UK: Relief From Sanctions

Last Updated: 24 July 2014
Article by Alexander Kingston-Splatt

The Court of Appeal delivers an important decision in the turbulent area of relief from sanctions for non-compliance with Court rules or orders in the wake of the Jackson Reforms and the Mitchell decision.

Background: The Jackson Reforms and the Mitchell Decision

A great deal has been written in recent times about the "Jackson Reforms" to civil litigation and the subsequent decision of the Court of Appeal in what has become the notorious Mitchell case.

An important part of the Jackson Reforms, which were largely rolled out in April 2013, was the requirement for parties engaged in litigation to prepare and serve costs budgets. These are detailed estimates, compiled in the early stages of litigation, of the projected overall costs of a case, including what sums will be incurred in respect of particular aspects of the litigation. In very general terms, a successful party will be held to the limit of the approved budget unless there are good reasons for departing from it.

This represented a sea change in the way that litigation costs are dealt with. Rather than examining costs after the substantive case has been resolved (either following a trial or a settlement), budgeting has shifted the argument about costs to a preliminary stage.

Another tenet of the Jackson Reforms was a change in the approach of the Courts to procedural failings. This change was encapsulated in amendments to Part 3 of the Civil Procedure Rules ("CPR"). CPR 3.8 provides that where a party has failed to comply with a requirement of the CPR or a Court order, any sanction which the CPR or the Court order in question states will apply to such a failing will automatically take effect. This is the case unless and until the party at fault successfully applies to the Court for "relief" from the sanction.

In turn, CPR 3.9 was redrafted and provides that the Court will, when hearing an application for relief, consider all the circumstances of the case, including the need for litigation to be conducted efficiently and at proportionate cost, and to enforce compliance with the CPR and Court orders.

The Mitchell case quickly became the leading authority on what this means. The case involved the failure by Andrew Mitchell MP's solicitors to lodge his costs budget on time in his libel action against News Group Newspapers. In such circumstances, the sanction prescribed by the CPR is that the budget should be treated as including only the Court fees incurred by the party in default and not his legal fees.

In refusing to grant relief to Mr Mitchell, the Court of Appeal held that relief would only be granted under CPR 3.9 in respect of trivial breaches where the relief application was subsequently made promptly, and where there were good reasons for the default. An example given was where a party narrowly missed a deadline. A "good reason", the Court indicated, was likely to be something beyond the control of the defaulting party.

Essentially, therefore, the emphasis was placed by the Court on the need for litigants to comply with their obligations. In so doing, the Court acknowledged that the decision not to allow Mr Mitchell relief from sanctions might appear harsh in his case. However, the Court's stated intention was to send out a "clear message" and to effect a "change in culture" as regards compliance with rules and orders.

The Effect of the Mitchell Decision

Mitchell prompted numerous pieces of "satellite litigation" involving arguments between parties about instances of default and relief from sanctions applications. Many of the decisions of the lower Courts were inconsistent not only with the Court of Appeal's "trivial breach" test as set out in Mitchell, but also with the decisions of other first instance Judges.

In consequence, the Court of Appeal decided to hear three different appeals from such decisions of the lower Courts at the same time. In summary the joined cases were as follows:

  1. Denton v. White and Ors.: The Claimant had served witness statements six months late and just one month before the trial. The automatic sanction in the CPR meant that the Claimant could not rely on those statements at the trial. The Judge granted relief and as a result the trial was adjourned. The Defendants appealed.
  2. Decadent Vapours v. Bevan and Ors.: The Claimant had failed to comply with an "Unless Order" which required payment of certain Court fees, on pain of the sanction that failure to do so would lead to the striking out of the claim. The Claimant sent a cheque to Court by DX on the day of the deadline, which got lost in transit. The Judge at first instance refused relief and the Claimant appealed.
  3. Utilise TSD v. Davies and Ors.: The Claimant filed its budget 45 minutes late. The order which required the budget to be filed had also previously required that the Claimant notify the Court of the outcome of negotiations with the Defendant. The Claimant complied but was 13 days late in doing so. The Judge held the late filing of the budget to be a trivial breach, but refused relief from sanctions. This was on the basis that the second breach was sufficient to turn the first breach into something "more than trivial".

The Decision in Denton v. White and joined cases

The Court of Appeal clarified the Mitchell test. Now, a three stage test is to be adopted by Courts hearing relief from sanctions applications, namely:

  1. Is the breach "serious or significant"? This is determined by an assessment of the nature of the non-compliance.
  2. If the answer is yes, why did the breach occur?
  3. All of the circumstances of the case must be considered to ensure that the application is dealt with justly, including the need for litigation to be efficiently conducted at proportionate cost, and also the need for compliance with the CPR and Court orders.

Stage 1 of the modified test can be said to be less draconian than the original Mitchell formulation. Instead of asking first if the breach is simply trivial, the Judge must assess the problem from the opposite perspective, asking whether the breach is serious or significant. If the natural answer is "no", then relief should usually be granted.

By applying this test to the three appeals in question, the Court refused relief from sanctions in Denton but granted relief in Decadent Vapours and Utilise TDS.

Conclusions

The new guidelines set out by the Court of Appeal have been broadly welcomed. Many commentators saw the Mitchell decision as unduly inflexible and liable to create harsh and unjust results for parties. Many had also begun to see the development of a culture of non-co-operation between solicitors where one party defaults.

The Court has now clearly warned litigants and lawyers alike that they should be co-operative in agreeing requests for relief from sanctions when faced with a breach which is neither serious nor significant. The Court has also clearly stated that contested applications for relief should be exceptional and has voiced strong disapproval of attempts to take advantage of an opponent's mistake. Indeed, where a party wrongly refuses to consent to a relief application, they will likely be penalised by way of a harsh costs award against them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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