Joshi & Welch Ltd v Tay Foods

Relief from sanctions requires a proportionate and context-sensitive application of the three-stage test in Denton v White. A breach which is technically serious may nevertheless be immaterial where the parties have in substance joined issue and the breach has caused no prejudice or disruption. The rules should not operate as a procedural tripwire. Where the sanction sought is default judgment, the court may consider the underlying merits under the third stage of the test, applying the policy reflected in Civil Procedure Rules 1998, r 13.3, even before judgment has formally been entered. The merits remain one factor and their consideration must be controlled proportionately.

Joshi & Welch Limited appealed against an order of His Honour Judge Wulwik dated 24 August 2015. The order refused relief from sanctions and an extension of time to serve a defence to counterclaim, and entered judgment for Tay Foods on the counterclaim.

The appellant had not served a formal defence to counterclaim, but its witness evidence addressed the counterclaim and Tay Foods had responded to that evidence. The appeal concerned whether the breach was serious or significant under the first stage of Denton v White, and whether the merits of the proposed defence could be considered under the third stage where default judgment was sought.

1. Appeal allowed. The court exercised its discretion to grant relief from sanctions.
2. The appeal was not a rehearing. The appellate court had to identify an error of principle, failure to consider relevant matters, or consideration of irrelevant matters before exercising the discretion itself.
3. Under the first stage of Denton v White, seriousness and significance require a nuanced assessment. Materiality is a useful guide, although it is not a complete substitute for the statutory language. Procedural rules serve important purposes, but they should not be used as a tripwire producing disproportionate or unjust outcomes.
4. The failure to serve a formal defence to counterclaim was technically a breach, but it was wholly technical in substance. The witness statement squarely addressed the counterclaim, the parties had proceeded as though issue had been joined, and the breach had caused no prejudice or practical impact. The first stage therefore did not justify refusing relief.
5. The judge below also erred by treating the merits as wholly irrelevant. The general reluctance to consider merits in applications for relief from sanctions is strong but not absolute. Where the sanction is, or may be, default judgment, the court may consider the merits as if applying Civil Procedure Rules 1998, r 13.3. This should be done under the third stage of the Denton v White test and kept within proportionate limits.
6. The appellant had solid prima facie evidence of a defence to the counterclaim. That was a relevant circumstance which the judge should have considered. The order refusing relief and granting judgment on the counterclaim was accordingly set aside, and relief from sanctions was granted.

• High Court (Queen's Bench Division): appeal from the order of His Honour Judge Wulwik dated 24 August 2015, which refused relief from sanctions and granted judgment on the counterclaim. The appeal was allowed.