Khandanpour v Chambers

A debtor may appropriate a payment by implication where the circumstances known to both parties objectively make the intended allocation clear. An express communication is unnecessary where there can be no real doubt about the debtor’s intention. A creditor cannot instead appropriate the payment to a different liability.

For relief from sanctions, the first Denton stage focuses on the breach for which relief is sought. Earlier unrelated defaults ordinarily fall for consideration at the third stage. A short delay that has no practical effect may justify relief, particularly where refusal would disproportionately prevent a substantive costs assessment.

The respondent tenant obtained judgment against the appellant landlord for unlawful eviction and breach of quiet enjoyment. A Default Costs Certificate was later issued for £27,824.40 after the appellant did not engage with the costs assessment process.

A district judge set aside the certificate on conditions that the appellant pay £10,000 on account of costs and serve Points of Dispute by 4 pm on 15 June 2017. The Points were served in time. £4,000 was received before the deadline and the remaining £6,000 early the next morning. The respondent treated the latter sum as payment towards the judgment debt instead.

HHJ Simpkiss held that the appellant had neither appropriated the £6,000 to the payment condition nor obtained relief from sanctions. The central issues on appeal were whether the payment had been impliedly appropriated to that condition and whether relief should be granted for the overnight delay.

1. Appeal allowed. The court set aside the part of HHJ Simpkiss’s order which had allowed the respondent’s appeal from DDJ Vary and refused relief from sanctions. It granted relief, restored DDJ Vary’s order for different reasons, set aside the Default Costs Certificate, and directed that the bill proceed to detailed assessment.

2. The appellant had impliedly appropriated the £6,000 payment to the costs-payment condition. An appropriation may be inferred objectively from circumstances known to both parties; it does not require an express statement. The amount, timing and relationship to the £4,000 payment made on the due date made it obvious that the £6,000 was the balance of the required £10,000. The service of Points of Dispute reinforced that conclusion. The respondent therefore could not appropriate the £6,000 instead towards the judgment debt.

3. Applying Denton v TH White Ltd [2014] EWCA Civ 906, the relevant breach was an overnight delay of at most 17 hours. It was neither serious nor significant and had no effect on the litigation. Earlier conduct was generally relevant at the third stage, rather than to seriousness at the first stage. The qualification in British Gas Trading Ltd v Oak Cash & Carry Ltd [2016] EWCA Civ 153 for an unless order following prior non-compliance did not apply: the payment condition was not such an order and there had been no earlier breach of a costs order.

4. The appellant’s hospital treatment on the due date was a material explanation. Even taking account of delay in applying for relief and criticism of his conduct, refusal would have been disproportionate and unjust. It would have prevented any challenge to a substantial costs certificate, despite a delay which made no practical difference.

5. The court expressed the provisional view that a party may be able to appropriate a payment to satisfy a condition rather than a debt, but left that point for decision in a case where it matters.

• Court of Appeal (Civil Division) — In [2019] EWCA Civ 570, allowed the appellant’s appeal, granted relief from sanctions and restored DDJ Vary’s order, for different reasons. The Default Costs Certificate was set aside and the costs were to be assessed.
• County Court at Canterbury, HHJ Simpkiss — Allowed the respondent’s appeal from DDJ Vary, held that £6,000 had not been paid or appropriated towards the payment condition, and refused relief from sanctions.
• County Court, DDJ Vary — Held that payment instructions given before the deadline satisfied the condition and set aside DDJ Ashley’s order declaring non-compliance. He did not determine the alternative applications for an extension of time or relief from sanctions.