The new stricter approach to applications for relief from sanction reaches the SCCO

The decision of the Court of Appeal in Mitchell v News Group Newspapers Ltd  [2013] EWCA Civ 1526 was intended to send out a clear message to the legal profession that applications for relief from sanction would be granted only where (very) good reason for failure to comply with a rule,  direction or order of the Court could be shown.

Mitchell is not, it appears,  popular with Judges who are expected to enforce the guidance notwithstanding their reservations as to the draconian effect of refusing relief from sanction even in cases where the “failure” appears to be minimal with little, if any, prejudice suffered by the opponent.

Those dealing with costs on a regular basis pondered as to what, if any, relevance Mitchell would have in respect of costs claims given that historically costs have been treated with a great deal of elasticity when it came to procedural matters and a common sense approach to costs always prevailed… well at least since the cessation of the so called costs wars arising from technical challenges to Conditional Fee Agreements that is.

Costs Judge Master Gordon-Saker was required to give early consideration at the Supreme Courts Costs Office to an application for relief from sanction in the matter of Andrew Harrison and Elaine Harrison and Black Horse Limited– [2013] EWHC B28 (Costs).

This had been a long running dispute arising from the Claimant’s allegation of mis-selling of payment protection insurance (PPI) by the Defendant as part of loan agreements between 2003 and 2006.

The claim began in the County Court and following trial the Claim was dismissed with costs to be paid to the Defendant.

The matter was the subject of an appeal (appeal one) to the Birmingham County Court before being transferred to the Manchester Mercantile Court whereat His Honour Judge Waksman QC who was sitting as a Judge of the High Court dismissed the appeal again with costs.

The Claimants then appealed (appeal two) unsuccessfully to the Court of Appeal though they were granted leave to appeal to the Supreme Court (appeal three) however the Defendant offered to refund, and the Claimants agreed to accept, premiums and interest in the sum of £33,099.08. As part of the settlement the Defendant agreed to pay the Claimants’ costs throughout with the exception of any after the event insurance premiums.

The Claimants costs in respect of the County Court, High Court, Court of Appeal and Supreme Court amounted to in excess of £2.5million.

At an early stage in the detailed assessment proceedings, 7 March 2013, the Costs Judge ordered a payment on account of the Claimant’s costs in the sum of £150,000.00 the Costs Judge stating that he could not, at that time, be certain that the Claimants would recover more.  Shortly thereafter the parties agreed the costs of the issues before the Supreme Court in the sum of £175,000.00 (against the claim of £959,253.20). At the hearing of the payment on account application the Costs Judge, who was in possession of the Defendant’s Points of Dispute, suggested that if there was an issue with regard to funding the Claimants might wish to avail themselves of the opportunity to apply for relief from sanction. No such application was made at this time.

The remaining costs arising from the County Court, High Court and Court of Appeal were listed for detailed assessment commencing 27 January 2014 for 5 days.

The matter had been funded by way of four Conditional Fee Agreements between the Claimants and their Solicitors – 1) County Court dated 13/01/2009, 2) High Court Appeal – 24/08/10, 3) Court of Appeal – 02/12/10 and 4) Supreme Court Appeal – 02/12/11.

There was no dispute that the required notice of funding had been served in respect of agreement 1) and it was not in issue that no notice had been provided in respect of agreement 2) there was dispute as to notification of the method of funding in respect of agreement 3) the issue of notification having been given in respect of 4) was not in dispute.

The Defendant had taken issue when the Claimants’ failure to provide the requisite notification of change to funding in relation to both the High Court (appeal one) and the Court of Appeal (appeal two) submitting that by operation of CPR 44.3B(1) the Claimants were unable to recover any success fees on any base costs, or Counsels’ fees against the Defendant.

By Application Notice dated 10 July 2013 the Claimants issued an application for an order that service of notice of funding in respect of agreement 3) was valid and in the alternative for relief from sanction.  At a subsequent telephone directions hearing the Costs Judge pointed out that no application for relief had been made in respect of agreement 2) and the Costs judge directed that any application be made by 30 August to enable both applications to be heard together.

The Claimants eventually applied for relief in respect of agreement 2)

At the outset of the detailed assessment hearing before the Costs Judge the Claimants withdrew the application in respect of agreement 2) therefore no success fees were payable in respect of the first appeal.

The remaining issues before the Costs Judge were:

Did the Claimants serve notice of funding in respect of agreement 3)?

If not should relief from sanction be granted?

The Claimants solicitors’ file contained a letter to the Defendant’s solicitors dated 24/12/10 which purported to enclose “an updated notice of funding”.  It was not in issue that the file contained an updated notice of funding nor was it in issue that the file contained a fax transmission verification report to the Court of Appeal enclosing the updated notice of funding.

The Defendant’s solicitor’s position was simple – there was no record of receiving notices for cfas in respect of the first or second appeals.

Evidence was exchanged and a representative of the Claimant’s solicitors was cross examined, at some length, as to her recollection of service of the notice and her standard practice when serving documents.

Whilst finding the witness was “completely truthful” the Costs Judge found that the evidence did not sufficiently prove that the notice had been provided to the Defendant.

The Claimants provided no evidence as to what had happened to the letter and/or notice of funding after it left the hand of the Claimants’ solicitor. There was no evidence that the letter and/or notice had been delivered.

The Costs Judge referred to the requirement to provide notification of any change to a funding arrangement as set out in CPR 44.15(2) (pre April 2013 form).

The Costs Judge then referred to the sanction for failing to provide the required information as set out in CPR 44.3B (pre April 2013 form) which in the absence of a court order prohibited the receiving party from recovering “any additional liability for any period during which that party failed to provide information about funding arrangement in accordance with a rule, practice direction or court order”.

As the Costs Judge explained in his judgment, the sanction was automatic and absent order of the court no success fees could be recovered.

The Costs Judge gave consideration to the evidence of both parties and found that he had no reason to disbelieve that the Claimants’ solicitors had proceeded under the genuine belief that the requisite information had been provided to the Defendant however the Costs Judge had no reason not to accept the Defendant’s solicitor’s unchallenged statement that had notice of the change to funding been received the Defendant’s approach to the second appeal might have been different and the solicitor’s advice to the Defendant might have been different.

The Costs Judge found there was evidence that the Defendant had been prejudiced by the failure of the Claimants to provide details of the new arrangements.

The Costs Judge went on to comment that under the old version of CPR 3.9 this would have been a “borderline” case for relief from sanctions however the Costs Judge was considering the matter under the new version of 3.9 and was also required to have regard to the recent decision of the Court of Appeal in Mitchell

The Costs Judge considered he was not able to identify the Claimants’ failure as trivial; the rules required the Claimants to give notice of the change in funding arrangements and they did not do so in any form.

The onus was on the Claimants solicitors, the Costs Judge stated, to show good reason for their failure to give notice and whilst accepting the evidence that the Claimants’ solicitors intended to give notice, for some reason the intention was not fulfilled.  The Claimants failed to provide any evidence as to why the documents did not reach the Defendant or evidence to show that, whatever the reason, it was outside their control.

Whilst accepting the decision was “harsh”, particularly given the Costs Judge’s view that the failure was not intentional, the Costs Judge considered that the solicitors should have known that the change in approach to failure to comply was coming referring to the report of Jackson LJ published in December 2009 and the emphasis of Jackson LJ in his implementation lectures on the tougher approach to relief from sanction applications to be applied.

The Costs Judge was also critical of the Claimants delay in applying for relief from sanction following receipt of the Defendant’s Points of Dispute pointing out that had a timely application been made the matter would have been heard pre Mitchell.

The Costs Judge also referred to the judgment of Norris J in Forstater v Python (Monty) Pictures Ltd [2013] EWHC 3759 (Ch) given after the hearing of this application but before the Costs Judge gave his decision.  The Costs Judge gave counsel the opportunity to comment on Forstater in writing given Norris J had granted relief from sanction in a matter wherein the Claimant had failed to provide Notice of Funding in the required format.

In Forstater the Claimant had provided details of funding in a letter rather than by formal notice and the Judge allowed the Claimant to recover a success fee from the date of the letter, the Judge being satisfied that any failure was one of form rather than substance.

The Costs Judge was satisfied that the granting of relief in Forstater was to reflect the failure was “trivial” unlike the matter before him.

The application for relief from sanction was refused.

The matter highlights the difficulties that are faced applying for relief post Mitchell and further highlights the need for all solicitors to exercise great care when serving important documents and to perhaps consider adding an extra belt to the “belt and braces” approach in place when serving documents perhaps by following up service with a request for confirmation that funding documents were received.