Here be dragons: the courts and relief from sanctions

Posted: 16/12/2013

More than six months have passed since the new CPR 3.9 was ushered in amid promises of a no-nonsense attitude to non-compliance. Taken together with the extension of the overriding objective to include enforcing compliance with rules, practice directions and orders (CPR 1.1(2)(f)), this promised something akin to a zero-tolerance regime.

However, recent decisions (Wyche v Careforce Group plc (unreported, 25/07/13, QBD), In the matter of Atrium Training Services Limited [2013] EWHC 2882 (Ch), Rayyan Al Iraq Co Ltd v Trans Victory Marine Inc (unreported, 23.08.13, QBD) and Thevarajah v Riordan & Ors (unreported)) suggested that judges were taking a slightly more nuanced approach.

The Court of Appeal has made it clear in its judgment in Mitchell v News Group Newspapers [2013] EWHC 2355 (QB) that the way forward is indeed draconian. Its expectation is that satellite litigation of this kind will become a thing of the past; but how realistic is this expectation?

Background

The facts of Mitchell are well rehearsed, and involve an appeal from two decisions by Master McCloud.  On 18 June 2013, Master McCloud ruled that because Mr Mitchell failed to file his costs budget on time, he was to be treated as having filed a costs budget comprising only the applicable court fees. This left Mr Mitchell with a substantial shortfall. On 25 July 2013, Master McCloud refused Mr Mitchell relief from sanctions but granted him permission to appeal. The appeal was leapfrogged directly to the Court of Appeal. This was the first time the Court of Appeal had been called upon to decide on the correct approach to the new CPR 3.9.

The Court of Appeal

The Court of Appeal dismissed the appeal. The new wording of CPR 3.9 requires the court on an application for relief from sanctions to consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need for litigation to be conducted efficiently and at proportionate cost, and the need to enforce compliance with rules, practice directions and orders.

The Court accepted that regard should be had to all the circumstances of the case, as expressly stated in the new rule. In particular, the Court acknowledged that the use of the word “justly” was a reference back to the overriding objective, which also requires ensuring that parties are on an equal footing and that cases are dealt with expeditiously and fairly. However, the Master of the Rolls was clear that the two considerations included in the new CPR 3.9 should now be regarded as of paramount importance and given great weight. 

The Court of Appeal cited with approval the Master of the Rolls’ 18th implementation lecture on the Jackson Reforms, delivered on 18 March 2013, which highlighted that there was to be a shift away from exclusively focussing on doing justice in the individual case. Instead, the tougher approach to compliance and relief from sanctions is intended to ensure that justice can be done in the majority of cases. Procedural obligations are not there simply to ensure that the parties conduct the litigation proportionately to keep their own costs within proportionate bounds; they are there to serve the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately.

This was illustrated in the instant case by the fact that, had Mr Mitchell complied with his obligations, Master McCloud would have given case management and costs budgeting directions on 18 June and the case would have proceeded accordingly. Instead, the hearing was abortive and an adjournment was required, which in turn required her to vacate a half day appointment allocated to deal with asbestos related claims.

Guidance

The Court of Appeal went on to give some guidance as to how the new approach should be applied in practice. The starting point is the nature of the non-compliance. If it can properly be regarded as trivial, the court will usually grant relief provided that the application is made promptly. Examples of insignificant failure to comply where relief will usually be granted include a failure of form rather than substance, or narrowly missing a deadline for an order which has otherwise been complied with fully.

If the default cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief.  The court will be likely to decide that relief should be granted if there is a good reason for the default. Good reasons might include the party or his solicitor suffering from a debilitating illness or being involved in an accident. Later developments in the course of litigation might also be a good reason if they show that the deadline originally imposed was unreasonable. Simply overlooking a deadline or failing to meet it because of overwork (as was the case here) is unlikely to constitute a good reason.

The Court of Appeal could not have been clearer that the new more robust approach it endorsed will mean that relief from sanctions should be granted more sparingly than previously.  They recognised that some will find this new approach unattractive, and proceeded to address “signs that it is not being applied by some judges” by commenting on two recent cases where relief had been granted.

Sterner stuff

In Wyche, the Applicant sought relief from sanctions following its failure to comply fully with its disclosure obligations. As a result of a “disjunctive rather than conjunctive” search term, the Respondent received 112,000 more documents than it should have done. The Applicant had also failed to carry out one of the keyword searches ordered, but this resulted in the omission of only 24 documents (subsequently provided to the Respondent). In both cases, once it became aware of it, the Applicant took prompt steps to remedy the error.

In granting relief, Walker J stressed the need for the court to be flexible in considering all the circumstances of the case, rather than acting as “a martinet” or “an automaton”, applying rules unthinkingly without any allowance for human error at all. Although the breaches were material rather than trivial, the fact that they were unintentional and temporary meant it was appropriate to grant relief.

The Court of Appeal disagreed. It did not understand the sense in which Walker J was using the word unintentional, concluding that “well-intentioned incompetence, for which there is no good reason, should not usually attract relief from sanction unless the default is trivial”. While the Master of the Rolls shared Walker J’s desire to discourage satellite litigation, that was not a good reason for adopting a more relaxed approach to the enforcement of compliance with rules, practice directions and orders. On the contrary, once parties understand that the courts will adopt a firm line on enforcement, there should be fewer applications under CPR 3.9.

Broader scope

The Court of Appeal also took the opportunity to address Andrew Smith J’s judgment in Rayyan Al IraqCo Ltd head on.

This application arose out of what might be considered a fairly minor error. Solicitors served particulars of claim two days after the expiry of the 28-day period allowed by CPR 58.5(1)(c). The Claimants asked the Defendants for an extension and applied to court for relief from sanctions when this was refused. Andrew Smith J “somewhat reluctantly” applied the checklist of factors contained in the old CPR 3.9. He granted the application, having concluded that the Claimants’ mistake was “regrettable, but not egregious”. The Defendant’s attempt to capitalise on the error was equally “regrettable”: the new CPR 3.9 did not mean that relief “should be refused where that would be a disproportionate response and would give defendants an unjustified windfall”.

The Court of Appeal accepted that, depending on the facts of the case, it will be appropriate to consider some or even all of the old checklist factors as part of “all the circumstances of the case”. However, Andrew Smith J had not recognised the particular importance of the two elements of the overriding objective that are mentioned in the new CPR 3.9: the need for litigation to be conducted efficiently and at proportionate cost, and to enforce compliance.

Finally, Andrew Smith J had focussed on doing justice between the parties in the individual case, rather than applying the new approach which seeks to have regard to a wide range of interests.

Conclusion

The Court of Appeal does acknowledge that the question of whether or not a default is insignificant may give rise to dispute and, therefore, to contested applications. Similarly, there are bound to be arguments ahead as to what constitutes “good reason” for a breach which is not trivial. However, in the Court’s view, this slight uncertainty is unavoidable in a regime “which does not impose rigid rules from which no departure, however minor, is permitted” (an alternative which, to be fair, is even less attractive).

As the Master of the Rolls concluded, the outcome in Mitchell may well seem harsh, but it is intended to send out a clear message, to parties, lawyers and judges alike. The courts are determined to achieve the change in culture embodied in the Jackson Reforms. The expectation is that legal representatives will become more efficient and routinely comply with rules, practice directions and orders, such that expensive and damaging satellite litigation become a thing of the past.

While it seems optimistic to believe that satellite litigation can ever be kicked out of orbit, it will be a brave party or lawyer who first seeks to enter this particular dragon’s lair.

This article was published in Solicitors Journal in December 2013.

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