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Costs, Sanctions and Confusion

About The Author

Former Author (Assistant Editor)

Author is a King's College London Law graduate, currently working as a corporate paralegal for a firm based in South West England. Author is due to begin his BPTC at the University of Law in September 2015, having attained a scholarship from Middle Temple.

Costs litigation is an area of the law which has massive importance for those in working in the law, it is vital for solicitors to be paid for the preparation of their cases so that their firm remains profitable, and for a barrister so that they can remain in practice. As is widely publicised, litigation can be an expensive process; court fees have risen consistently over the last decade and the issue of remuneration for lawyers has come under increased scrutiny after the reviews conducted by Lord Woolf and Sir Rupert Jackson in 1997 and 2010 respectively. The Court of Appeal attempted to clarify the Civil Procedure Rules (CPR) on cost sanctions in Mitchell v News Group Newspapers [2013] EWCA Civ 1537 in light of the changes brought about by the Jackson review, but the result was far from satisfactory. Since the decision in December 2013 there have been numerous cases brought concerning the meaning of that judgment. A recent decision from the Court of Appeal handed down in Denton v White [2014] EWCA Civ 906 has sought to correct some of the confusion.

The General Rules of Costs

In civil claims, the claimants, defendants and the courts all take an active role in determining the projected costs throughout the process of litigation. The rules that dictate this process are found within the CPR, which afford the courts the power to make orders against the parties relating to costs. The overarching objectives of the CPR are found in Part 1, stating that:

These rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.

Following on from this, detail is provided in Part 1.1 as to what factors should be taken into consideration when pursuing this objective, for example: ensuring the parties are on an equal footing, the importance and complexity of the case and ensuring the matter is dealt with expeditiously and fairly.

The CPR grants the court the power to make orders for costs against either party involved in the litigation. The court can additionally disallow any claimed costs on the basis of a breach of the CPR. A sanction of this kind can be extremely damaging to law firms as it will result in any disbursements for preparation going unpaid and any losses having to be absorbed by the firm. Breaches of the overall objectives in part 1 will often result from failure to file relevant documents with the court before a deadline. An example of this is Lloyd v PPC International Ltd [2014] EWHC 41, where the claimant failed to comply with an order to provide witness statements to the court before a set date. The opening comment of Turner J provides a clear example of what conduct will likely result in a cost sanction:

This case provides yet another example of a litigant treating an order of the court as if compliance were an optional indulgence.

In highly complex cases the amount of money involved in trial preparation, which includes the collection of relevant witness statements or expert reports, can easily run into thousands of pounds. It is clear therefore that a claimant should firstly do all that is possible to avoid failure to comply with a judicial order and fall foul of the CPR, but also should seek to apply for relief from sanction wherever possible.

Mitchell

The case of Mitchell v News Group Newspapers was the libel action mounted by the former chief whip Andrew Mitchell MP against the Sun newspaper regarding the incident that took place outside Downing Street, which is now known as ‘Plebgate’.

CPR Practice Direction 51D, as amended after the Jackson review, states that costs budgets must be prepared for the court at least seven days before they are required at hearing. In Mitchell, however, the claimant solicitors failed to meet this test by filing their budgets on 17th June when the hearing was due to take place the next day. Master McCloud, delivering judgment in the High Court, determined that following a breach of 51D, and any other similar provision in CPR, the court had the power to limit the costs budget to court fees, thus disallowing any disbursements for case preparation.

Master McCloud therefore ordered that the disbursements would be limited to court fees only; there had been an ‘absolute failure’ (paragraph [34]) to engage in discussion of budget assumptions and the claimants had not attempted to mitigate any problems or even informally approach the court. It was noted that the claimant's solicitors were in particular difficulty; they were a small firm and several key employees were absent for various reasons. Master McCloud did not consider this relevant in accordance with one of the stated objectives that flowed from the Jackson review: to adopt a less lenient approach to relief from sanctions. The judge noted that the firm ought to have been more active in making the court aware of their difficulties if they were to be granted relief having regard to the provisions of CPR Part 3.9 which deals exclusively with relief from sanctions.

The Free-for-all

This decision from the High Court was upheld by the Court of Appeal and marked a decisive shift in attitude towards costs; the impact of the decision went much further than the judges could have anticipated. As a result of this strict approach, several cases were unnecessarily drawn into debates on costs because of minor breaches of the CPR by one of the parties. The discussion focused primarily on Master McCloud’s notion of a ‘trivial breach’ of the CPR, which the judge stated would be one of the few situations where the court would grant relief from sanctions in the post-Jackson era. An example of one such trivial breach being pounced upon by the defendants in order to try to limit costs was Devon County Council v Celtic Bioenergy [2014] EWHC 309. The breach in this case had been a schedule of costs being filed 18 minutes after the deadline had passed, which Stuart-Smith J considered to be a ‘substantive irrelevance’.

The end result of the innumerate litigation was that costs litigation begun to focus heavily on any minor procedural breaches in the hope that it would be considered to be more than trivial. As highlighted by Gordon Exall, the number of cases that were brought is quite staggering. Since the Mitchell decision in December 2013, there have been over 75 reported cases that have considered its implications, yet this does not account for numerous other cases that would have gone unreported. The interpretation of Mitchell by the courts was described by Lord Dyson MR in the recent Denton decision as leading to outcomes that are ‘manifestly unjust and disproportionate’ which stemmed from a ‘misunderstanding’ of the case.

Denton

The overall picture leading up to the decision in Denton therefore was far from clear; there did not seem to be any clear way to determine whether relief from sanctions would be granted in any particular case. The focus had been drawn too heavily on the notion of triviality which led to costs being refused in cases where witness statements or cost budgets were drawn up a day or even a few hours after the deadline had passed.

In Denton, Lord Dyson, who gave the leading judgment of the Court of Appeal in Mitchell, reiterated that there should be three stages applied when considering whether to grant relief from sanctions. Firstly, the court should, instead of determining whether the breach was ‘trivial’ identify its ‘seriousness and significance’. Lord Dyson openly stated that this concept is not ‘hard-edged’ but, as a shot across the bows to those who had pursued the aforementioned satellite litigation, his lordship stated:

We hope that, assisted by the guidance given in this decision and its application in individual cases over time, courts will deal with these applications in a consistent manner.

If a breach is not ‘serious or significant’ then relief should usually be granted without the need to consider the other stages.

The second and third stages require the judge to produce ‘an encyclopaedia of good and bad reasons’ for the breach and consider ‘all the circumstances of the case, so as to enable it to deal justly with the application’. Lord Dyson was at pains to clarify what the focus of the court should be, stating that a more holistic approach must be taken. Rather than focusing purely on the timing of the breach the court should consider all the factors laid out in Rule 3.9 CPR on relief from sanctions. This reasoning echoes one of the overall objective found in Part 1 CPR: litigation should be conducted effectively and at a proportionate cost.

Problem solved?

The decision in Denton has been received well by those involved in costs sanctions. LexisNexis Dispute Resolution team stated that it provided ‘welcome guidance’ for practitioners. David Greene from The New Law Journal said that the judgment ‘moves us back to a pre-Mitchell time in which the court encourages co-operation and punishes tactical battles over procedural errors’.

Matthew Harrington, a partner at BLM LLP, the firm that acted for the appellant in Denton, stated that:

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.

The success of Lord Dyson’s guidance will depend upon its application in the court, yet the three-stage process provides a much clearer formula for parties and the courts to apply when considering a case. The issue of costs is very important for practitioners, especially in light of the reduced levels of funding and rising court fees, and it is hoped that the stated aims of the guidance in Denton, namely to prevent further satellite litigation and ensure cases are not unduly delayed due to costs disputes, will be realised.

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Tagged: Courts, Legal Business

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