Court of Appeal provides clarification on Mitchell

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

In an important recent Court of Appeal judgment (Denton and others v TH White Ltd and another; Decadent Vapours Ltd v Bevan and others; Utilise TDS Ltd v Davies and othersMitchell v News Group Newspapers Ltd [2014] EWCA Civ 906), the Master of the Rolls, Lord Justice Vos and Lord Justice Jackson have stated that some courts have misunderstood and misapplied the judgment in [2013] EWCA Civ 1537.

The decision is highly significant in terms of the courts' approach to case management and appears to represent a substantial move back from the strict approach adopted previously.

A recap of Mitchell

In the case of Mitchell, the claimant served his costs budget six days late and one day before the case/costs management conference at which it was due to be considered. The hearing had to be adjourned and substantial extra work and costs had to be incurred by the defendant. But the Master did not proceed on the basis of requiring the erring party to compensate the innocent party. He took the much more draconian step of ordering that the claimant be treated as having filed a costs budget comprising only the applicable court fees. The claimant applied for relief from this sanction but the Court of Appeal upheld the decision of the Master.

The decision in Mitchell has led to a raft of decisions in which hefty penalties have been imposed on parties for breaches that have little practical effect on the course of proceedings. It seems that any non-trivial procedural breach (such as the late filing of a document) with no good reason for the breach would automatically fail on an application for relief from sanction. The policy of the courts appeared to be to use this uncompromising approach to draw better behaviour from litigants, with the ultimate aim of saving costs and reducing the imposition on court resources. Therefore in the recent Court of Appeal judgment, it was stated that Mitchell "needs to be clarified and amplified in certain respects".

CPR Rule 3.9

In particular, much had been made of the interpretation of CPR Rule 3.9(1), which provides as follows:

"Relief from sanctions

(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."

In Mitchell it was stated that the factors in paragraphs (a) and (b) ("Factors (a) and (b)") above were to be "regarded as of paramount importance and be given great weight". This caused widespread confusion as to the precise level of weight that should be placed on these factors and whether they should trump other factors that may come into consideration.

The recent Court of Appeal judgment dealt with three separate appeals, all dealing with Mitchell-type relief from sanction arguments.

The Court of Appeal's three stage test

The Court of Appeal set out a helpful three-stage process for reaching a decision on applications for relief from sanction:

Stage 1

The first stage is to identify and assess the seriousness and significance of the breach.

In Mitchell it was suggested that a breach should be judged on whether or not it was "trivial". However, it is now suggested that it should be judged on the basis of whether the breach has been "serious or significant". At this first stage, unrelated failures that may have occurred in the past should not be taken into consideration. If the judge concludes that a breach is not serious or significant, then relief from sanction will usually be granted and it is unlikely that stages 2 and 3 will need to be considered.

Stage 2

The second stage is to consider why the failure or default occurred. Examples were not provided of what might be a good reason. However, in Mitchell it was provided that "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". It therefore continues to be the case that the threshold is likely to be a high one.

Stage 3

The third stage is for the courts to consider "all the circumstances of the case, so as to enable it to deal justly with the application" (as per Rule 3.9). The key clarification required here was what weight Factors (a) and (b) should carry.

It was on this point that the three Judges did not agree. The Master of the Rolls and Lord Justice Vos both agreed that Factors (a) and (b) should "always be given particular weight. Anything less will inevitably lead to the court slipping back to the old culture of non-compliance which the Jackson reforms were designed to eliminate".

Lord Justice Jackson disagreed with this interpretation. He focused on the word "including" in Rule 3.9 and said that this word "means that factors (a) and (b) are included amongst the matters to be considered. No more and no less".

Of the two interpretations, it seems to be a constant that Factors (a) and (b) should always be considered. Given that the root of both factors stem from the overriding objective, it seems obvious, in any case, that they will fall to be considered when looking at "all the circumstances of the case". As solicitors, we are always guided to take account of the overriding objective. Therefore, this slight disagreement between the Court of Appeal judges should not leave too great a cloud over this point.

The three stage test applied to the appeals

The application of these principles to two of the appeals at hand is illuminating.

Denton

Dentonwas a case in which the claimant served six additional witness statements, one month before the trial. The parties had already served all of their witness statements five months earlier. It was claimed that the further statements were served due to a change of circumstances. The judge granted relief from the sanctions in CPR Rule 32.10 (which states that if a witness statement 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). The trial had to be adjourned. The defendant appealed against the decision not to impose the sanction on the claimant.

Stage 1 - This was clearly a significant breach given that the trial date had to be vacated and therefore disrupted the proceedings.

Stage 2 - The reason for breach was not a good one as the "change of circumstances" was something that had been known about prior to the initial witness statements.

Stage 3 - Factors (a) and (b) alone weighed heavily in favour of relief being refused given that the delay impacted upon the orderly progress of the litigation. Beyond these two factors, there was very little else to consider in terms of "all the circumstances of the case".

Therefore the judge's order which had granted relief from sanctions was set aside.

Decadent

Decadent was a case in which the claimant failed to comply with an order that unless it paid certain court fees by a particular time, its claim would be struck out. A cheque was sent to the court on the date it was due (it could therefore only be expected to arrive a day late). The cheque was in any case lost and the claimant only came to realise this at the pre-trial review some three weeks later. The claimant made the payment two days later. The judge refused relief from sanctions and the claimant appealed.

Stage 1 - The failure to pay the court fee on time was not of grave seriousness and did not have an impact on the proceedings.

Stage 2 - There was no good reason for the lateness of the cheque. Whilst it was the case that the cheque was lost and this was not the fault of the solicitor, sending it on the day that it was required was always going to result in it arriving at least one day late.

Stage 3 - Factor (a) pointed in favour of relief because despite the lack of good reason for the late payment, it did not impact on the proceedings. In respect of Factor (b), the breach of the rules was not a serious one. If relief were not granted, the whole proceedings would come to an end. Taking into account all of the circumstances of the case, it therefore seemed to be disproportionate to end proceedings on this basis.

Therefore, the judge's order refusing relief was set aside.

It is interesting to note the court's comments on the importance of paying court fees. "All failures to pay court fees are serious, because it is important that litigants pay court fees on time". This is not the most convincing of reasons and therefore it seems that it will be very difficult in future for a judge to refuse relief from sanctions on the basis of late payment of a court fee (unless such late payment affects the running of the proceedings).

Actions of the non-defaulting party

Another interesting point to come out of this judgment was the court's attitude towards the non-defaulting party. It made clear that attempts to take advantage of a defaulting opponent would not be tolerated. "Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions". Not only will the costs of the application be taken into account, but the court stated that such action could affect the costs in the case. If the non-defaulting party wins, then there could be a "substantial reduction" in its costs recovery. If it loses, then indemnity costs could be awarded.

Therefore, it is of vital importance that parties act reasonably in agreeing extensions of time (where they do not prejudice the party's case or the court timetable) and in responding to applications for relief from sanction.

Conclusion

This judgment seems to soften the radical message that came out of Mitchell. The overall idea is still clear. Breach of the rules may attract serious consequences. But what this judgment now shows is that those consequences are only likely come to fruition where the breach is one which is serious or significant and no good reason can be shown for it. One would have hoped that this would have been the case before Mitchell. Has this judgment really taken us any further than where we were pre-Mitchell? Either way, legal practitioners will now sit more comfortably. The approach taken in Mitchell, which many accused of being unduly draconian, has most certainly now been clarified.