UK: Relief From Sanction: No Relief From The Supreme Court

Since 2013 when the relevant court rules were amended, it has become significantly more difficult to obtain relief from sanction imposed for breach of a court rule, practice direction or court order.  It is rare for what amount to case management decisions to find their way to the Supreme Court.  But, in Thevarajah v. Riordan [2015] UKSC 78, the Supreme Court had the chance to review the principles in this area.  It took the opportunity to approve the current approach by the lower courts and confirmed that it will be especially difficult for a defaulting party to succeed in any attempt to have a "second bite of the cherry" by renewing its relief application.

The facts

Thevarajah and Riordan were in dispute over a share sale agreement.  The buyer, Thevarajah, sought specific performance and obtained a freezing order against the seller, Riordan.  As part of that order, Riordan had to provide disclosure of assets by a specified date.  Riordan failed to comply and the court made an order that, unless Riordan gave the disclosure by 1 July 2013, he would be debarred from defending the claim and his defence would be struck out.

Riordan failed to meet the new deadline.  In August 2013 he applied for relief from sanction under CPR 3.9.  The court dismissed the application and confirmed the debarring order.  Riordan did not appeal against that decision.  Instead, some eight weeks later and two days before the trial start date, he made a second application for relief from sanction.  On this occasion the judge granted the application, effectively revoking the August order debarring Riordan from defending the claim.

Thevarajah appealed.  The Court of Appeal overturned the order granting relief.  It held that Riordan's second application involved the exercise of the court's discretion under CPR 3.1(7) because it, in essence, sought variation or revocation of the earlier order.  This, in turn, required a material change in circumstances since the court had made that order.  Riordan appealed to the Supreme Court.

The relevant court rules

The appeal gave the Supreme Court the opportunity to consider the interplay between an application under CPR 3.9 for relief from sanction and one seeking exercise of the court's discretion under CPR 3.1(7) to vary or revoke an earlier order.

Under rule CPR 3.9 the court, when dealing with an application for relief from any sanction imposed for breach of any rule, practice direction or order, has to consider all the circumstances of the cases so as to enable it to deal with the application justly.  This specifically includes the need:

1. for litigation to be conducted efficiently and at proportionate cost; and
2. to enforce compliance with rules, practice directions and orders.

In the infamous case of Mitchell v. News Group Newspapers [2014] 1 WLR 795, the Court of Appeal adopted a strict approach to this test.  It held that, for the court to grant relief, the breach would normally need to be de minimis and the applicant would in other respects be required to have complied fully with all procedural requirements.  Alternatively, there would need to have been a good reason for the breach, probably outside the control of the applicant or their lawyers. The upshot in the Mitchell case was that the former Chief Whip, Andrew Mitchell, whose solicitors had failed to file his costs budget on time in his libel action against NGN, was refused relief from sanction and therefore restricted to recovering his court fees only from his opponent should he win the litigation.

In the later decision in Denton v. T H White [2014] 1 WLR 3926, the Court of Appeal established a three-stage test for deciding applications under CPR 3.9:

1. is the breach serious or significant?
2. if so, what was the reason for it?
3. the court should then consider all the circumstances of the case, including the specific factors referred to in sub-paragraphs (a) and (b) of the rule.

In contrast, CPR 3.1(7) in principle gives the court an unfettered discretion to vary or revoke an earlier court order.  But prior authority established that, in practice, the exercise of the discretion is restricted by the need for finality (and to avoid applicants having two bites at the cherry).  It is also  important to avoid the rules on appeals being evaded by allowing a litigant to impugn the earlier order in this alternative manner.  An applicant therefore needs to persuade the court that there has been a material change in circumstances since the date of the original order or that there was a mistake or misunderstanding as to the facts on the basis of which the court made or formulated the order.

The Supreme Court decision

The Supreme Court upheld the Court of Appeal's decision and dismissed the application.  It agreed that Riordan's application was, in substance and effect, one to vary or revoke the order made in August 2013 refusing relief from sanction and confirming that Riordan was debarred from defending the claim.  That order had correctly reflected the principles set out in the Mitchell and Denton cases.  The Court of Appeal was correct when it refused to consider the second application for relief on its merits.  CPR 3.1(7) applied and since there was no error in the basis on which the court had made the original order, Riordan would need to show a material change in circumstances. 

Riordan argued that his subsequent (alleged) compliance with the disclosure order amounted to such a change in circumstances.  Lord Neuberger, giving the only full judgment with which all the other Judges of the Supreme Court agreed, gave this short shrift.  The essential quality of an order refusing relief from sanction is that it is now too late for the applicant to make good their default.  Without more, later compliance will not suffice.  The court gave an example of the type of change in circumstances an applicant would need to show.  Assume the default was a failure to pay money by the date ordered and the court refused relief from the relevant sanction.  If the applicant later went into liquidation and the liquidator managed to raise the funds, that could be a material change in circumstances.

Practical impact of the decision

The Supreme Court's decision gives important guidance for parties seeking relief from sanction and indeed for their opponents who wish to see the court uphold sanctions imposed for breaches of rules, practice directions and orders. 

First, Lord Neuberger described the principles for deciding such applications set out in the Mitchell and Denton decisions as "authoritative".  There is no suggestion, therefore, that there will be any watering down of the court's approach in this area.

Second, the scope for impugning an order refusing relief from sanction is extremely limited.  As a general point, the appeal courts remain reluctant to interfere with a lower court's exercise of its discretion when making a case management decision.  (A recent illustration is Commissioner of Police for the Metropolis v. Abdulla [2015] EWCA Civ 1260.  The Court of Appeal rejected an appeal against an order declining to strike out the claim, despite procedural defaults.  Robust case management decisions should be upheld – unless perverse – even where, as here, the appeal court would have exercised its discretion differently.)

Where an applicant does attempt to have a "second bite at the cherry", as in Thevarajah, the court is likely to treat the application as one seeking to vary or revoke the original order refusing relief from sanction.  CPR 3.1(7) will then apply and the applicant will usually need to show a material change in circumstances since the court made that order.  As the Supreme Court made clear, this is a high hurdle and making good the relevant procedural default will of itself not suffice.

What is perhaps not entirely clear is whether the Supreme Court considered the "material change of circumstances" requirement could apply also to an initial application under CPR 3.9 for relief from sanction.  Lord Neuberger made clear that he agreed with the Court of Appeal that Riordan's application was properly to be dealt with under CPR 3.1(7).  However, he went on to say:

This seems to suggest that an application under CPR 3.9 could – arguably at least – be covered by this principle.  This is because its effect, if granted, may be regarded as  varying the original order by overturning the sanction previously imposed.  But, as the Court of Appeal pointed out in Mitchell, "on an application for relief from a sanction ... the starting point should be that the sanction has been properly imposed and complies with the overriding objective".  Lord Neuberger quoted this principle, which appears to emphasise that the nature of an application under CPR 3.9 is to ask the court to exercise its discretion to grant relief from a properly imposed sanction.  It remains to be seen if, in future, parties trying to uphold a sanction seek to rely on Lord Neuberger's comments to argue that the applicant for relief needs to show a material change of circumstances.  Obviously such a change could be part of "all the circumstances of the case" that the court already takes into account under CPR 3.9, though without this currently being an overriding requirement.

The final lesson to note from Thevarajah is that applications under both CPR 3.1(7) and 3.9 must be made promptly.  The Supreme Court did not disagree with the Court of Appeal's view that an unexplained delay of eight weeks in bringing his application was probably fatal to Riordan's prospects of success, even if his other arguments had found favour.

Thevarajah v. Riordan & Ors [2015] UKSC 78 (16 December 2015)

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