THE CONSEQUENCES OF CHARTWELL 3: THE "LITIGATOR'S DILEMMA": DO YOU TAKE THE "MITCHELL" POINT?

Mediatelegal

This is the third in the series examining the practical consequences of the Chartwell decision. The first post looked at the importance of serving witness statements on time,  the second at the effect on the criteria for reinstatement. Here we look at the “litigator’s dilemma”. That is the problems for someone faced with an opponent who is breach. Do you force the opponent to apply for relief from sanctions? Should the application be opposed? What are the costs consequences? Most difficult of all – what advice should be given to the client?

JUDICIAL RECOGNITION OF THE PROBLEM

The nature of the dilemma was recognised by Judge Grant in Wain -v- Gloucestershire C.C. [2014] EWHC  1275 (TCC) 

  1. It is perhaps permissible for me also to observe that at the recent conference held by the Civil Justice Council, attended by over 200 delegates and being oversubscribed to a like extent, many participants and court users filed papers in advance of that conference, all of which either have been or are about to be posted on the Civil Justice Council’s website. They repay reading. One of the many points made at that conference was a concern that parties often find themselves in the unattractive position of having to make what is now colloquially referred to as a “Mitchell point” and/or have to make an application for relief from sanctions in respect of a breach or non-compliance which is subsequently found to be  trivial  and/or inconsequential and/or insignificant. Recent experience in this court has shown that many practitioners are mindful of those difficulties

THE REWARDS OF TAKING A “MITCHELL” POINT 

This was  considered  by Nugee J in Kaneria -v- Kanderia [2014] EWHC 1165 he commented that a simple application for an extension of time had led to the expenditure of £80,000 in costs and a considerable amount of court time.

  1. On the other hand I am not blind to the realities. If Dilip can indeed successfully oppose the Respondents’ application, the prize will be well worth having. It is (at the lowest) well arguable that the consequence of refusing the application would be that the Respondents would be unable to serve any Defences at all, and should therefore be debarred from defending, with the result that Dilip would achieve victory in the preliminary issues by default. I do not propose to consider whether that would in fact follow or not, as this is the subject-matter of Dilip’s cross-application which has not been argued and where the Respondents take a number of objections to the relief sought, but it is certainly a real possibility. I have seen an informal note made by Hasu of Mr Rosen’s judgment in which he said that the extra shareholding which Dilip claims by virtue of the 10% Shareholding Agreement might be worth as much as £4 to £5 million on the basis of one estimate; my note is that before me Mr Harty indicated that the amount in issue was rather more modest but was still more than £1m. If this is right, one can well see that it is entirely rational for Dilip to invest a substantial amount of time and money in opposing the Respondents’ application in an attempt to obtain the extra shareholding without having to go to trial or produce any evidence in support of his claim. It is hardly surprising therefore that he has done just that. Nor is it surprising that the Respondents, who are at risk of losing the preliminary issues (and hence 10% of what appears to be a valuable company) without the chance of proving their case at all, should invest substantial time and money of their own in the face of Dilip’s opposition.

We have seen numerous cases of litigants having their cases struck out, or their ability to pursue or defend the case severely hampered, as a result of a failure to obtain relief from sanctions.

FACTORS TO BE TAKEN INTO ACCOUNT

The Kaneria case recognises that, to a large extent, the decision on whether to take a “Mitchell” point or robustly defend an action is a commercial one.  Does the risk  of losing (and incurring or being ordered to pay costs) justify taking the point.  There are a number of factors that need to be considered.

  • Is the breach likely to be defined as a “trivial” ? (For consideration of the cases relating to what is “trivial” see the review here).
  • Does the defaulting party have an “excusable reason”?
  • What is the period of default?
  • Can you point to any prejudice arising as a result of the breach?
  • What are the percentage prospects of the application succeeding?
  • What costs will be incurred in opposing the application?
  • What are the prospects of being ordered to pay the costs of the application if relief from sanctions is granted?

COSTS

Costs can be a crucial factor.  It is imprudent to assume that the defaulting party will always be ordered to pay the costs of the application, no matter what the result.  This is probably the normal order, however it is not universal.

  • In Lakatima  Shipping -v- Nobu Su [2014] EWHC 796  costs were ordered against a party who opposed an application for relief from sanctions. The judge observed
    1. “The claimant submitted that, in every case where the other party is seeking relief from sanctions, the so-called “innocent” party is entitled to come before the court and to argue that there should be no such relief and that the court should stick to the sanction originally imposed. In my judgment, that is a mistaken approach. The CPR is quite clear that parties should conduct litigation in a reasonable and realistic manner, an approach which is echoed in the Commercial Court Guide – see, for example, A1.4. In this court we expect parties so to conduct themselves. In my judgment, in vigorously opposing this application at a hearing, the claimant failed to do so.
    1. I also consider that it is important that the message goes out that when a party applies for relief from sanctions, the other party should not assume that it is going to get a free costs ride in opposing that application. If the court considers that it was unreasonable to do so, then there will be cost consequences, and I consider that that is what should occur in this case. The Mitchell guidance was provided in order to help to avoid endless satellite litigation. If parties consider that they can always come to court to oppose any application for relief, then there will be no end to that satellite litigation.”
  •  In  Chartwell Estate Agents Ltd -v- Fergies Properties Ltd [2014]  EWCA Civ 506 the Court of Appeal refused an appeal against an order that the costs of an application for relief from sanctions (where the breach was not trivial) were costs in the case. (“In my view, however, the order as to costs made by the judge was, given the circumstances, well within the range of a proper exercise of discretion.”

SO IT ISN’T EASY

The crucial point is that a client must be told that a “Mitchell” point exists and of the potential advantages in taking it.  However they must also be told that there is no guaranteed “free ride” on costs.  Ironically a cost-benefit analysis carried out in this way   well lead to more  satellite litigation in higher value vases where one of the parties has a weak case on the merits and is anxious to avoid trial.