Court Of Appeal Refuses Relief From Sanctions Following Breach Of Unless Order To Provide Security For Costs

The decision confirms that the existence of a bona fide claim will not automatically result in relief from sanctions being granted.

The Court of Appeal has refused permission to appeal an order striking out a claim for failure to provide security for costs. In so doing, the court held that it is wrong to assume that striking out a claim for failure to comply with an unless order is disproportionate merely because the claim is bona fide: Taha Pharmaceuticals v Capsugel Belgium NV [2026] EWCA Civ 38. 

The court commented that, if it were otherwise, a party could be ordered to provide security, refuse to comply with the order and/or delay endlessly, and always be able to resist the striking out of the claim because that would be disproportionate. This would make the entire security for costs regime redundant. While these remarks were made in the context of an unless order to provide security for costs, the same must apply more broadly: the mere fact that a claim (or defence) is bona fide will not necessarily be sufficient to avoid strike-out for procedural failures, regardless of the extent to which the party in question has flouted court rules or orders and regardless of the other circumstances of the case. 

The decision serves as a useful reminder of the application of the three-stage test for relief from sanctions established in Denton v White [2014] EWCA Civ 906 (outlined here), which requires the court to consider the seriousness of the breach, the reasons for it, and whether in all the circumstances it is just to grant relief. The Court of Appeal concluded that the judge at first instance had correctly applied each stage of the test and had rightly concluded that relief from sanctions was not warranted in this case, citing the claimant's wholesale delays, breaches of orders and repeated dilatory conduct. 

Background

The claimant (a Tunisian company) brought a breach of contract claim against the defendant (a Belgian company) relating to its purchase of a machine for use in the claimant's business which was alleged to be used or in poor condition. In the alternative, the claimant alleged that the defendant had made dishonest representations as to the condition of the machine. 

Proceedings never made it beyond the pleadings stage due to repeated delays on the part of the claimant. The claimant was ordered to provide security for costs but initially took no steps to comply and later only partially complied with the order.

Ultimately the court made an Unless Order requiring the claimant to provide additional security by a specific date, failing which its claim would be struck out. The judge set out detailed reasons for the Unless Order. He noted that Tunisia operated currency controls which meant that consent was needed from the Ministry of Finance for large transfers of funds outside the country. He sought to balance the competing needs and interests of the two parties and did not want to "stifle a claim due to genuine difficulties in providing security which are outside the claimant's control". He said that, if the evidence had shown that the claimant was doing the best it could to progress matters with the Ministry, he might not have granted the Unless Order. However, the evidence demonstrated that the claimant had been slow to engage with the question of security and advance proposals.

The claimant failed to comply with the Unless Order and the claim was struck out. The claimant applied to set aside the strike out order and for relief from sanctions pursuant to CPR 3.5 and CPR 3.9, arguing that it had acted diligently and in good faith and had been prevented from complying with the Unless Order "by external sovereign regulatory constraints beyond its control". 

The judge refused the application. Applying the three-stage test for relief from sanctions from Denton v White, he found that: (i) the claimant's breach of the Unless Order was serious and significant; (ii) the default occurred due to a lack of diligence on the part of the claimant for which there was no reasonable justification; and (iii) considering all the relevant circumstances, there was no good reason for granting relief.

The claimant sought permission to appeal from the Court of Appeal.

Decision

The Court of Appeal refused permission to appeal, concluding that the judge at first instance was entitled to strike out the claim in accordance with the Unless Order. Coulson LJ gave the lead judgment, with which Lewison LJ agreed. 

It was common ground between the parties that the permission application raised the three-stage test in Denton v White for relief from sanctions. The claimant also conceded that the default was serious and significant, so that the first stage of the test was made out. In any event, the Court of Appeal found the breach to be "serious and significant to a high degree." The issue before the Court of Appeal was therefore whether the second and third stages of the Denton test were met.

As to stage two (why the default happened), the Court of Appeal rejected the claimant's characterisation of itself as a diligent victim of circumstances beyond its control. The judge at first instance was right to find that the claimant's failure to comply with the Unless Order was due to its own lack of diligence, and that the claimant was not genuinely seeking to persuade the Ministry to consent to the transfer of funds. This was not a case of "impossibility" at all.

Turning to stage three of the Denton test, the Court of Appeal rejected the argument that the judge had failed to stand back and carry out the necessary balancing exercise by looking at all the circumstances of the case. The court held that these criticisms were unfounded and that they did not take into account the judge's careful assessment of the overall position.

In particular, the Court of Appeal rejected the criticism that the judge did not consider all the circumstances of the case with an open mind. Far from it, it was plain from the judge's reasoning that he had the background to the case well in mind. The judge had not therefore pre-determined the answer to stage three of the Denton test.

The Court of Appeal also dismissed the argument that the judge had failed to consider any factors in the claimant's favour. It noted that the claimant had not himself identified any such factors and that in fact only one such factor existed, which the judge always had expressly in mind: that the claimant had a claim which the court was bound to treat as being a bona fide claim. In making the Unless Order, the judge had expressly referred to the court's desire to do substantive justice between the parties, and the fact that the court did not want to want to stifle a genuine claim. 

The Court of Appeal further rejected the criticism that the judge did not have regard to proportionality. The fundamental issue with this argument was that it assumed that, merely because the claimant had a bona fide claim, it automatically followed that it would be disproportionate to strike it out because of the failure to comply with the Unless Order. In the Court of Appeal's view, this was wrong in principle. Otherwise, a party could be ordered to provide security, refuse to comply with the order and/or delay endlessly, and always be able to resist the striking out of its claim, because that would be disproportionate. This would make the entire security for costs regime redundant.

The court noted that, in every case involving security for costs, it has to balance: (i) the possibility that a bona fide claim might fail because of the failure to provide security; and (ii) the need to ensure that a defendant is properly protected if the claim fails. That balancing exercise will depend on the circumstances of the case. Here, the judge had undertaken that balancing exercise when making the Unless Order and, while the proportionality of the Unless Order could not be re-opened, in any event the Court of Appeal concluded that it was entirely fair and proportionate. Further, when considering the claimant's relief from sanctions application, the judge had carefully considered the circumstances of the case, including the bona fide nature of the claim, before refusing relief. The claimant's continued dilatory conduct, misrepresentations to the Ministry of Finance, and failure to explore other options for security supported the conclusion that it was proportionate to strike out the claim.

Finally, the Court of Appeal considered that, even if relief from sanctions had been granted and the case had not been struck out, the claimant had not provided any evidence that it could or would comply with the Unless Order. On the contrary, the claimant's case was that it could not comply. Consequently, if the case were reinstated it would remain in legal limbo, which could not be a sensible, just or proportionate outcome. 

The Court of Appeal concluded that relief from sanctions was plainly not warranted here. This was not a case of an isolated breach, or a breach that was not very serious or significant. This was a case of wholesale delays, breaches of orders, repeated dilatory conduct, and evidence that strongly suggested that the claimant's failure to provide security was a deliberate attempt to conduct risk-free litigation. Consequently, the result of any balancing exercise was never going to be in the claimant's favour.

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