Relief from Sanctions Under CPR R3.9: The New Test

by Allen & Overy LLP
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Denton & ors v TH White Ltd & anr [2014] EWCA Civ 906, 4 July 2014

The Court of Appeal has set out new guidance, in the form of a three stage test, for the approach that should be taken by the court when a party seeks relief, under CPR r3.9, from a sanction that has been imposed for a failure to comply with any rule or court order

CPR r3.9 provides:

" (1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need -

(a) for litigation to be conducted efficiently and at proportionate cost;

and (b) to enforce compliance with rules, practice directions and orders."

This version of CPR r3.9 was introduced in April 2013 as a response to Sir Rupert Jackson's report on English civil litigation and replaced the previous CPR r3.9, which included a long checklist of different factors that the court could take into account when deciding whether to grant relief.

Previously, the leading decision on the new CPR r3.9 was Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 (covered in the Nov/Dec 2013 Litigation Review). In Mitchell an earlier decision of Master Cloud was upheld – the effect being that as Mr Mitchell's solicitors had failed to file his costs budget on time, his budget for future costs was limited to court fees only (which would be the maximum he could then recover by way of costs if he were ultimately successful in the litigation). The guidelines given in the Mitchell case were that relief would only be granted:

- for trivial breaches;

- where the application for relief was made promptly; and

- where there were good reasons for the default.

Following Mitchell there was a great deal of satellite litigation on the test, often resulting in contradictory judgments.

The Court of Appeal in Denton consisted of The Master of the Rolls (Lord Dyson), Lord Justice Vos and Lord Justice Jackson. The leading judgment was given by The Master of the Rolls and Vos LJ who held that "the judgment in Mitchell has been misunderstood and is being misapplied by some courts. It is clear that it needs to be clarified and amplified in certain respects."

They went on to summarise the principal criticisms of Mitchell as follows:

- The "triviality" test amounts to an "exceptionality" test which was rejected by Sir Rupert Jackson in his report and is not reflected in the rule. It is unjustifiably narrow.

- The description of factors (a) and (b) in CPR r3.9(1) as "paramount considerations" gives too much weight to these factors and is inconsistent with CPR r3.9 when read in accordance with the overriding objective of the CPR. These factors should be given no more weight than all other relevant factors. It is said that the Mitchell approach downplays the obligation to consider "all the circumstances of the case, so as to enable [the court] to deal justly with the application".

- It has led to the imposition of disproportionate penalties on parties for breaches which have little practical effect on the course of litigation. The result is that one party gets a windfall, while the other party is left to sue its own solicitors. This is unsatisfactory and adds to the cost of litigation through increases in insurance premiums.

- The consequences of this unduly strict approach have been to encourage uncooperative behaviour by litigants excessive and unreasonable satellite litigation, and inconsistent approaches by the courts.

The Master of the Rolls and Vos LJ held that the guidance in Mitchell "remains substantially sound. However, in view of the way in which it has been interpreted, we propose to restate the approach that should be applied in a little more detail. It was hoped that this would avoid the need to refer to further authorities in the future.

The new test

Accordingly, the leading judgment sets out a new three-stage test:

(1) Identify and assess the seriousness and significance of the "failure to comply with any rule, practice direction or court order" which engages CPR r3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages.

(2) Consider why the default occurred. The examples given in Mitchell remain good examples of acceptable reasons for a default but they remain no more than examples ("if the reason why a document was not filed with the court was that the party or his solicitor suffered from a debilitating illness or was involved in an accident, then, depending on the circumstances, that may constitute a good reason").

(3) Evaluate "all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b) of CPR r3.9(1)]".

There were three separate appeals before the court to which this new test was applied.

Denton v White & ors

In Denton, the parties had served all their witness statements for use at trial by 27 July 2012, yet the claimant served six further statements in December 2013 one month before the date fixed for a 10 day trial. The further statements were said to be in response to a change of circumstances that had occurred in August. The judge granted the claimant relief from the automatic sanctions in CPR r32.10, which provides that: "[i]f a witness statement … for use at trial is not served … within the time specified by the court, then the witness may not be called to give oral evidence unless the court gives permission". As a result the trial had to be adjourned. The Court of Appeal, setting aside the judge's order, held that relief should not have been granted. The breach was serious since the trial date had to be vacated; there was no good reason for the relief (the events in August were not a sufficient justification); and "all the circumstances of the case" indicated that the claimants had had ample opportunity to serve their additional evidence within sufficient time so as not to derail the trial date.

Decadent Vapours v Bevan & ors

In Decadent, the claimant had failed to comply with an order which provided that, unless it paid certain court fees by 4.00 pm on 19 December 2013, its claim would be struck out. A cheque for the full fees was sent to the court on the due date by document exchange, so that it could have been expected to arrive only one day late. In fact, the cheque was lost either in the DX or at court, and the non-payment only came to the attention of the parties when the judge mentioned it at a pre-trial review on 7 January 2014. The fees were paid on 9 January 2014. The judge refused relief from sanctions. The Court of Appeal, upholding the judge's order, held that relief should have been granted. The failure "was near the bottom of the range of seriousness"; albeit there was no good reason for the failure, and, on a consideration of all the circumstances of the case, the "only reasonable conclusion was to grant relief".

Utilise TDS v Davies & ors

Utilise was a slightly more complicated case in that two breaches were under consideration. First, the claimant filed a costs budget some 45 minutes late in breach of an order which specifically made reference to the automatic sanctions in CPR r3.14, which provides that: "[u]nless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees". Secondly, the claimant was 13 days late in complying with an order requiring it to notify the court of the outcome of negotiations. The District Judge declined to grant relief from the sanctions in CPR r3.14, holding that the second breach rendered the first breach, which would otherwise have been trivial, a non-trivial one. The Court of Appeal, setting aside the District Judge's order, held that relief should have been granted. The breaches were "neither serious nor significant". Given this, there was no need to consider in detail the other stages of the test.

Jackson LJ's dissent on construction

Jackson LJ took a somewhat different view to The Master of the Rolls and Vos LJ in relation to the third stage of the test. While on the facts before the court he took the view that the result in each case would be the same, he felt in other cases it may not. He held: "Rule 3.9 requires the court to consider all the circumstances of the case as well as factor (a) and factor (b). The rule does not require that factor (a) or factor (b) be given greater weight than other considerations. What the rule requires is that the two factors be specifically considered in every case. The weight to be attached to those two factors is a matter for the court having regard to all the circumstances. The word "including" in rule 3.9 means that factors (a) and (b) are included amongst the matters to be considered. No more and no less. As the Bar Council put it in their submissions, factors (a) and (b) should "have a seat at the table, not the top seats at the table". Ultimately what rule 3.9 requires is that the court should "deal justly with the application"".

In his view, "The new rule 3.9 is intended to introduce a culture of compliance, because that is necessary to promote access to justice at proportionate cost. It is not intended to introduce a harsh regime of almost zero tolerance, as some commentators have suggested."

COMMENT

This represents a welcome clarification of the Mitchell decision and a tempering of some of the harsher decisions. At the same time this is not a return to the "traditional approach of giving pre-eminence to the need to decide the claim on the merits". The prudent working assumption for lawyers and their clients must still be that court deadlines are largely immovable. Certainly the court is likely to be unsympathetic to any difficulty law firms might have in meeting any deadlines: "… mere overlooking a deadline, whether on account of overwork or otherwise, is unlikely to be a good reason. We understand that solicitors may be under pressure and have too much work. It may be that this is what occurred in the present case. But that will rarely be a good reason. Solicitors cannot take on too much work and expect to be able to persuade a court that this is a good reason for their failure to meet deadlines" (from the original Mitchell case but held in Denton to remain substantially sound). Where possible, any applications should be made well before time has expired. It is also worth considering how realistic the timetable is when agreeing an order for directions and perhaps building in some leeway. In relation to cost budgeting and the filing of Precedent H, parties need to be especially vigilant.

It is a shame that the laudable aims embodied in Sir Rupert Jackson's report have had such a bumpy ride. Anecdotally, some are of the view that this part of his reforms has led to an increase in costs because of the apparent need to apply to the court for relief from sanctions in almost every case. The Court of Appeal hopes that: "It should [now] be very much the exceptional case where a contested application for relief from sanctions is necessary. This is for two reasons: first because compliance should become the norm, rather than the exception as it was in the past, and secondly, because the parties should work together to make sure that, in all but the most serious cases, satellite litigation is avoided even where a breach has occurred." Let us hope the court is right.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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