Park v Hadi and another

Civil procedure – Relief from sanctions – Overriding objective – Respondent claiming damages for breach of contract for sale of business against appellants – Appellants applying to strike out claim – Respondent applying informally for relief from sanctions for failing to comply fully with “unless” order – Judge granting relief from sanctions and dismissing application – Appellants appealing – Whether judge correctly applying Civil Procedure Rules when considering grant of relief from sanctions – Appeal dismissed In 2019, the respondent was the sole shareholder and director of two companies: MPL, which held a lease of the pub premises from the relevant brewery; and HFKL, which carried on the business. He offered the pub and the business for sale for £179,000. MPL was at the time in arrears of rent. In early May 2019, there was a meeting between the respondent and the first appellant. The respondent’s case was that they respectively agreed to sell and buy the business for £170,000, with the first appellant paying a deposit of £30,000, paying the arrears of rent and paying the balance on completion of an assignment of the lease to his company. The appellants’ argued that the respondent agreed to sell the business for £40,000. The respondent sought damages for breach of contract for the sale of the business. The appellants applied to strike out his claim. The judge adjourned that application and made an “unless” order on 4 June 2020 requiring the respondent to take various procedural steps by 18 June 2020, failing which the particulars of claim would be dismissed. The respondent complied with most of those requirements but did not make full disclosure and the witness statements provided contained procedural defects. A technical difficulty also meant that the appellants did not receive the documents until five days after the deadline. The judge subsequently granted the respondent relief from sanctions for breach of the 4 June order and dismissed the appellants’ strike out application. The appellants appealed. Held: The appeal was dismissed. (1) By rule 3.8(1) of the Civil Procedure Rules (CPR): “Where a party has failed to comply with a rule, practice direction or court order, any sanction for failure to comply imposed by the rule, practice direction or court order has effect unless the party in default applies for and obtains relief from the sanction”. By CPR rule 3.9: “(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction of 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; (b) to enforce compliance with rules, practice directions and orders. (2) An application for relief must be supported by evidence.” The court was required to adopt a three-stage approach when considering an application for relief from sanctions: (i) identify the seriousness and significance of the failure to comply with any rule, practice direction or court order which engaged rule 3.9(1); (ii) consider why the default occurred; and (iii) evaluate all the circumstances of the case, so as to enable the court to deal justly with the application: Denton v TH White Ltd [2014] EWCA Civ 906; [2014] 1 WLR 3296 applied. (2) An application for relief from sanctions had to be made by a Part 23 application notice supported by a witness statement. It was, however, clear that the court had a discretion to grant relief from sanctions where, as in the present case, no formal application notice had been issued but an application was made informally at a hearing; or where no application was made, even informally, but the court acted of its own initiative. The discretion had to be exercised consistently with the overriding objective of enabling the court to deal with cases justly and at proportionate cost. The court, therefore, had to consider initially why there had been no formal application notice, or no application at all; whether the ability of another party to oppose the granting of relief (including, if appropriate, by the adducing of evidence in response) had been impaired by the absence of notice; and whether it had sufficient evidence to justify the granting of relief from sanctions (though the general rule in CPR rule 32.6 did not impose an inflexible requirement that the evidence be in the form of a witness statement). It followed, from the need for those initial considerations, that the discretion would be exercised sparingly, particularly where there had been no application at all, and the court was contemplating acting of its own initiative, because in such a situation there might well be prejudice to an opposing party and/or an absence of relevant evidence. If, however, the initial considerations led to the conclusion that relief might justly be granted, the court would then go on to follow the Denton three-stage approach. It would, no doubt, very often be the case that factors relevant to the initial considerations were also relevant to the Denton stages: Keen Phillips (a firm) v Field [2006] EWCA Civ 1524; [2007] 1 WLR 686, Marcan Shipping (London) Ltd v Kefalas [2007] EWCA Civ 463; [2007] 1 WLR 1864 and Boodia v Yatsyna [2021] EWCA Civ 1705; [2022] EGLR 1 applied. (3) In the present case, the respondent had made what amounted to an informal application at the hearing for relief from sanctions. This was not, therefore, a case in which the judge acted of his own initiative. The respondent’s failure to file an application notice did not occasion any real difficulty to the appellants in opposing the informal application. The judge was entitled to find that he had sufficient evidence to enable him to determine that informal application, and it would have been a needless increase in costs and delay to adjourn so that a formal witness statement could be filed. The judge was entitled, for the reasons he gave, to find that the respondent’s defaults in compliance with the judge’s order were neither serious nor significant. On the evidence, it was impossible to say that his decision was not properly open to him. CPR 3.9(1)(a) and (b) were always important factors for the judge to consider, but they were not the only factors. There had been no challenge to the judge’s decision that the claim had a real prospect of success. This was a case in which the real issues could only properly be dealt with at a trial. George Bompas QC and Elizabeth Walsh (instructed by Sterling Winshaw Solicitors) appeared for the appellants; Ryan Ross (instructed pro bono) appeared for the respondent. Eileen O’Grady, barrister Click here to read a transcript of Park v Hadi and another