England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/04/2008

Mr Justice Floyd :

1. This is an appeal by the Second Defendant, Mrs Ann Stephanie Hurst, from the decision of Master Gordon-Saker dated 24^th May 2007. The appeal is concerned with a party's obligation to give a notice of funding under the CPR if that party seeks to recover an additional liability from the paying party. The obligation is subject to a sanction of non-recovery of the additional liabilities if the required notice is not given. In particular, the case is concerned with the circumstances in which the court should grant relief from this sanction if he fails to give notice.
2. Master Gordon-Saker granted the Claimant/Respondent relief from the sanction which had arisen out of his failure to a serve a notice of funding within the time limited for doing so and complying with all the formalities under the rules.
3. On 7^th December 2007 Lewison J. granted permission to appeal on two grounds:

i) whether there was any evidence to justify the Master's decision on the explanation for the late service of the notice of funding;

ii) whether there was any evidence to justify the Master's decision that the Appellant was not prejudiced by late service.

4. The First Defendant, Mr Hurst, is a solicitor of the Supreme Court and the husband of Mrs Hurst. Mr Hurst became involved in partnership litigation with his partners which, after an appeal to the House of Lords, was unsuccessful. On 21^st June 2000, the successful partners presented a petition for Mr Hurst's bankruptcy. On 12^th April 2001 a bankruptcy order was made against him, and the Respondent was subsequently appointed his trustee in bankruptcy.
5. The Hursts' matrimonial home was jointly owned by them. On 21^st December 2004 an order was made for its sale. Mrs Hurst was ordered to pay 95% of the Respondent's costs of obtaining that order.
6. On 17^th January 2005 Mrs Hurst filed a notice of appeal against the decision ordering the sale of the matrimonial home. That appeal was heard before Mr Michael Briggs QC (as he then was) on 25^th and 26^th May 2005. Mr Briggs QC dismissed the appeal but varied the order of the Bankruptcy Registrar so that Mrs Hurst was ordered to pay 85% of the Respondent's costs, rather than the 95% she had been ordered to pay below.
7. In the ensuing assessment of these costs, a bill was presented by the Respondent which included a claim for a success fee of 30% said to be due under the terms of a conditional fee agreement ("CFA") and for an after-the-event ("ATE") policy of costs insurance. The Costs Officer allowed £933.06 in respect of the success fee under the CFA, and £3570 in respect of the ATE policy. The Costs Officer considered that Mrs Hurst had had adequate notice of the funding arrangements, but that, had it been necessary to do so, he would have granted the Respondent relief from sanction.
8. From the decision of the Costs Officer, Mrs Hurst appealed to the Costs Judge, Master Gordon-Saker. On 24^th May 2007 Master Gordon-Saker dismissed the appeal, holding that, although there had not been proper notice of the funding arrangement, he should nevertheless grant relief from sanction. From that decision Mrs Hurst appeals to this court.
9. Mrs Hurst has been conducting her appeal without the benefit of formal legal advice. Mr Hurst has been assisting her in doing so. Although he does not have higher court advocacy rights, I allowed Mr Hurst to address me in the very exceptional circumstances of this case. The case is one to which he has a close personal connection. It would have greatly lengthened the hearing to insist that it be conducted with Mr Hurst assisting his wife as a McKenzie friend.

Notices of funding

10. It is necessary to set out a number of provisions of the CPR relating to recovery of additional liabilities and notices of funding. CPR Part 44.15(1) provides as follows:

"A party who seeks to recover an additional liability must provide information about the funding arrangement to the court and to the other parties as required by a rule, practice direction or court order."

11. By CPR Part 43.2(1)(o)

"additional liability" means the percentage increase, the insurance premium, … as the case may be."

12. Paragraph 19.2 of the Costs Practice Direction specifies, amongst other things, the time at which a party must file and serve on the other party information about a funding arrangement. It is common ground that in the present case paragraph 19.2(4) applies and that the relevant period is seven days of entering into the funding arrangement concerned.
13. Paragraph 19.4 of the same Practice Direction identifies the information which must be provided by the party giving notice unless the court otherwise orders. Amongst other things it provides that he must state whether he has

"entered into a conditional fee agreement which provides for a success fee within the meaning of section 58(2) of the Courts and Legal Services Act 1990" or

"taken out an insurance policy to which section 29 of the Access to Justice Act 1999 applies".

14. In the case of the CFA, the rules require that he must

"state the date of the agreement and identify the claim or claims to which it relates": PD 19.4(2).

15. In the case of an insurance policy he must

"state the name and address of the insurer, the policy number and the date of the policy, and must identify the claim or claims to which it relates" PD 19.4(3).

16. Where a party has both types of funding arrangement, a single notice may contain the required information about both: PD 19.4(5).
17. CPR Part 44.3B provides for the sanction:

"(1) A party may not recover as an additional liability -

(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with the rule, practice direction or court order."

18. It is worth observing that the rules create a slight oddity. Because a party has seven days to give notice (at least in these circumstances), there may be steps taken in the proceedings in the meantime, and consequent liability for costs. The intervening period would not be "a period during which he failed to provide information ... in accordance with a rule etc". So the rules do not necessarily ensure that a party has notice of the funding arrangements at the moment when he incurs the liability to pay for them.
19. Paragraph 10.1 of the Practice Direction provides that

"In a case to which Part 44.3B (1)(c) … applies the party in default may apply for relief from sanction. He should do so as quickly as possible after he becomes aware of the default. An application, supported by evidence, should be made under Part 23 to a costs judge or district judge of the court which is dealing with the case. (Attention is drawn to rules 3.8 and 3.9 which deal with relief from sanction)."

20. Relief from sanction is governed by CPR 3.9 which 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 including –

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure;

(e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol;

(f) whether the failure to comply was caused by the party or his legal representative;

(g) whether the trial date or the likely date can still be met if relief is granted;

(h) the effect which the failure to comply had on each party; and

(i) the effect which the granting of relief would have on each party.

(2) An application for relief from sanction must be supported by evidence.

21. In the present case the Respondent took out its insurance policy with Law Assist on 11^th March 2005. It is clear that the premium was paid on that day. The CFA was not signed until 20^th May 2005. That was five days before the hearing of the two-day appeal before Mr Briggs QC.
22. It is not clear from the evidence before Master Gordon-Saker whether the policy of insurance became effective on the 11^th of March 2005 or on 20^th May 2005, the date when the CFA was entered into. It appears from a passage in his decision that he may have assumed that it became effective on the earlier date because he said

"the obligation was to give notice of the insurance policy within seven days of the entry into force of the policy on the 11^th March."

23. It may be that he thought that the obligation to give notice arose as soon as the policy is "taken out", even if its terms provide that the cover is not effective until some subsequent event. It is not necessary for me to decide which, or to decide which is right, because I shall assume in Mrs Hurst's favour that the policy did become effective on the 11^th March. That meant that notice of the policy needed to be given by 18^th March 2005.
24. On the 24^th May 2005, the day before the hearing before Mr Briggs QC, the Respondent's solicitors, following their earlier practice in the litigation, sent an e-mail to Mr Hurst's e-mail address attaching a notice of funding. The notice indicated that the Respondent's case was now being funded by

"a conditional fee agreement dated 20 May 2005 which provides for a success fee" and

"an insurance policy issued on dated 11 March 2005 commencing 20 May 2005 by Law Assist." (emphasis added)

25. That notice was inadequate in a number of respects. Firstly, as Master Gordon-Saker held, service by e-mail was not good enough under the rules: see CPR Part 6 PD 3.1(2)(b). There is no appeal from that finding. Secondly, the notice of funding was not signed as required by paragraph 19.3(4) of the Practice Direction, although the Notice subsequently filed at court was. Thirdly the notice of funding did not contain the address of the insurer and the policy number as required by paragraph 19.4(3) of the Practice Direction.
26. It followed that if the Respondent was to recover the sums in respect of the insurance premium and the CFA, he had to apply for relief from sanction. In his Respondent's Notice in the appeal to Master Gordon-Saker, the Respondent said that he would apply for relief from sanction if, on the appeal, the court was against him on whether he had given adequate notice. A witness statement was also served indicating that an application for relief from sanction would be made. Mrs Hurst's grounds of appeal included a ground directed at the fact that there had not been a separate application notice and witness statement in support. Lewison J. refused her permission to appeal on that ground and I say no more about it.
27. The first ground of appeal is that there was no evidence to support the explanation for late service of the notice. In his decision Master Gordon-Saker said this:

"The third factor is whether the failure to comply was intentional. I am satisfied that the failure here to give notice was not intentional. I am satisfied that Taylor Wessing intended to give notice of the additional funding to Mr and Mrs Hurst. The failure to give information - the required information - about the insurance policy was, I think, simply an omission. The failure to give effective service of the notice was simply an omission. The intention was clearly there to give notice because notice was sent by e-mail. The fourth factor is whether there is a good explanation for the failure. Again, it seems to me there was a clear intention to give notice. The obligation was to give notice of the insurance policy within seven days of the entering into [force] of the policy on 11^th March. I am satisfied that the reason that notice was not given was that Taylor Wessing thought that the relevant date was 20^th May 2005. In relation to the failure to give effective service I am satisfied that the explanation for that was that it was understood by Ms Wheatley that Mr Hurst would accept service electronically."

28. Mrs Hurst criticises the Master's decision in this way. She says that there was absolutely no evidence before the Master to justify him coming to the view which he took of the Respondent's solicitors' failure. The evidence of Mr Dean, a Costs Draftsman, did not directly address the explanation for what had occurred, except to the extent that that it explained why the notice was sent by e-mail.
29. The Respondent submits that there was material before the Master from which he could properly infer that Taylor Wessing thought that the funding arrangement did not come into effect until 20^th May 2005. The Respondent relies on the Notice of Funding itself which, although indicating that the insurance policy issued on 11^th March, states that it did not commence until the 20^th May. The copy of that document that was filed at the court was signed by the Respondent's solicitors.
30. In my judgment the Master was justified on the material before him in reaching the conclusion as to the reason for late service of the Notice of Funding which he did. Although the material falls short of what would be desirable in a perfect world, I should not interfere with the Master's exercise of his discretion unless he has erred in principle, has taken into account matters which should have been left out of account or left out of account matters which should have been taken into account. In my view the purported Notice of Funding was a sufficient basis for the Master to conclude that the Respondent's solicitors took the view, rightly or wrongly, that the obligation to serve the Notice had only arisen on the 20^th May 2005.
31. It follows that the first ground of appeal fails as it would not justify me in re-opening the exercise of the Master's discretion.
32. The second ground of appeal is that there was no evidence to support the Master's finding that Mrs Hurst had suffered no prejudice by the failure to serve the Notice of Funding. The Master expressed this part of his decision in this way:

"Seventh, the effect which the failure to comply had on each party is relevant. Had Mr and Mrs Hurst been notified that Taylor Wessing were acting under a conditional fee agreement or that [the Respondent] had paid an insurance premium, can it be said that there is any realistic possibility that they would have acted differently? From my reading of the papers and my understanding of this case I think the answer to that is no. An effective notice of funding, effectively served, would not have informed Mr and Mrs Hurst of the amounts of the funding arrangements or the additional liabilities that were being incurred. They would not have been told of the amount of the premium. They would not have been told of the amount of the success fee. I think having regard to the history of this matter it is highly unlikely that Mr and Mrs Hurst would have adopted a different position in relation to the litigation."

33. The appellants placed no evidence before the Master to indicate how they would have behaved differently if the Notice of Funding had been given at the appropriate time. For this purpose I have to assume that Notice of Funding in relation to the insurance policy would have been given on the 18^th of March and a proper notice of the conditional fee agreement by the 27^th of May.
34. The Master gave the Hursts the opportunity to explain what prejudice they said they would have suffered. Mr Hurst suggested that it probably would have altered their stance in the settlement negotiations. His basic stance before the Master was, however, to say that prejudice was totally irrelevant.
35. Mrs Hurst argues that there was no obligation on her to put evidence of prejudice before the Master. There should have been a proper application supported by a witness statement which asserted that they had suffered no prejudice, and an opportunity for them to answer it. The process of extracting information at the hearing was, it was submitted, not satisfactory.
36. I am not impressed by this argument. The Respondent had made it clear that he was making an application for relief from sanction; it was open to the Hursts to put whatever material they wished before the Master to defeat that application. It did not require a witness statement setting out the opinion of a deponent from the Respondent's side saying that they had suffered no prejudice for that to occur.
37. It seems to me that the Master had more than adequate material before him on which to form a view on the sole matter of prejudice that was put before him, namely the suggestion that the Hursts would have adopted a different stance in settlement negotiations if they had had earlier notice of the funding arrangement. He would have seen from the papers before him that this was hard fought litigation involving shares in the matrimonial home. He was far better placed than I am to form a view as to the weight to attach to the extremely vague suggestion that somehow knowledge of an insurance premium/CFA on the other side would have affected the way in which the Hursts conducted any settlement talks. I therefore reject this ground of appeal as well.
38. Mrs Hurst also argued that to allow the Respondent relief from sanctions was to send out the wrong message. It was submiited that unless relief from sanctions was restricted to very strong cases, such as those where an applicant had a cast iron excuse or those where to refuse relief from sanction would be to deny a party a fair trial, the result would be that rules would simply not be complied with. He said in this case there was no explanation and it could not be said that depriving the Respondent of these items of costs was anything other than an appropriate financial penalty for the failure to observe the rules.
39. I agree that relief from sanctions should not be granted lightly and any party who fails to comply with the CPR runs a significant risk that he will be refused relief. Thus if a party does not have a good explanation, or the other side is prejudiced by his failure, relief from sanctions will usually be refused. It is vitally important to the administration of justice that the rules of procedure are observed.
40. It is nevertheless inescapable that the rules give the courts the power to grant relief from sanction. Provided that power is exercised in accordance with the rules and the exercise of the discretion in granting or refusing relief is not flawed in any of the ways that I have indicated then it is not open to challenge the grant of relief by way of appeal.
41. I therefore dismiss the appeal.
42. The Respondent is entitled to its costs of this appeal on the standard basis. He has submitted a schedule of costs, on which the Appellant has had an opportunity to comment in the letter from Mr Hurst dated 17^th March 2008. If either side wishes to make further submissions restricted strictly to the quantum of these costs it should do so in writing within 7 days of this judgment. Thereafter I will assess the costs at an appropriate figure.

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