What a relief: relief from sanctions and missed deadlines

April 14, 2021

The High Court has given judgment in a case which indicates that relief from sanctions may be granted where a party has breached a court-imposed deadline and that deadline, even if agreed by consent between the parties, was unrealistic from the start.

The judgment in Melars Group Ltd v East-West Logistics LLP [2021] EWHC 874 (Ch) is available to read on BAILII.

The importance of the decision

Where a court has imposed a deadline for a party to take a step within litigation, the consequences of breaching that deadline can be serious, even to the point of leaving the defaulting party unable to continue to contest the litigation.

In Melars Group Ltd v East-West Logistics LLP, the Chancery Division granted relief from sanctions in a case in which a party had failed to make a payment by way security for costs by the specified deadline.

Lawyers will note with interest that the court granted relief from sanctions despite the fact that the deadline was proposed and agreed by the parties themselves rather than being imposed on them by the court. The judgment includes some useful practice points for solicitors and those advising parties involved in litigation.

Background

 Melars Group Ltd, a company, was ordered to be wound up by an order dated 4 August 2020. Melars Group sought to appeal that order.

East-West Logistics LLP, the petitioner in the proceedings, applied for an order for security for its costs in the appeal.

East-West Logistics’ application for security for costs was settled by agreement between the parties. The parties agreed terms for an order, which was approved by the court, and which required Melars Group to do two things:

  • Pay £30,000 into court as security for East-West’s costs; and
  • Pay East-West’s costs of the application (£12,000).

The order, approved by the court on 18 November 2020, stipulated that unless Melars Group took both of those steps by 3 December 2020, its appeal would be dismissed without further order.

Melars Group paid the £12,000 costs by the deadline. However they failed to pay the £30,000 security for costs into court until 16 December 2020, some two weeks late. On 4 December 2020, after the payment had not been made, East-West’s solicitors wrote to the court making clear that the appeal should be treated as having been dismissed.

The reason for the breach

When Melars Group’s solicitors contacted the court on 2 December 2020 – the day before the deadline – to make the payment, they were informed that it had to be made by BACS transfer and that the bank details for making the BACS transfer had to be obtained by email. Unfortunately, when the solicitors emailed for the bank details, they received an automatic reply stating that a reply might take up to 5 days due to delays arising from the Covid-19 pandemic.

The relevant office at the court finally replied with the bank details on 14 December 2020 and the solicitors made payment on 16 December 2020.

The judgment

 The High Court applied the three-stage test for relief from sanctions from Denton v TH White [2014] 1 WLR 3926:

  • Firstly, asking whether the breach is serious and significant;
  • Secondly, asking if there is a good reason for the breach; and
  • Thirdly, evaluating all the circumstances of the case so as to enable the court to deal justly with the application, including the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules, practice directions, and orders.

On the first stage, the court held that the breach was serious and significant: the delay in making payment was substantial and resulted in a hearing which had been listed for the appeal in January 2021 being vacated.

On the second stage, the court noted that the court office’s 12-day delay in providing the bank details was typical of its turnaround time for responding to emails at that time. Taking that into account, the court held that the deadline in the order had always been unreasonably short and that that was the real reason for the breach of the order.

On the third stage, the court granted relief from sanctions for the following reasons:

  • On balance, Melars Group and their solicitors had made satisfactory efforts to comply with the deadline;
  • The deadline had been unrealistic from the start, given the backlog of work at the relevant court office;
  • When Melars Group’s solicitors realised they could not meet the deadline, they attempted to ‘plug the gap’ by offering an undertaking to hold onto the £30,000 pending further order from the court;
  • The refusal of relief from sanctions would effectively prove fatal to Melars Group, which would, in the absence of a successful appeal, remain wound up.

Accordingly, relief from sanctions was granted and Melars Group can pursue its appeal.

Lessons from the judgment

Lawyers will note from this judgment that the courts may be sympathetic when a deadline has been breached if that deadline was unrealistic from the get-go. Although, in the seminal relief from sanctions case of Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537, the Court of Appeal speculated that an unreasonably short deadline might amount to a good reason for it being missed, it is notable that in Melars Group Ltd v East-West Logistics LLP, the High Court has extended that idea even to a situation where the deadline in question was accepted and agreed by the parties themselves.

Nevertheless, relief from sanctions will always be a matter for the court’s discretion so the risk of relief being refused will always be a real one. Bearing that in mind, practitioners agreeing deadlines for a consent order should always check that the deadlines are achievable or should err on the side of caution and leave long enough for problems, particularly where the involvement of a third party (such as the court office) is required.

Where a deadline cannot be met, solicitors should take whatever steps they can to try to ‘plug the gap’ and to get as close to compliance as they can.

Of course, as ever with relief from sanctions cases, the biggest lesson from the judgment is to try to avoid breaching the court order in the first place.

In this case, the court held that East-West Logistics could not be criticised for asking the court to treat the appeal as dismissed the day after payment had been due but not made; even though East-West had been informed by Melars Group about the difficulties they had encountered with making payment, the court stressed that East-West Logistics had been doing no more than giving effect to the reality of the previous order which had been made. That fact underlines the risk to parties of breaching an order which contains a sanction and reinforces the need to avoid falling foul of such an order whenever possible.