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The Court of Appeal has today handed down its much anticipated judgment in the matter of Mitchell v News Group Newspapers. The judgment could spell trouble for litigators up and down the country.
The background facts are well-known and can be summarised easily: Mr Mitchell was a high-ranking Member of Parliament. On the day after two police officers were murdered in the line of duty, he was alleged to have called police officers who were on duty at Downing Street “plebs”. This allegation was picked-up by the Sun, which is published by the Defendant, which ran a series of stories about the alleged incident.
Mr Mitchell denied using this insult and subsequently issued a claim for defamation.
The proceedings fell within the scope of the pre-Jackson defamation costs management pilot scheme (“the Pilot Scheme”). During the course of the case, Mr Mitchell’s solicitors defaulted on the terms of the Practice Direction by failing to file and exchange a budget no later than seven days before the first costs management conference; and failing to engage in attempts to discuss budgets and budgetary assumptions.
Due to the failures of Mr Mitchell’s solicitors, the Master imposed the sanction under the post-Jackson costs management scheme by limiting Mr Mitchell’s budget to Court fees only. As the Practice Direction provided that, when assessing costs on the standard basis, there is to be no departure from the last approved budget without good reason, this sanction effectively meant that Mr Mitchell would be unable to recover any legal costs from the Defendant in the event his claim was successful.
An application for relief from sanctions was therefore made on Mr Mitchell’s behalf. This application proceeded under the new, ‘stricter’ CPR 3.9 which has been in force since April 2013. After much argument between heavyweight Counsel regarding the reasons for the Claimant’s failure to submit a timely costs budget, Master McCloud refused the Claimant’s Application for relief and gave the following reason for so doing:
The explanations put forward by the claimant’s solicitors are not unusual ones. Pressure of work, a small firm, unexpected delays with counsel and so on. These things happen, and I have no doubt they happened here. However, even before the advent of the new rules, the failure of solicitors was generally not treated as in itself a good excuse and I am afraid that however much I sympathise with the claimant’s solicitors, such explanations carry even less weight in the post-Jackson environment.
What makes the decision somewhat surprising is the fact that the Claimant’s solicitor received notice of the pending CMC only four days before the costs budget was due. Although conceding that this was a point which “troubled” her, the learned Judge nevertheless continued:
The parties were well aware that this was a case for which budgeting would be required from the start and that the mere fact that a date is set for a CMC is not supposed to be the starting gun for proper consideration of budgeting.
The Master refused the application for relief from sanctions.
Upon refusing the application for relief, the Master granted permission to appeal to the Court of Appeal of her own motion on the basis that:
The severe nature of the sanction which I have imposed in giving effect to the Jackson reforms to the overriding objective and to r.3.9 in its new form here are of necessity not backed by specific authority on point, and the risk of injustice if I were adopting too strict an approach is such as to provide 'some other compelling reason' for an appeal to be heard. It will be for the appeal court to determine whether such a strict approach is appropriate.
The appeal was, therefore, of importance both in terms of whether the particular circumstances of this case were such that the sanction imposed was inappropriate and also in terms of how strict Courts should be under the new Rules when dealing with applications for relief from sanctions.
In a swiftly-delivered judgment, the Court of Appeal determined that the sanction imposed by the Master was appropriate and that she had been entitled to use the new CPR 3.14 (which did not, on its face, apply to this case) as guidance in this regard.
Mr Mitchell’s attempt to convince the Court that it would be appropriate for it to make on order other than restricting recoverable costs to Court fees could not be invoked due to a lack of evidence explaining the breach.
It was therefore necessary for Mr Mitchell to apply for relief from sanctions.
The Court of Appeal considered that the breach was neither minor nor trivial and that no good reason had been provided to excuse the breach. In the circumstances, the Master – whilst being open to a degree of criticism for refusing to grant relief – could not be said to have misdirected herself.
It was submitted on Mr Mitchell's behalf that a more proportionate sanction would have been to allow 50% of his budget. It was accepted that such a sanction could be imposed but it was concluded that such a sanction would not often be appropriate as:
The merit of the rule is that it sets out a stark and simple default sanction. The expectation is that the sanction will usually apply unless (i) the breach is trivial or (ii) there is a good reason for it. It is true that the court has the power to grant relief, but the expectation is that, unless (i) or (ii) is satisfied, the two factors mentioned in the rule will usually trump other circumstances. If partial relief were to be encouraged, that would give rise to uncertainty and complexity and stimulate satellite litigation.
The effect is that Mr Mitchell’s appeal was dismissed on all grounds. His budget remains as including Court fees only, and this is the limit of the costs which he is likely to be able to recover if his claim is successful.
Practitioners will doubtless be relieved that the Court of Appeal went further than pronouncing on the facts of this case alone and gave general guidance as to relief from sanctions in future cases under the new CPR 3.9.
The Court's overriding conclusion was that "relief from sanctions should be granted more sparingly than previously."
Firstly, the starting position in an application for relief should be that a sanction has been properly imposed. If a party believes that a sanction was inappropriate, the correct course of action is to appeal against the order imposing the sanction rather than apply for relief from that sanction.
If the Court considers that a breach has been trivial - which was defined variously as issues with “form rather than substance”, a party who has “narrowly missing a deadline in an order but has otherwise fully complied with its terms” and “no more than an insignificant failure to comply” – then relief should ordinarily be granted.
If a breach is non-trivial, though, it will be incumbent on the defaulting party to provide a good reason for the default which will ordinarily be founded in circumstances outside of its control. Failure to comply with a deadline due to an oversight or due to pressure of work will not constitute a good reason.
Finally, notwithstanding that the requirement for ‘promptness’ was removed from CPR 3.9 when it was redrafted, the Court of Appeal concluded that applications for relief should be made promptly.
The application of the new CPR 3.9 has been much-criticised by legal commentators due to the lack of a consistent approach. For instance, in Venulum Property Investments v Space Architecture & Others  EWHC 1242 (TCC) a Claimant was denied the opportunity to bring a claim valued at several million pounds due to Particulars of Claim being served late by a matter of days. This approach has been reflected in a number of County Court relief from sanctions applications which John M Hayes has successfully defeated.
However, in Rayyan al Iraq v Trans Victory Marine  EWHC 2696 (Comm) it was held that relief from sanctions should not be granted if it would result in a party gaining an unjustified windfall. Further, in Re Atrium Training Services  EWHC 1562 (Ch) it was concluded that a timely application for relief where no prejudice arises should be consented to.
The guidance which has been given by the Court of Appeal is clear, and it is more important than ever for solicitors to ensure that their house is in order. Significant warning shots were given to practitioners from the judiciary in the run-up to the implementation of the Jackson reforms, and it is now apparent that the Courts will be adopting a very strict approach to defaults.
If the judgment seems harsh, it is because it is supposed to be. As was observed, "no lawyer should have been in any doubt as to what was coming". The new rules will cause some collateral damage and practitioners must do all they can to ensure they are not caught up in it. As the judgment concludes:
In the result, we hope that our decision will send out a clear message. If it does, we are confident that, in time, legal representatives will become more efficient and will routinely comply with rules, practice directions and orders. If this happens, then we would expect that satellite litigation of this kind, which is so expensive and damaging to the civil justice system, will become a thing of the past.