The High Court has overturned a ‘wholly disproportionate’ decision to refuse a defendant relief from sanctions, which had caused him to initially lose the £63,000 case.
Mrs Justice Steyn, sitting in Michael v Lillitos, ruled that the defendant’s breach of an unless order made no difference to the conduct and cost of the underlying litigation and had not disrupted proceedings.
The parties are in dispute over rent arrears and in January 2018 a deputy district judge made an unless order applying to the defendant, which stipulated that he pay £1,200 immediately and £300 on the first day of each month, all by bank transfer. Failure to meet that order would result in the defence and counterclaim being struck out.
The court heard that the defendant, an accountant, did not make the required payment on 1 April 2018 and the claimant’s solicitors applied successfully to the court to have sanctions imposed. The solicitors made no reference to the fact they were holding a cheque for £900 addressed to their client, and later explained they had forgotten about it.
This piece of information was not available to Recorder E. Cohen, sitting in the Central London Civil Justice Centre, when he refused the defendant’s application for relief from sanctions last November.
Steyn J said the basis of the appeal was whether the refusal decision was wrong, not whether there was any serious procedural or other irregularity. She referenced the three-stage Denton test of seriousness of the breach, the reason for the breach and the circumstances of the case.
The defendant/now appellant accepted he breached the unless order by not making the payment by bank transfer. But he also submitted it was important in this case there was no underlying breach of any rule or court order (the breach was instead of an agreement between the parties).
The appeal found the Recorder had made no error in concluding the breach was significant, but relief was granted based on all the circumstances of the case.
Steyn J accepted the refusal to grant relief was ‘unduly draconian’ and had the disproportionate effect of denying one party the opportunity to defend the claim. She noted that, as emphasised in Denton, there was an onus on both parties to work cooperatively with each other. If the claimant’s solicitors had not forgotten they held a cheque for three months’ rent, it was likely the application for judgment would not have been made.
The £63,252 automatically awarded to the claimant by refusing relief was a ‘substantial sum’, said Steyn J, and would be likely to force the defendant into bankruptcy and to stop practising. This impact would have been disproportionate, she ruled.