The Court of Appeal’s landmark decision to uphold the sanction in this case – with the Claimant being treated as having filed a budget comprising only court fees after his solicitors failed to file a costs budget in time – has potential implications for all litigators and their insurers.

Background

Andrew Mitchell MP brought defamation proceedings against The Sun over its reporting of the “Plebgate” affair. The case falls under the CPR 51D Defamation Proceedings Costs Management Scheme, having been issued prior to 1 April 2013. 

On 6 June Mr Mitchell’s solicitors received notice of a case management and costs budget hearing on 10 June, which was later relisted for 18 June.  Costs budgets were required to be filed 7 days before the hearing.  The newspaper’s budget was filed on 11 June, whereas Mr Mitchell’s was not filed by his solicitors until 17 June after a reminder by the Master (i.e. the day before the hearing) in breach of the Scheme rules. 

At the 18 June hearing, the Master ordered the sanction under her discretion (the sanction would have been automatic under the new CPR 3.14 but was not prescribed under the Defamation Scheme) and listed a hearing for 25 July to hear the Claimant’s application for relief.  At that later hearing, Master McCloud - applying the new CPR 3.9 - refused relief from sanctions but, recognising that she was “in the unenviable or perhaps privileged position of…being in ‘the vanguard’ of interpreting the new rules”, granted permission to appeal.

Court of Appeal’s judgment

The Court of Appeal rejected Mr Mitchell’s appeal, whilst emphasising that “if we were to overturn the decision to refuse relief, it is inevitable that the attempt to achieve a change in culture would receive a major setback”.  They went on to say that “we hope that our decision will send out a clear message”.

The key points for firms and their insurers are:

  • a more robust approach to applications for relief from sanctions does now apply – relief “should be granted more sparingly than previously” – albeit it is not a case of zero tolerance;
  • on hearing applications for relief, the Court must consider all the circumstances but the two factors under amended CPR 3.9, namely, the need (a) for litigation to be conducted efficiently and at proportionate cost and (b) to enforce compliance with rules, practice directions and orders, will be “of paramount importance”; all other considerations must be given less weight;
  • proportionality means balancing (i) the interests of justice in the majority of cases against (ii) justice in individual cases and not only providing justice in the individual case in question.  The Master had had to move a hearing in another case in order to hear the relief from sanctions application on 25 July 2013 and she referred to “the right of other litigants to have a “fair crack of the whip” where judicial and court resources are very limited”.


    Whereas parties have, in the past, often argued that a breach has not caused
    prejudice to the other party, it is more difficult to make that point in relation
    to the interests of other court users;

  • relief will usually be granted if a breach is “trivial”, if the party has otherwise fully complied and that application for relief is made promptly;
  • if not “trivial”, relief will only be granted if there is “good reason” (which threshold is to be construed very strictly).  A solicitor suffering a debilitating illness or being involved in an accident “may” be good reason, with each example being something outside the solicitor’s control.  The Court of Appeal acknowledged that there might initially be satellite litigation on what constitutes “trivial” and “good reason” but said that that cannot be excluded unless there is to be no departure from the rules whatsoever (the zero tolerance stance which they rejected);
  • the Court of Appeal was not attracted by the prospect of “partial relief” i.e. a party being permitted to recover 50% of the budgeted costs and said the attraction of the sanction in 3.14 was that it was “stark and simple”;
  • it was emphasised that applications for an extension of time made before a time limit has expired will be looked upon more favourably than applications for relief from sanction made after the event.  In other words, a proactive approach is required, with the Court of Appeal advocating prevention over cure;
  • the decision is not only relevant to late filing of costs budgets – it has wider implications for non-compliance with all rules, practice directions and orders.  There have been several pre-Mitchell cases, for example, dealing with non-compliance with deadlines for serving Particulars of Claim, disclosure or exchange of witness evidence, as well as non-payment of court fees on time, to name a few.  Litigators need to ensure that all court deadlines are met (or extended in advance, if necessary).  Although relief was granted in some of those cases, they will be of little comfort in circumstances where two of those decisions (Ian Wyche v Careforce Group Plc [2013] and Raayan Al Iraq Co Ltd v Trans Victory Marine Inc [2013]) were criticised by the Court of Appeal in its judgment;
  • this more robust approach may encourage some litigators to seek to use the need for compliance with rules, practice directions and procedural orders as a tactical weapon.  Parties will still need, however, to give careful consideration to reasonable requests for extensions of time;
  • it is important to reflect the new CPR regime in the retainers of experts and ensure that they spell out the importance of deadlines and the sanctions that will be applied in the event of default.

Comment

Mr Mitchell’s costs budget totalled £506,425, whereas any costs recovery from the Defendant (should the claim succeed) will be limited to court fees only.  This potentially leaves someone very substantially out of pocket. 

In this case, Mr Mitchell’s solicitors had entered into a CFA.  Towards the end of the judgment, the Court of Appeal commented that there was no evidence to show “what prejudice (if any) the claimant would suffer as a result of a refusal to grant relief”.  The Master had commented that, even if the terms of that CFA meant refusal of relief affected Mr Mitchell financially, it could not be said it would deny him access to a court.  Although the existence of a CFA did not affect the Court’s approach to relief under CPR 3.9, it does impact upon whether it is the client or the solicitors firm which potentially suffers the loss of a meaningful costs recovery from the Defendant.  This, therefore, has the potential to impact a firm’s cover under its professional indemnity policy. 

  • If Mr Mitchell is not affected financially (for example, if his solicitors are obliged to continue to act under the terms of the CFA but, upon winning the case, are unable to recover costs from Mr Mitchell or the Defendant), Mr Mitchell is unlikely to have to pursue a claim against the firm in respect of those costs. 
  • If there had not been a CFA and Mr Mitchell was successful in the action, he would have suffered a substantial shortfall in his costs recovery by virtue of the failure to file his costs budget in time.  Similarly, a Claimant in these circumstances would be severely disadvantaged in any settlement negotiations.

This essential difference brings into focus the terms of firms’ professional indemnity cover, including the definition of “claim” and the potential application of “debts and trading liabilities” exclusions. 

A further complication may arise in connection with the issue of Counsels’ fees and other disbursements.

Click here for a copy of the Court of Appeal judgment in Andrew Mitchell MP v News Group Newspapers Ltd [2013] EWCA Civ 1537

The key provisions, strategic considerations and potential pitfalls of the April 2013 Jackson reforms are discussed in Chapter 12 of our book, Solicitors’ Claims: A Practical Guide, published in October 2013 with Sweet & Maxwell.  For further details, see Sweet & Maxwell’s page for the Guide – click on the “Reviews” tab on the left of that page to access reviews by Lord Justice Jackson and His Honour Judge Simon Brown QC