RELIEF FROM SANCTIONS GRANTED FOLLOWING FAILURE TO GIVE NOTIFICATION OF CFA & ATE
In Caliendo -v- Mischon De Reya  EWHC 3414 (Ch) Mr Justice Hildyard considered an application for relief from sanctions under the post-Denton regime. He also made interesting observations in relation to applications in relation to considering the relevance of success fees prior to the Supreme Court hearing in Coventry.
The claimant failed to serve notice of funding and of ATE policy upon issue, they were served several months late. The claimant issued an application for relief from sanctions. That application for relief was adjourned pending Mitchell. Judgment, however, was not given when the Denton decision was given and the judge invited further written submissions.
THE JUDGE’S FINDINGS
The judge reviewed the Denton criteria in detail.
THE SERIOUSNESS OR SIGNIFICANCE OF THE BREACH
The judge dealt with the first part of the Denton test. The defendant argued that the failure to give notice promptly represented a serious and significant breach. The existence of the additional liability and premium had serious consequences for the defendants.
- I accept all Ms Stanley’s points as regards the serious effect of ATE/CFA funding arrangements.
- However, as it seems to me, the consequences of which she complains emanate from the nature of the funding arrangements, and not from their late notification in breach of the rules and PDPAC. What I am required to assess at this first stage, in my view, is not the seriousness and significance for the Defendants of the Claimants having pre-April 2013 ATE/CFA funding arrangements in place, but the seriousness and significance for the Defendants and other court users of their late notification.
- In that context, and possibly another way of saying the same thing, I accept Mr Gourgey QC’s submission on behalf of the Applicants that the assessment to be made is of the seriousness or significance of the breach, not the consequences to the Defendants of the grant of relief. I do not accept Ms Stanley’s submission that the right to contest the matter free of the pre-April 2013 ATE/CFA funding arrangements is an “accrued right” the value of which should militate against relief at this first stage of the inquiry. That sort of “prejudice” may be relevant at the third stage; but not at the first stage, which is confined to the seriousness or significance of the very breach itself.
- Against that, I do take into account as relevant to this first stage the fact that the rules do provide automatic sanctions for this breach, and that this (it is to be presumed) is because funding arrangements are by their nature of considerable significance (for such reasons as Ms Stanley emphasised, as adumbrated above) and that the failure to notify the defendant of them will, prima facie at least, cause the defendant to proceed on a false footing to its potential detriment in determining whether or not, and in what manner, to defend the claim. However, in this case, it seems clear that (a) every avenue had been explored, over the course of some years, to find some other means of resolution and (b) the Defendants’ approach and attitude was not materially affected by any failure to notify the funding arrangements.
- The Defendants have not sought to assert in evidence that, had they been served with notification of the funding arrangements within the seven days required by the PDPAC, they would have acted differently as regards these proceedings. The pre-action negotiations had long since ended (in May 2012) by the time the funding arrangements were entered into; consequently, earlier notification of the funding would not have altered the Defendants’ position as regards any potential settlement. It appears from the evidence that during the period of delay it was the Claimants, rather than the Defendants, who were carrying out the most work and incurring substantial fees, and there is no reason to suggest that the situation would have been any different had the Defendants been notified of the arrangements in time. During the period of delay, Robin Simon wrote only one letter to DLA dated 13 May 2013, which was in response to DLA’s letter of 8 May 2013 in which notice of change of solicitors was given.
- Put shortly, the Defendants were not able to show material prejudice in their conduct of the case from the breach (at least to themselves; I return later to the effect on other court users). A late attempt by Ms Stanley, in her Further Note dated 30 July 2014, to suggest that the progress of proceedings had been hampered because the application, and the delays it had caused, had deflected Mr Gourgey QC and his team from preparing a Reply, is of some account; but in my judgment, (a) the causative connection between breach and delay is flimsy and (b) it is not such, either in terms of materiality or significance, as to change the balance.
- In my judgment, and subject to consideration of all the circumstances of the case, the result of the first stage of the requisite inquiry is to lean me in favour of granting relief.
THE THIRD STAGE OF DENTON
There was no good reason for the breach so the judge progressed to the third part of the Denton test.
- Starting with the two factors particularly identified in CPR rule 3.9 as required to be taken into account, factor (a) requires consideration as to whether the default has undermined or been inconsistent with the need “for litigation to be conducted efficiently and at proportionate cost”.
- As between the parties, I have already observed that there is no evidence that the conduct of the proceedings has been materially altered or adversely affected by the breach; and it seems to me that, although the additional costs would not have been occasioned but for the breach and default, they are caused by the need for relief from sanctions, and the issue can be addressed by an appropriate costs order.
- As to other litigants, the diversion of court time has concerned me. But I accept that it has largely been extended by the uncertainties perhaps inevitable when a culture change is sought to be inculcated. This is not, to my mind, a case like Mitchell. In Mitchell, the claimants’ failure, after due warning, to file a cost budget caused an adjournment and an abortive hearing. The need for an adjourned hearing meant that a hearing in another case (on an asbestosis claim) had already in direct consequence had to be vacated, to the detriment of those other litigants. There, the waste of court time was directly occasioned by the need to abort a hearing in consequence of late service; here the need for court time was the consequence of the need to seek sanction in accordance with the rules.
- I think I am also entitled to take into account that the order made by the Deputy Master in Mitchell was, in the words of Jackson LJ in Denton (at ) “very tough”. It was upheld as being within the generous ambit afforded in the context of case management decisions; but it is not to be taken as implying the need for such very tough orders in every case, even in somewhat similar cases.
- In the round, I do not think it would be fair, just or proportionate to deny the Claimants relief on the basis of factor (a).
- As to factor (b), the importance of observing the rules, and the need for a culture change away from what is perceived to be an unduly relaxed approach to compliance in the past, is inherent; and it is emphasised once more by the Court of Appeal in Denton, as, of course, it was in Mitchell. As the Master of the Rolls and Vos LJ stated in Denton (at ):
“The court must always bear in mind the need for compliance with rules, practice directions and orders, because the old lax culture of non-compliance is no longer tolerated.”
- But the rules are a means to an end and not an end in themselves. A culture of observance must be fostered fairly; and not by inappropriate penalty. Unfair adoption of the “Admiral Byng” principle (the principle, as Voltaire drily remarked of the decision to shoot Admiral Byng for cowardice, that it is beneficial to kill an Admiral from time to time “pour encourager les autres”) would subvert the overriding objective of doing justice in every case, according to that case. With respect to the majority, I suspect that the apparent disagreement in point of emphasis between the majority and Jackson LJ in Denton as to the primacy (or not) of the specially identified factors may melt away in most cases accordingly.
- What, then, and more generally, of the circumstances of the case? The Applicants emphasised in this broader context that:
(1) the Applicants notified the Defendants of the funding arrangements as soon as the Applicants became aware of the breach (11 June 2013) and their application for relief was made at the first available opportunity, which was when proceedings were issued (on 17 June 2013);
(2) the sanction, if it remains in place, will cause the Applicants substantial prejudice. Although the Defendants contend that the Applicants will be entitled to recover a full indemnity from their solicitors for the loss, this is speculative and uncertain;
(3) the Applicants have not acted in breach of any other rules or orders.
(1) they will inevitably be substantially prejudiced if relief is granted because “their accrued right not to fight a super-claimant will be taken away”;
(2) there is no evidence that the Applicants will suffer any prejudice beyond this super-advantage if relief is refused;
(3) the only beneficiary of relief would in reality be the Applicants’ solicitors: since the Applicants have an “unanswerable claim” against their solicitors, the effect of the relief would be to shift the burden of those solicitors onto the Defendants;
(4) the application has already taken up disproportionate court resources which could have been available to other court users.
- I have carefully considered these competing arguments. I have also taken into account the peculiar fact (so it seems to me to be) that the Applicants were seeking to avail themselves of a particular advantage (of the pre-2013 costs regime) just before its expiry and should have been especially vigilant to ensure compliance with the rules (a factor which has weighed with me not a little).
- In my view:
(1) The fact is that the Applicants acted speedily once they appreciated their default was necessary but not sufficient to justify relief.
(2) Although the Applicants would appear to have a strong claim against their solicitors I have not the material to conclude it would be “unanswerable”; and further I take one of the messages in Denton to be that the possibility, even a strong possibility, of recovery from another source is a factor, but one to be treated with circumspection, lest the advantages of the cultural change sought to be encouraged be dissipated by a welter of satellite litigation.
(3) I am not wholly persuaded by the Defendants’ contention that they have been prejudiced by the breach and will be further prejudiced if relief is granted, on the basis that they would be deprived of a valuable accrued right as at 1 April 2013, or seven days thereafter. Any such right as was acquired by the Defendants was inherently flawed, as it was always susceptible to being undermined if relief from sanctions was granted. In every case where an automatic sanction is imposed for non-compliance with a rule, practice direction or order, the non-defaulting party acquires a contingent accrued right. If the Defendants’ argument on this point were to be accepted in every such case, the court would be bound to refuse relief, thus rendering considerations under the third “limb” of Mitchell …whether in all the circumstances it is just to grant the application) nugatory. The court should even at the third stage focus on the breach and its consequences, and usually at least accord lesser weight to advantages derived by the respondent from the sanction or its consequences.
(4) I have already acknowledged and taken into account my concern as to the use of court resources. Undoubtedly there was regrettable usage of scarce resource: but I am not aware of any specific detriment to court users such as was occasioned in Mitchell; and I am inclined to agree with the Claimants’ contention that the hearings were necessitated by the uncertainties surrounding the changes to the rules, rather than by the actions of the Claimants. In this regard I note the parties had consented to the application being dealt with on paper and that it was the court that requested an oral hearing in October 2013 and suggested the adjournment pending the Court of Appeal’s decision in Mitchell at that October hearing.
THE COVENTRY POINT
The judge considered a point arising from the forthcoming hearing of the Supreme Court in Coventry.
- Finally, in respect of stage three, I should mention that, in her Further Note of 30 July 2014, Ms Stanley put forward another argument in light of certain comments in the judgment of Lord Neuberger PSC in the Supreme Court’s decision in Coventry and others v Lawrence and another (No 2)  UKSC 46 (which was published on 23 July 2014), to the effect that it may be that the decision of the ECHR in Campbell v MGN Ltd (No 2), in which the Strasbourg court took a different view from the House of Lords, enables the argument that the pre-April 2013 regime enabling recovery by a successful claimant of success fees and ATE from an unsuccessful defendant infringed the European Convention on Human Rights (“the Convention”) (see [39-41]).
- This was a new submission, and involved Ms Stanley (as she fully recognised and sought leave to do) withdrawing a concession made (on the basis of the House of Lords’ decision) at the oral hearing before me in March 2013 that such arrangements pre-2013 were legitimate. Ms Stanley submitted that this was another “circumstance” to be taken into account; further or alternatively, that this court is mandated to take it into account given the requirement upon it, as a public body, to exercise its discretion (including when giving relief from sanctions) in accordance with the Convention.
- I would not have held Ms Stanley to her concession, given the possible change in the required judicial approach. But I do not think I can properly accord weight to this possibility even in the context of the broad inquiry required at the third stage. That is especially so given that:
(1) what weight to give would depend on whether the substantive Human Rights argument is right or wrong; it would be wholly inappropriate, unwise and indeed wrong for me to attempt such an assessment in the circumstances, which include the fact that (a) existing House of Lords authority is to the effect that the pre-2013 regime was compatible and (b) in Coventry v Lawrence, Lord Neuberger and the Supreme Court stated it would be wrong even for that court to decide the point without HM Government having had the opportunity to address the court on the issue (see ).
CONCLUSION: YOU DON’T ALWAYS HAVE TO HANG AN ADMIRAL
- Whilst the default in this case was serious in the sense that it occurred in respect of a rule for which an automatic sanction is imposed in the event of its breach, I do not consider in the round that it occasioned serious and/or significant adverse effect on the efficient conduct and progress of this litigation nor of the conduct and progress of other litigation in these courts. Despite the need to encourage compliance, I do not consider it would be just to withhold relief from sanction.
- Accordingly, I shall allow the application and give the relief sought. The question of costs can be considered after formal judgment.