England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION OF THE HIGH COURT OF JUSTICE
THE HONOURABLE MRS JUSTICE McGOWAN
QB/2014/0268

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/03/2016

Lord Justice Jackson:

1. This judgment is in seven parts, namely:

Part 1. Introduction	Paragraphs 2 to 8
Part 2. The facts	Paragraphs 9 to 28
Part 3. The appeal to the Court of Appeal	Paragraphs 29 to 33
Part 4. Stage 1	Paragraphs 34 to 44
Part 5. Stage 2	Paragraphs 45 to 51
Part 6. Stage 3	Paragraphs 52 to 61
Part 7. Conclusion	Paragraphs 62 to 66

Part 1. Introduction
2. This is an appeal by a defendant, whose defence has been struck out for non-compliance with court orders, against the refusal of relief from that sanction pursuant to Civil Procedure Rule 3.9. The principal issues in this appeal are:

i) whether, in assessing the seriousness of non-compliance with an "unless" order, the court should have regard to the original breach which gave rise to the "unless" order;

ii) the effect of delay in applying for relief.

3. I shall refer to the Civil Procedure Rules 1998, as amended, as "CPR". CPR 3.9 provides:

"Relief from sanctions

(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

(a) for litigation to be conducted efficiently and at proportionate cost; and

(b) to enforce compliance with rules, practice directions and orders.

(2) An application for relief must be supported by evidence."

4. CPR 29.6 provides:

"Pre-trial check list (listing questionnaire)

(1) The court will send the parties a pre-trial check list (listing questionnaire) for completion and return by the date specified in directions given under rule 29.2(3) unless it considers that the claim can proceed to trial without the need for a pre-trial check list.

(2) Each party must file the completed pre-trial check list by the date specified by the court.

(3) If no party files the completed pre-trial checklist by the date specified, the court will order that unless a completed pre-trial checklist is filed within 7 days from service of that order, the claim, defence and any counterclaim will be struck out without further order of the court.

(4) If –

(a) a party files a completed pre-trial checklist but another party does not;

(b) a party has failed to give all the information requested by the pre-trial checklist; or

(c) the court considers that a hearing is necessary to enable it to decide what directions to give in order to complete preparation of the case for trial,

the court may give such directions as it thinks appropriate."

5. The terms "pre-trial checklist" and "listing questionnaire" are both used to refer to the document which is the subject of rule 29.6. I shall refer to it by the abbreviation "PTC".
6. The defendant's solicitors in this action are Bower and Bailey LLP. I shall refer to them as "BB".
7. In discussing hypothetical situations I shall refer to an imagined party as "X".
8. After these introductory remarks, I must now turn to the facts.
Part 2. The facts
9. The claimant is seeking to recover some £200,000 as payment for electricity supplied to the defendant. The defendant disputes liability for the sum claimed on a variety of grounds.
10. On 7^th February 2013 the claimant issued proceedings in the Queen's Bench Division of the High Court to recover that debt. Following close of pleadings there was a stay for settlement negotiations, which did not bear fruit. On 1^st October 2013 the action was transferred to the Oxford County Court.
11. On 1^st November 2013 District Judge Matthews at the Oxford County Court gave directions for disclosure, exchange of witness statements and related matters. Section 4 of the district judge's order stated:

"Trial and Pre-Trial Checklists

4.1 Trial Window – the Trial take place during the period beginning on 7 April 2014 and ending on 30 May 2014.

4.2 The present estimate of time to be allowed for the Trial is 2 days.

4.3 Pre-trial Checklists – each party file his completed Pre-Trial Checklists by 3 February 2014 with up to date costs estimates (not Form H).

4.4 The parties inform the Court forthwith of any change in the Trial time table."

12. On 8^th November 2013 the court sent a notice to the parties, stating that the trial would take place on 30^th April and 1^st May 2014, with an estimated length of two days.
13. On 17^th January 2014 the court sent to both parties a standard form PTC. An accompanying notice stated that the PTC should be returned by 3^rd February 2014. The claimant duly returned its PTC by 3^rd February. The defendant failed to do so.
14. On Monday 10^th February 2014 District Judge Gatter made the following order:

"IT IS ORDERED THAT

Unless the Defendant files Listing Questionnaire by 19^th February 2014 their Defence will be struck out without further order of the Court."

I shall refer to this order as "the unless order".

15. The unless order arrived at BB's office on Thursday 13^th February 2014. Any order in those terms should galvanise solicitors into action, especially in early 2014 when the Court of Appeal's decision in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537; [2014] 1 WLR 795 was the subject of widespread discussion. BB unfortunately were not galvanised into action. They failed to comply with the unless order.
16. On 18^th February 2014 a trainee solicitor at BB filed a directions questionnaire at the Oxford County Court. This document had no relevance to the action which was approaching trial.
17. On 19^th February 2014 the unless order became operative. The defendant's defence was automatically struck out. The defendant's copy of the unless order was subsequently lost. No copy survives on BB's file.
18. On 20^th February 2014 the court wrote to BB, stating that it had received a directions questionnaire, but not a PTC.
19. The obvious course for BB to take at that stage (in addition to filing a PTC) was to apply to the court pursuant to CPR 3.9. BB did not take that course.
20. On the 21^st February 2014 the defendant filed a PTC at court. That was 18 days late by reference to the original order and two days late by reference to the unless order.
21. On 25^th February 2014 the claimant applied for judgment in default of defence. The basis of this application was that the defendant's defence had been automatically struck out pursuant to the unless order. On 18^th March 2014 the court issued judgment in default for £211,388, including interest.
22. On 24^th March 2014 the defendant applied to the court for relief from the sanction contained in the unless order. The defendant made no application to set aside the judgment in default.
23. The defendant's application for relief was supported by a witness statement made by Mr Jeremy Leach. Mr Leach was at that time, but is no longer, a solicitor employed by BB. Mr Leach had conduct of the litigation on behalf of the defendant.
24. In his statement Mr Leach said that his wife had been suffering from various complications with her pregnancy since July 2013. This had caused Mr Leach to take numerous periods out of the office in order to attend at hospitals and doctors' appointments. During critical periods in February 2014 he had entrusted the British Gas litigation to a trainee solicitor, while Mr Leach was away from the office.
25. In recounting the history of events Mr Leach omitted to reveal that the unless order reached his office on 13^th February. He merely stated that he personally received it on 17^th February.
26. Judge Harris QC heard the application on 15^th April 2014. He granted relief from sanction. I would summarise his reasoning as follows:

i) The unless order did not reach BB until 17^th February, which only allowed two days for compliance. (In this regard the judge had been misled by Mr Leach's evidence.)

ii) The rules do not provide any sanction for failure to file a PTC. However, District Judge Gatter's order did provide such a sanction and the defendant should have complied with that order.

iii) Applying the tests set out in Mitchell, the defendant's non-compliance was "trivial".

iv) The non-compliance occurred in part because Mr Leach was attending to his wife's health problems. There was a good reason for the defendant's non-compliance of the kind referred to at paragraph 41 of Mitchell.

v) A harsher and less indulgent approach is now taken following the Court of Appeal's decision in Mitchell. Nevertheless, applying the Mitchell principles, the defendant's application for relief should succeed.

vi) There is no application to set aside the judgment in default. Strictly there ought to be such an application. Despite that omission the court will set aside the judgment in default.

vii) The trial dates of 30^th April and 1^st May 2014 have been vacated. Other cases will take their place.

27. The claimant appealed to the High Court against the decision of Judge Harris. McGowan J heard the appeal on 7^th October 2014 and gave judgment allowing the appeal on 5^th December. Accordingly she restored the default judgment in favour of the claimant. I would summarise McGowan J's reasoning as follows:

i) The defendant's solicitors had three months to comply with the 1^st November order, but failed to do so. They were two days late in complying with the unless order. This breach was serious and significant.

ii) BB were a firm of significant size with over 40 solicitors. Despite Mr Leach's personal difficulties, the firm should have ensured that a competent solicitor with available time dealt with the British Gas case. The trainee solicitor should have been properly supervised. There was no good reason for the default.

iii) On considering all the circumstances of the case, as required by rule 3.9 (1) and in accordance with the guidance given by the Court of Appeal in Denton v TH White Ltd [2014] EWCA Civ 906; [2014] 1 WLR 3926, it was not right to grant relief from the sanction.

iv) Judge Harris fell into error by applying an overly generous interpretation of the Court of Appeal's decision in Mitchell. (The Denton decision was not available at the time of Judge Harris' judgment.)

28. The defendant is aggrieved by the decision of McGowan J. Accordingly it appeals to the Court of Appeal.
Part 3. The appeal to the Court of Appeal
29. Mr Louis Weston for the appellant defendant and Mr Malcolm Birdling for the respondent claimant agree that in applying CPR 3.9, the court must follow the guidance given by the Court of Appeal in Mitchell and subsequently modified in Denton. That guidance involves consideration of an application for relief from sanctions in three stages.
30. The first stage is to assess the seriousness or significance of the breach. The second stage is to determine whether there was good reason for the breach. If the breach was serious or significant and there was no good reason for it, then one comes to the third stage. This involves considering all the circumstances of the case, assigning particular weight to factors (a) and (b) set out in rule 3.9, and dealing justly with the application.
31. Judge Harris found in favour of the defendant at each of the three stages of the exercise. McGowan J came to the opposite conclusion at each of the three stages.
32. Mr Weston rightly reminds us that Judge Harris was exercising a discretion under rule 3.9. Neither McGowan J nor this court are considering how they would have exercised that discretion. The question on both the first appeal and the second appeal is whether Judge Harris reached a decision which was open to him within the ambit of his discretion.
33. Both counsel have helpfully addressed this question by reference to the three stages set out in Denton. I shall do the same.
Part 4. Stage 1
34. The central issue which has emerged in relation to stage 1 is this. Should the court look at the breach of the unless order in isolation, namely filing the PTC two days late? Or should the court also take into account that the defendant had had three months in which to comply with the 8^th November order and was 18 days late under the terms of that order.
35. Judge Harris appears to have taken the former view in paragraph 14 of his judgment. McGowan J took the latter view in paragraph 18 (i) of her judgment.
36. In relation to this issue, the crucial passage in the authorities is paragraph 27 of Denton. In that paragraph the Master of the Rolls and Vos LJ ("the majority") said:

"The assessment of the seriousness or significance of the breach should not, initially at least, involve a consideration of other unrelated failures that may have occurred in the past. At the first stage, the court should concentrate on an assessment of the seriousness and significance of the very breach in respect of which relief from sanctions is sought. We accept that the court may wish to take into account, as one of the relevant circumstances of the case, the defaulter's previous conduct in the litigation (for example, if the breach is the latest in a series of failures to comply with orders concerning, say, the service of witness statements). We consider that this is better done at the third stage (see para 36 below) rather than as part of the assessment of seriousness or significance of the breach."

37. In my view the reference in the first sentence of that paragraph to "unrelated failures" is a reference to earlier breaches of rules or orders which the applicant has committed during the course of the litigation. At stage 1 it is not legitimate to say "this breach is trivial but, set against X's history of failures and delays, this breach is the last straw. It becomes a serious matter." At stage 1 the court must ignore X's historic breaches and assess the breach in respect of which X is seeking relief.
38. An "unless" order, however, does not stand on its own. The court usually only makes an unless order against a party which is already in breach. The unless order gives that party additional time for compliance with the original obligation and specifies an automatic sanction in default of compliance. It is not possible to look at an unless order in isolation. A party who fails to comply with an unless order is normally in breach of an original order or rule as well as the unless order.
39. In order to assess the seriousness and significance of a breach of an unless order, it is necessary also to look at the underlying breach. The court must look at what X failed to do in the first place, when assessing X's failure to take advantage of the second chance which he was given.
40. In my view the phrase "the very breach" in paragraph 27 of Denton, when applied to an unless order, means this: the failure to carry out the obligation which was (a) imposed by the original order or rule and (b) extended by the unless order.
41. The very fact that X has failed to comply with an unless order (as opposed to an 'ordinary' order) is undoubtedly a pointer towards seriousness and significance. This is for two reasons. First, X is in breach of two successive obligations to do the same thing. Secondly, the court has underlined the importance of doing that thing by specifying an automatic sanction in default (in this case the Draconian sanction of strike out).
42. On the other hand, as Mr Weston rightly says, not every breach of an unless order is serious or significant. In Utilise the claimant was just 45 minutes late in complying with an unless order. He filed his budget by 4.45 p.m., rather than 4 p.m. when it was due. The Court of Appeal held that a delay of only 45 minutes in compliance was "trivial". The court also noted that, contrary to the district judge's view, there was no underlying breach of the rules onto which the unless order was attached.
43. After this review of the authorities, let me return to the present case. BB had three months to comply with the 1^st November order. They did not do so. They filed their PTC 18 days late by reference to that order. BB received the unless order on 13^th February (not 17^th February as Judge Harris was led to believe). They had six days in which to comply with the unless order. They failed to do so. The document which they filed on 18^th February was not a PTC. Furthermore its contents bore no sensible relationship to the current litigation. It proposed that all sorts of steps should be taken long after the fixed trial date.
44. The defendant did not file a PTC until two days after the expiry of the unless order. In my view McGowan J was right. It is not possible to classify the defendant's breach as anything other than significant and serious.
Part 5. Stage 2
45. The issue at this stage of the inquiry is whether there was good reason for the default. Paragraph 41 of Mitchell gives some examples of good reasons, including the following:

"For example, if the reason why a document was not filed with the court was that the party or his solicitor suffered from a debilitating illness or was involved in an accident, then, depending on the circumstances, that may constitute a good reason."

46. The Court of Appeal explained in Denton at [29] to [30] that at the second stage the court must consider why the failure or default occurred. The examples given in Mitchell at [41] are not exhaustive. It would not be appropriate for the court to produce an encyclopaedia of good and bad reasons.
47. Judge Harris considered that the present case was "akin to the illness, or accident, referred to in paragraph 41 of Mitchell": see paragraph 27 of his judgment.
48. McGowan J took a different view. She pointed out that the health problems of Mr Leach's wife had been known for many months. BB was a firm of significant size. It should have provided appropriate cover for Mr Leach's cases. Also the firm should have provided appropriate supervision for the trainee solicitor dealing with the matter.
49. In my view McGowan J's analysis is correct. The present case is not akin to any of the examples given in paragraph 41 of Mitchell. Nor can the present circumstances be realistically characterised as a good reason for non-compliance.
50. An additional and important factor is that on 17^th February Mr Leach attended the office and he considered the directions questionnaire which the trainee had prepared. It should, I am afraid, have been immediately obvious (a) that the document was not a PTC and (b) that the contents were obviously inappropriate for a case two months away from trial. Instead of intervening at that point, Mr Leach approved the document and allowed it to be sent to the court.
51. Let me now draw the threads together. In my view McGowan J was correct. In the circumstances of this case it was not open to Judge Harris to find that there was good reason for the defendant's default.
Part 6. Stage 3
52. In relation to stage 3 of the inquiry, the correct approach is set out in paragraphs 31 to 38 of Denton. The court must consider all the circumstances of the case, but must attach particular weight to the following factors:

"the need –

(a) for litigation to be conducted efficiently and at proportionate cost; and

(b) to enforce compliance with rules, practice directions and orders."

53. The majority in Denton rejected my heretical view that those two factors require specific consideration, without carrying greater weight than other relevant factors. I must and do loyally accept the decision of the majority.
54. The court stated in paragraph 36 of Denton that the promptness of the application is a relevant circumstance to be considered. The importance of applying promptly for relief is stressed in the earlier authorities. See Mitchell at [40] and Durrant v Chief Constable of Avon and Somerset Constabulary [2013] EWCA Civ 1624; [2014] 1 WLR 4313 at [49].
55. Let me now turn to the present case. It the defendant had made an immediate application for relief at the same time as filing its PTC, or very soon after, I would have been strongly inclined to grant relief from the sanction of striking out. To debar a party from defending a £200,000 claim because it was somewhat late in filing a PTC is not in my view required by rule 3.9, even as interpreted by the majority in Denton.
56. As at 21^st February the late filing of the listing questionnaire had not had any adverse impact on the smooth conduct of the action. The moderately late filing of a PTC is not like the late service of evidence or the late disclosure of documents. It does not disrupt the work schedule of any other party to the action. The PTC is needed for administrative reasons, except in those cases where the court dispenses with that procedural step. The late provision of the PTC in this case did not have any adverse effect on the administrative processes of the Oxford County Court.
57. If, therefore, the defendant had promptly applied for relief from the sanction, in my view this is a case where one of two things would have happened. The claimant may (and should) have consented to the application. Alternatively, the court would have acceded to the application when applying stage 3 of the Denton test.
58. Unfortunately the defendant did not make a prompt application for relief pursuant to rule 3.9. On 25^th February 2014 the claimant's solicitors applied to the court for judgment in default. BB responded by sending a letter to the court, which they did not copy to the claimant's solicitors. In that letter BB asked for the court's "forgiveness". Even then they did not make the appropriate application.
59. Events followed an inevitable course. Since there was no extant defence, on 18^th March 2014 the court issued a default judgment in favour of the claimant.
60. BB waited for another week. On 24^th March 2014 they issued an application for relief from the sanction pursuant to rule 3.9. By then, unfortunately, the trial date had been lost. If the court had granted relief at that late stage, it would have needed to fix a new trial date some time after the original trial window. The serious consequences of losing a trial date are discussed in Denton at paragraph 89.
61. In my view the defendant's lack of promptness in applying for relief is the critical factor. When that delay is added to all the other factors, it can be seen that the defendant's default has substantially disrupted the progress of the action. Bearing in mind factors (a) and (b) in rule 3.9 (which under Denton must be given particular weight) there is really only one answer to the question which arises at stage 3. The court must refuse the application for relief.
Part 7. Conclusion
62. In this action the claimant claims some £200,000 for the supply of electricity. The defendant disputes liability on a number of grounds. On 1^st November 2013 the court ordered the parties to file the pre-trial checklists by 3^rd February 2014. The defendant failed to do so. On 10^th February 2014 the court directed that the defence be struck out if the defendant failed to serve the checklist by 19^th February. The defendant failed to serve its checklist until 21^st February. As a consequence of that default the defendant's defence was automatically struck out. The claimant applied for and obtained judgment in default of defence.
63. Eventually the defendant applied for relief from sanction pursuant to CPR 3.9. The defendant made that application on 24^th March 2014. By then the trial date had been lost.
64. Judge Harris QC granted relief from sanction and set aside the default judgment. The claimant appealed to McGowan J, who allowed the appeal and reinstated the default judgment.
65. The defendant now appeals to the Court of Appeal. In my view McGowan J was correct. Following the guidance given by the Court of Appeal in Denton v TH White Ltd [2014] EWCA Civ 906; [2014] 1 WLR 3926, the defendant's application for relief pursuant to CPR 3.9 must be refused.
66. If King LJ and Lindblom LJ agree, this appeal will be dismissed.

Lady Justice King:

67. I agree.

Lord Justice Lindblom:

68. I also agree.