Should and can the Court consider the merits of the case when determining a relief from sanction application ?
In the recent case of Rapid Displays Inc & Anor v Ahkye & Anor [2022] EWHC 274 (Comm) HHJ Pearce refused the Defendants’ application for relief from sanctions. The application was heard alongside the Claimants’ application for summary judgment.
The Claimants sought recovery of US $500,000 that had been paid into the account of the Second Defendant.
During the course of the litigation, the Court made an Order that the Defendants pay £18,000 to the Claimants, that Order being a peremptory Order. The Defendants did not comply and made an application for relief from sanctions and the Claimants made a cross application for summary judgment. On 16 November 2021, an Order was made with the consent of both parties, adjourning the summary judgment application (and therefore the application for relief from sanction) to 9 December 2021. The Court ordered that the Defendants’ witness evidence be served by 4pm on 22 November 2021, with reply evidence by 4pm on 24 November 2021.
The Defendants failed to meet 22 November deadline to serve their witness statements and therefore on 24 November 2021, the Defendants sought relief from sanction. The statement from the First Defendant upon which the Defendants wished to rely, was dated the same date, 24 November 2021. The application notice also recorded that the Defendants had paid £18,000 pursuant to the Unless Order (it was common ground at the hearing on 7 February 2022, that this payment was made on 8 November 2021. The payment was said to have been funded by a private loan).
On 29 November 2021, HHJ Halliwell considered on paper the application dated 24 November 2021, for relief from sanction relating to the late service of the witness statement. He granted that application. This was the third occasion upon which the Defendants had been in breach of a rule or Court Order. The first relating to the Acknowledgment of Service and the second to the service of a statement pursuant to the Order of HHJ Halliwell of 15 October 2021. Despite there being numerous breaches, given that the statement was dated only two days after the date by which it was due to be served and that the application was made on that same date, it was deemed not the most serious of breaches.
On 9 December 2021, the Defendants’ application for relief from sanction relating to the Unless Order and the Claimants’ application for summary judgment was heard. The bundle filed with the Court was seriously non-compliant with the ‘Guide for the Preparation and Service of Bundles’ (the guidance being referred to in the notice of hearing issued). The Claimants had also not served Particulars of Claim, notwithstanding the duty to do so within 14 days after service of the Claim Form pursuant to CPR7.4. The Claimants produced draft Particulars of Claim which were subject to adverse comment by Counsel for the Defendants. Given the failure to serve the Particulars of Claim, Defences had not been filed. The Claimants required relief from sanction for the failure to serve Particulars of Claim, which was granted. The hearing was adjourned, given the combined problems from late service of the Particulars of Claim and the inadequacy of the bundle (with the Claimants ordered to pay the costs).
The adjourned application was heard on 7 February 2022. Given the earlier adverse comments made by the Judge regarding the preparation of the bundle at the previous hearing, the Judge was somewhat disappointed to find that the Second Defendant’s first witness statement was not in the main bundle and had to be incorporated in a supplemental bundle. It was concluded that no great harm was caused beyond the presumably limited additional costs flowing from the need to add this statement to a supplementary bundle that would have needed to be prepared in any event. The Judge had multiple issues to consider in light of the two applications being heard and the best approach to be taken in dealing with the same.
Firstly, he considered that the merits of the claims against the Defendants may be relevant. The Judge accepted that it is not normal in applications for relief from sanction to consider the merits of the underlying claim. However, because the merits were being considered in any event because of the application for summary judgment, then those may be a relevant factor in considering the third stage of the test in Denton v TH White Ltd [2014] EWCA Civ 906, at least where the party in default has a strong enough case to obtain summary judgment.
Secondly, there was a further interplay between the two applications before the Court. The Claimants contended that the circumstances in which the Unless Order was made involved the credibility of the First Defendant. They alleged that the First Defendant lied in the witness statement that had been relied upon at the hearing heard on 22 October 2021 as to whether the Defendants were still, at that time, in possession of any of the monies from the payment that had been due to the First Claimant. The Claimants contended that the First Defendant had lied on the same issue in the hearing before HHJ Halliwell on 15 October 2021, and that those two occasions of lying lend support to the contention that the Claimants were entitled to summary judgment on the claim, based on the Defendants’ dishonesty.
The Judge turned his thoughts to logic and commented that: “Logically speaking, the determination of the application for relief from sanction must precede determination of the application for summary judgment in the case of each Defendant, since, unless each Defendant gets relief from sanction, the Claimants are entitled to enter judgment against that Defendant regardless of the outcome of the summary judgment application. On the other hand, as I have indicated, the issues on the summary judgment application are closely related to the relief from sanction application and, if the Defendants are correct in their submissions, they would, one or both, be entitled themselves to summary judgment. I therefore propose to consider the merits of the summary judgment application first, before dealing with the Relief from Sanction application, and finally determining the appropriate order”
On the facts of this case, the Judge refused to grant relief from sanctions. The underlying merits of the Defendants’ Defence was a factor, as was the lack of a good explanation for previous statements made in litigation and the absence of a full explanation for the default. The Judge did highlight that the hearing was the sixth interlocutory hearing in the case. Whilst the need to adjourn the previous hearing could not be the blame of the Claimants, the other five have been complicated by the Defendants pursuing an untruthful case and the First Defendant misleading the Court, causing considerable time to be spent in considering a case which, in respect of the Second Defendant was indefensible. Therefore, the Claimants remained entitled to Judgment pursuant to the previous Order dated 22 October 2021.
In summary, this case outlines the importance of not defaulting on deadline dates on numerous occasions, also the requirement for a clear indication from the party seeking relief from sanction to explain fully how the need for an application came about, and the importance of correct bundles.
Lee Doore
25.08.22
Senior Costs Consultant, Partners In Costs