Costs and Compliance: Mitchell Take 2 – revised guidance for those seeking relief from court sanctionsPrint publication
After 8 months of uncertainty and legal angst, the Court of Appeal has clarified the Mitchell Guidance  and in so doing, introduced a fresh approach for those seeking relief from sanctions. No longer is the post Jackson motto: ‘comply, comply, comply’ (or be sanctioned with very little hope of relief). Rather the Court of Appeal has introduced a 3 stage test to encourage a more practical and cooperative approach to compliance by those litigating and a more consistent and just approach by the courts.
A culture of compliance with an occasional, albeit rare need for court intervention remains the goal. There is also a clear message that there will be costs penalties for those wasting court time with applications that could have been dealt with by agreement and the straightforward appliance of the new 3 stage test.
Litigators and judges alike will welcome the clarification which many hope will reduce considerably the likelihood of disproportionate penalties and decisions. It might even make litigators more willing to cooperate with each other…
The problems with the Mitchell Guidance – why did it need a review?
The Court of Appeal’s decision in Mitchell set out guidance on when courts should grant relief from sanctions under CPR 3.9  for breaches of court rules, orders and practice directions (the Mitchell Guidance). With its focus on sanctions for non-compliance unless the breach in question was trivial or made with good reason, the Mitchell Guidance shifted the very nature of litigation. Uncertainty about how to apply the guidance amongst litigators and judges alike led to increased satellite litigation in which parties argued about whether or not a breach was trivial or made with good reason. Some judges reacted with too draconian an approach – while others appeared too lenient leading to inconsistent decisions, which sent out confusing messages to practitioners. The consequent tactical warfare where litigants played on the opposition’s mistakes increased distrust between parties and resulted in more court time and costs being wasted – the very ills that Jackson LJ intended to stop with his reforms.
To clarify the Mitchell Guidance, Lord Dyson (the Master of the Rolls), Lord Justice Jackson and Lord Justice Vos took on the appeals of 3 decisions of the lower courts in Denton, Decadent and Utilise whose inconsistent decisions succinctly demonstrated some of the problems with the Mitchell Guidance including:
- difficulties with applying a narrow test which focused on whether the breach was ‘trivial’;
- focusing on factors (a) and (b) in CPR.3.9 (1) as “paramount considerations” and not emphasising the need to consider all the circumstances of the case – both of which together, ignore the requirements of the overriding objective to deal with a case justly and at proportionate cost;
- causing breaches with no or little practical effect on litigation proceedings to be sanctioned with disproportionate penalties; and
- the inconsistent application of the Mitchell Guidance, which has reduced cooperation between parties and increased parties’ willingness to take largely procedural issues to court in satellite litigation.
The criticism of the decision in Mitchell prompted the Court of Appeal to invite the Bar Council and the Law Society to intervene in the 3 appeals and in the light of their consequent submissions, and those of the parties’ representatives, the court concluded that the Mitchell judgment had been misunderstood and misapplied by some courts.
The 3 stage test: a summary of the Court of Appeal decision in Denton, Decadent and Utilise (Mitchell 2)
When is it appropriate to give relief from sanctions imposed on a party for breaching a court order, rule or practice direction?
This was the key issue considered by the Court of Appeal in reviewing the decisions in Denton, Decadent and Utilise  which, for ease of reference, we will call collectively ‘Mitchell 2’ .
The judges set out a revised, three stage process which involves identifying and assessing the seriousness and significance of the breach, looking at why the breach occurred and whether there was good reason for it and then considering all the circumstances to ensure the application for relief can be dealt with justly, having regard to the need to ensure the litigation is conducted efficiently and at proportionate cost and to ensure compliance with court rules, orders and practice directions.
This revised Court of Appeal guidance has been largely welcomed, although it remains to be seen whether it will affect relations between litigators and reduce satellite litigation.
Mitchell 2: some practical points
Mitchell 2 does not detract from the now entrenched, post-Jackson requirement for compliance with court rules, practice directions and orders. The Court of Appeal did, however, use its decision to clarify and emphasise some important practical points. In particular, the Court:
- warned that parties should not take advantage of their opponents’ procedural errors;
- promoted cooperation between parties. Parties ought to agree to the grant of relief where a breach is neither serious nor significant, where good reason has been demonstrated and where it is otherwise obvious that relief should be granted;
- encouraged the use of buffer agreements – parties should agree to reasonable extensions of time up to 28 days;
- warned that unreasonable responses to reasonable requests for action that will not affect the overall conduct of litigation will no longer be tolerated by the courts. Such behaviour is likely to be penalised in costs at the relief hearing – and may sometimes also result in the imposition of additional sanctions at costs assessments later in the proceedings (even if the unreasonable party is successful at trial);
- encouraged parties to manage their cases effectively and to comply with all court rules, orders and practice directions;
- encouraged parties to propose and/or agree to only those directions with which they can comply;
- encouraged courts to bear in mind the consequences of breach when making orders – particularly those that carry automatic sanctions;
- introduced some welcome flexibility and enhanced discretion into the relief process;
- rendered unreliable – and in some cases worthless – the previous 8 months of case law; and
- treated applications for relief as a last resort. There should be a reduced need for satellite litigation.
For those who want more detail, we review CPR 3.9, the three stage test and the Denton, Decadent and Utilise decisions below.
CPR 3.9 analysed
The judges first of all analysed the post Jackson wording of CPR 3.9 which comprises 3 elements:
- the identification of the breach i.e. the failure to comply with the rule, practice direction or court order;
- a requirement for the court to consider, in the event of such a breach, all the circumstances; and
- the introduction of 2 factors: (a), to ensure litigation is conducted efficiently and at proportionate cost); and (b), to enforce compliance with the rules, court orders and practice directions.
The 3 stage test
The Judges set out the 3 stages which should be reviewed in a relief application.
Stage 1: identify and assess the seriousness or significance of the breach.
- Rather than considering whether a breach was trivial (which the judges acknowledged had caused difficulties), it should instead be asked whether the breach was ‘serious or significant’ in the context not just of the instant litigation but also other litigation in the court system.
- The seriousness or significance of a breach might well be a question of degree: a particular breach might be serious in one set of circumstances but immaterial in another.
- Initially at least, it will not be appropriate to take into consideration other breaches which have occurred in the past. The effect of other breaches might be better considered in stage 3.
- Where a breach is neither serious nor significant, relief is likely to be granted and the second and third stages will not need much consideration.
Stage 2: why has the failure or default occurred? (the ‘is there good reason’ test from Mitchell)
- While stage 2 does not strictly derive from the wording of CPR 3.9, it still remains a requirement that there should be good reason for a breach – particularly where the breach is serious or significant.
- However, in not providing further examples (on top of those given in the Mitchell decision, paragraph 41), the court left scope for the exercise of the court’s discretion depending on the particular facts.
Stage 3: there’s a reemphasis on the need to consider ‘all the circumstances of the case’ as specifically set out in CPR 3.9 – regardless of the outcome of stages 1 and 2.
- The Court of Appeal was keen to ensure the importance of the third stage. Prior to Mitchell 2, it had been assumed on a number of occasions that a non-trivial breach made without good reason would automatically mean no relief from sanctions was possible – regardless of other circumstances. In certain cases, this led to decisions perceived to be unjust.
- The renewed emphasis on ‘all the circumstances’ undoes the damage perceived to be done by the Mitchell Guidance in describing factors (a) and (b) of CPR 3.9 as being ‘of paramount importance’ which was taken to mean to the exclusion of other factors.
- Dyson MR and Vos LJ considered factors (a) and (b) should still take paramount importance amongst all the other circumstances. Jackson LJ dissented on this point: he thought the two CPR 3.9 factors (a) and (b) should be of equal consideration with other factors at stage 3 and approved the Bar Council submission that those factors should ‘have a seat at the table, not the top seats at the table’. Whether this difference of opinion proves to be problematic remains to be seen.
- The promptness of bringing an application for relief is still a factor to be considered.
For those dealing with relief applications, it’s worth reviewing how the Court of Appeal applied the 3 stage test in each of the Mitchell 2 cases.
Denton and others v TH White Ltd and another 
In the High Court, the judge had allowed the claimant to adduce six new witness statements despite the fact that the trial – due to start 10 days later – had to be adjourned to allow the defendant to respond. The defendant appealed this decision arguing that the judge had not applied CPR 3.9 correctly or at all nor had he applied the Mitchell Guidance which placed paramount importance on factors (a) and (b).
The Court of Appeal found the judge’s decision to have been an impermissible exercise of his case management powers. After applying the 3 stage test, the appeal was allowed.
Stage 1: the judge should first have considered the seriousness and significance of the breach. Had he done so, he should have found that it was a significant breach because it caused the trial date to be vacated, which disrupted the conduct of the litigation.
Stage 2: there was also no good reason for the breach: the claimants had known about the issues that triggered the need for additional evidence for a considerable time.
Stage 3: The conclusion in the first and second stage indicated that relief should be refused – but even so, the third stage (all the circumstances) should still be considered. Dyson and Vos LJs believed particular weight should be given to factors (a) and (b), both of which here militated in favour of refusal. Other reasons also supported a refusal: it was the claimant’s own fault for not serving statements earlier, late admission of the evidence necessitated an adjournment of the trial, which would protract the proceedings even further, waste court resources and generate extra costs for the parties as well as inconveniencing all those who would have to change their plans to accommodate the new listing.
The third stage analysis therefore ‘ought to have weighed heavily in favour of refusing relief from sanctions’.
Decadent Vapours Ltd v Bevan et al 
The claimant had not complied with an ‘unless order’ to serve a pre-trial checklist and the relevant fee by 19 December 2013. The claimant’s solicitor served the pre-trial checklist on time, but the fee was not paid until 9 January 2014, after it was discovered at the pre-trial review that the cheque had not arrived at the court offices. The claimant was therefore in breach of the unless order and the claim was automatically struck out. The claimants applied for relief from sanctions but, in the first instance, were refused on the grounds that the breach was not trivial.
Stage 1: the failure to ensure the payment of a court fee on time is a serious breach – but there are degrees of seriousness and this particular breach was near the bottom of the range.
Stage 2: the judge ought to have considered if there was good reason for the breach. In this case there was not: the solicitor should have known that his chosen method of payment would result in a late payment and breach of the unless order.
Stage 3 (which proved crucial in this case): considering factor (a) of CPR 3.9, late payment did not prevent litigation from being conducted efficiently at proportionate cost. Factor (b) also pointed towards relief in that the breach was near the bottom of the range of seriousness in that there was only a day’s delay in sending the cheque and the breach was remedied promptly.
Without relief, the proceedings would end. Taking into consideration all the circumstances, it was not proportionate to strike out the whole claim. Pointedly, the court said that the defendants should have consented to the relief being granted to avoid delay and satellite litigation.
Utilise TDS Ltd v Davies and others 
There were two breaches in issue in this matter: the claimant was 45 minutes late in filing the costs budget in breach of an unless order and also 13 days late in complying with an order to notify the court of the outcome of negotiations by a certain date. The High Court declined relief from sanctions concluding that although the delay in filing the cost budget in itself was trivial, the two breaches together combined with the failure to adequately explain them, were not.
Stage 1: the judge should have considered a 45 minute delay in filing the costs budget to be neither serious nor significant. “On any view, the 45 minute delay was trivial”. It did not imperil any future hearing date or disrupt this or other litigation. This being the case, the Court of Appeal considered that the first instance judge did not need to spend much time on the stage 2 or 3 tests.
Stage 2: there was no good reason for the delay in filing the costs budget. However…
Stage 3: neither factors (a) or (b) pointed towards a refusal of relief for the simple reason that the breach would not have prevented the efficient conduct of litigation at proportionate cost, did not jeopardise the trial date or disrupt this or other litigation. Other circumstances included the solicitor’s prompt application for relief.
Usefully, the Court of Appeal also dismissed the idea that the later – also trivial breach – of not notifying the court of the outcome of negotiations could turn the previous breach into something more serious.
Finally, the Court of Appeal again said that the Defendants in Utilise should have consented to the relief.
 As given in the Mitchell MP v News Group Newspapers Ltd  EWCA Civ 1537 (27 November 2013). See our article on this decision here.
 Click here to refresh your memory of CPR 3.9.
 (1) Charles Graham Denton (2) Mary Denton (3) Roger Thomas Denton v (1) Th White Ltd (2) De Laval Ltd : Decadent Vapours Ltd v (1) Joseph Bevan (2) Jamie Salter (3) Celtic Vapours Ltd : Utilise TDS Ltd v (1) Neil Cranstoun Davies (2) Bolton Community College Corp (3) Watertrain Ltd (2014)  EWCA Civ 906
 The three cases were heard as a ‘conjoined appeal’ and are summarised at the end of this briefing.