FAILURE TO SERVE NOTICE OF AMENDED CFA DETAILS IS NOT A SERIOUS OR SIGNIFICANT BREACH: HIGH COURT DECISION CONSIDERED IN DETAIL

The High Court decision in Ultimate Products Ltd -v- Wooley [2014] EWHC 2706 (Ch) provides further guidance as to what the courts are likely to consider “serious or significant” breaches. The High Court judge upheld the decision of the Master granting relief from sanctions when the claimant failed to file notice of a new conditional fee agreement being entered into.   The judge found that the breach was not “serious or significant” and that relief from sanctions was justified applying the Denton principles.

THE FACTS: CLAIMANT ENTERED INTO NEW CFAS DURING COURSE OF ACTION

The claimant brought  a trade mark and passing off action which was conducted under a conditional fee agreement.  The defendant was notified of the existence of the CFA and form N251 was served.  The claimant entered into new CFAs prior to the trial and told the defendant this was happening. The new CFAs increased the success fee from 32% and 30% to 100% and there were adjustments to the hourly rates and fees involved.

However the defendants were not informed of the later CFAs by Form N251 or otherwise.  It was accepted by the claimant that a new Form N251 should have been served.

The case proceeded to trial where th

e claimant was successful and the defendant was subsequently unsuccessful in an appeal to the Court of Appeal.

THE ASSESSMENT OF COSTS

During the assessment of costs the defendants took the point that because they had not been notified of the new CFA the claimant was not entitled to any success fee.

The Master initially gave partial relief by allowing them to recover the success fee recoverable under the first CFA (reduced on assessment to 25%); subsequently the Master granted full relief.

RELIEF FROM SANCTIONS GRANTED BY THE MASTER

Master Rowley granted relief, applying the old “Mitchell” criteria. On the grounds that:

• Compliance would not have given the defendants any more material information as to the success fee than they already had.
• What had happened was a “slip or oversight”.
• There was no positive evidence that the defendants would have acted any differently if the rule had been complied with.
• The factors that led to the new CPR 3.9 were not really in play in the case.
• There was a need to avoid “litigation about litigation” and “a need to avoid mindless adherence to the rules of procedure”.
• Common sense should be applied.

THE APPEAL TO THE HIGH COURT JUDGE: DECISION TO ALLOW RELIEF FROM SANCTIONS CONFIRMED

Mr Christopher Pymont QC considered the appeal under the Denton principles (which could not have informed the decision of the Master as the judgment was given prior to Denton).  He upheld the decision to grant relief from sanctions.

• The claimant’s failure was neither serious nor significant.
• It did not imperil future hearing dates or otherwise the conduct of the litigation or generally.
• The defendants did not contend that it made any difference to their conduct of the case or anyone else’s position.
• The defendants were aware that the claimants were being represented under a CFA and success fees would be payable.
• The defendants had no right to know the level of the success fees.
• If the claimant had complied with the notice requirements the defendants would have known there were new CFAs in place but have known nothing of the level of the success fees.
• The defendants would have been in precisely the same position if the claimant had complied.

REJECTION OF THE DEFENDANTS’ ARGUMENTS THAT FAILURE TO GIVE NOTICE OF CHANGE OF FUNDING MUST BE A SERIOUS OR SIGNIFICANT MATTER

The judge rejected an argument that failure to give notice of change of funding must be serious or significant. The defendants argued that because the rules express the appropriate sanction – to deny the claimants their costs for the period of non-compliance then the sanction should be given effect.  However:-

• The sanction at 44.3B is expressly prefaced by the condition “Unless the court orders otherwise”.
• This means the sanction does not automatically apply but applies subject to the court’s powers on an application.
• Those powers had to be exercised in accordance with the approach and guidance set out in Denton.
• The first stage of Denton involves a consideration of the question whether the non-compliance was serious or significant.
• The express sanction cannot answer that question on its own; regard had to be had to circumstances and effect of non-compliance.
• If, as in this case, compliance made no substantial difference to the defendants, there was no reason for the court to adhere rigidly to the rule or why it should want to deem to be serious or significant a failure which, in truth, was not so.

GRANTING RELIEF FROM SANCTIONS DID NOT UNDERMINE THE RULE

The defendants also argued that granting relief would undermine the rule and the express sanction imposed for non-compliance. The judge stated that “this was not a compelling submission”. It could equally be said that the defendants’ approach leaves no room for the court to order otherwise, as the rule expressly provides.

THE APPROPRIATE APPROACH: APPLYING DENTON

The judge held that once the claimant made the application for relief the court simply had to apply the approach and guidance set out in Denton to the facts proved.

THE SECOND AND THIRD STAGES OF DENTON

Since the court had formed the view that the was not a serious or significant breach it was not necessary to spend too much time on the second and third stages of the Denton test.

• The error had correctly been characterised by the Master as a slip, mistake or oversight.
• It was harsh to describe this as a “bad” reason. However even it was it did not follow that relief would automatically be refused.
• Regard had to be had to all the circumstances of the case.
• The Master had exercised his discretion in circumstances where the court could not find any material fault, even applying Denton.
• Indeed if the court were asked to consider the matter afresh the same conclusion would be reached.
• The claimant had volunteered to the defendants the information that they were going to increase the success fee which was more information than the defendant was entitled to. The new CFA did not come as a surprise to the defendants.