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News | Tue 20th Oct, 2015
What do Bernie Ecclestone and Lord Prescott have in common? No, I’m not referring to some sort of connection based on multiple car ownership or attempting to start a ‘who would you invite to your dinner party’ discussion. What if I add Andrew Mitchell to that list?
The costs practitioners amongst you will certainly now have realised that this unlikely triumvirate have had an important effect on the interpretation of CPR 3.9. The three of them, plus the less famous (at least outside legal circles) Mr Denton, have had a significant impact on judicial interpretation of the rules for granting relief from sanctions.
The latest guidance from the Court of Appeal was handed down on 13th October 2015 in the case of Caliendo v Mishcon de Reya  EWCA Cib 1029. This was a professional negligence dispute between the Claimants/Respondents and their previous solicitors (the Defendant/Appellant) who were instructed on the sale of Queens Park Rangers shares to, amongst others, associates of Mr Ecclestone. The underlying action was a loss of chance claim pleaded in the region of £5 million. The matter that came before the Court of Appeal was consideration of a relief from sanctions application made by the Claimants. The Appellant appealed the decision of Hildyard J granting relief.
The breach in Caliendo was failure to notify the Appellant of the existence of a CFA and ATE insurance policy within the seven day period specified by CPR 44.15(1) and paragraph 9.3 of the Practice Direction on Pre-Action Conduct. The Claimants had entered into the CFA before 1 April 2013 but did not notify the Appellant of the funding arrangement until 11 June 2013 (some 3.5 months after they should have done).
After 1 April 2013, under to the Jackson Reforms, CFA ‘success fees’ and ATE premiums paid by a successful party are not recoverable under a costs order. Sir Rupert Jackson was particularly critical of the role such fees played in contributing to disproportionate costs in civil litigation. However, transitional provisions still allowed for recovery of CFA success fees and ATE premiums where the agreements had been entered into before 1 April 2013. The obligation to provide notice was part of these transitional provisions introduced by LASPO ss44 and 46 and later enshrined in the CPR in the new Rule 48.
The automatic sanction for late (or total failure of) notification in relation to funding arrangements is imposed by CPR 44.3B(1)(c) and (e): Unless the court orders otherwise, a party may not recover an additional liability or insurance premium in the absence of any or late notification. Without relief this oversight meant that the Claimants would be unable to recover up to £1.5 million worth of uplift costs and ATE premium from the Appellant should they go on to win. A relief from sanctions application in such circumstances was rather inevitable.
There was no dispute that Hildyard J applied the correct ‘three stage’ test set out in Denton v TH White  EWCA Civ 906. He considered: (1) whether the breach was serious or significant; (2) whether there was a good reason for the breach; and (3) all the circumstances of the case, with particular regard for CPR 3.9(1)(a) and (b).
Although there were nine grounds of appeal dismissed in total there were three that will be of particular interest to solicitors dealing with pre-April 2013 funding arrangements.
First, in relation to limb one of the Denton test the judge was correct to focus on the seriousness or significance of the breach, and not the seriousness of the consequences to the Appellant if relief were granted. The funding notification rule provides an automatic sanction for this type of breach and as such it is to be presumed that this is because funding arrangements are by their nature of considerable significance. It is also clear that the Appellant was exposed to a far greater costs risk should relief be granted. In addition, the Claimants would be afforded the considerable tactical advantage of litigating under the old costs provisions.
However, there was no evidence that the Appellant would have acted any differently had they been told about the funding arrangement within the correct time limit. They were unable to demonstrate material prejudice in their conduct of the case due to the breach, the only prejudice which the Appellant sought to advance in evidence being that which would result from the grant of relief. Gloster LJ supported the learned judge’s decision that prejudice flowing from the grant of relief is not a consideration under limb one of the Denton test.
Second, although such prejudice was not considered under limb one, it was a relevant consideration under limb three when considering ‘all the circumstances’. It was for the trial judge to give whatever weight to such a consideration as he saw fit. The Appellant made the case that because the old-style costs provisions had been criticised so vehemently by the Jackson Report, and because the Claimant was attempting to ‘take advantage’ of the costs windfall obtained under the old regime, this should weigh greatly in the Appellant’s favour in deciding whether to grant relief. Rather short shrift was given to this argument as it is clear that, although the old costs regime had been lambasted, the transitional provisions specifically recognised the legitimacy of CFA/ATE agreements concluded prior to 1 April 2013. To have to litigate under the old costs regime was not in and of itself prejudicial.
Third, the Appellant contended that when considering ‘all the circumstances’ under limb three of Denton, CPR 3.9(1)(a) should be interpreted to extend to consideration of whether the cost consequences of granting of relief would be consistent with the need to conduct litigation efficiently and at proportionate cost. It was argued that the old costs regime had been criticised precisely for being disproportionate and inefficient. If relief were granted, the uplift and premium would add considerably to the costs of the litigation for reasons entirely unrelated to the complexity of the proceedings, but simply because the Claimants had managed to secure ATE insurance funding.
This ground was neatly rejected by Gloster LJ who noted that the ATE premium would still be payable in the event of the Appellant winning the case. Therefore, the only difference if relief were granted was a shifting in responsibility for payment of the costs, rather than any overall costs increase. It was also right at this stage, to consider the effect of the breach when considering efficiency and proportionality rather than the consequences of granting relief.
Caliendo was foreshadowed earlier this year by the High Court decision of Simon J in Jackson v Thompsons Solicitors  EWHC 549 (QB). In this case the breach was not merely the late notification of funding arrangements, but a total failure of notification for an arrangement between Lord Prescott and his Counsel engaged under a CFA. Even so, and perhaps surprisingly so given such blatant flouting of the rules, relief was granted. Again, this was primarily a decision resting on the ground that the Claimant had been unable to give evidence of any material prejudice caused by the breach rather than the consequences of granting relief.
The most important lesson to take from Caliendo is that solicitors should be very careful, when responding to an application for relief from sanction, to include clear evidence of prejudice suffered which was caused by the breach. It is clear now that evidence of prejudice that will be suffered, should the application be granted, is not sufficient.