Michael v Lillitos

On an application for relief from sanction, the court must identify the breach, assess its seriousness and significance, consider why it occurred, and evaluate all the circumstances under CPR 3.9. A breach of an unless order may be significant without warranting the sanction of striking out a defence and counterclaim. Particular weight must be given to whether the breach disrupted the efficient and proportionate conduct of litigation. The absence of an underlying breach of a rule or order, the limited prejudice to the other party, subsequent compliance, and the severe consequences of the sanction may make refusal of relief disproportionate.

The appellant appealed against a Recorder’s refusal to grant relief from sanction. His defence and counterclaim had been automatically struck out after he failed to make monthly payments by bank transfer as required by an unless order. He had made, or attempted to make, payments by cheque and later remedied the arrears. Judgment was entered for the respondent for rent and related sums.

The appeal concerned whether the Recorder had wrongly assessed the seriousness and significance of the breach and whether, applying CPR 3.9 and the principles in Denton v TH White Limited [2014] 1 WLR 3926, refusal of relief was just and proportionate.

1. Appeal allowed. The appeal was a review under CPR 52.21. The question was whether the Recorder’s decision was wrong, not whether the appeal court would conduct a rehearing.
2. Under CPR 3.9, the court must first identify the breach triggering the sanction, then assess its seriousness and significance, consider why the default occurred, and finally evaluate all the circumstances so as to deal justly with the application. The first-stage assessment concerns the particular breach for which relief is sought.
3. The appellant had failed to make bank-transfer payments on three occasions over three months, contrary to an unless order. The Recorder was entitled to regard the breach as significant. The fact that the order was an unless order was an important factor, but it did not make every breach serious or significant automatically. The absence of an underlying breach of a rule or order was also relevant.
4. At the third stage, the breach was near the bottom of the range of seriousness. It had not disrupted the litigation or affected its efficient conduct or proportionate cost. The appellant had made a cheque payment covering three months, although it had not been attributed to the later instalments, and the respondent’s solicitors had held the cheque when judgment was sought without drawing that fact to the court’s attention. Both parties were expected to work cooperatively.
5. The sanction was exceptionally severe. It produced judgment for a substantial sum, prevented the appellant from advancing serious defences and a counterclaim, and potentially exposed him to bankruptcy and loss of his profession. The respondent’s prejudice was limited because the payments were later remedied and a standing order was established. Entering judgment without accounting for the respondent’s pleaded acceptance of a possible set-off for reasonable accountancy fees risked conferring a windfall.
6. Considering all the circumstances, refusal of relief was wholly disproportionate. Relief from sanction should have been granted, and the appeal was allowed.

• High Court (Queen’s Bench Division) — The appeal from the Recorder’s decision was allowed. The refusal of relief from sanction was set aside.
• Central London Civil Justice Centre — Recorder E. Cohen refused relief from sanction on 9 November 2018. His subsequent order dated 5 December 2018 confirmed that the defence and counterclaim remained struck out and that judgment entered on 18 May 2018 stood.
• Permission to appeal — Granted on the papers by Stewart J on 2 August 2019.