COURT OF APPEAL UPHOLDS DECISION NOT TO GRANT RELIEF FROM SANCTIONS: PROBLEMS WITH ISSUE, SERVICE AND NOTICE OF APPLICATIONS: ALL LITIGATION LIFE IS HERE…

In Elo Trustees Ltd v Bonhams 1793 Ltd & Anor [2023] EWCA Civ 664 the Court of Appeal upheld  a decision not to give relief from sanctions. The case is illustrative of a large number of the dangers of litigation. Treating orders as “targets” rather than deadlines. Ensuring that proceedings are issued properly and promptly and by the correct means.  Serving notice of an application as soon as the application is made.  The case also illustrates the point that you cannot serve by email unless you have the express consent of the recipient.

THE CASE

The action concerned a dispute over ownership of high value cars which had been taken into possession to satisfy a judgment. The defendant had been unsuccessful in having judgment set aside. A stay of sale was ordered by the court on condition that the party “ETL” that stated they owned the cars issued a claim form and served it by the 20th April 2022. In default the applicant was debarred from adducing evidence and a declaration of ownership was made in the judgment debtor’s favour.

THE CLAIM FORM ISSUE

The claim form was lodged, there was some delay in issue. The claim form was then not served properly.

1. 1. In considering the events which transpired following the Foxton Order, it is relevant to note that ETL was professionally represented throughout, as were Bonhams and HNW.

1. 1. On 14 April 2022 ETL submitted a draft Claim Form to the High Court for issue. The Court did not issue the Claim Form for several days, but ETL did not chase the Court. On 19 April 2022 the Court queried the fact that the statements of truth on the Claim Form and accompanying Particulars of Claim were in the name of (and signed by) Mr Elo: it interpreted XXXX as seeking anonymity and indicated that an application for anonymity had to be made. In addition, it noted that the fee stated in the Claim Form was incorrect, although the correct fee had in fact been paid. ETL explained the position regarding Mr Elo’s name and corrected the error regarding the fee, and the Claim Form was issued later the same day. Thus the Claim Form was issued out of time.

1. ETL emailed the Claim Form to Bonhams and HNW on 19 April 2022, but ETL had failed to obtain prior consent to service by email and thus this did not constitute service. ETL served the Claim Form on Bonhams by first class post on 20 April 2022, resulting in deemed service on 22 April 2022, and on HNW by first class post on 19 April 2022, resulting in deemed service on 21 April 2022. Thus the Claim Form was served on both Defendants out of time.

THE BREACHES

There was delay in service of the evidence.

1. 1. On 27 April 2022 ETL emailed its evidence to Bonhams and HNW. Again, ETL had not obtained prior consent to service by email and therefore this did not constitute service. Bonhams replied pointing out that, as the claim had already been struck out, there were no extant proceedings in which to serve evidence. Again, ETL was asked to confirm whether, and if so when, it intended to apply for relief from sanctions. On the same day ETL responded that it did intend to apply for relief and that Bonhams would be invited to sign a consent order. In the meantime ETL served its evidence on Bonhams by first class post on 27 April 2022, resulting in deemed service on 29 April 2022. Thus it was served on Bonhams out of time. The judge found that it was not served on HNW at all.

1. 1. On 2 May 2022 ETL filed an application notice seeking relief from the sanctions imposed by the Foxton Order, but did not at that stage give notice of the application to either Defendant. On 4 May 2022 Bonhams, which was unaware of the application for relief, applied for an order confirming that the sanctions envisaged by the Foxton Order applied. McGowan J duly made the McGowan Order on paper on 5 May 2022.

1. 1. On 22 May 2022 ETL filed an application to set aside the McGowan Order.

1. ETL did not receive a sealed copy of the first application notice from the Court until 16 June 2022, not having chased in the intervening period since 2 May 2022. ETL then served both application notices on the Defendants.

THE JUDGMENT AT FIRST INSTANCE

The judge at first instance, Charles Bagot KC, refused the application for relief from sanctions.

1. 1. It was common ground both before the judge and before this Court that the principles applicable to ETL’s application for relief from sanctions were the well-known principles laid down in Denton v T.H. White Ltd [2014] EWCA Civ 9806, [2014] 1 WLR 795. The court should consider the application in three stages. The first is to assess the seriousness and significance of the failure to comply with the relevant rule, practice direction or court order. The second is to consider why the default occurred. The third is to evaluate all the circumstances of the case so as to enable the court to deal justly with the application. One factor to consider at the third stage is the promptness with which the application for relief has been made.

The judge’s reasoning

1. 1. The judge dealt with ETL’s application in a careful and detailed extempore judgment running to 68 paragraphs in transcription. His reasoning with respect to the three stages in Denton may be summarised as follows.

1. 1. So far as the first stage was concerned, he held that the failures were serious and significant for the following reasons:

“39. … each breach was a serious and significant breach in my judgment. These were peremptory orders of which the claimant was well aware and should have been scrupulous about complying with. … Foxton J made unless orders … That was, I infer, because there had been extensive litigation already in the personal claim …

40. If the claimant wished to challenge the enforcement via fresh proceedings and injunctive relief, it needed to make expeditious progress with that action and providing the evidential foundation for that claim … This was because, at a pretty late stage … there was an attempt to restrain the auctioning of the vehicles. In those circumstances the court was rightly requiring the claimants to take really prompt action and making it crystal clear – the order could not have been clearer – about the ramifications of any degree of non-compliance with those orders. So, to breach those key unless orders with tight deadlines, not by hours but by days, was, in my view and in each instance, serious and significant. This was not some ‘near miss’ when someone serves something an hour late but it is dealt with on the same day. Here there was non-compliance for at least two full days or longer in the regards set out above. … The non-compliance here derailed the Court’s intended timetable from the outset.”

1. 1. Turning to the second stage, the judge found that there was no good reason for any of the defaults. So far as the issue of the claim form was concerned, the judge said at [43]:

“… the claimant could have avoided these problems by making the court aware of the unusual nature of the signatory’s name and not making an error on the face of the claim form. … I also have in mind that if a party is applying for injunctive relief, that party can and should anticipate that it will need to issue a claim more or less immediately. … So, these proceedings could and should have been carefully checked and ready to go, so to speak, prior to Foxton J ever saying this is what must be done in short order. This was not the sort of injunction where there had been developments at the very last minute and matters were dealt with, for instance, so urgently that an out of hours hearing was requested. So, the proceedings and associated correspondence were not prepared as a matter of great urgency at the very last minute or, if they were, then the claimant was unwise to leave matters to the last minute and was courting disaster if it was not done with scrupulous care, given the unless orders.”

1. 1. Later in his judgment, at [49], the judge added that there was no evidence of ETL chasing the issue of the Claim Form with the Court or seeking the Defendants’ agreement to an extension of time or applying for an extension of time.

1. 1. As for the service of the claim form, the judge noted at [44] that there was no explanation as to why personal service had not been effected nor why there had been no application to extend time for service.

1. 1. In relation to service of the evidence, the judge said at [45] that “14 days was an ample period of time” for ETL to do this. He noted that much of the evidence was available from the earlier proceedings, and so it was not as if it had had to be prepared from scratch. He also noted that there had again been no application for an extension of time, and no explanation as to why not. He went on in [46] to say that, given that ETL was seeking an injunction, it should have known that it would have to support the application with evidence “in short order” and that it could and should have planned ahead. He added at [47] that it was important that the evidence was served promptly because “these were injunctive proceedings restraining commercial entities from carrying out their normal business, that should not be done without some evidential basis.” He noted at [48] that the only reason for the delay that had been identified by ETL was that Mr Elo was resident in Florida, which was in a different time zone, but he did not consider that a good reason. Finally, he noted at [50] that ETL had not asked the Defendants to consent to an extension of time, nor had it attempted to effect personal service on 27 April 2022.

1. 1. The judge considered the third stage at length from [52]-[68]. The key points he made in this section of his judgment were as follows. First, the need to focus on compliance was acute where the non-compliance was with a peremptory order. Secondly, by taking the “relaxed and, frankly, reckless approach … of leaving things to and beyond the last minute” ETL was the author of its own misfortune. Thirdly, the time and resources which had already been expended by the parties and the court in dealing with Mr Elo’s personal proceedings meant that it was all the more important for the overriding objective to be served by ETL making expeditious progress with these proceedings, but ETL had failed to do so. Fourthly, that was compounded by ETL’s failure to notify the Defendants of its application for relief for sanctions when filed, resulting in Bonhams’ application and the McGowan Order. Fifthly, although valuable vehicles were at stake for ETL, the issues raised by ETL’s claim were not complex ones. Sixthly, the application for relief from sanctions had not been made promptly. The application notice was filed 18 days after the failure to issue the Claim Form in time, 12 days after the Claim Form should have been served and five days after the evidence should have been served. Furthermore, there had been no explanation as to why, having missed the first deadline, ETL had waited until after the second had passed; or why, having also missed the second deadline, ETL had waited until after the third had passed before making the application. Yet further, ETL had not sent the Defendants the draft application notice and had waited six weeks for the Court to seal the application notice.

1. Overall, the judge was driven to conclude that ETL had viewed the dates in the Foxton Order as targets rather than strict deadlines to be complied with. Its defaults were almost wholly unexplained. The Defendants had been prejudiced by the delay and extra costs, in particular for the storage of the Cars, and it was unclear whether those costs could be recovered from ETL. ETL was the author of its own misfortune. In all the circumstances the sanctions imposed on ETL were proportionate to its breaches. The appropriate exercise of the court’s discretion was therefore to refuse relief.

THE UNSUCCESSFUL APPEAL TO THE COURT OF APPEAL

The appeal to the Court of Appeal in relation to the refusal to grant relief from sanctions was refused.

1. 1. Although ETL relied on eight grounds of appeal, counsel for ETL only pursued the first four of these in his submissions to the Court. I shall nevertheless deal with ground 5, since it was central to Coulson LJ’s decision to grant permission to appeal. Before turning to the grounds, it should be noted that none of the eight grounds challenged the judge’s assessment that each of ETL’s failures to comply with the Foxton Order was serious and significant. Nor did any of grounds 1-5 challenge any of the judge’s reasoning with respect to ETL’s failure to comply with paragraph 5 of the Foxton Order even though that was sufficient on its own to trigger the sanctions imposed by paragraphs 8 and 9.

1. 1. Ground 5 is that the judge was wrong to hold that there was no good reason for the failure to comply with paragraphs 2 and 3 of the Foxton Order. The reason for both failures was that the Court failed to issue the Claim Form until 19 April 2022, and by then the earliest date upon which it could be served was 21 April 2022. I see no error in the judge’s assessment, however. As he pointed out, ETL could and should have anticipated that, unless it was explained, Mr Elo’s highly unusual first name might be queried by the Court. Furthermore, ETL could and should have ensured that the correct fee was stated in the Claim Form. Thus there was no good reason for ETL’s failure to ensure that the Claim Form was issued in time. More importantly, there was no good reason for ETL’s failure to chase the Court when the Claim Form was not issued in time. It does not even appear that ETL made the Court aware of the unless orders it was subject to. Thus even if the failure to comply with paragraph 2 of the Foxton Order was excusable, the failure to comply with paragraph 3 was not. Still further, as the judge also pointed out, there was no good reason for ETL’s failures to notify the Defendants of the delay in getting the Claim Form issued, to seek their consent to a short extension of time for service and to apply for an extension of time if consent was not forthcoming.

1. 1. This takes me to ground 4, which is that the judge was wrong on this point because there was no duty on ETL to correspond with the Court to explain Mr Elo’s first name. The judge did not, however, say that there was any such duty. He was considering whether there was a good reason for the deadlines being missed by ETL. His point that one source of the delay could have been avoided by ETL taking a prudent step which it failed to take was one that he was perfectly entitled to make. Moreover, as I have explained, this was not his only basis for finding that there was no good reason for ETL’s failure to comply with paragraphs 2 and 3 of the Foxton Order.

1. 1. Ground 1 is that the judge erred in relying upon ETL’s failure to effect personal service of the Claim Form. As is common ground, personal service of the Claim Form would not have made any difference to the deemed date of service: see CPR rule 6.14, Godwin v Swindon Borough Council [2001] EWCA Civ 1478, [2002] 1 WLR 997 and Anderton v Clywd County Council [2002] EWCA Civ 933, [2002] 1 WLR 3174. (By contrast, as is also common ground, personal service would have made a difference when it came to service of the evidence: see CPR rule 6.26.) It follows that the judge was indeed in error in this respect. It does not follow, however, that the judge was not entitled to conclude that ETL had failed to establish that there was a good reason for its failure to serve the Claim Form in time. The judge gave other reasons for that conclusion which were quite sufficient.

1. 1. Ground 2 is that the judge was wrong to hold that ETL’s application for relief from sanctions had not been made promptly. Counsel for ETL relied upon the dictum of Simon Brown LJ in Regency Rolls Ltd v Carnall [2000] EWCA Civ 379 at [45] that, in the context of CPR rule 39.5, “promptly” means “with all reasonable celerity in the circumstances”. Counsel for ETL submitted that it was sufficient for an application to be made within 14 days. There is no basis for that submission. As Simon Brown LJ’s statement recognises, promptness depends on the circumstances. Whether ETL applied promptly in the circumstances of the present case was a matter for the judge’s evaluation. It cannot be said that his evaluation was plainly wrong. In any event, this was only one of the factors he took into account at stage three of Denton.

1. 1. Ground 3 is that the judge was wrong to criticise ETL for failing to send the Defendants an unsealed copy of its application notice since ETL was not under a duty to do so. Again, however, the judge did not say that ETL was under such a duty. His point was that ETL had failed to keep the Defendants apprised of its application either by sending an unsealed copy of its application notice or in any other way, and this was another instance of its unsatisfactory approach to the proceedings. He was perfectly entitled to take that view.

1. For the reasons given above I do not consider that the judge made any material error in deciding to refuse ETL relief from sanctions.

NOTIFYING THE OTHER SIDE THAT AN AN APPLICATION IS PENDING

The Court of Appeal considered, in passing, the nature of the duty to notify a party that an application is pending.  There is in fact a duty on a party making an application to serve a copy of an application notice as soon as practicable after it is filed. CPR 23.7 imposes a duty on a party making an application

Service of a copy of an application notice

23.7

(1) A copy of the application notice –

(a) must be served as soon as practicable after it is filed; and

(b) except where another time limit is specified in these Rules or a practice direction, must in any event be served at least 3 days before the court is to deal with the application.