The Facts

The proceedings concerned the sale and disposal of the interest that the Claimant and others held in shares in a number of corporate entities which, together, owned Queens Park Rangers football club. The Claimant instructed the Defendant in relation to this transaction. In February and March 2013, the Claimant entered into Conditional Fee Agreements (“CFAs”) with their solicitors and counsel, and an After the Event insurance policy (“ATE”). The Defendant was not notified of the CFA and ATE arrangements until June 2013.

Pursuant to the Civil Procedure Rule 44.15(2) (“CPR”) a party seeking to recover additional liability pursuant to a funding arrangement such as a CFA must notify the other party of the funding arrangement. Further, paragraph 9.3 of the Practice Direction Pre Action Conduct provides that a party who entered into a funding arrangement must inform the other parties as soon as possible or in any event within 7 days of entering into the funding arrangement.

The Application

The Claimant acknowledged their failure to comply with the relevant provisions, stating that this failure was an oversight, which had only come to light when proceedings were being finalised ready for issue. Further, the Claimant submitted that they had always intended to notify the Defendant of the funding arrangements.

CPR 44.3B(1)(c) and (e) provides that, unless the Court orders otherwise, a party cannot recover additional liability pursuant to a funding arrangement for the period during which they failed to notify the other party of the funding arrangement or any insurance premium where they had failed to notify the other party of the same.

The Claimant made an application for relief from sanctions pursuant to CPR 3.9. Pending the decision in Mitchell v News Group Newspapers and Denton & Others v TH White Limited & Others, the matter was adjourned and the approach of the Court in applications for relief from sanctions was reviewed.

The Court’s Approach

The starting point in considering CPR3.9 applications is to consider all the circumstances of the case, including the need to conduct litigation proportionately and efficiently and to ensure compliance with the rules. In Denton, the Court identified a three stage approach to be taken:

  1.   Identify and assess the seriousness or significance of the failure to comply;
  2.   Consider the reason for the failure to comply. If there is a good reason for failure to comply it would not be just to deny relief; and
  3.   Evaluate all the circumstances of the case, so the Court is able to justly deal with the application. The question is not whether the breach is trivial but to assess its significance in terms of its material effect on the conduct and efficient progress of the case and litigation generally (that is, other court users);

The Decision

The Court applied the three stage test outlined in Denton to the current case and found:

  1. The Claimant submitted (a) that the breach was immaterial as it occurred pre-action and an application for relief was made on the first possible date; (b) that the fact that the application had taken up considerable Court time should not be a relevant consideration and (c) there was no evidence that the delay had caused the Defendant any prejudice. The Defendant submitted that the breach was significant due to the cost risk for the Defendant in relation to CFA and ATE arrangements. The Court concluded that the risks outlined by the Defendant, whilst serious, related to the nature of the funding arrangements and not from the late notification, further the Defendants had not put forward any evidence to suggest that their approach to the matter would have altered had they been correctly notified of the funding arrangements and therefore had failed to demonstrate that they were prejudice by the Claimant’s breach of the CPR.
  2. It was accepted by the parties that the Claimant could not rely on a good reason for their default.
  3. The Court referred to their conclusion that the conduct of proceedings would not have materially altered had the breach not occurred and found that any additional costs caused by the application could be dealt with by an appropriate costs order. The Court raised concerns as to the diversion of Court time in respect of other litigants, but clearly distinguished the matter fromMitchell, where there was a clear effect to other litigants as a result of the failures in that case. In respect of the Court’s need to ensure compliance with the rules, the Court found that the ‘rules are a means to an end and not an end in themselves’ whilst a culture of observance must be encouraged it should not be achieved by way of an inappropriate penalty. Accordingly, the Court found therefore that it would not be just to withhold relief from sanction.

Commentary

This is yet another case dealing with the sanctions to be applied in cases where the CPR is not complied with. It is important to note that this hearing was deferred until after the judgments in both the Mitchell and Denton cases. This case follows the guidance set down in Denton for interpreting and applying the precedent provided in the Mitchell ruling. The case does not represent a departure from the Mitchell principles and so all parties should be wary of the consequences of a failure to adhere to the CPR.