Caliendo & Anor v Mishcon De Reya (A Firm) & Anor [2014] EWHC 3414 (Ch)

Case No HC13A02274

[2014] EWHC 3414 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 21 October 2014

Before

THE HONOURABLE MR JUSTICE HILDYARD

Between

ANTONIO CALIENDOClaimants

BARNABY HOLDINGS LLCClaimant

MISHCON DE REYA (A Firm)Defendants

MISHCON DE REYA LLPDefendant

Alan Gourgey QC (instructed by DLA Piper UK LLP) for Claimants

Clare Stanley (instructed by Triton Global Limited) for Defendants

Hearing Hearing date: 19 March 2014

(Further written submissions on 30 July 2014)

Judgment

Mr Justice Hildyard :

Nature of this application

[1]This is another of what has become a steady stream of applications made pursuant to CPR 3.9 for relief from sanctions imposed under the rules, in this instance CPR rule 44.3B.

[2]The Claimants seek relief in respect of their acknowledged failure to serve notice on the Defendants of the existence of(i) a conditional fee agreement (“CFA”) and

(ii) an after the event (“ATE”) insurance policy within the period specified by CPR rule 44.15(1) and paragraph 9.3 of the Practice Direction on Pre-Action Conduct (“the PDPAC”).

Background

[3]The main proceedings in this case relate to the sale and disposal of the interests of the Claimants and others (who have assigned their interests and claims to the Claimants) in shares in one or more corporate entities which owned Queen’s Park Rangers football club, to purchasers connected with the well-known businessmen Mr Bernie Ecclestone and Mr Flavio Briatore. The Defendants were retained and instructed by the Claimants and others in relation to the transaction.

[4]Charles Fussell & Co LLP, who previously acted for the Claimants, sent a letter of claim pursuant to para B2 of the Professional Negligence Pre-Action Protocol to the Defendants on 18 December 2009.

[5]Robin Simon LLP (“Robin Simon”) sent a holding response to the letter of claim on behalf of the Defendants and their professional indemnity insurers on 18 January 2010. Robin Simon (now Triton Global Limited) continues to act for the Defendants and their insurers.

[6]Subsequent to this, the parties engaged in lengthy pre-action correspondence for a number of years until around May 2012 (although this date is disputed by the Defendants).

[7]On 13 February 2013, DLA Piper UK LLP (“DLA”) entered into terms of engagement to act for the Claimants. On 20 February 2013 and 18 March 2013, respectively, the Claimants entered into CFAs with DLA and Counsel in relation to the intended claim against the Defendants. The Claimants also entered into an ATE insurance policy on 20 February 2013.

[8]In a letter dated 11 June 2013, DLA informed Robin Simon that the Claimants were ready to issue proceedings and gave the Defendants until 14 June 2013 to make a sensible offer of settlement, failing which proceedings would be issued and served on 17 June 2013. This letter further notified the Defendants of the funding arrangements.

[9]That was late notice. It is common ground that notice in writing of the funding arrangements was required to be given by the Claimants to the Defendants(a) by 27 February 2013 (in the case of DLA Piper’s CFA);

(b) by 25 March 2013 (in the case of Leading Counsel’s CFA); and

[10]That is because: (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.”

[11]Thus, notice of the funding arrangements should have been given on 27 February 2013 in relation to DLA’s CFA and the ATE policy and on 25 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 of 11 June 2013 this was acknowledged. The letter sought to explain that the requirement to give notice within 7 days pursuant to CPR 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 in CPR 44.3B(1)(c) and (e). Unless the court orders otherwise, a party may not recover as an additional liability: a) 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; 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]On 17 June 2013, the Claimants issued and served proceedings, along with an application under CPR 3.9 for relief from sanctions. The application for relief was opposed by the Defendants. A one-hour hearing was convened on 11 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 on 19 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 on 4 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 on 30 July 2014.

Relevant principles and the approach required

[19]The starting point is CPR 3.9(1). This provides that:

“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, including the need – (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with the rules, practice directions and orders.”

[20]After a run of sometimes inconsistent decisions in the light of Mitchell, and a period of not a little debate as to the true effect and consequences of that decision, the correct approach to applications for relief against sanctions has now been authoritatively stated by the Court of Appeal in Denton (although even then Jackson LJ, the author of the review that promoted the change of culture that Mitchell was intended to advertise and insist upon, dissented in part).

[21]The Court of Appeal (unanimously) in Denton first emphasised (in paragraph 23) the three elements of CPR 3.9(1) itself (which it stated were not to be confused, however, with the three-stage approach in their application referred to below):

“The rule contains three elements (which are not to be confused with the three stages in the guidance that we give below). First, it states when the rule is engaged by providing that it applies "[o]n an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order". This makes it clear that the court's first task is to identify the "failure to comply with any rule, practice direction or court order", which has triggered the operation of the rule in the first place. Secondly, it provides that, in such a case, "the court will consider all the circumstances of the case, so as to enable it to deal justly with the application".

(b) ”

[22]The Court of Appeal (again unanimously in this regard) prescribed that a three-stage approach is to be taken, as follows (in paragraph 24):

“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)]".”

[23]In the majority judgment of Lord Dyson MR and Vos LJ they then gave guidance as to the factors to be considered at each stage.

[24]As to the first stage, and the identification and assessment of the seriousness or significance of the relevant failure to comply, the Master of the Rolls and Vos LJ accepted that the question is not really whether the breach is “trivial” (the adjective deployed in Mitchell, but not in the rule itself) since that did not capture the nature of the inquiry, which is to measure the seriousness and significance of the breach primarily in terms of its material effect on(a) the conduct and efficient progress of the particular case and

(b) litigation generally (and thus other court users).

[25]That test of materiality is not exclusive. The Master of the Rolls and Vos LJ accepted that some breaches are inherently sufficiently serious, or of their nature such that no relief from them can be permitted, even though they “are incapable of affecting the efficient progress of the litigation”; they instanced a failure to pay court fees.

[26]They also clarified that:

“The assessment of the seriousness or significance of the breach should not, initially at least, involve a consideration of other unrelated failures that may have occurred in the past. At the first stage, the court should concentrate on an assessment of the seriousness and significance of the very breach in respect of which relief from sanctions is sought. We accept that the court may wish to take into account, as one of the relevant circumstances of the case, the defaulter's previous conduct in the litigation (for example, if the breach is the latest in a series of failures to comply with orders concerning, say, the service of witness statements). We consider that this is better done at the third stage…rather than as part of the assessment of seriousness or significance of the breach.”

[27]The second stage of the required inquiry is to consider why the failure or default occurred. This second stage is not expressly prescribed by the wording of the rule, but it is obviously necessary: if there is a good reason for such failure or default it would not be just to deny relief, and (to quote Leggatt J in Summit Navigation Limited v Generali

[2014] EWHC 398 (Comm)

at [48-49]), turn “the rules and rule-compliance into the mistress rather than the handmaid of justice”.

[28]Nothing in Denton alters, glosses or qualifies the distinction made in Mitchell (at [41])between(a) circumstances giving rise to failure or default outside the control of the applicant or his advisers, including debilitating illness or accident (which could well amount to “good reason”) and

(b) “mere overlooking of a deadline, whether on account of overwork, insufficient resource or otherwise” (which would be unlikely to be a “good reason”).

[29]At the third stage of its inquiry, the court must consider “all the circumstances of the case”. The Master of the Rolls and Vos LJ sought to correct what they described as a “misunderstanding” in relation to Mitchell:

“31. The important misunderstanding that has occurred is that, if (i) there is a non-trivial (now serious or significant) breach and (ii) there is no good reason for the breach, the application for relief from sanctions will automatically fail. That is not so and is not what the court said in Mitchell: see para 37. Rule 3.9(1) requires that, in every case, the court will consider "all the circumstances of the case, so as to enable it to deal justly with the application". We regard this as the third stage. 32. We can see that the use of the phrase "paramount importance" in para 36 of Mitchell has encouraged the idea that the factors other than factors (a) and (b) are of little weight. On the other hand, at para 37 the court merely said that the other circumstances should be given "less weight" than the two considerations specifically mentioned. This may have given rise to some confusion which we now seek to remove. Although the two factors may not be of paramount importance, we reassert that they are of particular importance and should be given particular weight at the third stage when all the circumstances of the case are considered. That is why they were singled out for mention in the rule. It is striking that factor (a) is in substance included in the definition of the overriding objective in rule 1.1(2) of enabling the court to deal with cases justly; and factor (b) is included in the definition of the overriding objective in identical language at rule 1.1(2)(f). If it had been intended that factors (a) and (b) were to be given no particular weight, they would not have been mentioned in rule 3.9(1). In our view, the draftsman of rule 3.9(1) clearly intended to emphasise the particular importance of these two factors.”

[30]On this basis, Lord Dyson MR and Vos LJ suggested that the factors (a) and (b) in CPR 3.9 should be given primacy:

“top seats at the table”

. It is on this point that Jackson LJ dissented. Having made clear that he agreed with the Master of the Rolls and Vos LJ in relation to (a) the three stages required and (b) what they said as to the first two stages, he stated (at [85]):

“I take a somewhat different view, however, in relation to the third stage. Rule 3.9 requires the court to consider all the circumstances of the case as well as factor (a) and factor (b). The rule does not require that factor (a) or factor (b) be given greater weight than other considerations. What the rule requires is that the two factors be specifically considered in every case. The weight to be attached to those two factors is a matter for the court having regard to all the circumstances. The word "including" in rule 3.9 means that factors (a) and (b) are included amongst the matters to be considered. No more and no less. As the Bar Council put it in their submissions, factors (a) and (b) should "have a seat at the table, not the top seats at the table". Ultimately what rule 3.9 requires is that the court should "deal justly with the application".”

[31]All members of the Court of Appeal were at one, however, that it is always necessary to have regard to the circumstances of the case, which will of course vary from case to case.

[32]Lastly, the Court of Appeal addressed the issue of satellite litigation and co-operation, two responses encouraged by the “misunderstanding” of or “failure to apply Mitchell correctly”. The Master of the Rolls and Vos LJ said this:

“39. Justifiable concern has been expressed by the legal profession about the satellite litigation and the non-cooperation between lawyers that Mitchell has generated. We believe that this has been caused by a failure to apply Mitchell correctly and in the manner now more fully explained above. 40. Litigation cannot be conducted efficiently and at proportionate cost without (a) fostering a culture of compliance with rules, practice directions and court orders, and (b) cooperation between the parties and their lawyers. This applies as much to litigation undertaken by litigants in person as it does to others. This was part of the foundation of the Jackson report. Nor should it be overlooked that CPR rule 1.3 provides that "the parties are required to help the court to further the overriding objective". Parties who opportunistically and unreasonably oppose applications for relief from sanctions take up court time and act in breach of this obligation. 41. We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation. The parties should in any event be ready to agree limited but reasonable extensions of time up to 28 days as envisaged by the new rule 3.8(4). 42. It should be very much the exceptional case where a contested application for relief from sanctions is necessary. This is for two reasons: first because compliance should become the norm, rather than the exception as it was in the past, and secondly, because the parties should work together to make sure that, in all but the most serious cases, satellite litigation is avoided even where a breach has occurred. 43. The court will be more ready in the future to penalise opportunism. The duty of care owed by a legal representative to his client takes account of the fact that litigants are required to help the court to further the overriding objective. Representatives should bear this important obligation to the court in mind when considering whether to advise their clients to adopt an uncooperative attitude in unreasonably refusing to agree extensions of time and in unreasonably opposing applications for relief from sanctions. It is as unacceptable for a party to try to take advantage of a minor inadvertent error, as it is for rules, orders and practice directions to be breached in the first place. Heavy costs sanctions should, therefore, be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions. An order to pay the costs of the application under rule 3.9 may not always be sufficient. The court can, in an appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be taken into account under CPR rule 44.11 when costs are dealt with at the end of the case. If the offending party ultimately wins, the court may make a substantial reduction in its costs recovery on grounds of conduct under rule 44.11. If the offending party ultimately loses, then its conduct may be a good reason to order it to pay indemnity costs. Such an order would free the winning party from the operation of CPR rule 3.18 in relation to its costs budget.”

Application of these guidelines to the present case

[33]I turn to seek to apply these guidelines in the present case in accordance with the approach prescribed in Denton, but noting at the outset that the Applicants accepted from the outset that, as regards the second stage, they had not shown “good reason” for the breach.

[34]As to the first stage, the Applicants submitted that the breach should be regarded as immaterial because “it neither imperilled future hearing dates nor otherwise disrupted the conduct of the litigation or litigation generally”. They emphasised in particular the following matters (which I take primarily from their Further Written Submissions dated 30 July 2014):(1) the breach occurred pre-action and the application for relief was issued on the first possible date, being the date that the Claim Form was issued;

(2) the fact that the application for relief took up (considerable) court time should not be a relevant consideration, since it is of the nature of the imposition of a sanction for default that relief may only be obtained on an application, and further, much of the time was taken up because of uncertainty created both pre- and post-Mitchell and should not be held against the Applicants;

(3) there is no evidence that the delay in notifying the Defendants of the funding arrangements caused the Defendants any prejudice: and for the purposes of assessing the effect of the breach “what is material is assessment of the disruption/damage occasioned by the breach and not the prejudice (which will always be suffered by a [respondent]) arising from the grant of relief against sanction”.

[35]Against this, the Defendants submitted that the fallacy of the Applicants’ approach at the first stage was to invite the court to judge the seriousness and significance of the particular breach by reference to its consequences in terms of the progress of the action. Ms Stanley, on behalf of the Defendants, submitted that the obligation to serve a notice of funding is, like the obligation to pay court fees, of its nature not such as to affect the progress of the litigation, but nevertheless serious enough to attract automatic sanction. On that basis, she submitted, the breach “simply needs to be measured quantitatively – if the delay is measured in months then a fortiori it is not an insignificant breach”.

[36]Ms Stanley submitted further that the provisions as to the service of a notice of funding within 7 days and the automatic sanction prescribed for its breach demonstrate its special nature and the good reasons for insisting on compliance. She contended that “the existence of funding arrangements can change the entire dynamic of a case, both pre-action and post-issue”. She placed special emphasis on the following consequences for a defendant facing a claimant funded by an ATE/CFA entered into prior to 1 April 2013:(1) The more the defendant spends on its costs, the greater will be its exposure to the ATE premium (the amount of which is often, and is in this case, calculated ex post facto by reference to the amount of the defendant’s own legal costs).

(2) The longer the litigation goes on, the more disbursements the claimant will probably incur, and the greater will be the defendant’s exposure to the ATE premium (the amount of which is often, and is in this case, calculated ex post facto by reference to the amount of the claimant’s own disbursements).

(3) The longer the litigation goes on, the more hours and accordingly uplifted fees the claimant’s lawyers will be charging and thus the greater the downside (the defendant’s exposure) as regards quantum of recoverable costs.

(4) Therefore, there is pressure on the defendant to settle early if it perceives it has real litigation risk.

(5) Further, when the claim is (as here) against an insured professional, the fact of ATE/CFA funding arrangements will inevitably affect the reserving decisions made by the insurer, and the reserve entered against the claim will in turn affect the insured’s overall insurance claims record, which will influence premiums to be charged on renewal.

[37]I accept all Ms Stanley’s points as regards the serious effect of ATE/CFA funding arrangements.

[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 dated 13 May 2013, which was in response to DLA’s letter of 8 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 dated 30 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.

[44]There being no dispute that the Applicants cannot, as regards the second stage, legitimately or usefully rely on any “good reason” for their default and delay, I turn to the third stage.

[45]Starting with the two factors particularly identified in CPR rule 3.9 as required to be taken into account, factor (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”.

[46]As between the parties, I have already observed that there is 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.

[47]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.

[48]I think I am also entitled to take into account that the order made by the Deputy Master in Mitchell was, in the words of Jackson LJ in Denton (at [98]) “very tough”. It was upheld as being within the generous ambit afforded in the context of case management decisions; but it is not to be taken as implying the need for such very tough orders in every case, even in somewhat similar cases.

[49]In the round, I do not think it would be fair, just or proportionate to deny the Claimants relief on the basis of factor (a).

[50]As to factor (b), the importance of observing the rules, and the need for a culture change away from what is perceived to be an unduly relaxed approach to compliance in the past, is inherent; and it is emphasised once more by the Court of Appeal in Denton, as, of course, it was in Mitchell. As the Master of the Rolls and Vos LJ stated in Denton (at [34]):

“The court must always bear in mind the need for compliance with rules, practice directions and orders, because the old lax culture of non-compliance is no longer tolerated.”

[51]But the rules are a means to an end and not an end in themselves. A culture of observance must be fostered fairly; and not by inappropriate penalty. Unfair adoption of the “Admiral Byng” principle (the principle, as Voltaire drily remarked of the decision to shoot Admiral Byng for cowardice, that it is beneficial to kill an Admiral from time to time “pour encourager les autres”)would subvert the overriding objective of doing justice in every case, according to that case. With respect to the majority, I suspect that the apparent disagreement in point of emphasis between the majority and Jackson LJ in Denton as to the primacy (or not) of the specially identified factors may melt away in most cases accordingly.

[52]What, then, and more generally, of the circumstances of the case? The Applicants emphasised in this broader context that:(1) the Applicants notified the Defendants of the funding arrangements as soon as the Applicants became aware of the breach (11 June 2013) and their application for relief was made at the first available opportunity, which was when proceedings were issued (on 17 June 2013);

(2) the sanction, if it remains in place, will cause the Applicants substantial prejudice. Although the Defendants contend that the Applicants will be entitled to recover a full indemnity from their solicitors for the loss, this is speculative and uncertain;

(3) the Applicants have not acted in breach of any other rules or orders.

[53]Against this, the Defendants submitted that:(1) they will inevitably be substantially prejudiced if relief is granted because “their accrued right not to fight a super-claimant will be taken away”;

(2) there is no evidence that the Applicants will suffer any prejudice beyond this super-advantage if relief is refused;

(3) the only beneficiary of relief would in reality be the Applicants’ solicitors: since the Applicants have an “unanswerable claim” against their solicitors, the effect of the relief would be to shift the burden of those solicitors onto the Defendants;

(4) the application has already taken up disproportionate court resources which could have been available to other court users.

[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 at 1 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 of 30 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 on 23 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.