Court of Appeal provides clarification on relief from sanctions regime and Denton test

Introduction

Today, in the case of FXF v 1) English Karate Federation Limited & 2) The Ishinryu Karate Association, the Court of Appeal has provided much-needed clarification as to whether the relief from sanctions regime under CPR Part 3.9 and the related three-stage Denton test (Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3926), apply to applications to set aside default judgment made under CPR Part 13.3(1). The court has held that an application to set aside a default judgment is an application for relief from sanctions and, as such, the Denton tests do apply. It is then for a judge to exercise their discretion appropriately. This will involve balancing the merits of the case against any delays giving rise to any judgment, and/or delays in making an application to set aside, to determine whether or not such an application to set aside is successful.

Background

The claimant sought damages for personal injury for alleged serious sexual abuse by her karate coach over an extended period between 2008 and 2014. The defendant is said to be (a) vicariously liable for the abuse and (b) directly liable for failing to discharge its own duty of care towards the claimant. The alleged abuser is alleged to have been a member of the defendant, to pay the defendant an annual licence fee, and to have been authorised to use its branding and training syllabus.

The claimant issued her claim against the defendant, prior to any pre-action correspondence between the parties, serving the Claim Form in December 2019. Consequently, the defendant was not afforded the opportunity to investigate the claim, or the insurance position, prior to proceedings being commenced. In order to allow the defendant time to complete the steps required by the pre-action protocol, the parties initially agreed extensions of time for the filing of the defendant’s defence via Consent Order. When time ran out at the end of July 2020, no defence was filed and the claimant requested and obtained default judgment in September 2020. In late October 2020, the claimant informed the defendant that default judgment had been entered.

In November 2020, the defendant made an application to set aside the default judgment and the hearing was heard in December 2021. The Master considered the express requirements of CPR Part 13.3(1) and the three-stage Denton test. The Master set aside the judgment dealing specifically with the two factors mentioned in CPR Part 13.3, namely the merits of the delay in applying to set aside. He held that (i) the defendant had a real prospect of successfully defending the claimant’s case on vicarious liability: the defence was “arguable and sophisticated”, and (ii) the application to set aside had not been made promptly and there was no good reason for the delay. In relation to Denton, he said in his judgment: “However, I turn to the express primary requirements of 13.3(1). [Claimant’s counsel] refers appropriately to Denton and its criteria. But the familiar criteria of Denton are qualified because of necessary incorporation into the context and the express criteria under CPR 13.3: in particular, the criterion of ‘real prospect of successfully defending the claim’.”

Appeal

The claimant contended that:

• the Master was wrong to set aside judgment on the basis that he failed to “apply Denton to the exercise of discretion” when it was previously said in the case of Gentry v Miller [2016] EWCA Civ 141 that “[s]ince the application is one for the relief from sanctions, the Denton tests then [after consideration of the express requirements of CPR Part 13.3] come into play”; and
• had the Denton tests been properly applied, the Master would have concluded that the judgment should stand.

In contrast, the defendant submitted that: 

• the application to set aside default judgment is in a unique procedural category and is not an application for relief from sanctions at all;
• the discretion under CPR Part 13.3 is broad and unconstrained and brings in all of the factors under the overriding objective including the ethos of Denton, even though its specific tests are not applicable; and
• there is a general discretion in the court imported by the words “the court may” at the start of CPR Part 13.3 and that discretion must be exercised at large taking into account all the requirements of the overriding objective.

Having considered the conflicting authorities, the Master of the Rolls, Lord Justice Vos, concluded at paragraph 63 of his judgment that the Denton tests do apply to applications to set aside default judgments under CPR Part 13.3 for a number of reasons, some of which are set out below:

1. ‘All the circumstances’ and the overriding objective are directly relevant at the third stage of the Denton analysis.
2. The Denton tests are actually peculiarly appropriate to the exercise of the discretion required once the two specific matters mentioned in CPR Part 13.3 (merits and delay in making the application to set aside) have been considered.
3. Gentry actually provides an example of how the exercise of CPR Part 13.3 and the application of Denton tests ought to be undertaken. What is critical is the need to focus on whether the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost, and the need to enforce compliance with rules and orders.
4. The judges in some of the other authorities quoted by the parties (such as Cunico Resources NV v Daskalakis [2018] EWHC 3382 (Comm), [2019) 1 WLR 2881 and PXC v AB College [2022] EWHC 3571 (KB)) adopted an unduly academic and nitpicking approach to what has been deliberately intended to change the culture of civil litigation: parties to civil proceedings and their solicitors need to fully understand that flouting rules and court orders will simply not be tolerated.

Why the appeal was dismissed

Notwithstanding the determination that an application to set aside default judgment engages the relief from sanctions regime and consideration of the Denton criteria, the Court of Appeal found that:

  a.  The Master did not err in law.

  b.  The Master did not “mistakenly” set aside default judgment “simply on the basis” that the respondent had a real prospect of success.

  c.  The Master did apply Denton to the exercise of his discretion.

  d.  The Master exercised his discretion not only reasonably, but also correctly with Lord Justice Vos expressly agreeing with his decision.

Comment

This decision provides much-needed clarification and guidance from the Court of Appeal in view of the number of previously contradictory authorities on the issue. Significantly, it is for a judge to exercise their reasonable discretion when considering any application to set aside default judgment – balancing the merits of the case against the length of the delay(s), i.e. which will involve consideration of the Denton criteria.

This guidance acts as a reminder of the implications of non-compliance with the Civil Procedure Rules, even where there are unusual circumstances related to a particular case and particularly in respect of the filing of a defence. While the “real prospect of successfully defending the claim” will always remain a key consideration in any application to set aside judgment pursuant to CPR Part 13.3, this may not save a defendant where the delay falls foul of the Denton criteria.

For more information, please contact Chris Wilson or Richard Kirby