“A party who seeks to recover an additional liability must provide information about the funding arrangement to the Court and to other parties as required by a rule, practice direction or court order.” (2) Paragraph 9.3 of the PDPAC requires that a party who enters into a funding arrangement must inform the other parties “as soon as possible and in any event within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.” 11. Thus, notice of the funding arrangements should have been given on27 February 2013 in relation to DLA’s CFA and the ATE policy and on25 March 2013 in relation to Counsel’s CFA. Accordingly the notice given was approximately 3½ months late as regards DLA’s CFA and the ATE policy and 2½ months late as regards Counsel’s CFA. 12. The Claimants appreciated this when giving such notice. In their letter of11 June 2013 this was acknowledged. The letter sought to explain that the requirement to give notice within 7 days pursuant toCPR 44.15 and para 9.3 of the PDPAC only came to DLA’s attention the day before (i.e.10 June 2013 ). 13. In the First Witness Statement of Ms Christina Suzanne Sharma (“Ms Sharma”) made on behalf of the Claimants in support of their application for relief from sanctions, the error was described in the following way: “The Claimants have innocently and inadvertently failed to provide notice within 7 days of the Funding Arrangements having been entered into. The Oversight was that of DLA Piper.” 14. Ms Sharma explains that the oversight only came to light when proceedings were being finalised ready for issue and the Notice of Funding form (N251) was being completed. Ms Sharma further explains that the Claimants had always intended to notify the Defendants of the funding arrangement at the time of issue. 15. The sanction provided for in the event of such late notice of funding arrangements is set out inCPR 44.3 B(1)(c) and (e). Unless the court orders otherwise, a party may not recover as an additional liability: (a) any additional liability In practice this meant that the success fee "uplift" on the CFAs were not recoverable in so far as they related to the period before notice was given. 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; or (b) any insurance premium where that party had failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order. 16. On17 June 2013 , the Claimants issued and served proceedings, along with an application underCPR 3.9 for relief from sanctions. The application for relief was opposed by the Defendants. A one-hour hearing was convened on11 October 2013 , but was adjourned pending the decision in Mitchell v News Group Newspapers Ltd[2014] EWCA Civ 1537 (“Mitchell”). Consequently, a further hearing was convened on19 March 2014 . That occupied the court for the best part of a day. 17. Thereafter, and in light of a welter of cases and much debate among practitioners and academics, it became known that the guidance given in Mitchell as to the appropriate approach of the court in respect of applications such as this was to be reviewed by the Court of Appeal in three appeals, the short reference to which is Denton & Ors v TH White Ltd & Ors[2014] EWCA Civ 906 (“Denton”). The Court of Appeal gave judgment on4 July 2014 . 18. Since I had not yet finalised my judgment, and at the suggestion of the parties, I invited written submissions from the parties in the light of the Court of Appeal’s clarification of the required approach in Denton. I received these on30 July 2014 .” (1)CPR rule 44.15 (2) provides that: “A party who seeks to recover an additional liability must provide information about the funding arrangement to the Court and to other parties as required by a rule, practice direction or court order.” (2) Paragraph 9.3 of the PDPAC requires that a party who enters into a funding arrangement must inform the other parties “as soon as possible and in any event within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.” “The Claimants have innocently and inadvertently failed to provide notice within 7 days of the Funding Arrangements having been entered into. The Oversight was that of DLA Piper.”
“The amendment made by subsection (4) This was the subsection which provided that: "A costs order made in proceedings may not include provision requiring the payment by one party of all or part of the success fee payable by another party under a conditional fee agreement." does not prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if— (a)the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or (b)advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.”
“The first stage is to identify and assess the seriousness and significance of the "failure to comply with any rule, practice direction or court order" which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate "all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]".”
“38. However, as it seems to me, the consequences of which she complains emanate from the nature of the funding arrangements, and not from their late notification in breach of the rules and PDPAC. What I am required to assess at this first stage, in my view, is not the seriousness and significance for the Defendants of the Claimants having pre-April 2013 ATE/CFA funding arrangements in place, but the seriousness and significance for the Defendants and other court users of their late notification. 39. In that context, and possibly another way of saying the same thing, I accept Mr Gourgey QC’s submission on behalf of the Applicants that the assessment to be made is of the seriousness or significance of the breach, not the consequences to the Defendants of the grant of relief. I do not accept Ms Stanley’s submission that the right to contest the matter free of the pre-April 2013 ATE/CFA funding arrangements is an “accrued right” the value of which should militate against relief at this first stage of the inquiry. That sort of “prejudice” may be relevant at the third stage; but not at the first stage, which is confined to the seriousness or significance of the very breach itself. 40. Against that, I do take into account as relevant to this first stage the fact that the rules do provide automatic sanctions for this breach, and that this (it is to be presumed) is because funding arrangements are by their nature of considerable significance (for such reasons as Ms Stanley emphasised, as adumbrated above) and that the failure to notify the defendant of them will, prima facie at least, cause the defendant to proceed on a false footing to its potential detriment in determining whether or not, and in what manner, to defend the claim. However, in this case, it seems clear that (a) every avenue had been explored, over the course of some years, to find some other means of resolution and (b) the Defendants’ approach and attitude was not materially affected by any failure to notify the funding arrangements. 41. The Defendants have not sought to assert in evidence that, had they been served with notification of the funding arrangements within the seven days required by the PDPAC, they would have acted differently as regards these proceedings. The pre-action negotiations had long since ended (in May 2012) by the time the funding arrangements were entered into; consequently, earlier notification of the funding would not have altered the Defendants’ position as regards any potential settlement. It appears from the evidence that during the period of delay it was the Claimants, rather than the Defendants, who were carrying out the most work and incurring substantial fees, and there is no reason to suggest that the situation would have been any different had the Defendants been notified of the arrangements in time. During the period of delay, Robin Simon wrote only one letter to DLA dated13 May 2013 , which was in response to DLA’s letter of8 May 2013 in which notice of change of solicitors was given. 42. Put shortly, the Defendants were not able to show material prejudice in their conduct of the case from the breach (at least to themselves; I return later to the effect on other court users). A late attempt by Ms Stanley, in her Further Note dated30 July 2014 , to suggest that the progress of proceedings had been hampered because the application, and the delays it had caused, had deflected Mr Gourgey QC and his team from preparing a Reply, is of some account; but in my judgment, (a) the causative connection between breach and delay is flimsy and (b) it is not such, either in terms of materiality or significance, as to change the balance. 43. In my judgment, and subject to consideration of all the circumstances of the case, the result of the first stage of the requisite inquiry is to lean me in favour of granting relief.”
“there was no evidence that the conduct of the proceedings has been materially altered or adversely affected by the breach; and it seems to me that, although the additional costs would not have been occasioned but for the breach and default, they are caused by the need for relief from sanctions, and the issue can be addressed by an appropriate costs order”. b) As to other litigants: “the diversion of court time has concerned me. But I accept that it has largely been extended by the uncertainties perhaps inevitable when a culture change is sought to be inculcated. This is not, to my mind, a case like Mitchell. In Mitchell, the claimants’ failure, after due warning, to file a cost budget caused an adjournment and an abortive hearing. The need for an adjourned hearing meant that a hearing in another case (on an asbestosis claim) had already in direct consequence had to be vacated, to the detriment of those other litigants. There, the waste of court time was directly occasioned by the need to abort a hearing in consequence of late service; here the need for court time was the consequence of the need to seek sanction in accordance with the rules. ” ii) As to the second factor identified inCPR rule 3.9 (1)(b) (namely the importance of observing the rules, and the need for a culture to change away from what is perceived to be an unduly relaxed approach to compliance in the past), the judge held that the rules were a means to an end, and not in an end in themselves, and accordingly in the present case interests of justice did not require relief from sanctions to be refused on this ground. iii) As to the more general consideration of the entire circumstances of the case, having recited the parties’ respective submissions, the judge concluded: “54. I have carefully considered these competing arguments. I have also taken into account the peculiar fact (so it seems to me to be) that the Applicants were seeking to avail themselves of a particular advantage (of the pre-2013 costs regime) just before its expiry and should have been especially vigilant to ensure compliance with the rules (a factor which has weighed with me not a little). 55. In my view: (1) The fact is that the Applicants acted speedily once they appreciated their default was necessary but not sufficient to justify relief. (2) Although the Applicants would appear to have a strong claim against their solicitors I have not the material to conclude it would be “unanswerable”; and further I take one of the messages in Denton to be that the possibility, even a strong possibility, of recovery from another source is a factor, but one to be treated with circumspection, lest the advantages of the cultural change sought to be encouraged be dissipated by a welter of satellite litigation. (3) I am not wholly persuaded by the Defendants’ contention that they have been prejudiced by the breach and will be further prejudiced if relief is granted, on the basis that they would be deprived of a valuable accrued right as at1 April 2013 , or seven days thereafter. Any such right as was acquired by the Defendants was inherently flawed, as it was always susceptible to being undermined if relief from sanctions was granted. In every case where an automatic sanction is imposed for non-compliance with a rule, practice direction or order, the non-defaulting party acquires a contingent accrued right. If the Defendants’ argument on this point were to be accepted in every such case, the court would be bound to refuse relief, thus rendering considerations under the third “limb” of Mitchell (whether in all the circumstances it is just to grant the application) nugatory. The court should even at the third stage focus on the breach and its consequences, and usually at least accord lesser weight to advantages derived by the respondent from the sanction or its consequences. (4) I have already acknowledged and taken into account my concern as to the use of court resources. Undoubtedly there was regrettable usage of scarce resource: but I am not aware of any specific detriment to court users such as was occasioned in Mitchell; and I am inclined to agree with the Claimants’ contention that the hearings were necessitated by the uncertainties surrounding the changes to the rules, rather than by the actions of the Claimants. In this regard I note the parties had consented to the application being dealt with on paper and that it was the court that requested an oral hearing in October 2013 and suggested the adjournment pending the Court of Appeal’s decision in Mitchell at that October hearing. 56. Finally, in respect of stage three, I should mention that, in her Further Note of30 July 2014 , Ms Stanley put forward another argument in light of certain comments in the judgment of Lord Neuberger PSC in the Supreme Court’s decision in Coventry and others v Lawrence and another (No 2)[2014] UKSC 46 (which was published on23 July 2014 ), to the effect that it may be that the decision of the ECHR in Campbell v MGN Ltd (No 2), in which the Strasbourg court took a different view from the House of Lords, enables the argument that the pre-April 2013 regime enabling recovery by a successful claimant of success fees and ATE from an unsuccessful defendant infringed the European Convention on Human Rights (“the Convention”) (see [39-41]). 57. This was a new submission, and involved Ms Stanley (as she fully recognised and sought leave to do) withdrawing a concession made (on the basis of the House of Lords’ decision) at the oral hearing before me in March 2013 that such arrangements pre-2013 were legitimate. Ms Stanley submitted that this was another “circumstance” to be taken into account; further or alternatively, that this court is mandated to take it into account given the requirement upon it, as a public body, to exercise its discretion (including when giving relief from sanctions) in accordance with the Convention. 58. I would not have held Ms Stanley to her concession, given the possible change in the required judicial approach. But I do not think I can properly accord weight to this possibility even in the context of the broad inquiry required at the third stage. That is especially so given that: (1) what weight to give would depend on whether the substantive Human Rights argument is right or wrong; it would be wholly inappropriate, unwise and indeed wrong for me to attempt such an assessment in the circumstances, which include the fact that (a) existing House of Lords authority is to the effect that the pre-2013 regime was compatible and (b) in Coventry v Lawrence, Lord Neuberger and the Supreme Court stated it would be wrong even for that court to decide the point without HM Government having had the opportunity to address the court on the issue (see [41]). Disposition 59. Whilst the default in this case was serious in the sense that it occurred in respect of a rule for which an automatic sanction is imposed in the event of its breach, I do not consider in the round that it occasioned serious and/or significant adverse effect on the efficient conduct and progress of this litigation nor of the conduct and progress of other litigation in these courts. Despite the need to encourage compliance, I do not consider it would be just to withhold relief from sanction. 60. Accordingly, I shall allow the application and give the relief sought. The question of costs can be considered after formal judgment.”
“the judge concluded that at the first stage of the Denton/Mitchell test the burden was on [the appellants] is to establish that it had been prejudiced by the late notice of funding arrangements, and he held that [the appellants] had failed to do so.”
“4. The judge was wrong to hold thatCPR rule 3 . 9 (1) (a) requires consideration as to whether “the default” has undermined or been inconsistent with the need for litigation to be conducted efficiently and at proportionate cost. 5. The judge accorded no or no adequate weight to the undisputed evidence that if relief from sanctions was granted to the claimants the costs of these proceedings could be increased by£1.4 3 million.”
“It is acknowledged that the Judge’s approach, at least at first blush, had some support from the judgment in Denton in which the Court of Appeal said that “Factor (a) makes it clear that the court must consider the effect of the breach in every case. If the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost, that will be a factor weighing in favour of refusing relief”