Winston Jacob examines the latest Court of Appeal decision on relief from sanctions
In its most important decision since Mitchell, the Court of Appeal has clarified the approach to be applied in applications for relief from sanctions under CPR r. 3.9. The court heard three conjoined appeals: Denton v TH White Ltd, Decadent Vapours Ltd v Bevan and Utilise TDS Ltd v Davies. The first was an appeal against the grant of relief. The second and third were appeals against its refusal.
The Court of Appeal was unanimous in allowing all three appeals. It also took the opportunity to clarify the approach advanced in Mitchell. A three-stage approach is now required to applications for relief.
First, the court will consider whether the breach giving rise to the sanction was serious or significant. This is a departure from the test of ‘triviality’ proposed in Mitchell, which their Lordships concluded had given rise to difficulty in its application.
In considering whether a breach is serious or significant, the court accepted that in many circumstances the most useful measure would be whether the breach imperilled future hearing dates or otherwise disrupted the conduct of litigation (including litigation generally). This measure would not work in all cases, for instance if there had been a failure to pay court fees.
If the court concludes that the breach was neither serious nor significant, relief will usually be granted and it will be unnecessary to spend much time on stages 2 and 3. At stage 1, only the breach that resulted in the sanction should be considered. Other breaches by the defaulting party fall to be considered at stage 3.
Secondly, the court will consider why the breach occurred: was there a good or bad reason for the breach? Examples are given at paragraph 41 of Mitchell. The court declined to provide further examples.
Thirdly, the court will consider 'all the circumstances of the case, so as to enable it to deal justly with the application'. At this stage, the court must consider the two factors expressly set out in CPR r. 3.9. These are:
(a) the need for litigation to be conducted efficiently and at proportionate cost; and
(b) the need to enforce compliance with rules, practice directions and orders.
The Court of Appeal was split on the issue of how much importance should be placed on these two factors. The majority view (The Master of the Rolls and Lord Justice Vos) was that these two factors are of particular importance and should be given particular weight. The suggestion at paragraph 36 of Mitchell that they be given ‘paramount importance’ appears, however, to be an overstatement of their importance.
The other factors that are relevant in stage 3 will vary from case to case. The promptness of the application is a relevant circumstance to be weighed in the balance. Presumably, this must be a relevant factor in every application. Other breaches by the defaulting party may be considered at this stage.
The majority expressed concern that some judges were adopting an unreasonable approach to CPR r. 3.9. In particular, approaching applications for relief on the basis that, if the breach was not trivial and there was no good reason for it, the application must fail, had led to decisions which were manifestly unjust and disproportionate. The court expressed the view that this was not the correct approach and not mandated by Mitchell.
The court noted that litigation cannot be conducted efficiently and at proportionate cost without cooperation between the parties and their lawyers. Further, that this applied to litigants in person as much as to represented parties. CPR r. 1.3 specifically requires the parties to assist the court in furthering the overriding objective.
With this in mind, the court expressed the view that parties should not act opportunistically or unreasonably in opposing applications for relief. The court will now expect parties to agree applications for relief where (a) the breach is neither serious nor significant (b) there is a good reason for the breach or (c) it is otherwise obvious that relief should be granted. The court will also expect parties to agree reasonable extensions of time of up to 28 days under the new CPR 3.8(4), which states:
‘… unless the court orders otherwise, the time for doing the act in question may be extended by prior written agreement of the parties for up to a maximum of 28 days, provided always that any such extension does not put at risk any hearing date.’
The Court of Appeal was highly critical of the satellite litigation and uncooperative attitude that the Mitchell decision had fostered. In its view, a contested application for relief should by very much an exceptional case. This is because (a) compliance should be the norm and (b) parties should work together to make sure that, in all but the most serious cases, satellite litigation is avoided even when a breach has occurred.
The Court of Appeal gave the following guidance.
The court will now be readier to penalise opportunism and will impose heavy costs sanctions on parties who behave unreasonably in refusing to agree a time extension or who unreasonably oppose applications for relief. In some cases, the court will go further and record that the opposition to relief was unreasonable conduct to be taken into account under CPR 44.11 when costs are dealt with at the end of the case. If the offending party wins, the court may make a substantial reduction in its costs under CPR 44.11. If the offending party loses, the court may award indemnity costs against it.
The facts of the three appeals heard by the Court of Appeal may give an indication as to how the courts will now approach applications for relief.
In Denton, the claimants served six witness statements around six months late. They therefore needed relief from sanctions to rely on that at trial by virtue of the application of CPR r. 32.10. The judge granted relief and adjourned the trial to give the defendant an opportunity to answer the evidence.
The Court of Appeal concluded that the judge was clearly wrong. It was a serious breach – as it required the trial to be vacated – and there was no good reason for it. Further, in considering all the circumstances, both factors (a) and (b) in CPR r. 3.9 militated against granting relief. All three stages of the analysis were against the granting of relief and the judge’s order was set aside.
In Decadent, the claimant’s solicitor sent a cheque for a court fee to court a day late in breach of an unless order. The cheque then got lost in the post. The claim was struck out as a result. When the claimant’s solicitor later learnt that the cheque had been lost the fee was promptly paid. The judge refused relief.
The Court of Appeal concluded that the only reasonable conclusion was to grant relief. The breach was near the bottom of the range of seriousness. There was no good reason for it. However, at the third stage, both factors (a) and (b) pointed in favour of granting relief. The late payment of fees did not prevent the litigation from being conducted efficiently and at proportionate cost and it was a less serious breach. The Court of Appeal concluded that in all the circumstances not only should relief have been given, but the defendants ought to have consented to it.
In Utilise, the claimant’s solicitor filed a costs budget 45 minutes late. He also failed to notify the court of the outcome of settlement negotiations until 13 days after the court had order him to do so. Due to CPR r. 3.14, the claimant was restricted to a costs budget for court fees alone unless it obtained relief from sanctions. The judge on appeal concluded that the cumulative effect of the two separate breaches made the 45 minute delay in filing the budget not trivial. He therefore refused relief.
The Court of Appeal concluded that the judge was wrong. The 45 minute delay was not serious or significant; furthermore, it was trivial. Therefore the judge did not need to spend much time on stages 2 and 3. The other breach was only a relevant consideration at stage 3 and it could not turn a breach that was neither serious nor significant into something else.
The majority of the Court of Appeal expressed the hope that the guidance given would reduce satellite litigation and introduce a consistent judicial approach to CPR 3.9. Further, it should now be unnecessary to refer to earlier authorities, of which a multitude has arisen since Mitchell.
The Court of Appeal’s approach represents a welcome row back from the harsh approach that has taken over following Mitchell. It remains to be seen how close the new approach comes to resemble the old system before the amendments to CPR r. 3.9. In the minds of many, a return to the previous system would be no bad thing. However, the majority of the Court of Appeal made clear that courts should not slip back to the old culture of non-compliance which the Jackson reforms were designed to eliminate.
The suggestion that it should be unnecessary to refer to earlier authorities is also welcome. The vast proliferation of authority has resulted in some applications for relief taking an inordinate amount of time whereas, under the old regime, they might have been swiftly disposed of.
Whilst those requiring relief from sanctions may breathe a sigh of relief, those on the receiving end of such an application must now be careful. Given the enthusiasm with which the Court of Appeal has embraced penalising unreasonable opposition to applications, there is now a very real risk that an innocent party may find themselves subject to a costs sanction following another party’s breach. The court will now expect innocent parties to consent to some applications and to agree extensions of time. This may lead to respondents to applications who attempt to adopt a neutral stance – not consenting but not actively opposing and simply leaving it as a matter between the defaulting party and the court – being penalised in costs for not offering their consent.
Winston Jacob / 1st Jul 2014
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