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A new factor to consider when applying for relief from sanctions

03-December-2014
03-December-2014 17:44
in General
by Admin

HRH Prince Abdulaziz Bin Mishal Bin Abdulaziz Al Saud v Apex Global Management Ltd and anor [2014] UKSC 64, Supreme Court, 26 November 2014.

The Appellant, Prince Abdulaziz Bin Mishal bin Abdulaziz Al Saud, appealed against a decision of the Court of Appeal upholding a series of case management decisions by judges of the Chancery Division, including a decision refusing relief from sanctions. The key issue of the appeal for practitioners was the factors upon which the court may take into account when granting relief from sanctions.

Background

The Appellant had entered into a joint venture with the Respondents. The parties subsequently fell out. The Appellant and Respondents issued cross-petitions against each other under section 994 of the Companies Act 2006 which were heard together.

Amongst the relief sought by the Respondents against the Appellant was an order for the payment of approximately $6m plus interest.

Following a case management conference, an order was handed down containing directions for all parties. The Appellant argued against some of the directions but the court rejected his arguments.

Following the CMC, the Appellant purported to have complied with the contended directions, but in fact, had not. The Respondent applied for an “unless order”; that unless the Appellant complied with the case management order, his case be struck out and judgment be entered against him. On the basis of “enforce[ing] compliance with rules, practice directions and orders” under CPR 1.1(2)(f), the unless order was granted. Permission for the Appellant to appeal this order was refused.

The Appellant maintained his position and failed to comply with the unless order. Accordingly, upon application on the papers by the Respondents, judgment was entered in their favour with an order for the Appellant to pay $6m plus interest.

An application was then made by the Appellant under CPR 3.1(7) for a variation of the case management order and for relief from sanctions. The High Court refused to vary the order and rejected the Appellant’s application for relief from sanctions.

The Appellant appealed to the Court of Appeal and then on to the Supreme Court when the appeal failed.

The appeal of the lower courts’ decisions was on the basis of (i) general disproportionality, (ii) the fact that there will be a trial in any event (i.e. close in time to the appeal) , and (iii) the merits of the Appellant’s case.

Judgment

The Supreme Court agreed that the lower courts’ assessment in accordance with the three-stage test from Denton and others v TH White Ltd [2014] 1 W.L.R. 3926 was without fault.

For reference, the three-stage test is as follows;

(i)   Identify and assess the seriousness and significance of the failure to comply with any rule, practice direction or court order which engages rule 3.9(1);

(ii)   Consider why the default occurred;

(iii)   Evaluate all the circumstances of the case, so as to enable the court to deal justly with the application, including in particular:

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

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

The Supreme Court recognised that, although the basis for the lower courts’ decisions were correct, the final result could still be disproportionate. However, having failed to comply with repeated court orders the Appellant’s non-compliance was regarded as severe and therefore the sanctions were proportionate. The decisions of the lower courts were proportionate. Furthermore, the Supreme Court was reluctant to undermine the lower courts’ exercises of their case management powers.

Giving the lead judgment of the Court, Lord Neuberger determined that the default position is that the strengths and the merits of a party’s case are typically irrelevant in relation to case management decisions, particularly of the sort involved in this case, i.e. non-compliance with directions, however:

“The one possible exception could be where a party has a case whose strength would entitle him to summary judgment.” [29]

In essence the Court determined that it was permissible on a relief from sanctions application to consider the merits and strengths of a party’s case if the case is strong enough to obtain summary judgment. Lord Neuberger justified the reasoning for such consideration in the following way:

“…in practical terms, the risk involved in considering the ultimate merits would be much reduced: the merits would be relevant in relatively few cases, and, in those cases, unless the court could be quickly persuaded that the outcome was clear, it would refuse to consider the merits. Accordingly, there is force in the argument that a party who has a strong enough case to obtain summary judgment should, as an exception to the general rule, be entitled to rely on that fact in relation to case management decisions. For present purposes, I am prepared to assume in the Prince’s favour that that is indeed correct.” [31]

The threshold for summary judgment is high and so this threshold moderates the circumstances when a court should consider the merits and strengths of a case. If a case is not strong enough to justify summary judgment, the court should not entertain a party’s arguments on the merits and strengths of a case. In this case, the court decided that the Appellant’s case was not strong enough.

The Appellant succeeded on the point that in exceptional circumstances, the merits and strengths of a party’s case may be considered when deciding whether to grant relief from sanctions. However, in this case, the appeal was dismissed.

Effect

It is important to acknowledge that the judgment handed down by the Supreme Court was not intended to impinge on the decision in Denton v White.

Arguably though, the Supreme Court’s decision introduces a conditional, fourth stage to the Denton v White criteria. It is within the courts’ discretion to consider the merits on the strengths of a case if they are strong enough to justify summary judgment. Further to that, the court is able to grant relief from sanctions on that basis.

It should also be noted that Lord Neuberger was hesitant to provide a definitive authority on the consideration of merits and strengths of a case:

“It is right to acknowledge that, in the course of this judgment, I have expressed myself in some places in somewhat tentative terms (eg in paras 12 – 13, 23, and 31).” [39]

In Practice

The most significant impact of this judgment is that a party, failing to satisfy all three of the stages set out in Denton v White, might still obtain relief from sanctions in circumstances where the applicant’s case is strong enough to obtain summary judgment.

In this case, the Appellant’s non-compliance with orders was significant. Had the Appellant met at least one of the criteria set out in Denton v White, it would have been useful to see how much weight the court would have given to a satisfactorily strong case in regards to whether the court will grant relief in cases of severe non-compliance.

For practitioners, the merits and strengths of your client’s case should no longer be overlooked when drafting an application for relief from sanctions. The prudent approach is to consider whether your client’s pleaded case warrants the inclusion of submissions on merits in an application for relief and accordingly to incorporate these submissions, providing the merits would justify a summary judgment application. It remains to be seen how the lower courts will factor in such a consideration when pre-existing case law has established that a court must not conduct a mini-trial on a summary judgment application.

 

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