para 37.  A more nuanced approach is required as we have explained.”
  1. The present case is one where, on analysis, the defendants have, in my view, used the rules as a tripwire. They knew or must have known full well what the Defence to the Counterclaim was and they acted upon this basis.  At some point, the defendant identified a clever ruse and deployed it.  With all due respect to the judge, he should have adopted the more nuanced approach advocated by the Court of Appeal in Denton.  Robustness is good but it sometimes needs tempering.
  2. In many cases of relief against sanction, the consequence of refusing leave will be to deny a litigant a right to adduce certain evidence to a litigant or to pursue an appeal on the merits. In the present case, the consequence of refusal is at the most extreme end of the scale of consequences.  Here default judgment is awarded on a Counterclaim.  The Master of the Rolls in Denton in paragraph 38 reminded judges that ultimately proportionality and justice needed to be borne in mind. In my view, it was neither proportionate nor just to order default judgment in circumstances such as these.  The judge should have held that the violation was wholly technical and exerted no impact at all upon the proceedings and caused no prejudice or harm to the Counterclaimant.  He should then have drawn the inference from these findings of fact that the test for refusing relief in Denton limb 1 was not met.  I therefore conclude in relation to Denton limb 1 that the judge erred.

SHOULD THE COURT CONSIDER THE “MERITS” OF THE CASE?

The judge considered the issue of whether  the court should take into accounts the “merits” of the underlying case.  The solution was to take them into account in broad terms in cases where a judgment in default was being considered.
  1. In my judgment, the logical way around this conundrum is to permit the merits to be addressed as if there was an application under CPR 13.3. The analysis would occur under the 3rd limb of the Denton  It might, or might not, in a given case be decisive.  It would simply be one of the overall circumstances for the court to take into account.  The court would, no doubt, be astute to ensure that any parade of the evidence relating to the merits did not get out of hand.
  2. Fourthly, this conclusion seems to me to be consistent with the thrust of such limited case law that does exist on the point. This includes the judgment in Albesher v Ryan [2015] EWHC 3058.  It also includes the judgment of Neuberger J (as he then was) in Coll v Tattum, 21 November 2001.  On page 6 of the transcript of that judgment, Neuberger J stated as follows:
“In my view, where there has been no application to seek judgment in default of defence or judgment in default of acknowledgement of service, the claimant can frequently be expected to accept a late acknowledgement of service or a late defence.  However, in my judgment, the claimant and indeed the court, would be entitled to insist in an appropriate case on the defendant seeking an extension of time.  The rules are there to be observed, and it seems to me that the general thrust of the rules is such that, where there is no defence or acknowledgement of service or where it is served late, the claimant should have the right to apply for judgment in default without the defendant automatically trumping such an application by the service of a late defence.  Having said that, I think that if an application for judgment in default were made after a late acknowledgement of service or after a late defence, it may very well be dismissed with costs, even though technically justified.”
  1. In Lexi Holdings v Shahid Luqman & Ors [2007] EWHC 2497 Briggs J (as he then was) at paragraphs 7 and 9 expressed similar views.
  2. None of these authorities expressly address CPR 13.3, but they evince a judicial policy which underscores the desirability of courts hearing applications for default judgment reviewing the merits at the same time. In my view, these support my earlier conclusion that, where an application for relief is against a sanction of a proposed default judgment, the leeway recognised in Apex Global Management by Lord Neuberger for courts to consider the merits applies.  As I have said, it will be for the court in each case to control the exercise and to consider how the merits are to be adjudicated upon.
  3. Fifthly, and without rehearsing the evidence, applying these principles to the present case, I am satisfied that there is solid prima facie evidence that the appellant has a defence to the Counterclaim.
  4. In these circumstances, it is my view that the judge erred in concluding that the merits were wholly irrelevant. He should have held that they were relevant, and he should then have gone on to address the strength of the Defence and taken it into account in the overall circumstances.
  5. CONCLUSION
  6. For all of the reasons that I have given, it is evident I consider that the judge erred in principle and I exercise my discretion to allow the appeal and grant relief from sanctions.”

RELATED POSTS

Most of the decisions in relation to relief from sanctions are considered in the Sanctions Case Watch section of this blog.

 

 

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