The relief from sanctions gamble

Elizabeth Dwomoh discovers why applying for relief from sanction is not for the faint hearted Key point The making of a declaration as to a party’s rights was a judicial act that the court should only make if satisfied on the evidence A party sanctioned due to non-compliance with a rule, court order or practice direction can apply to the court for relief from sanctions. In deciding whether or not to grant relief, the court will apply the three-stage test in Denton v TH White [2014] EWCA Civ 906. First, the court will determine whether the breach was significant or serious. If so, it will consider whether there was a good reason for the breach. In the absence of a good reason, it will consider “all the circumstances of the case”. At this stage, the court will have regard to CPR 3.9 of the Civil Procedure Rules, in particular the need: (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders. In Winchester Park Ltd v 1 Palace Gate Freehold Ltd [2024] EWHC 661 (Ch); [2024] PLSCS 59, the High Court was asked to consider if the court below had failed to properly apply the third stage of the Denton test when refusing to grant the appellant freeholder relief from sanctions. You’ve got to know when to hold ’em Winchester Park Ltd was the freehold owner of 1 Palace Gate, London W8. The respondent, 1 Palace Gate Freehold Ltd, was the nominee purchaser created by the participating tenants to acquire the freehold. In September 2020, 1PGF served notice on WP to acquire the freehold. WP disputed 1PGF’s right on the basis that one of the premises in the building was for commercial use. This was an important issue, as the right to collective enfranchisement does not exist if more than 25% of the space in a building is for commercial, as opposed to residential, use. The evidence in relation to the use of the premises was equivocal. In support of WP’s contention that it was an office, it relied on a finding to that effect in earlier tribunal proceedings. Additionally, WP relied on the terms of a lease with an associated company that referred to the premises being used as an office. 1PGF, in contending the premises was for residential use, relied on WP’s associated company’s subletting of the premises under an assured shorthold tenancy in September 2020. Know when to fold ’em In March 2022, the parties agreed the terms of a consent order, whereby standard disclosure by list was agreed. WP failed to comply with its disclosure obligations in time. WP again attempted disclosure by list on two subsequent occasions, but both attempts were procedurally and substantively defective. The documents that WP disclosed referred to other key documents, which it had failed to disclose. In June 2022, 1PGF made an application for an order for specific disclosure of documents held by WP that were relevant to the issue of the use of the premises. If WP failed to comply, it was requested that its defence be struck out in default. Know when to walk away The application came before Judge Dight for hearing in the county court and an order made. In particular, the order provided that failure by WP to comply with its terms would result in its defence being automatically struck out. Further, 1PGF would “…be at liberty to apply for a declaration that the participating tenants have a right to collective enfranchisement”. WP failed to comply and its defence was automatically struck out. WP applied for relief from sanctions and 1PGF applied for the declaration. The applications were listed to be heard on 1 December 2022. Shortly before the hearing, WP disclosed further relevant documents without any proper explanation as to what disclosure searches had been carried out. At the hearing, Judge Parfait found that WP’s failure to comply with Judge Dight’s order was serious. Further, there was no good reason for it. In respect of the third stage of the Denton test, Judge Parfait found that the integrity of the trial process had been compromised by WP’s actions. It had led to an inefficient and disproportionately expensive trial process, for which 1PGF could not be adequately compensated in costs. Relief was refused and the declaration sought by 1PGF was made. And know when to run WP appealed on the basis that the failure to grant relief was draconian and offered 1PGF a windfall. WP argued that there were other steps the court could have taken that would have been fairer. In dismissing the appeal, the High Court commented that WP had a high hurdle to cross in cases such as the present. It found the refusal to grant relief was neither wrong nor perverse on the facts. Additionally, the sanction imposed was not disproportionate in circumstances where WP had been given ample opportunity to comply with its disclosure obligations. The High Court was further satisfied that proper weight had been given to the factors referenced in CPR 3.9 and to the conclusion reached by the judge that granting relief would have led to increased costs and further delay. Lastly, it observed that although the making of a declaration as to a party’s rights was a judicial act that the court should only make if satisfied on the evidence and not on default of pleading, it was not the case that the declaration had been made automatically. It was made on an assessment of the evidence presented in what became an undefended claim. Elizabeth Dwomoh is a barrister at Lamb Chambers Photo © Michal Parzuchowski/Unsplash