COURT OF APPEAL REFUSES TO ALLOW APPEAL WHERE RELIEF FROM SANCTIONS GRANTED FOLLOWING FAILURE TO GIVE TIMEOUS NOTICE OF FUNDING
In its judgment today in Mischon De Reya -v- Caliendo  EWCA Civ 1029 the Court of Appeal refused the Defendant’s appeal where a claimant had been granted relief from sanctions following a failure to give proper notice of funding.
The claimants had failed to file notice of funding at the appropriate time. The claimant obtained relief from sanctions from the judge at first instance. The defendants appealed.
- This was the exercise of a discretion by the judge.
- The judge took into account all relevant factors.
- The appeal was dismissed.
This is an appeal by the defendants, Mishcon de Reya (a firm) and Mishcon de Reya LLP (together “the appellants”), against the order of Hildyard J dated 21 October 2014 granting the claimants, Antonio Caliendo and Barnaby Holdings LLC (together “the respondents”), relief pursuant to CPR 3.9(1) from sanctions imposed under CPR rule 44.3B in respect of the respondents’ failure to serve notice on the appellants of the existence of (i) a conditional fee agreement (“CFA”) and (ii) an after the event (“ATE”) insurance policy within the period specified by CPR rule 44.15(1) and paragraph 9.3 of the Practice Direction on Pre-Action Conduct (“the PDPAC”).
Factual and legal background
Paragraphs 3 to 18 of the judge’s judgment set out the factual and legal background to the application before him and, for the convenience of any reader of this judgment, I reproduce these paragraphs below. (The references to “the Claimants” and “the Defendants” are references to the respondents and the appellants respectively.)
“3. The main proceedings in this case relate to the sale and disposal of the interests of the Claimants and others (who have assigned their interests and claims to the Claimants) in shares in one or more corporate entities which owned Queen’s Park Rangers football club, to purchasers connected with the well-known businessmen Mr Bernie Ecclestone and Mr Flavio Briatore. The Defendants were retained and instructed by the Claimants and others in relation to the transaction.
4. Charles Fussell & Co LLP, who previously acted for the Claimants, sent a letter of claim pursuant to para B2 of the Professional Negligence Pre-Action Protocol to the Defendants on 18 December 2009.
5. Robin Simon LLP (“Robin Simon”) sent a holding response to the letter of claim on behalf of the Defendants and their professional indemnity insurers on 18 January 2010. Robin Simon (now Triton Global Limited) continues to act for the Defendants and their insurers.
6. Subsequent to this, the parties engaged in lengthy pre-action correspondence for a number of years until around May 2012 (although this date is disputed by the Defendants).
7. On 13 February 2013, DLA Piper UK LLP (“DLA”) entered into terms of engagement to act for the Claimants. On 20 February 2013 and 18 March 2013, respectively, the Claimants entered into CFAs with DLA and Counsel in relation to the intended claim against the Defendants. The Claimants also entered into an ATE insurance policy on 20 February 2013.
8. In a letter dated 11 June 2013, DLA informed Robin Simon that the Claimants were ready to issue proceedings and gave the Defendants until 14 June 2013 to make a sensible offer of settlement, failing which proceedings would be issued and served on 17 June 2013. This letter further notified the Defendants of the funding arrangements.
9. That was late notice. It is common ground that notice in writing of the funding arrangements was required to be given by the Claimants to the Defendants (a) by 27 February 2013 (in the case of DLA Piper’s CFA); (b) by 25 March 2013 (in the case of Leading Counsel’s CFA); and (c) by 27 February 2013 (in the case of the ATE policy).
10. That is because:
(1) CPR rule 44.15(2) provides that: “A party who seeks to recover an additional liability must provide information about the funding arrangement to the Court and to other parties as required by a rule, practice direction or court order.”
(2) Paragraph 9.3 of the PDPAC requires that a party who enters into a funding arrangement must inform the other parties
“as soon as possible and in any event within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.”
11. Thus, notice of the funding arrangements should have been given on 27 February 2013 in relation to DLA’s CFA and the ATE policy and on 25 March 2013 in relation to Counsel’s CFA. Accordingly the notice given was approximately 3½ months late as regards DLA’s CFA and the ATE policy and 2½ months late as regards Counsel’s CFA.
12. The Claimants appreciated this when giving such notice. In their letter of 11 June 2013 this was acknowledged. The letter sought to explain that the requirement to give notice within 7 days pursuant to CPR 44.15 and para 9.3 of the PDPAC only came to DLA’s attention the day before (i.e. 10 June 2013).
13. In the First Witness Statement of Ms Christina Suzanne Sharma (“Ms Sharma”) made on behalf of the Claimants in support of their application for relief from sanctions, the error was described in the following way:
“The Claimants have innocently and inadvertently failed to provide notice within 7 days of the Funding Arrangements having been entered into. The Oversight was that of DLA Piper.”
14. Ms Sharma explains that the oversight only came to light when proceedings were being finalised ready for issue and the Notice of Funding form (N251) was being completed. Ms Sharma further explains that the Claimants had always intended to notify the Defendants of the funding arrangement at the time of issue.
15. The sanction provided for in the event of such late notice of funding arrangements is set out in CPR 44.3B(1)(c) and (e). Unless the court orders otherwise, a party may not recover as an additional liability:
(a) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order; or
(b) any insurance premium where that party had failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.
16. On 17 June 2013, the Claimants issued and served proceedings, along with an application under CPR 3.9 for relief from sanctions. The application for relief was opposed by the Defendants. A one-hour hearing was convened on 11 October 2013, but was adjourned pending the decision in Mitchell v News Group Newspapers Ltd  EWCA Civ 1537 (“Mitchell“). Consequently, a further hearing was convened on 19 March 2014. That occupied the court for the best part of a day.
17. Thereafter, and in light of a welter of cases and much debate among practitioners and academics, it became known that the guidance given in Mitchell as to the appropriate approach of the court in respect of applications such as this was to be reviewed by the Court of Appeal in three appeals, the short reference to which is Denton & Ors v TH White Ltd & Ors  EWCA Civ 906(“Denton”). The Court of Appeal gave judgment on 4 July 2014.
18. Since I had not yet finalised my judgment, and at the suggestion of the parties, I invited written submissions from the parties in the light of the Court of Appeal’s clarification of the required approach in Denton. I received these on 30 July 2014.”
i) In Sir Rupert Jackson’s Review of Civil Litigation costs: Final Report dated 21 December 2009 (“the Jackson Report”) Sir Rupert recommended that CFA “uplifts” or success fees and ATE premiums paid by a successful party should not be recoverable under a costs order. Amongst other things, he was critical of the part which success fees and ATE premiums played in contributing to a disproportionate costs in civil litigation in England and Wales.
ii) Those recommendations were implemented by sections 44 and 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) which respectively amended section 58 (conditional fee agreements) and inserted a new section 58C (in relation to insurance premiums). Although LASPO received the Royal Assent on 1 May 2012, sections 44 and 46 of LASPO were not brought into effect until 1 April 2013, after the respondents ought to have given notice of their funding arrangements, but before they in fact did so.
iii) The result of the legislative changes was that (with certain exceptions not material to the present case) as from 1 April 2013 success fees and ATE premiums became irrecoverable from a losing party under a costs order as a matter of law. But transitional provisions enabled a successful party in certain circumstances to recover success fees and ATE premiums against a losing party, in circumstances where the relevant agreement had been entered into before 1 April 2013. Thus, in relation to success fees, section 44 (6) provided:
“The amendment made by subsection (4) does not prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if—
(a)the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or
(b)advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.”
And, in relation to ATE premiums, section 46(3) provided that:
“The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings who took out a costs insurance policy in relation to the proceedings before the day on which this section comes into force.”
iv) On 1 April 2013, the CPR rules in relation to costs underwent a fundamental revision to amend the statutory changes. However new CPR rule 48 and the related Practice Direction provided that the pre-1 April 2013 rules should continue to apply where (i) in relation to a CFA, the CFA agreement was entered into before 1 April 2013; and (ii) in relation to an ATE insurance policy, the party seeking to recover the insurance premium took out the insurance policy in relation to the proceedings before 1 April 2013. Those rules reflected the transitional provisions to which I have already referred above.
v) The evidence showed that:
a) The uplift under the DLA CFA on costs incurred from 28 February 2013 to 10 June 2013 (the day before DLA notified the the appellants’ solicitors of the funding arrangements) was stated by the respondents to be “in the region of £45,000”; the uplift under Counsel’s CFA on costs incurred from 26 March 2013 to 10 June 2013 was likewise stated to be “in the region of £17,000”.
b) The amount of the ATE premium was calculated as a percentage the appellants’ costs and disbursements and the respondents’ own disbursements. The level of the ATE premium potentially recoverable in the event of the respondents’ success in the action was therefore dependent on the amount of costs actually incurred by the appellants and the amount of the respondents’ actual disbursements subject to a minimum of £20,000 plus Insurance Premium Tax. The respondents did not disclose the percentage used to calculate the premium on the grounds that this was privileged and confidential information. However in their evidence, the appellants, based on information which they had received from insurance brokers, stated that the range of possible percentages could range from 30% to 110%, and accordingly, on the assumption that the total costs and disbursements figure could be £1,300,000 at the end of the trial, stated that the ATE premium could be anything from £390,000 to £1,430,000.
vi) The pleaded claim was for a loss of a chance to obtain a sum in the region of £5 million.
The judge’s judgment
Having set out the background to the case, the judge went on to set out the relevant principles and the approach required to such an application in the light of this court’s decisions in Mitchell and Denton: see paragraphs 19 to 32 of the judgment. In particular, at paragraph 22, he set out the three stage approach which this court prescribed in Denton should be taken in relation to an application for relief from sanctions, namely:
“The first stage is to identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate “all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]”.”
“38. 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.
39. 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.
40. 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.
41. 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.
42. 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.
43. 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.”
So far as the second stage was concerned, the judge took the view that, given on the evidence the respondents could not, as regards the second stage, “legitimately or usefully rely on any “good reason” for their default and delay”, he could turn to the third stage.
i) As to the first factor particularly identified in CPR rule 3.9(1)(a) (namely consideration as to whether the default had undermined or been inconsistent with the need “for litigation to be conducted efficiently and at proportionate cost”), the judge held that it would not be fair, just or proportionate to deny the appellants relief:
a) As between the parties:
“there was 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”.
b) 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. “
ii) As to the second factor identified in CPR rule 3.9(1)(b) (namely the importance of observing the rules, and the need for a culture to change away from what is perceived to be an unduly relaxed approach to compliance in the past), the judge held that the rules were a means to an end, and not in an end in themselves, and accordingly in the present case interests of justice did not require relief from sanctions to be refused on this ground.
iii) As to the more general consideration of the entire circumstances of the case, having recited the parties’ respective submissions, the judge concluded:
“54. 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).
55. 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.
56. 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]).
57. 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.
58. 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 ).
59. 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.
60. Accordingly, I shall allow the application and give the relief sought. The question of costs can be considered after formal judgment.”
Discussion and determination
As Mr Gourgey submitted, the judge’s decision whether or not to grant sanctions was an exercise of his discretion. Accordingly, in accordance with well-established principles, this court should not interfere with the judge’s decision unless it is satisfied that, in exercising his discretion the judge erred in principle, that he left out of account a material consideration or took into account an irrelevant consideration or that he was plainly wrong in his overall conclusion.
The appellants’ grounds of appeal
The appellants raised seven grounds of appeal, two of which, grounds 2 and 3, addressed the judge’s decision in relation to the first stage of theDenton analysis, one of which, ground 6(i), addressed the second stage and the remaining five grounds (grounds 1, 4, 5, 6(ii) and (iii) and 7) of which addressed the third stage of the analysis. I propose to deal in the first instance with those grounds which relate to the first stage, and then with those grounds which relate to the second and third stages, albeit recognising that Mr Croxford focused his principal attack on the judge’s application of Denton to the third stage.
Mr Croxford attempted to persuade us to engage with what he described as the underlying weakness of the respondents’ claim in negligence against the appellants. However, in circumstances where the merits (or lack of merits) of the underlying claim did not feature in any argument before the judge, nor as part of any ground of appeal, the court did not consider it appropriate or relevant to give any consideration to such matters, whether as part of the analysis under the third stage, or otherwise.
Grounds 2 and 3 of the appellants’ grounds of appeal – the first stage
By ground 2 the appellants submitted that, on the assumption (which the appellants challenged) that the judge was correct in principle to focus on “the causative effects of the breach”, the judge erred in holding that there was an evidential burden on the appellants to establish that they had suffered actual material prejudice as a result of the breach, i.e. the late notice of the funding arrangements. Thus at paragraph 15 of their written skeleton argument, the appellant submitted that at paragraph 42 of his judgment:
“the judge concluded that at the first stage of the Denton/Mitchell test the burden was on [the appellants] is to establish that it had been prejudiced by the late notice of funding arrangements, and he held that [the appellants] had failed to do so.”
I do not accept that the judge stated any conclusion in paragraph 42 as to where the burden of proof lay or ruled that such burden was on the appellants. He was merely carrying out the first stage of the inquiry directed in Denton (for example at paragraph 24), namely to “identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1)”. The judge had already reached the conclusion in paragraph 40 of his judgment that (for the reasons Miss Stanley had adumbrated) funding arrangements were by their nature of considerable significance and that, prima facie at least, failure to notify would cause a defendant to proceed on a false footing to its potential detriment in determining whether or not, and in what manner, to defend the claim. Paragraph 42 is simply the conclusion of his evaluation of the evidence which was before him and follows from a combination of his findings in paragraphs 40 and 41 and the absence of any contrary evidence from the appellants. Accordingly I would not allow the appeal on this ground.
i) that the judge failed to pay any or any adequate regard to (i) the presumption that a failure to give notice of funding arrangements would cause the other party to proceed on a false footing to its potential detriment, and/or (ii) the fact that in order to give evidence of actual prejudice the appellants would have had to have waived privilege; and
ii) that his evidential conclusion was wrongly premised upon his earlier, erroneous, finding that:
“(a) every avenue had been explored, over the course of some years, to find some other means of resolution and (b) earlier notification of the funding arrangements would not have altered the Defendant’s position as regards any potential settlement. “
which was not a factual finding open to him on the evidence.
In his oral submissions before this court Mr Croxford additionally submitted that the judge was wrong to restrict the period of prejudice from the breach to the period from February to June 2013 and should have taken into account the prejudice and delay to the proceedings in the period from February 2013 to October 2014, when judgment was given. Mr Croxford submitted that, throughout that period, because of the uncertainty as to whether the respondents would obtain relief from sanctions, the appellants realistically were unable to engage in settlement negotiations.
i) The judge clearly took into account, and gave due weight to, the presumption, which he himself articulated, that failure to give notice of funding arrangements would necessarily result in the other party proceeding on a false footing as to its exposure in the event of liability against it being established at trial. It was obvious that he was well aware of this point in his further consideration of the evidence. Moreover, necessarily each case has to be determined on its own facts.
ii) There is no substance in the appellants’ point that legal professional privilege, or confidentiality as to their litigation tactics, impeded them from giving evidence as to what they might have done by way of offers of settlement in the relevant period from February 2013 to June 2013 or from June 2013 to October 2014. Contrary to Mr Croxford’s submissions, there was no need on the appellants’ part to disclose the appellants’ views as to the merits, or demerits, of the respondents’ case. All they needed to say was that, had they appreciated that funding arrangements were in place during the period from February 2013 to June 2013, serious consideration would have been given to an offer of settlement and that that opportunity had been denied to them, with consequent substantial prejudice. There was no evidence to such effect. Indeed it would have been difficult to show that there was any such prejudice, given the absence of any response by the appellants to the respondents’ notice that they were in fact funded.
iii) On the evidence before the judge, the reality was that the parties had been in negotiation for years and no settlement proposals had achieved fruition. There had always been the possibility that the respondents would be the beneficiaries of funding arrangements. The relevant evidence before the judge was limited on the respondents’ side to the first witness statement (“Sharma 1”) from Christina Sharma of DLA and, on the appellants’ side, to a single statement (“Robin 1”) from Michael Robin of Robin Simon served in response. As was apparent from Sharma 1, the pre-action correspondence between the parties began on 18 December 2009 with a letter of claim pursuant to the PNPAP and continued for over two years between the respondents’ previous solicitors and Robin Simon LLP. The correspondence ended in May 2012, by which time the parties had more than exhausted the pre-action process. Following the instruction of DLA, DLA wrote to Robin Simon on 8 May 2013 (the first letter since May 2012) stating that they had been instructed and noting that:
“It is clear from the correspondence that the parties have exhausted their pre-action obligations and the Professional Negligence Pre-Action Protocol”.
iv) Notification of funding was given by DLA on 11 June 2013. This did not result in any material change of stance by the appellants, such as, for example, the start of settlement negotiations, which clearly could have been referred to in evidence even though the detail might have been subject to privilege. That was notwithstanding the 7 day window for a settlement offer which the letter of 11 June 2013 expressly gave to the appellants. Given the absence of any change of position by the appellants following that notification, I accept the respondents’ submission that there is no good reason to believe that there would have been any change of position on the part of the appellants, if notification had been given 3 ½ months earlier. Moreover Robin 1 advanced no evidence whatsoever to challenge the respondents’ case as to lack of prejudice resulting from late notification. Instead, the only prejudice which the appellants sought to advance in their evidence before the court was prejudice that would result from the grant of relief. I accept that such consideration does not arise at the first stage of the Denton analysis.
v) So far as the period June 2013 to 19 March 2014 (the date of the hearing), or indeed to 21 October 2014 (the date of the judgment), was concerned, there was no evidence before the judge that, as at the hearing date on 19 March 2014, the position had changed. In relation to the period to 30 July 2014, or to the date of his judgment on 21 October 2014, the judge clearly took into account the appellants’ submissions that the progress of proceedings had been hampered because of the application for relief from sanctions and the delay it caused: see paragraph 42 of the judgment.
vi) Accordingly, in my judgment there is no basis for challenging the judge’s conclusion that the result of the first stage of the requisite inquiry was that the materiality or the significance of the breach was not sufficiently serious to persuade him that relief from sanctions should not be granted. That was a conclusion he was clearly entitled to reach on the basis of the material before him.
Ground 6(i) of the appellants’ grounds of appeal – the second stage
The appellants’ grounds of appeal contained no specific complaint that the judge failed to consider, or adequately to consider, at the second stage of the Denton analysis, the reasons why the failure to notify occurred. However, ground 6(i) of the grounds of appeal, in the context of complaint about the judge’s failure at the third stage of the analysis, included the complaint, which Mr Croxford elaborated in the course of his oral submissions, that the judge never addressed the question as to the impact on his discretion of the fact that no reason whatsoever, let alone a good reason, had ever been given for the appellants’ serious failure to notify the existence of the funding arrangements within the time prescribed. Mr Croxford’s argument was that the judge failed to attach any weight in the exercise of his discretion to the fact that no good reason been given and as to whether, in such circumstances, it could ever be appropriate to grant relief.
In my judgment, this complaint does not suffice, whether taken on its own or cumulatively with other points, to provide any reason in the circumstances of this case for regarding the exercise of the judge’s discretion as flawed. It was obvious from the evidence before the court, to the effect that the default been “inadvertent” and “not deliberate”, that the relevant litigator at DLA simply did not appreciate that there was any obligation to notify the appellants of the funding arrangements within the specified time. The judge clearly appreciated the point – see the express reference in paragraph 44 of the judgment to the fact that the respondents could not, as regards the second stage, legitimately or usefully rely on any “good reason” for their default and delay – and took into account, at the third stage of his inquiry – the issue relating to their likely negligence, and as to whether, rather than being granted relief against sanctions, the respondents should be left to pursue any claims against their own solicitors. In those circumstances, where there was no suggestion that the breach was deliberate or dishonest, and where the judge clearly attached appropriate significance to the requirement to give notice, I do not consider that the exercise of the judge’s discretion can be regarded as flawed simply because he arguably took the view that the absence of any good reason for the breach was not something that had to be weighed in the scales heavily against the respondents. It is clear from paragraph 44 that, contrary to Mr Croxford’s submissions, the judge did indeed take the point into account against the respondents. But what weight is to be attached to a particular factor is clearly a matter for the judge’s own exercise of his discretion. In my judgment the judge was clearly entitled, in all the circumstances, to take the view that the reason for the failure to notify, even on the assumption that it did indeed constitute negligence on the part of DLA, was not a factor that had to be weighed heavily in the balance against the respondents.
Moreover, as is clear from paragraphs 31, 35 and 36 of the majority judgment in Denton, even if there is a serious or significant breach of the relevant rule, and there is no good reason for the breach, it does not automatically follow that relief will be refused. In each case the court has to have regard to all the circumstances.
Grounds 1, 4, 5, 6(ii) and (iii) and 7 – the third stage
By ground 1 the appellants contended that the judge was wrong to hold that, in the exercise of his discretion under CPR rule 3.9(1), he should accord little weight to the prejudice to the appellants which would be occasioned if relief from sanctions was given. They complained that the judge was wrong to focus his attention on the consequences of the breach as regards the question of prejudice to the appellants and the need for litigation to be conducted efficiently and at proportionate cost; the appellant submitted that what the judge should have concentrated on were the serious consequences, so far as the appellants were concerned, of the grant of relief from sanctions.
This ground was the principal focus of Mr Croxford’s oral criticisms of the judgment. He complained that, by the exercise of his discretion, the judge had afforded the respondents the considerable tactical advantage of litigating under the old costs regime, which was far more favourable to the respondents, since success fees and ATE premiums were contingently recoverable under that regime, but not under the new, post-1 April 2013 regime, and that, as a result, the appellants’ financial exposure to a possible cost liability had been massively increased to up to £1.43 million. He complained that there was no reference by the judge of this important fact in the judgment. Instead the judge had taken a blinkered view as to what was the relevant test, and had concentrated on the causative effects of the breach, rather than the consequences for the appellants of any relief from sanctions. The judge had failed to take into account the serious criticisms made by the Jackson Report of the old regime which enabled a successful party to shift liability for success fees and ATE premiums on to the losing party. Moreover the judge had failed to take into account the overriding objective which sought to ensure that parties conducted litigation on an even playing field; the result of the judge’s order was to place the respondents in the unequal position of being “super-claimants”, a position criticised in the Jackson Report.
Mr Croxford further submitted that the judge’s lack of appreciation of the importance of the prejudice caused to the appellants by the grant of relief, as a factor to be taken into account, was underlined by his passing reference, in paragraph 39 of the judgment to “the consequences to the Defendants of the grant of relief” (when dealing with stage 1 of the Denton/Mitchell test) where he said “that sort of “prejudice” may be relevant at the third stage”. Mr Croxford complained that such prejudice clearly was relevant at the third stage, and the judge ought to have so held. Moreover, Mr Croxford submitted that, in any event, when the judge came to the third stage of the analysis, at paragraph 55 (3) of the judgment, he did not consider “prejudice” to the appellants properly or at all. Apart from the fact that (as already submitted as described above) the judge failed to look at the wider considerations, he described the appellants’ position, following the respondents’ default, as having gained an “advantage“, which relief from sanctions would simply reverse; whilst that might be a correct approach in the more common relief from sanctions applications, for example in the Decadent case where the claimant’s relatively trivial breach of the unless order would have given the defendant a windfall of having the case against it struck out and the relief from sanctions would simply restore the status quo ante, that was not the correct approach in the instant case where the effect of giving relief was to impose a prospective liability which did not otherwise exist. This case, submitted Mr Croxford, cried out for the judge to consider the prejudice which would be caused to the appellants by the granting of relief, and he was wholly wrong to say that “usually” the court should “accord lesser weight” to that factor; that was a misdirection, certainly so far as this case was concerned; this case was the paradigm case for the court to give considerable weight to the prejudice which would be occasioned to the appellants.
i) Contrary to Mr Croxford’s submission, the judge did properly and adequately take into account as a factor, at the third stage of the analysis, the appellants’ financial exposure if relief was granted. Both from passages in the judgment, from the transcript of the hearing before him on 19 March 2014 and from the extensive written skeleton arguments, it is clear that he was well aware of the evidence that the ATE premium could be in the region of hundreds of thousands of pounds, or, indeed, well over £1 million, and that the appellants would be exposed to the risk of paying the premium if their so-called “accrued right” was lost as a consequence of the application being granted. Nor is there any doubt that the judge did, at the third stage of his analysis, take into account as a factor “relevant to all the circumstances of the case” the contention that the appellants would be exposed to an increased financial risk if relief was granted. This is evident not least from paragraphs 31, 35, 37, 39 and 53(1) in combination with 54 and 55(3). To suggest that, simply because the judge did not in his judgment expressly mention the figure of £1.43 million as a possible maximum exposure for the appellants, he did not take the potential financial exposure of the appellants into account, in my view is unsustainable.
ii) The judge was right – in the particular circumstances of this case – to hold, at paragraph 55(3) of his judgment, that the factor that the appellants would be adversely affected by the grant of relief should be accorded lesser weight than the breach and its consequences. That was in accordance with paragraph 35 of the judgment in Denton which expressly stated that the court had to give particular effect to the two important factors of (a) the effect of the breach and (b) the interests of justice in the particular case. The appellants’ submission that, prior to the amendments to CPR rule 3, the list of factors to be taken into account on an application for relief from sanctions included at (i) prejudice which would be suffered if relief was granted, did not take account of the fact that the checklist has disappeared under the new rule and that, whilst it is still a factor under the “all the circumstances” heading in CPR 3.9, it is only a subsidiary factor. That is clear from the analysis of the majority in Denton at paragraphs 32 and 35-36.
iii) The judge clearly considered the issue raised by the appellants that the respondents were seeking to take advantage of the previous costs regime, in force before 1 April 2013, in their application for relief from sanctions: see, for example, paragraph 54 of the judgment. The transcripts of the hearing and the skeleton arguments make clear that he had been extensively referred to the relevant passages in the Jackson Report criticising the recoverability of contingency fees and ATE premiums. But the fact that the respondents were attempting to take advantage of the old regime, notwithstanding the criticisms contained in the Jackson Report, cannot of itself be a reason for denying relief from sanctions. The judge’s view, as expressed in paragraph 55(3) of the judgment, was that he was not convinced, if relief was granted, that the appellants “would be deprived of a valuable accrued right as 1 April 2013, or seven days thereafter.” As he correctly pointed out, any such right (if it can be characterised as a right at all) was “inherently flawed, as it was always susceptible to being undermined if relief from sanctions were granted.”
iv) I agree with the judge that, if the respondents’ argument as to the acquisition by the non-defaulting party of a non-feasible contingent accrued right were to be accepted, in every such case the court would be obliged to refuse relief against sanctions. The reality was that the transitional arrangements under section 44 (6) and section 46(3) of LASPO expressly recognised the legitimacy of agreements for contingency fees and of ATE insurance policies, concluded prior to 1 April 2013, continuing in force. A similar recognition of pre-1 April 2013 arrangements was conferred by new CPR rule 48.1 and rule 48.2(1)(a)(i). In such circumstances I do not consider that the judge can be criticised for not regarding the criticisms contained in the Jackson Report, or the establishment of the new regime as from 1 April 2013, as predicating that his discretion should be exercised against granting relief from sanctions.
v) No submissions appear to have been made to the judge in relation to the requirement of the overriding objective to ensure an equal playing field between parties to the litigation. Even if they were expressly made, I do not consider that this factor was something that predicated the exercise of the judge’s discretion against the granting of relief from sanctions. The inequality of the parties as a result of the “super-claimant” status of the respondents, and the prejudice which the appellants would suffer as a result, were clearly factors which he did take into account in reaching his conclusion: see paragraphs 53 and 54 the judgment. The fact that equality of arms was a requirement of the overriding objective did not take the argument any further.
vi) Accordingly in my judgment the judge’s approach cannot be criticised in this respect. He took into account all the relevant circumstances, including the effect of granting relief on the appellants’ potential future liability for costs. The particular weight which the judge attached to any particular factor was a matter for him. Mr Croxford’s criticisms that the judge inappropriately focused on the causative effects of the breach, and failed to take into account wider considerations, such as the criticisms of the old regime in the Jackson Report, the appellants’ consequential exposure to risk in the event that relief from sanctions was granted and the “super-claimant” status of the respondents, cannot in my judgment be maintained.
Thus, contrary to the thrust of Mr Croxford submissions, the criticisms in the Jackson Report as to the recoverability of success fees and ATE premiums, and the consequent implementation of the Report’s recommendations by LASPO, and the introduction of the new costs regime, did not predicate that relief from sanctions should be refused in the present case. The judge clearly took into account all the relevant factors and was justified within the reasonable ambit of his discretion to grant relief.
Grounds 4 and 5 – “efficiency” and “proportionality”
“4. The judge was wrong to hold that CPR rule 3. 9 (1) (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.
5. The judge accorded no or no adequate weight to the undisputed evidence that if relief from sanctions was granted to the claimants the costs of these proceedings could be increased by £1.4 3 million.”
The point made by the appellants under ground 4 raised a point of construction in relation to CPR rule 3.9(1), in particular sub-paragraph (a). The appellants contended that this sub-paragraph was not concerned solely with whether the default or breach had undermined, or been inconsistent with, the need for litigation to be conducted efficiently and at proportionate cost, but rather extended to consideration as to whether the grant of relief would be consistent with such needs. The appellant submitted that, by interposing the judge’s words (“whether the default has undermined” etc.) the result was to limit the effect of the very widely drafted express wording of the rule. They submitted that, if the judge had properly considered the wide wording in the rule, he would have been bound to consider what impact the giving of relief would have on the efficiency and proportionality of this piece of litigation. That consequence that an order giving relief would increase the costs of the litigation by up to £1.43 million which was the antithesis of “efficiency” and of “proportionality” because the introduction of this new cost had absolutely nothing to do with the complexity of the issues or any other factor relevant to proportionality. Both the definition of the overriding objective in CPR r. 1.1 and CPR 3.9(1)(a) required the court, when exercising its case management powers, to have in mind questions of cost and proportionality. Thus the appellants submitted that the judge’s approach was inconsistent with that fundamental principle.
“It is acknowledged that the Judge’s approach, at least at first blush, had some support from the judgment in Denton in which the Court of Appeal said that “Factor (a) makes it clear that the court must consider the effect of the breach in every case. If the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost, that will be a factor weighing in favour of refusing relief”. However, the Court of Appeal was not dealing with a case like the present, where the effect of giving relief would be to add considerably to the costs of the litigation for reasons unrelated to the complexity of the proceedings, but simply because the claimant had managed to secure ATE insurance funding.”
I am not persuaded that the distinction which the appellants seek to draw is well-founded. One of the cases before this court in Denton was Utilise, where a costs budget was filed late. That situation is analogous to the present case. The consequence of that failure, absent relief, was that the costs recoverable by the defaulting party in the event of success in the action were limited to applicable court fees: see Denton at paragraph 7. When the court came to consider the application of the third stage, its approach to CPR 3.9(1)(a) was identical to that taken by the judge, focusing on theeffect of the breach and not on the consequence of granting relief: see Denton at paragraph 78 and 79.
But even assuming, in the appellants’ favour, as I am prepared to do, that in appropriate circumstance it might well be relevant at the third stage of the analysis, when all the circumstances have to be taken into account, to look at any increase in costs caused by the grant of relief, and to consider whether such increase was efficient or proportionate, that in my view does not assist the appellants in their attack on the judge’s decision. The effect of granting relief in the present case was not to “increase the costs of the litigation by up to £1.43 million” since, if relief was refused, the ATE premium would still be payable in the event of the respondents winning the case. The only difference occasioned by the refusal of relief was that those costs were to be borne by the respondents rather than the appellants; in other words a shifting of responsibility for that element of the costs, rather than any increase in the costs of the litigation. The possibility, and consequences, of cost shifting were factors which, in my judgment, for the reasons given above, the judge clearly took into account.
Grounds 6(ii) and (iii) and 7
i) the judge failed to give any or any adequate weight to the fact that “(ii) there was no evidence from [the respondents] showing that they (as opposed to their solicitors) would suffer prejudice if relief from sanctions was refused, and/or (iii) the beneficiaries of an order giving relief from sanctions were [the respondents’] solicitors, and not necessarily [the respondents]”;
ii) the judge misdirected himself on the evidence in holding that he could not conclude that [the respondents] had an unanswerable claim in negligence against their solicitors.”
I see no basis for attacking the judgment on this ground. The judge clearly took into account, and gave adequate consideration to, the factor that there was a strong possibility of recovery by the respondents against their solicitors: see paragraph 55(2) of the judgment. He was entitled to take the view that he did not have the material to determine that a claim against DLA was “unanswerable”, in circumstances where he did not have the benefit of submissions on behalf of DLA. Moreover, whether or not such claim was “strong” or “unanswerable”, would not have affected the legitimacy of the exercise of his discretion. Even if the claim against DLA was unanswerable, he was nonetheless was entitled to take the view, in the light of the comments made in paragraphs 21 and 41 of Denton, and in all the circumstances of the case before him, that it was preferable to grant relief, rather than encourage what would inevitably be satellite litigation involving the respondents suing their own solicitors. The appellants’ complaint that the beneficiaries of such relief were the respondents’ solicitors, rather than the respondents themselves, is also somewhat unrealistic. In reality, of course, on the hypothesis that DLA was negligent, the likelihood is that any detriment caused as a result of the grant of relief from sanctions (in the event that the appellants were to be ultimately unsuccessful at trial) will be that of the appellants’ professional indemnity insurers, and the benefit of any relief from sanctions will enure to DLA’s professional indemnity insurers.