In a recent judgment, the English Commercial Court in Bank of America Europe DAC v CITTA Metropolitana Di Milano has provided guidance on the "automatic stay" provisions of CPR 15.11 and the circumstances in which parties can revive dormant proceedings subject to such an automatic stay.
This judgment arose in the context of an ongoing dispute regarding two interest rate swaps (the Swaps) which the Metropolitan City of Milan (Milano) had entered into with Merrill Lynch (now Bank of America) (BofA) in 2002. The Swaps were documented under a 1992 ISDA Master Agreement, providing for the application of English law and the jurisdiction of the English Courts.
In 2015, Milano wrote to BofA raising various complaints regarding the Swaps and threatening to commence proceedings in Italy. Faced with this complaint, and in order to ensure that the English Court was the court first seised for the purposes of the Brussels Regulation Recast, BofA promptly issued proceedings in the English Court seeking negative declaratory relief (the English Proceedings) and effected service of these English Proceedings on Milano.
Importantly for the purposes of this judgment, having been served with the English Proceedings, Milano did not file an acknowledgment of service or defence and, in addition, took no steps to pursue the threatened proceedings against BofA in Italy and continued to make payments to BofA under the terms of the Swaps. In the face of Milano's approach, BofA chose not to seek judgment in respect of its claims for declaratory relief and, instead, adopted a 'wait and see' approach, taking no steps to progress the English Proceedings.
As a consequence of the parties' inaction, the English Proceedings were subject to an automatic stay pursuant to CPR 15.11, which provides for such a stay to take effect six months after the deadline for service of the defence if the claimant has not sought default or summary judgment by that date. The purpose of this automatic stay provision is to avoid 'zombie' claims which have been issued but are then neither progressed nor subject to judicial case management.
A number of years later, in 2021, Milano commenced proceedings against BofA relating to the Swaps before the Italian Court, purporting to rely upon a jurisdiction agreement in favour of the Italian Court contained in an antecedent 2001 agreement entered into between Milano and BofA prior to the documentation of the Swaps in 2002 under the ISDA Master Agreement.
In response, BofA made the present application to the English Court under CPR 15.11(2) seeking to lift the automatic stay in order to progress the English Proceedings. Milano opposed the lifting of the stay but, in the alternative, sought an extension of time to file an acknowledgment of service indicating an intention to contest the jurisdiction of the English Court.
Relief from sanctions is required to lift an automatic stay under CPR 15.11(2) As an initial point, the English Court had to determine whether an application under CPR 15.11(2) to lift an automatic stay should be characterised as an application for relief from sanctions such that the Denton test had to be satisfied, or whether a less onerous test applied.
BofA submitted that relief from sanctions under CPR 3.9 is only required where there has been "a failure to comply with any rule, practice direction or court order" and, where there was no specific rule requiring a claimant to seek summary or default judgment, relief from sanctions was not required. This submission was supported by a number of first instance decisions in which the English Court had previously considered this issue, albeit not in great detail.2
However, in the present case, the Judge departed from these decisions and concluded that relief from sanctions was required. The Judge determined that a claimant's failure to seek summary or default judgment (or a case management stay) represented a failure to comply with their obligation to assist the court and to further the overriding objective by bringing the case before the court for case management. Allowing the proceedings to be removed from judicial oversight amounted to a breach of a "rule, practice direction or court order" for the purposes of CPR 3.9 or, alternatively, was sufficiently close to a breach of a rule as to justify the application of the Denton test by analogy. The English Court also clarified that, where a claimant wishes to place a claim which it has started 'on hold', the appropriate course of action is for the claimant to seek the defendant's consent and/or apply to the court for a stay of proceedings, rather than taking no action such that an automatic stay would arise under CPR 15.11.
Application of the Denton principles Having determined that BofA's application amounted to an application for relief from sanctions, the Court went on to apply the well-known Denton test which involves the following three-stage enquiry:
a) An assessment of the seriousness and significance of the breach. b) Considering the reason why the default occurred. c) Consideration of all of the circumstances of the case.
Applying this test, the English Court had little hesitation in granting BofA relief from sanctions and allowing the automatic stay to be lifted under CPR 15.11(2). While the fact that five years had passed since the automatic stay came into force meant that BofA's breach was more than trivial, the English Court had to consider the context of the application in its totality. Here, this context included the following:
- the English Proceedings were largely defensive and had been commenced in response to threatened Italian proceedings;
- the CPR 15.11 stay came into effect as a result of failures by both BofA and Milano (with Milano having failed to file an acknowledgement of service or defence);
- Milano's ambivalent position, threatening Italian proceedings but continuing to make payments under the Swaps, placed BofA in a difficult position. While the English Court determined that BofA should not have allowed the English Proceedings to become automatically stayed under CPR 15.11, it acknowledged that seeking default judgment would not necessarily have been straightforward for BofA (given the court's hesitance in granting default judgment in proceedings seeking declaratory relief);
- the five-year lapse of time before the making of this application was largely a result of the fact that it had taken Milano that long to come "off the fence" and commence its Italian proceedings;
- no trial or hearing dates had been impacted by the passage of time before the application; and
- BofA would suffer considerable prejudice if its application for relief from sanctions was rejected. The English Proceedings would in effect be struck out and BofA would lose any jurisdictional advantage associated with it having previously taken steps to ensure the English Court was first seised.
In granting BofA relief from sanctions, the English Court also rejected an argument by Milano that BofA's decision to allow the English Proceedings to become subject to an automatic stay amounted to an abusive attempt to “warehouse” the English Proceedings. While the English Court agreed that commencing and maintaining litigation can constitute an abuse of process both when the claimant has no intention of ever bringing the claim to a conclusion, or where the claimant has no present intention to do so, but would do if a particular contingency materialised (referencing the recent judgment in Asturion Foundation v Alibrahim  1 WLR 1627), that was not the situation in the present case. While BofA had made a "procedural misjudgement" by allowing the proceedings to become automatically stayed under CPR 15.11, its decision reflected legitimate concerns regarding potential Italian proceedings. The English Court also noted that a desire to avoid incurring unnecessary legal costs associated with litigation can be a good reason for a party not to pursue a claim.
Milano application for extension of time to file an acknowledgment of service Having allowed the automatic stay to be lifted under CPR 15.11(2), the English Court then had to consider Milano's own application for an extension of time to file an acknowledgement of service. This again amounted to an application for relief from sanctions.
Having applied the Denton test, the English Court also allowed Milano's application for an extension of time. In reaching this decision, the English Court appears to have been particularly influenced by the fact that Milano would have suffered serious prejudice if the application were denied, in that it would lose the ability to argue its challenge to the jurisdiction of the English Court to hear the English Proceedings, or to submit evidence in relation to that challenge.
In addition, the English Court noted that, if it rejected Milano's application for an extension of time, such that Milano could not file an acknowledgement of service, then Milano would not have submitted to the jurisdiction of the English Court. In such a scenario, in seeking default judgment, BofA would need to go to considerable time and expense satisfying the English Court that it had jurisdiction to determine the English Proceedings (as required by the provisions of Article 28 of the Brussels Regulation Recast). This meant that Milano's jurisdiction arguments, including matters of Italian law, would therefore need to be considered by the English Court even if it denied Milano's application for an extension of time and the English Court considered these jurisdictional arguments would more efficiently be resolved if Milano's application were granted, such that the English Court could then have the benefit of hearing argument from both BofA and Milano.
This judgment provides useful guidance on the application of CPR 15.11 and the circumstances in which relief from sanction will be granted allowing a party to revive dormant proceedings subject to an automatic stay.
While the finding that an application under CPR 15.11(2) requires relief from sanction does represent a departure from other first instance decisions, where this judgment represents the first occasion on which CPR 15.11 has been subject to detailed judicial scrutiny, it is suggested that this judgment will likely be followed in future unless and until there is Court of Appeal authority on this issue.
The judgment also provides a helpful reminder that, when a claimant is faced with a similar scenario where a defendant has not acknowledged service but it is nonetheless in the claimant's interests not to progress the claim, the correct approach is for the claimant to seek the defendant’s consent to a stay or to apply to the English Court for a case management stay, rather allowing the automatic stay under CPR 15.11 to take effect.