Last week the Court of Appeal allowed the three appeals of Denton, Decadent and Utilise (“DDU”) in a judgment that intends to clarify, rather than overturn, the infamous decision made in the 2013 case of Mitchell and News Group Newspapers Ltd.
Widely described as an appeal of Mitchell and the remorseless regime that appeared to have been created by the Court of Appeal, DDU is technically a review of the proper application of CPR 3.9 on relief from sanction following Mitchell.
The New Test
The Court of Appeal has supported its earlier decision by affirming that Mitchell “remains substantially sound”. It appears that the subsequent satellite litigation relating to relief from sanction can be blamed on the lawyers and Judges who have sought to rely on Mitchell rather than the judgment itself. In short there has been improper application of what was otherwise proper guidance. The Courts have only been granting relief from sanction where parties have been able to demonstrate that the breach in question was merely trivial and/or there was a good reason for committing the breach.
In order to remedy this misapplication the Court of Appeal has decided to set out a new three-stage test that is to be applied when Judges consider applications for relief from sanction:
- Assess the significance and seriousness of the breach which has engaged CPR 3.9(1);
- Assess the reasons why the breach has occurred; and
- Look at all of the circumstances of the case so as to enable the Court to deal justly with the application.
This new test draws attention to the importance of stage three when considering every application. A Judge must work through the stages before deciding whether to grant relief. Stage three will require consideration of all of the factors of the case, of which the conclusions made at stages one and two will be important but not overriding. Therefore even where the breach is deemed significant or serious, and there is no good reason for the breach to have occurred, the Judge must consider all of the circumstances before concluding that the relief should not be granted. Whilst a significant breach made without good reason is unlikely to justify relief from sanction it should not be automatic.
The purpose of this emphasis is to prevent the “manifestly unjust and disproportionate” decisions that have been made in the wake of Mitchell where Judges have only applied stages 1 and 2. Whilst this appears to promote a more common-sense application of the CPR, the Court of Appeal is also keen to highlight that it is not condoning a return to the old culture of non-compliance. This judgment attempts to find the middle ground that the Jackson reforms envisaged.
Lawyers have sought to take advantage of opponents’ mistakes by relying on Mitchell to obtain significant litigation advantages in the knowledge that relief will not be granted. In an adversarial legal system it is unsurprising that parties have taken this approach, especially considering the potential penalty or reward at stake. However this approach has apparently been another incorrect application of Mitchell and the Court of Appeal are now seeking to curtail such excessive and inappropriate satellite litigation with this judgment.
Parties should be working together to limit or avoid satellite litigation and the courts will now penalise the opportunism described above. Being uncooperative in order to put your client in a position to benefit from an opponent’s mistake does not sit well with the overriding objective and consequences will follow that could include heavy costs sanctions in relation to the entire case and not just an unnecessary application for relief. The Court of Appeal advises that extensions of up to 28 days should now be agreed between the parties where it is clear that breaches do not justify sanctions under the three-stage test. Furthermore Mitchell, and now this judgment, intends to ensure that compliance becomes automatic thus removing the chance for satellite litigation in the first instance.
The application of the new test to the three appeals
In first instance the Claimant’s failure to pay the court fee for the pre-trial checklist by the date appointed in an Unless Order caused the claim to be struck out. The check was sent but lost either in the post or at the court, and subsequently paid via credit card after a second cheque had been delayed in the post. The Claimant was refused relief from sanction on the basis that the breach was not trivial.
The Court of Appeal reviewed this decision in light of the Claimant’s actions. Sending a cheque by DX in the knowledge that it would arrive one day after the appointed deadline was a serious breach; especially with the additional risk of it getting lost in transit. However this was “near the bottom of the range of seriousness.” There was no good reason for the breach as the fee earner would have been aware that his timing and method of payment would lead to a breach. Stages one and two therefore pointed to a refusal of relief from sanctions. However applying the third stage of the test showed that the late payment did not affect the efficient conduct of the litigation, the breach was remedied promptly with the credit card payment, and the breach was at the bottom of the range of seriousness. Therefore the reasonable conclusion should have been to grant relief as it would have been disproportionate to strike out the entire claim in all the circumstances of the case. In fact the Court of Appeal stated that the Defendant’s should have consented to relief to avoid the delay and costs of the satellite litigation of the application.
The case of Utilise was similar to Mitchell in that it addressed the application of CPR 3.9 following the late service of a Precedent H Costs budget. Following a court order both parties filed their budgets on the day of the deadline, but the Claimant’s fax arrived 45 minutes late. The error went unnoticed by all parties until two months later when the district judge ordered that the Claimant was in breach and would only be allowed to recover court fees. The Claimant’s solicitor, who had taken conduct of the matter after the service of the budgets, applied for relief immediately but the district judge refused to grant relief on the basis that the breach was not trivial. On appeal this was upheld on the basis that the delay in itself was trivial, but was no longer trivial when considered alongside other breaches in the case.
The Court of Appeal have applied the three-stage test and found that the breach was neither significant nor serious. The breach “did not imperil any future hearing date or otherwise disrupt the conduct of this or other litigation.” Considering the rest of the test, it found that there was not a good reason for the breach but in all of the circumstances the litigation could still be conducted proportionately therefore it would be appropriate to grant relief.
In Denton the Court of Appeal applied the new test to find that relief from sanction was not appropriate in a useful demonstration of how the three-stage test will not necessarily return us to the old world of non-compliance.
In this case the Claimant filed six additional witness statements eighteen months after the directed deadline in support of an additional allegation which was not contained in their pleadings, but which had been highlighted by one of their subsequent expert reports. The Judge granted relief from sanction at the PTR and put back the 10-day trial dates to allow a further CMC for this evidence. It found that the Judge in the lower court had made a decision which was “plainly wrong and was an impermissible exercise of his case management powers” when allowing relief from sanction.
Applying the three-stage test, the Court of Appeal found the breach to be significant due to the disruption caused to the litigation. They could see no good reason for the breach as the Claimant had been aware of the additional allegation since receiving the expert report yet had taken eighteen months to file the statements. After stages one and two it appears that relief should not have been granted, but the Court of Appeal continued to the third stage to ensure that such a decision would be just in all the circumstances. On the facts there was little to outweigh the findings of stages one and two and therefore the court was happy to conclude that relief from sanction was not justified. The appeal was allowed.
The Impact of this Judgment
The Court of Appeal’s judgment in DDU intends to introduce a level of flexibility and common sense into the application of the Judges’ case management powers established by Mitchell. A strict approach to breaches of the CPR can still be appropriate and any relief from sanction will have to be justified, however the uncompromising decisions made following Mitchell should not be seen again where they are clearly disproportionate and unfair in the wider context of the case. The formulaic application of the three-stage test outlined by the Court of Appeal will hopefully provide consistency and clarity to these decisions in the future. Furthermore the threat of heavy costs penalties against parties who fail to act reasonably and proportionately in response to breaches that do justify relief from sanction will further reduce the likelihood of satellite litigation in this area of law.
Despite this it is hard not to speculate as to questions and issues that may arise from this judgment. How clear and definite are the terms ‘serious’ and ‘significant’ compared to ‘trivial’? Are fee earners supposed to assess the “range of seriousness” of a breach following the guidance in Decadent? Finally, if these uncertainties emerge, how likely is it that parties are going to agree that a breach isn’t significant or serious and forgo the opportunity to obtain a litigation advantage in spite of the potential costs consequences? Or, from the other point of view, will all of those parties who are waiting to be heard on an application for relief from sanctions now be preparing to ask for their costs on the indemnity basis due to the other side’s disproportionate opportunism?