The much awaited decision in Denton and others v TH White Ltd and another; Decadent Vapours Ltd v Bevan and others; Utilise TDS Ltd v Davies and others  EWCA Civ 906 was handed down by the Court of Appeal on Friday 4 July 2014 and gives guidance on the application of Rule 3.9 and the Mitchell guidelines in respect of applications for relief from sanctions. This decision is of primary importance to all practitioners engaged in litigation. Solicitors should be well versed in the application of the rules in order to readily ascertain when it is appropriate to contest an application for relief from sanctions in order to avoid the potentially significant costs penalties that the courts will impose on those seen to be taking advantage of an opposing party's mistake.
The appeal follows the decision in Mitchell last year where guidance was given regarding the circumstances in which relief from sanctions would be granted. The Court acknowledged that the decision in Mitchell had been the subject of criticism and stated that they considered that judgment had been misunderstood and was being misapplied in some courts.
The facts of the individual cases under consideration are of no particular relevance suffice it to say that all three appeals – two seeking relief from sanctions and the third appealing the grant of relief from sanctions – were allowed.
What is of relevance is the general guidance the Court of Appeal has sought to provide on the application of Rule 3.9 which seeks to clarify how the courts should approach such applications and to overcome the difficulties of interpretation that have arisen post Mitchell.
Rule 3.9 (1) provides that on any application for relief from sanctions imposed for a failure to comply with a 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:
- for litigation to be conducted efficiently and at proportionate cost; and
- to enforce compliance with rules, practice directions and orders.
The Court of Appeal criticised the Mitchell guidance on the basis that the "triviality" test prescribed therein amounted to an "exceptionality" test and that this was "unjustifiably narrow". They considered that excessive weight was being placed on the consideration of factors (a) and (b) such that it was inconsistent with rule 3.9 when read alongside the Overriding Objective. In addition, they considered that it had led to the imposition of disproportionate penalties on parties for breaches which had little practical effect on the course of litigation, while encouraging uncooperative behaviour between litigants, unreasonable satellite ligation and inconsistency in approach by the courts.
In an effort to clarify the position, the Court of Appeal has given prescriptive guidance as to the manner in which the courts should approach applications for relief from sanctions.
In particular, a judge should address an application for relief from sanction in three stages:
- identify and assess the seriousness or significance of the failure to comply with any rule, practice direction or court order;
- consider why the default occurred; and
- evaluate all the circumstances of the case so as to enable the court to deal justly with the application including factors (a) and (b).
In terms of the first stage, the Court of Appeal made clear that triviality is not part of the test described in rule 3.9 and instead the consideration is whether a breach has been "serious or significant". This consideration should be in relation to the breach in respect of which relief is sought and not the defaulter's general or previous conduct which would better be considered at stage three.
If a breach is not serious or significant then relief from sanctions would usually be granted and it would be unnecessary for the court to expend much time considering stages 2 and 3.
The second stage will depend on the circumstances of each case and there can be no prescriptive guidance as to what would be good or bad reasons for failing to comply.
In relation to the third stage, this requires all the circumstances of the case to be considered so as to enable the Court to deal justly with the application. The Court of Appeal considered that there had been a misunderstanding after Mitchell that if (i) there was a non-trivial breach and (ii) there was no good reason for it, the court must automatically refuse any application for relief. They considered this was clearly wrong.
The Court of Appeal was at pains to emphasise that the court must always bear in mind the need for compliance as the "old lax culture of non-compliance" would no longer be tolerated but also that it is always necessary to have regard to all the circumstances of the case. They gave a strong warning to parties who "opportunistically" and unreasonably oppose applications for relief from sanctions in the hope of securing a windfall decision as a result of an opposing party's mistake. The guidance given in Hallam Estates Ltd and another v Baker  EWCA Civ 661 was repeated that parties should be ready to agree limited but reasonable extensions up to 28 days as envisaged by rule 3.8(4). It was also made clear that "heavy costs sanctions" would be imposed on parties who behave unreasonably in refusing to agree extensions of time or unreasonably oppose applications for relief from sanctions, not only in relation to the costs of the application but potentially by way of an order under Rule 44.11 where such conduct can be considered when costs are dealt with at the end of the case. Solicitors will need to consider their own conduct very carefully when advising clients on the appropriate response to any application for relief from sanctions.
The Court of Appeal 's view was that if the parties follow the guidance provided then a contested application for relief from sanctions should be "a rarity indeed". Interestingly, Lord Justice Jackson dissented in respect of the application of Rule 3.9 in the third stage of the guidance on the basis that the Court should not give factors (a) and (b) particular weight but that they should merely be considered alongside all the circumstances of the case. He suggested that only by approaching such decisions in this way could the Court avoid the satellite litigation that has plagued the court timetable over the past few months. So, clearly it remains to be seen whether the new guidance will actually achieve the clarity which the Court of Appeal has sought to achieve.