Relief from sanction—how the courts are applying Mitchell

Following on from Friday's analysis of the three so called 'Mitchell Appeals', Shail Patel, barrister at 4 New Square Chambers discusses the ‘triple-header’ appeal and the latest twists and turns in the saga of costs reform.

What issues did these cases raise?

The three cases under appeal were relief from sanction cases raising no particularly novel issues on their facts. However the Court of Appeal has become cognisant of a strong tide of opinion about Mitchell stemming from the way it has been interpreted and applied in subsequent first instance and Court of Appeal decisions.

The criticisms, summarised at para [21], essentially concerned the undue harshness of Mitchell, the narrowness of the ‘triviality’ concept, and perceived disproportionate penalties imposed on litigants as a result.

Accordingly the court gave further guidance on the application of Mitchell—though whether the decision merely reinterprets or rather overhauls the approach will be a matter of debate. The Mitchell approach is of course to consider whether the breach was trivial, and if so to grant relief, and if not, to consider whether there was a good reason for the breach.

Occasionally (as in Chartwell Estate Agents Ltd v Fergies Properties SA and another judges would also go on to consider whether relief should be granted ‘in all the circumstances’ even where the first two stages were not met.

What has the court decided? To what extent has the ruling clarified the way in which courts should interpret the Mitchell decision?

The court confirmed that judges must take a three-stage approach to considering applications for relief from sanction.

On the first stage, there had been undue focus in the lower courts on the ‘triviality’ concept, overlooking that inMitchell itself the expressions ‘minor’ and ‘insignificant’ were used. The heart of the question was however whether the breach was ‘serious or significant’. If it was neither, it would usually be unnecessary to spend much time on the other stages. If by contrast the breach is serious or significant, the second and third stages assume greater importance. The focus should no longer be on whether the breach was trivial.

As to the meaning of these two concepts, the court recognised they ‘are not hard edged and that there are degrees of seriousness and significance’.

The court endorsed the Law Society and Bar Council’s submission that it helped to think of whether the breach was material or immaterial, in the sense of whether it imperilled hearing dates, and disrupted the litigation, including litigation generally. Nevertheless a breach could be serious without imperilling the instant litigation—the example given by the court was non-payment of court fees (though arguably this is a poor example as it imperils the conduct of wider litigation).

On the second stage the court considers the ‘good reason’ test. Evidently the court was content with the manner in which that part of the Mitchell test has been applied, as it declined to give further guidance on it.

The third stage received considerable attention, with the court noting that many decisions had simply ignored its existence. The third stage is, as per the wording of CPR 3.9(1), to consider ‘all the circumstances of the case, so as to enable it to deal justly with the application’.

CPR 3.9(1)(a) and (b) (the need for efficiency and proportionate cost, and the need to enforce compliance with the rules) had been described in Mitchell as of ‘paramount importance’. The majority (and this is where the majority and the minority of Jackson LJ differed) moved away from that strict view by finding simply that those considerations should be of ‘particular importance’ when considering all the circumstances.

Thus the factors in CPR3.9(1)(a) and (b) gives rise to the first and second stages, but they also come back in the third stage as features of particular importance.

While that sounds somewhat abstract, the court gave some guidance on how it is intended to work. The third stage is where features such as the promptness of the application for relief and the previous history of compliance can be taken into account. This is important as some courts (including the Court of Appeal inDurrant v Chief Constable of Avon and Somerset Constabulary [2013] EWCA Civ 1624, [2014] 2 All ER 757) treated other breaches as affecting the triviality of the breach in question, making an otherwise trivial breach a serious one. The court rejected that approach—seriousness and significance are to be judged against the particular breach at the first stage. The question of other breaches arises only under the third stage—and only if one gets there.

The courts intention is that the new focus on the third stage will give rise to a ‘more nuanced’ approach than judges had been adopting.

Jackson LJ’s dissenting judgment took the view that the factors in CPR 3.9(1)(a) and (b) are not to be regarded of ‘particular’ significance when considering all the circumstances of the case. His Lordship differed from the majority on the construction of CPR 3.9 to that extent, considering that the reason for their express and exclusive inclusion was to ensure they were considered (and not forgotten) rather than to show they should be given particular weight. That difference in approach made no difference on the facts of the three cases before the court however, so it remains to be seen whether it makes any difference in practice.

Finally the court also gave guidance to the opposing party. It was strongly critical of the sorts of tactical traps set, and positions taken by parties seeking to take advantage of breaches to give a windfall in the case. The opposing party is encouraged to make a realistic assessment of the application of the three-stage test, and if it is met, to consent to relief without the need for any further court hearing. The courts should be more ready to ‘penalise opportunism’ and ready to award indemnity costs in appropriate cases—including where the opposing party refuses to agree reasonable extensions of time.

What is the significance of the judgment?

The judgment is of huge significance:

Parties and judges must, in effect, abandon triviality as a touchstone of relief from sanction, to be replaced by seriousness and significance. It goes without saying that these are much woollier concepts, and little guidance has been given other than that significance is intended to import some enquiry into the consequences of the breach. It arguably therefore moves much closer to the old Biguzzi approach (Biguzzi v Rank Leisure plc [1999] 4 All ER 934) of considering whether the breach caused prejudice to the opposing party.

There is also a shift of emphasis—from the party in breach having to show that its breach was trivial, to the opposing party having to show that it was serious and significant. The nature of the language used subtly therefore moves the goal posts in favour of the party in breach.

There is likely to be a degree of satellite litigation as judges wrestle with the new concepts. No doubt the Court of Appeal in Denton would say these concepts have been around since Mitchell, but practice at the coal face, and the reported judgments, all point to the sole focus on the first stage being triviality.

Persistent minor offenders will fare better. Other breaches cannot make a minor breach serious. If the breach is not serious, the court should not spend much time on the second and third stages, so relief is granted. Arguably, however, where there is serious persistent offending the court will be more willing to refuse relief under the third stage.

Opposing parties will be far more nervous about resisting applications for relief, particularly in cases with no obvious detrimental consequences flowing from the breach. However given the novelty of Mitchell—let alone its reinterpretation in Denton, there are likely to be many borderline cases giving rise to difficult decisions.

In difficult cases both parties will appeal to the third stage as assisting them, permitting, as it does, a much more open textured analysis of ‘all of the circumstances’.

No doubt parties in breach will rely on Jackson LJ’s approach, though that is a minority view and not binding. This creates some risk of a return to the old CPR 3.9criteria, with wide-ranging evidence dealing with matters all and sundry—precisely what the Jackson reforms hoped to avoid.

What does all this mean in practice for lawyers and their clients?

The emphasis for lawyers and their clients of course remains on compliance. If deadlines are met, no difficulties arise. However if they are not, it is certainly the case that a party in breach stands a greater chance of obtaining relief under the reinvented Denton test than he did under the approach developed after Mitchell.

The degree of the certainty which has developed will however be lost. Many a case has settled after a breach of a rule or deadline because the party’s advisers took the view that there was little or no prospect of obtaining relief. While the change of tack from the Court of Appeal will give those parties new cause for optimism, it will plainly encourage more satellite litigate in the short term. And while the Court of Appeal hopes to discourage that by threats of indemnity costs, if the lower courts have evidently had such difficulty interpreting the test it is difficult to see how the lawyers can be expected to do so much better.

How does this all fit in with other developments in this field?

The Court of Appeal was clear that the judgment in Denton is intended to set the new standard—it is expressly hoped that there will be no need to look at the old cases. That of course is optimistic, as a party guilty of a particular type of breach will always look to use a supportive decision in relation to that type of breach. One can expect however that the courts will be more reluctant to draw on other cases given the indications in Denton.

In April 2013 the import of the new test under CPR 3.9 was unclear. It took until November 2013 for the pendulum to swing to the far harsher regime under Mitchell. The swing back to a ‘more nuanced approach’ is now palpable. The question is of course whether, and where the pendulum will settle. Clearly to do so it requires time and experience. There will inevitably be periods of ‘trying things out’. After seven months of experience under Mitchell the need for a change of approach has been accepted by the Court of Appeal. The decision in Denton shows that court users can be assured that the higher courts remain very alive to court users’ opinions on these matters. There may be some further swinging yet before the pendulum settles.

Interviewed by Dave Thorley. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

First published on Lexis®PSL Dispute Resolution. Click here for a free one week trial of Lexis®PSL