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Post-Mitchell costs regime clarified by the Court of Appeal

Master of the Rolls finds guidance was 'substantially sound' but 'misunderstood and misapplied'

4 July 2014

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The Court of Appeal has today handed down a significant judgment in three cases that will provide far greater clarity in the post-Mitchell costs regime.

The court's earlier decision in Mitchell v News Group Newspapers Ltd saw the claimant sanctioned for filing a costs budget six days after the deadline for doing so had expired. Since then the lower courts have taken a zero-tolerance approach to what has been described as 'minor infractions' of the Jackson reforms.

The three cases before the court were all in relation to the granting of relief from sanctions under the new CPR 3.9. Denton & Ors v TH White, related to a party that served six witness statements late. Decadent Vapours Ltd v Bevan & Ors had been struck out for late payment of fees while in Utilities TDS Ltd v Davies, the court had to decide whether two 'trivial' breaches aggregate to become a significant breach. Master of the Rolls, Lord Dyson, upheld all three appeals.

Lord Dyson ruled that the guidance in Mitchell was "substantially sound" but had been "misunderstood and misapplied" and that the use of the word 'trivial' in Mitchell had given rise to confusion and difficulty. He found it was this confusion that had led to the lower courts taking a zero-tolerance approach to breaches of compliance.

In his judgment, he concluded: "It is clear that the guidance in Mitchell needs to be clarified and further explained. It seems that some judges have ignored the fact that it is necessary in every case to consider all the circumstances of the case. This may be the reason for the decisions in Decadent and Utilise.

"But other judges have adopted what might be said to be the traditional approach of giving pre-eminence to the need to decide the claim on the merits. That approach should have disappeared following the Woolf reforms. There is certainly no room for it in the post-Jackson era. It seems, however, that this approach must have been applied in Denton."

In future cases, courts will consider whether breaches of compliance are 'serious or significant'. If they are deemed not to do so, then the court should grant relief. Even if a breach is significant, unless there has been an adverse effect on the efficient running of litigation, courts should consider granting a defaulting party relief from sanction.

The Court of Appeal has instituted a three-stage test to assist the lower courts in assessing whether applications for relief should be refused. Furthermore, heavy costs sanctions will be imposed on parties who unreasonably oppose applications for relief.

Cooperation restored

Lawyers have today hailed the restoration of 'cooperation' in commercial litigation. David Greene, a past president of the 1,400-member London Solicitors Litigation Association (LSLA) welcomed the court's judgment.

"The effect of Mitchell has been corrosive and antagonistic taking litigators back to dark days of non-cooperation at the expense of ensuring a procedure to achieve a just result as, in Mitchell, tactical moves can and have led to substantial benefits for one party.

"Thankfully, today, common sense has prevailed heading off the potential for an unwelcome wave of satellite litigation that threatened to result from Mitchell. With a change in the tests to achieve relief from sanctions, we remove the damaging impact that prescribed that only 'trivial' breaches should automatically secure relief from sanctions," he said.

Greene concluded: "Mitchell had always seemed at odds with Jackson LJ's civil litigation reforms. While today's judgment is very welcome, the LSLA fully supports and applauds Jackson LJ for his dissenting views in calling for a wider interpretation of the rules to take greater notice of all circumstances in relief from sanctions applications. We would urge that the emphasis on ensuring justice between the parties should be the founding principle of the litigation process."

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This story was last updated on 8 July 2014

‘Sea change’

“The judgment is a fair and proportionate recalibration of the post-Mitchell costs regime. Lord Dyson and Lord Justice Vos ruled that while the guidance in Mitchell was substantially sound, it had been misunderstood and misapplied, with the lower courts often taking a zero-tolerance approach to breaches of compliance.

“Now, the court should consider whether a failure to comply is serious or significant – if it is neither then the court should grant relief. Even if a breach is significant, unless there has been an adverse effect on the efficient running of litigation courts hearing applications should be more willing to grant relief depending upon all the circumstances of the case.

“This is a sea change away from circumstances over the past year, where many trivial breaches have been treated as significant, sometimes with disastrous results for claimants. Save for exceptional cases, trial dates should not be threatened – as had happened in Denton v T H White – and the new guidance should improve cycle times for cases because the rules are clearer-cut than before.

“This judgment will help to eliminate the large volumes of satellite litigation that developed from the aftermath of Mitchell. Equally, it is also clear that there will be serious repercussions for litigants who try to ‘point-score’ by opposing relief applications unreasonably.”

Matthew Harrington is a partner at BLM, who acted for the appellant in Denton v T H White


‘Weighing the breach’

“Today’s decision will have a significant impact on litigation cases going forward and is a hugely positive move for the profession as a whole.

“The new guidance is a very welcome development providing fair, and clear, definitions with regards to the weight of breaches clarifying those which will warrant the court’s time and should serve to minimise satellite litigation over trivial matters going forward.

“A more pragmatic and sensible approach to applications for a relief from sanctions can now be adopted by both legal professionals and the courts as a result.”

Peter Kaye is a litigation partner at Linder Myers Solicitors, who acted for the appellant in Utilise TDS v Davies


Law Society’s submissions

“The Court of Appeal’s decision in these three cases and their conclusion that the earlier judgment in Mitchell had been misunderstood and misapplied by some courts is welcome news for solicitors and their clients.

“I am pleased to say that as a result of the submissions which were made by the Society, and which were gratefully welcomed by the court, further guidance has been issued. The court’s previous decision in Mitchell and the way it was being applied by the lower courts had resulted in disproportionate penalties and a breakdown in co-operation between parties to litigation, clogging up the system and introducing huge uncertainty into the whole process of civil litigation. This in turn had led to a significant amount of unnecessary satellite litigation, a waste of costs and court resources and the risk of big increases in professional indemnity insurance costs for our members. 

“The guidance has clarified the factors which the court believes should be taken into account. 

“This decision is a success for the Law Society who intervened on behalf of our members and for common sense. We will, of course, continue to closely monitor the litigation process to ensure that the problems since Mitchell now fall away. If the problem of interpretation of the rules is to be eradicated then we also need the courts to be more consistent in the application of the rules.”

Desmond Hudson is the chief executive of the Law Society


‘Justice prevails’

“The Denton judgment is a welcome re-visit of the principles behind Mitchell. It is heartening to see recognition by the Court of Appeal that the interpretation of Mitchell has caused real problems in terms of causing satellite litigation and diminished co-operation between the parties, and that it was incumbent on the court to try and give some clarification around the judgment, giving representative bodies the opportunity to have their say in the process.

“The judgment falls a long way short of removing all headaches for litigators having to make or respond to applications for relief. The stated twin goals of greater timetable compliance but a return to a co-operative approach between parties are worthy causes but do not necessarily sit easily alongside each other.

“Even with the clarified three tier test to the application of Mitchell, and the implied threat of penalties for those who do not recognise that contested applications for relief from sanctions should be uncommon, there remains a juggling act to be performed by litigators and ‘Mitchell applications’ will by no means die out as a consequence of this judgment.

“However, the clear message at the heart of the judgment that increased timetable compliance must still be promoted but at the same time, common sense and justice must be allowed to prevail, is a welcome one.”

David Johnson is the president of the Forum of Insurance Lawyers (FOIL)


Ruling is not a ‘dilution’ of Mitchell

“The three conjoined Mitchell appeals heard last Friday have brought common sense and some clarity to the application of Rule 3.9 and, perhaps more importantly, to the conduct of litigation generally.

“I am surprised that initial comments (at least on Twitter) have seen the rulings as a ‘dilution’ of Mitchell.  In my opinion this is far from the case; the court went to some lengths to say otherwise.  The supremacy of dealing with cases ‘justly’ has been endorsed.  

“The Court of Appeal has highlighted three ‘tests’ to be applied – whilst concurring with the judgment on all three appeals, Lord Justice Jackson dissented on the rationale behind the third test. This has led to some speculation about a division in the appellate court but, again, I believe this is wide of the mark.

“What actually matters to litigators – and their clients – is that they will not be penalised for trivial and/or inadvertent breeches as long as such breaches do not affect court timetables in their own or other cases.  Woe betide them though otherwise.”

Sue Nash is chair of the Association of Costs Lawyers


‘High stakes’

“The three-stage test set out by the Court of Appeal in the Mitchell appeal cases provides welcome and much needed guidance for litigators as to when relief from sanction will be granted. Whilst the emphasis remains on litigation being conducted efficiently and court rules being adhered to, it allows for the possibility of parties not being able to comply with orders for good reason and relief being granted in those circumstances.

“Trivial breaches should no longer be sufficient for refusing relief and parties should be penalised for unreasonably withholding consent to applications for extensions of time and/or relief. It remains to be seen how this is applied by the lower courts and embraced by parties to litigation. There could still be much more satellite litigation to come in this area before we have complete certainty as the stakes are so high.”

Jonathon Tetley is an Insurance Litigation partner at Plexus Law


‘In the minority’

“I might be in a minority, but I suspect a sizeable one, in regarding these decisions as reinforcing Mitchell principles rather than rowing back from them – at least in respect of determining whether the breach has been serious or significant. It’s worth remembering that in Mitchell itself, the defendant was technically one day late filing its own budget. The Court of Appeal was untroubled by that breach when the claimant raised it in his skeleton because it was minor and because it had not caused any extra work or costs, and the work of the court had not been disrupted by it – unlike Mitchell’s breach.  

“There remains, I suspect, very little wriggle room when seeking to establish good reason for having committed a serious or significant breach. The third stage is the most problematic when it comes to predicting the outcome of an application for relief from sanction because it involves consideration of ‘all the circumstances of the case, so as to enable [the court] to deal justly with the application’. The Court of Appeal has expressed the hope but not the expectation that courts will apply the three stage test consistently.

“The warnings against non-cooperation are also worth noting. Pressing Mitchell points as the non-defaulting party is by no means risk free. Neither will it be open now for a party to say that they cannot agree to relief from sanctions, thereby leaving the threat hanging. That aspect of the judgment will be a practical benefit in killing Mitchell points faster.”

Andy Ellis is the managing partner of Practico

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Costs Funding & Costs