THE AUTOMATIC STAY AND RELIEF FROM SANCTIONS: AN ISSUE “DESTINED TO LIVE OUT ITS LITIGATION LIFE IN A LIMBO OF OBITER OBSERVATIONS”

The judgment of Mr Justice Foxton in Bank of America Europe DAC v CITTA Metropolitana Di Milano [2022] EWHC 1544 (Comm) serves of a salutary reminder (to some) of the existence of the automatic stay in civil proceedings.   A claimant that allows the action to become stayed requires permission of the court to proceed.  This issue is decided on, more or less, Denton principles.

“... the question of whether the Denton test applies under CPR 15.11(2) may well be one of those procedural points destined to live out its litigation life in a limbo of obiter observations.”

THE CASE

The claimant issued several sets of proceedings and served them in 2016. For various reasons the proceedings did not progress, the defendants did not file an acknowledgment of service, the claimant took no steps to obtain judgment or take the matter forward.

CPR 15.11

1. 1. CPR 15.11 provides:

“(1) Where –

(a) at least 6 months have expired since the end of the period for filing a defence specified in rule 15.4;

(b) no defendant has served or filed an admission or filed a defence or counterclaim; and

(c) the claimant has not entered or applied for judgment under Part 12 (default judgment) or Part 24 (summary judgment)

the claim shall be stayed.

(2) Where a claim is stayed under this rule any party may apply for the stay to be lifted.”

THE TEST TO BE APPLIED WHEN CONSIDERING AN APPLICATION UNDER CPR 15.11

The judge considered that the imposition of an automatic stay was a “sanction”. The criteria to be considered when considering whether the stay should be lifted is, if not the Denton test, something very close to it.

1. 1. The automatic stay of a claimant’s claim following from its failure to ensure that the case remained subject to judicial management would, as a matter of ordinary language, be described as a “sanction”. Such a claimant loses the unfettered right to pursue its claim, and must instead obtain the exercise of a court’s discretion in its favour, which might be refused or granted on unfavourable terms. As Jonathan Parker LJ observed of the PD51 stay in Audergon in the passage quoted at [11] above, “there can be no doubt that, in ordinary parlance, the automatic stay … may aptly be described as a sanction”.

1. 1. Further support for this view is provided by the procedural antecedents of CPR 15.11. The first edition of Civil Procedure published in 1999 contained the following commentary after the new rule:

“This rule imposes an automatic stay after 6 months if the defendant fails to file an admission, defence or counterclaim and the claimant has not sought default judgment or summary judgment. There was no equivalent rule in the RSC and the rule caters for the same situation previously covered by CCR O.9 r.10. However, under CCR O.9 r.10 the relevant period was 12 months (now reduced to 6 months) and the action was automatically struck out (not stayed)”.

1. 1. Order 9 Rule 10 of the County Court Rules 1981 provided:

“Where 12 months have expired from the date of service of a default summons and-

(i) no admission, defence or counterclaim has been delivered and judgment has not been entered against the defendant, or

(ii) an admission has been delivered but no judgment has been entered under rule 6(1) or, as the circumstances may require, no notice of acceptance or non-acceptance has been received by the proper officer,

the action shall be struck out and no enlargement of the period of 12 months shall be granted under Order 13, rule 4″.

The provision was introduced into the County Court Rules in 1952.

1. 1. While it was the introduction of CPR 3.9 which led to the introduction of the vocabulary of “relief from sanctions” into the litigation lexicon, it would be difficult to characterise the automatic strike out under CCR Order 9 Rule 10 as anything other than a sanction. The absolute character of CCR Order 9 Rule 10 gave rise to a number of problems, which became particularly apparent when the jurisdiction of the County Court in personal injury cases was significantly enlarged by the High Court and County Courts Jurisdiction Order 1991 (Heer v Tutton [1995] 1 WLR 1336). That may well explain the decision to replace the automatic strike out (which the Woolf Report had originally proposed) with a stay which the parties could apply to lift. However, I am not persuaded that this change fundamentally altered the character of CPR 15.11 from that of CCR Order 9 Rule 10.

1. 1. That leaves Jonathan Parker LJ’s second question: “whether it is a sanction ‘imposed for a failure to comply with any rule, practice direction or court order’ within the meaning of CPR 3.9.” The answer to that question is not as clear as it might be. But while legal philosophers have been happy to debate whether you can have a legal obligation without a sanction, the idea that the CPR might impose a sanction where there is no breach of an obligation is very counterintuitive. Further, it is clear from Audergon that, in this context at least, the court will look at the purpose, as well as the letter, of a rule, for the purpose of determining whether there has been a breach.

1. 1. There are a number of clear judicial statements that if a claimant wishes to place a claim it has commenced “on hold,” it must reach an agreement with the other party(ies) to that effect (and obtain court approval for that agreement, where required) or obtain a stay from the court. In Asturion Foundation v Alibrahim [2020] EWCA Civ 32, [61], Arnold LJ observed that “a claimant who wishes to obtain a stay of proceedings for a period of time should seek the defendant’s consent or, failing that, apply to the court” (and see also [78]). There is a statement to similar effect in Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426, 1477.

1. 1. Those statements are consistent with the overriding objective, and in particular with ensuring that a case is dealt with “expeditiously and fairly” (CPR 1.1(2)(e)), the court’s duty actively to manage cases so as to give effect to the overriding objective (CPR 1.4) and the parties’ duty “to help the court further the overriding objective” (CPR 1.3). In my view, adopting the approach approved by the Court of Appeal in Audergon, the stay imposed when the conditions of CPR 15.11(1) are met will result from the failure of the parties to perform their obligation to help the court further the overriding objective by bringing the case before the court for case management, and therefore a breach of the CPR. If I am wrong in that conclusion, then the circumstances which engage CPR 15.11 are sufficiently close to a breach of a “rule, practice direction or court order” to justify the court applying the Denton test by analogy to applications (by a claimant or a defendant) to lift the stay.

1. However, I am doubtful whether the debate about the appropriate test will prove as significant in resolving the applications as the parties’ submissions presuppose. The Denton test is sufficiently flexible to take account of those features of CPR 15.11 which distinguish it from the more conventional case where a rule or practice direction requires a party to take a particular step by a particular date and it fails to do so: the fact that it is a combination of the failure of both parties to take a particular step which brings the automatic stay into operation, and the difficult choice which a claimant who has brought proceedings in order to anticipate a claim which a defendant has intimated but not commenced may face if the defendant chooses not to engage in those proceedings. For that reason, the question of whether the Denton test applies under CPR 15.11(2) may well be one of those procedural points destined to live out its litigation life in a limbo of obiter observations.

APPLYING THE DENTON TEST IN THIS CASE

The judge considered the Denton criteria in detail and decided to exercise the discretion in the claimant’s favour.

1. Pulling these threads together, while I accept that failing to progress the claims and allowing the CPR 15.11 stay to come into effect involved breaches of BAE and MLI’s obligations under the CPR of (moderate) significance and severity, I am satisfied that (applying the second and third limbs of the Denton test) it is appropriate to grant the application under CPR 15.11(2). BAE and MLI were seeking to address legitimate litigation concerns but made a procedural misjudgement as to how best to do so. Refusing the applications would involve significant prejudice to BAE and MLI, whereas granting them would not give rise to significant prejudice to Milano, which is in part the author of any difficulties it may face. BAE and MLI have acted reasonably promptly after learning of the Italian Proceedings, and the additional matters relied upon by Milano as against MLI do not assist.