A recent High Court judgement means that the three-stage test introduced in the case of  Denton v White [2014] for relief from sanction, has now been extended to cover Defendants wanting to make application to set aside default judgment.

The court can impose sanctions on parties of a claim who fail to comply with orders and/or directions given by the court, together with any relevant rules to the proceedings. The sanctions imposed by the court can include the striking out of a claim. Should a party to a claim fail to comply with a direction, order and/or rule, an application should immediately be made seeking relief from any sanction to be, or already imposed by the court, in accordance with Civil Procedure Rule 3.9. A three-stage test should be considered and applied when making an application for relief from sanction. The three-stage test was confirmed by the Court of Appeal in the well-known case of Denton v TH White [2014] EWCA Civ 906. By way of a reminder, the test can be summarised as follows:

1. Identify and assess the seriousness and significance of the non-compliance;
2. Consider why the breach occurred (i.e. whether there was good reason for the breach); and
3. Evaluate “all the circumstances of the case, so as to enable the court to deal justly with the application”.

By way of a further reminder, the case of Denton involved three appeals (referred within the Judgment to “Denton”, “Decadent” and “Utilise”) which all related to granting relief from sanctions under Civil Procedure Rule 3.9. In “Denton”, the lower court allowed the Claimant to serve additional witness statements directly before a trial; the Defendant subsequently appealed. In “Decadent”, the lower court refused relief from sanction in respect of the Claimant failing to pay a court fee in time; the Claimant appealed. In “Utilise”, the lower court refused relief from sanction in respect of the Claimant being 45 minutes too late when filing a cost budget and failing to inform the court of the outcome of settlement negotiations; the Claimant appealed.

Within all three appeals, which were heard together, the three-stage as referred to above was clarified and applied in respect of each appeal. The Court of Appeal made the following comments when handing down Judgment:

1. In “Denton” the order allowing the additional statements to be filed was overturned on the basis that the breach was significant and disrupted the conduct of the litigation, there was no good reason for the breach and when considering all circumstances of the case, the breach was found to cause an inconvenience to a large number of people;
2. In “Decadent” the appeal was allowed and relief from sanction was given. The court commented that whilst failing to pay a court fee is a serious breach, in the circumstances before them the breach was on the “bottom range of seriousness” and did not prevent the efficient conduct of the litigation as the delay of paying the court fee was only a day; and
3. In “Utilise” the appeal was allowed and relief from sanction was given on the basis that both breaches were trivial and did not have any affect on the proceedings. The court further commented that due to the breach being trivial, the lower court should not have paid much attention to the second and third stage of the test.

The three-stage test has been followed and relied upon regularly for the last 8 years when considering applications made under the Civil Procedure Rules 3.9. In the recent case of Ince Gordon Dadds LLP v Mellitah Oil & Gas BV [2022] EWHC 997 (Ch) however, the High Court considered whether the same test should be applied in respect of applications made to set aside a default Judgment (under Civil Procedure Rule 13.3).

The aforementioned case involved a law firm (the Claimant) who issued proceedings against a previous client of theirs (the Defendant) for unpaid legal fees. Default judgment was obtained against the Defendant and an application was later filed by the Defendant to set aside the judgment on the basis that he had a real prospect of successfully defending the claim and for “some other good reason” (which related to the Claimant’s alleged aggressive conduct).  

The High Court determined that an application to set aside a default judgment under Civil Procedure Rule 13.3 is essentially an application requesting relief from sanction within the meaning of Civil Procedure Rule 3.9. The High Court further determined that the exercise of discretion, as considered in respect of an application to set aside a default judgment, required the consideration of the three-stage test as confirmed within Denton v TH White. In addition, the High Court made further comment in there being no reason as to why an application under Civil Procedure Rule 13.3 should follow a less strict approach compared to applications made under Civil Procedure Rule 3.9.

Taking the three-stage test into account, the application was dismissed on the basis that the failure to enter a defence was serious and significant, the Defendant’s internal disorganisation was not a good reason for the default, and when considering all circumstances of the case, the court took into account the Defendant’s failure to proceed with the application at an earlier stage, the Defendant’s failure to provide evidence to support the allegations raised and the need for litigation to run efficiently with the parties complying with rules, practice directions and orders.

Prior to the case of Ince Gordon Dadds LLP v Mellitah Oil & Gas BV [2022] EWHC 997 (Ch), the three-stage test had yet to be considered in respect of any application made to set aside default judgment. As such, the outcome of Ince Gordon Dadds LLP v Mellitah Oil & Gas BV [2022] EWHC 997 (Ch) is of high importance and an outcome to consider when filing both applications for relief and applications to set aside a default judgment.

Defendants wanting to make application to set aside default judgment may now wish to include information within their application addressing not only Civil Procedure Rule 13.3, but all information and/or evidence required should a judge refer to the three-stage test when deciding whether to grant the application. The recent case is also a timely reminder of how the courts will deal with a breach made within the course of proceedings.

Written by : Danielle Armstrong, Solicitor

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