England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SENIOR COURTS COSTS OFFICE

		Royal Courts of Justice, London, WC2A 2LL
		20/12/2013

Master Gordon-Saker :

1. This is an application by the Claimants, Mr and Mrs Harrison, for relief from sanctions.

A brief history of the proceedings

2. The Defendant is part of the Lloyds Banking Group. The Claimants alleged that they had been mis-sold payment protection insurance (PPI) by the Defendant as part of loan agreements made in 2003 and 2006. In 2008 they instructed McHale & Co, a firm of solicitors in Altrincham, and commenced proceedings against the Defendant in the Altrincham County Court in which they claimed the recovery of the premiums that they had paid. The Defendant denied the claim which was then transferred to the Redditch County Court and allocated to the fast track. In October 2009 the Claimants made a Part 36 offer in the sum of £7,020, which was not accepted.
3. The claim was transferred to the Hereford County Court and thereafter to the

Worcester County Court for trial. Following a one day trial on 11th June 2010 District Judge Marston dismissed the claim and the Claimants were ordered to pay the Defendant's costs.

4. The Claimants appealed. The appeal was transferred to the Birmingham County Court and was transferred thereafter to the Manchester Mercantile Court. His Honour Judge Waksman QC, sitting as a Judge of the High Court, dismissed the appeal ("the first appeal").
5. The Claimants appealed to the Court of Appeal. The appeal was dismissed in a

reserved judgment handed down on 12th October 2011: [2011] EWCA Civ 1128 ("the second appeal").

6. Permission to appeal having been granted by the Supreme Court ("the third appeal") the Defendant offered the Claimants a refund of the premiums paid and interest thereon in the total sum of £33,099.08. The proceedings were compromised by a consent order dated 29th August 2012 under the terms of which the Defendant agreed to pay the Claimants' costs throughout, but not any sums in respect of after the event insurance premiums.
7. The Claimants claimed costs in excess of £2.5m:

i) £49,877.84 in the County Court;

ii) £37,301.64 in the High Court;

iii) £1,483,384.70 in the Court of Appeal; and

iv) £959,253.20 in the Supreme Court.

8. On 7th March 2013 I ordered that the Claimants should have a payment on account in respect of their costs in the County Court, High Court and Court of Appeal in the sum of £150,000 and expressed the view that I could not then be certain that the Claimants would recover more than that. By a consent order dated 9th July 2013 the Claimants' costs in the Supreme Court were agreed in the sum of £175,000.
9. The costs in the County Court, High Court and Court of Appeal remain to be

assessed. The detailed assessment has been listed for 5 days commencing on 27^th January 2014.

Funding of the claim

10. At each stage of the proceedings the Claimants entered into conditional fee

agreements with McHale & Co:

i) dated 13th January 2009 in respect of the proceedings in the County Court;

ii) dated 24th August 2010 in respect of the first appeal;

iii) dated 2nd December 2010 in respect of the second appeal; and

iv) dated 2nd December 2011 in respect of the third appeal.

11. The first agreement incorporated the standard Law Society terms and covered the claim and an appeal by the Defendant but not an appeal by the Claimants. The subsequent agreements incorporated the solicitors' standard terms and covered the particular appeal identified.
12. It is not in issue that a notice of funding was served on the Defendant on or about 6^th July 2009 in respect of the agreement dated 13th January 2009 and an after the event insurance policy of the same date. It is also not in issue that no notice of funding was served in respect of the agreement dated 24th August 2010 (for the first appeal). Whether notice of funding was served in respect of the agreement dated 2nd December 2010 (for the second appeal) is in dispute and that issue falls to be decided on this application. It is not in issue that further notices of funding were served on 12th April 2011 (in respect of an insurance policy dated 31st March 2011), on 6th July 2011 (in respect of an insurance policy dated 6th July 2011), and on 2nd December 2011 in respect of the conditional fee agreement made on that date (for the third appeal).

The Claimants' applications for relief

13. The points of dispute served by the Defendant on or about 21st February 2013 in respect of the first and second appeal bills each pointed out that:

Despite what is said within the narrative to the bill, the Respondent has received no Notice of Funding from the Appellants in relation to the High Court or the Court of Appeal CFAs. And that Accordingly by operation of CPR 44.3B(1) the Appellants are not entitled to recover any success fee on any base costs, or counsel's fees, incurred under those CFAs which are held to be recoverable.

14. On 7th March 2013, when I heard the Claimants' application for a payment on account of costs, I mentioned that if notices of funding had not been served the Claimants may well wish to pursue an application for relief from sanctions.
15. The question of whether the appropriate notices of funding had been given was not specifically addressed in the Claimants' reply in respect of the first appeal bill but in the reply in respect of the second appeal bill it was asserted that notice of funding was sent to the Defendant via the document exchange on 24th December 2010. The replies were served on or about 30th April 2013.
16. On 10th July 2013 the Claimants issued an application for an order that service of the notice of funding in respect of the conditional fee agreement for the second appeal was valid and in the alternative for relief from sanctions. At a directions hearing by telephone on 31st July 2013 it was pointed out that no application had been made for relief in respect of the agreement for the first appeal. I directed that any such application should be made by 30th August 2013 so that the two applications could be heard together.
17. The Court received an application for relief from sanctions in respect of the first appeal on 30th August 2013. The application was issued on 18th September 2013.
18. At the outset of the hearing of these applications (as had been indicated in his skeleton argument), Mr Browne QC, on behalf of the Claimants, withdrew the application for relief from sanctions in respect of the first appeal. It follows that the Claimants will not be entitled to recover from the Defendant any success fee payable to their solicitors in respect of that appeal. The Defendant will be entitled to its costs of the application to be assessed summarily at the conclusion of the detailed assessment.
19. That leaves the application in respect of the second appeal in respect of which 2 issues arise:

i) Did the Claimants serve notice of funding in respect of the conditional fee agreement dated 2nd December 2010?

ii) If not, should the Court grant relief from sanctions?

Was notice of funding given to the Defendant?

20. It is not in issue that McHale & Co's file contains a copy of a letter to the Defendant's solicitors dated 24th December 2010 which purports to enclose "an updated notice of funding". It is also not in issue that McHale & Co prepared a notice of funding which is dated 24th October 2010 and which gave notice that a conditional fee agreement dated 2nd December 2010 had been entered into. It is also not in issue that a copy of that notice of funding was faxed by McHale & Co to the Civil Appeals Office on 24^th December 2010. The transmission verification report on the document at p.410 in the bundle shows that it was sent at 12.49.
21. The evidence of Mr Bowden, the solicitor with conduct of the matter on behalf of the Defendant, which has not been challenged, is that the Defendant's solicitors have no record of receiving notices of funding in respect of conditional fee agreements for either the first or second appeals (p.419 paras 11, 27).
22. The evidence of Miss Taylor, the paralegal at McHale & Co who dealt with the matter, was that she must have misdated the notice and that it should have been dated 24th December 2010, the day that it was faxed to the Civil Appeals Office. Her practice was to print off two copies of the letters that she wrote, one on headed paper which was sent to the addressee and one on plain paper which was put in the file (p.404 para 8).
23. Miss Taylor was cross-examined at some length. She had qualified as a solicitor (having previously been called to the Bar) in February 2011 and now works for Birmingham City Council. She recalled being in McHale & Co's offices on 24^th December 2010 with Susan, who was employed as a secretary. She had typed the letters to the Civil Appeals Office and to the Defendant's solicitors herself, as they bore her reference. She remembered that she sent a fax and assumes that it was the letter and notice of funding that were sent to the Civil Appeals Office. She did not recall putting the letter to the Defendant's solicitors in the post tray. She thought that the receptionist would have left by then. Based on her standard practice, but not her specific recollection, she would have folded the letter and put it in an envelope. Buton this occasion it may have been Susan who did that. She definitely did not take

anything to the DX box.

24. Miss Taylor struck me as a completely truthful witness. Where she did not

specifically remember what had happened, she said so. I have no reason to do

anything other than accept her evidence in its entirety.

25. That evidence is not however sufficient to prove service of the notice of funding on the Defendant. It is not in issue that service of a notice of funding may be by document exchange. CPR 6.26 provides that a document sent by document exchange will be deemed to be served on "the second day after it was left with, delivered to or collected by the relevant service provider provided that day is not a business day; or if not, the next business day after that day". Paragraph 3.1 of Practice Direction 6A explains that:

"Service by post, DX or other service which provides for delivery on the next business day is effected by –

(1) placing the document in a post box;

(2) leaving the document with or delivering the document to the relevant service provider; or

(3) having the document collected by the relevant service provider."

26. The Claimants have produced no evidence as to what happened to the letter or the notice of funding that it enclosed after it left Miss Taylor's hand or was left in the firm's post tray. There is no evidence that it was delivered to or collected by the relevant service provider or that it otherwise entered the DX system.
27. In Hetherington v Kemp (1815) 4 Camp. 193 the plaintiff proved that he wrote a letter addressed to the defendant, that this letter was put down on a table, where, according to the usage of his counting-house, letters for the post were always deposited; and that a porter carries them to the post-office. But the porter was not called, and there was no evidence as to what had become of the letter after it was put down upon the table. Lord Ellenborough said:

"You must go further. Some evidence must be given that the letter was taken from the table in the counting-house, and put into the post-office. Had you called the porter, and he had said that, although he had no recollection of the letter in question, he invariably carried to the post-office all the letters found upon the table, this might have done; but I cannot hold this general evidence of the course of business in the plaintiff's countinghouse to be sufficient."

28. As there is no evidence that the letter or notice of funding was put into the DX

system, service cannot be deemed under CPR 6.26. As there is no evidence that the Defendant received these documents I cannot find that they were served.

The sanction

29. CPR 44.15(2) (in its pre 1st April 2013 form) provides:

"Where the funding arrangement has changed, and the information a party has previously provided in accordance with paragraph (1) is no longer accurate, that party must file notice of the change and serve it on all other parties within 7 days."

30. CPR 44.3B (in its pre 1st April 2013 form) provides:

"(1) Unless the court orders otherwise, a party may not

recover as an additional liability—

…..

(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or

court order;"

31. The sanction is automatic. As notice of the conditional fee agreement entered into for the second appeal was not given, the Claimants cannot recover the success fees charged by their solicitors or counsel in relation to the work done on that appeal unless the court grants relief from sanctions.

Relief from sanctions

32. It is not in issue that the relevant version of CPR 3.9 is that in force after 1st April 2013:

"(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, includingthe need—

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

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

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

33. Given Miss Taylor's evidence it is clear that the Claimants' solicitors intended that the Defendants should be given notice of the change in funding and I have no reason to doubt that the Claimants' solicitors believed that they had given that notice, until service of the points of dispute.
34. Mr Bowden's evidence (pp.424-5 paras 33-6) is that the Defendant had no reason to assume that the first and second appeals were funded by conditional fee agreements. The Law Society standard wording does not cover appeals by the client. That is for very obvious reasons. It is unlikely that any lawyer would wish to commit himself to the risk of his client pursuing a series of appeals. According to Mr Bowden the Defendant's approach to the appeal would have been affected had it known that McHale & Co were conducting it under a conditional fee agreement which provided for a success fee. Although he cannot say what would have happened, had the Defendant understood the funding picture it might have taken a different approach to settlement of the second appeal. Indeed the third appeal, in respect of which notice of funding was given, was settled. Alternatively the Defendant might have sought different terms on settlement, such as an agreement that it would be liable for base costs only.

35. Mr Bowden's evidence was not challenged by cross-examination, although that course would have been available to the Claimants had they sought a direction at the hearing on 31st July 2013. Mr Browne QC, on behalf of the Claimants, sought to cast doubt on Mr Bowden's evidence and pointed in particular to a letter from the Defendant's solicitors to McHale & Co dated 6th March 2012 (pp 373-4) written as part of the negotiations which led to the settlement and the passage:

"Doubtless you will have considered that in the event that your clients proceeds [sic] with their appeal and the Supreme Court dismisses this appeal, then your clients will not see payment of any damages. Moreover, your firm will receive no payment of profit costs for the 4-5 years of litigation conducted on a "no win, no fee" basis. Your clients' "after the event" insurers will have to pay our client's costs if your clients lose for a fourth time in the Supreme Court."

35. While I must confess to some unease at the express pitch to the Claimants' solicitors' personal interest, the letter would seem to suggest that the Defendants believed that the Claimants' case had been funded throughout on a "no win, no fee" basis. Mr Saoul, on behalf of the Defendant, pointed out that a "no win, no fee" basis is not necessarily the same as a conditional fee agreement with a success fee. I think that there is force in his submission that this was speculative and provocative wording rather than the reflection of a considered analysis.
36. Mr Browne also pointed to the fact that the Defendant had been given notice that the claim in the County Court had been funded by a conditional fee agreement which provided for a success fee and that during the course of the second appeal the Defendant was given notice of a change in the insurance arrangements.
37. A copy of the notice of funding misdated 24th October 2010 was sent to the

Defendant's solicitors on 18th May 2012, but that was 7 months after the second appeal had been dismissed. It was included in a bundle of notices of funding attached to an email and I doubt that it would have been uppermost in Mr Bowden's mind when he was negotiating settlement of the third appeal. In any event the notice was dated (incorrectly) when the first appeal was still underway and the misdating was not pointed out or explained.

38. The purpose of the requirement that a party discloses its funding arrangements is so that the other party may know that it may face a liability to pay success fees or insurance premiums if it is ordered to pay costs.
39. Mr Bowden's evidence is phrased quite carefully and it seems to me, that in the absence of direct challenge, I have to take it at face value. Had notice been given of the conditional fee agreement in relation to the second appeal, the Defendant's approach to that appeal might have been different and Mr Bowden's advice in relation to settlement would have been different. Such clear evidence cannot be fatally undermined by the rather loose wording of the letter dated 6th March 2012.
40. Accordingly in my judgment there is evidence that the Defendant was prejudiced by the failure to give notice of the new arrangements, in that it would have been given different advice in relation to settlement had notice been given. Whether the settlement would then have been on different terms is not known. So while we know that the Defendant would have been given different advice, we do not know whether the Defendant would have behaved differently.
41. It seems to me that under the old version of CPR 3.9 this would have been a

borderline case for relief from sanctions. That the Defendant had been given notice of an earlier conditional fee agreement would be in the Claimants' favour: Scott vDuncan [2012] EWHC 1792, Montlake v Lambert Smith Hampton [2004] EWHC 1503 (Comm). But this case is not, by any means, on all fours with those cases, where the breaches were more technical. That the failure to serve the notice was inadvertent would be in the Claimants' favour: Wyche v Careforce Group Plc [2013] EWHC 3282 (Comm), para 24.

42. As against that, the Claimants failed also to give notice of the change of funding arrangements in relation to the first appeal. Further, they did not apply for relief promptly. The points of dispute were served in February. I raised the question of relief from sanctions in March. It was not until July that the application was made in respect of the second appeal. It was not until August, after I had raised the matter in July, that the application was made in respect of the first appeal. There is evidence that Mr Bowden would have given different advice in relation to the settlement and, to that extent, the Defendant has suffered prejudice; although we do not know whether the Defendant would have behaved differently (ie whether the terms of settlement would have been different): Supperstone v Hurst [2008] EWHC 735 (Ch).
43. Because the court must consider all the circumstances of the case, these are factors which are still relevant under the new version of CPR 3.9, but they now play second fiddle to the factors specifically listed in the new rule.

45. Shortly before the hearing of this application the Court of Appeal handed down judgment in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1526. That case was concerned with an application for relief from sanctions following the failure to file a costs budget in time. The Master of the Rolls, giving the judgment of the Court, said:

"40. We hope that it may be useful to give some guidance as to how the new approach should be applied in practice. It will usually be appropriate to start by considering the nature of the non-compliance with the relevant rule, practice direction or court order. If this can properly be regarded as trivial, the court will usually grant relief provided that an application is made promptly. The principle "de minimis non curat lex" (the law is not concerned with trivial things) applies here as it applies in most areas of the law. Thus, the court will usually grant relief if there has been no more than an insignificant failure to comply with an order: for example, where there has been a failure of form rather than substance; or where the party has narrowly missed the deadline imposed by the order, but has otherwise fully complied with its terms. We acknowledge that even the question of whether a default is insignificant may give rise to dispute and therefore to contested applications. But that possibility cannot be entirely excluded from any regime which does not impose rigid rules from which no departure, however minor, is permitted.

41. If the non-compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief. The court will want to consider why the default occurred. If there is a good reason for it, the court will be likely to decide that relief should be granted. For example, 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. Later developments in the course of the litigation process are likely to be a good reason if they show that the period for compliance originally imposed was unreasonable, although the period seemed to be reasonable at the time and could not realistically have been the subject of an appeal. But 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. They should either delegate the work to others in their firm or, if they are unable to do this, they should not take on the work at all. This may seem harsh especially at a time when some solicitors are facing serious financial pressures. But the need to comply with rules, practice directions and court orders is essential iflitigation is to be conducted in an efficient manner. If departures are tolerated, then the relaxed approach to civil litigation which the Jackson reforms were intended to change will continue. We should add that applications for an extension of time made before time has expired will be looked upon more favourably than applications for relief from sanction made after the event."

44. In my judgment it cannot be said that the failure in this case was trivial. The rules required the Claimants to give notice of the change in funding arrangements and they did not do so in any form.
45. The burden is therefore on the Claimants to show a good reason for the failure to give notice. I have accepted that Miss Taylor intended to give notice and prepared the necessary documents. But for some reason that intention was not fulfilled. We do not know why the documents did not get to the Defendant's solicitors. There may have been an error on the part of the Claimants' solicitors, or an error on the part of the DX service provider, or possibly even an error on the part of the Defendant's solicitors.
46. But the burden is on the Claimants. Their evidence stops at the point when the letter and notice of funding left Miss Taylor's hand. They have failed to produce any evidence of the reason why the documents did not reach the Defendant's solicitors or evidence to show that, whatever the reason, it was outside of their control.
47. This may seem harsh, particularly given my view that the failure was not intentional. But the Claimants' solicitors should have known of the change that was coming. The amendment of CPR 3.9 was recommended by Lord Justice Jackson in his final report published in December 2009. The change of approach and the "Singapore experience" were emphasised by him in the 5th implementation lecture on 22nd November 2011. The new, tougher approach to relief from sanctions was again emphasised by the Master of the Rolls in the 18th implementation lecture on 22nd March 2013.
48. The Defendant had served its points of dispute in February. There is no reason why the Claimants could not have issued their application for relief well before 1st April 2013. The application might have been heard before then. It would certainly have been heard before the decision in Mitchell was handed down.
49. Following the hearing of this application but before this judgment was circulated in draft form, the decision of Mr Justice Norris in Forstater v Python (Monty) Pictures Ltd [2013] EWHC 3759 (Ch) was handed down. I therefore gave counsel an opportunity to comment on it by written submissions.
50. In Forstater the first claimant had provided information about his conditional fee agreement but his company, the second claimant, had failed to serve an N251. The second claimant applied for relief from sanctions. Its solicitors had told the defendant in correspondence, 2 months after the second claimant had been joined as a party, that they were acting under a conditional fee agreement but they had not served notice in form N251. It was not suggested that the form in which the information was conveyed had caused any prejudice. However the court observed that the failure to convey the information until the letter:

"… probably had an impact on the conduct of the action (because until then [the first defendant] was not in possession of all of the information relevant to a disposal of the claim) and [the second claimant] has not demonstrated that it did not."

51. The court granted relief from sanctions but only as from the date of the letter. The draft judgment in Forstater was circulated before the judgment in Mitchell was handed down but as Mr Justice Norris made clear in the last paragraph he saw no need to revise it.
52. One can well understand why. As from the date of the letter Forstater was a case of a trivial failure – giving the information by letter rather than by form N251 – and so a failure of form rather than substance. However the court did not grant relief for the period before the date of the letter because, as in the present case, the failure to give the information "probably had an impact on the conduct of the action (because until then the Defendant was not in possession of all of the information relevant to a disposal of the claim) and the Claimants have not demonstrated that it did not".
53. Accordingly the application for relief from sanctions is refused.