Relief from sanctions Mishcon De Reya v Caliendo & Barnaby Holdings

It was only earlier this month that the Court of Appeal handed down yet another judgment relating to  non-compliance of rules and relief from sanctions in Mishcon De Reya  v  Antonio Caliendo (1) Barnaby Holdings LLC (2). The respondents who were the claimants in the main action, had brought a professional negligence claim against the appellants.

The claim was funded by a conditional fee agreement with after-the-event insurance. Although there was communication between the parties after the funding arrangements were in place, the claimants’ solicitors failed to provide notice of funding to the defendants within 7 days as required under the then CPR rule 44.15(1) and paragraph 9.3 of the Practice Direction on Pre-Action Conduct. In fact notice was not given until some 3½ months later when the omission came to light. The claimants’ solicitors readily accepted there had been an oversight and made an application seeking relief from sanctions under CPR rule 3.9. The automatic sanction from which they were seeking relief was inability to recover additional liabilities even if the claim was successful. This application, perhaps unsurprisingly given the potential figure for additional liabilities exceeding a million pounds, was contested.

The application was initially adjourned pending the appeal in Mitchell and subsequently the three appeals in Denton & Ors v TH White Ltd & Ors (“Denton”) which reviewed the approach in Mitchell.  Our managing partner, David Marshall in a previous blog set out the judgment in Denton as well as the three stage test which it introduced to be applied by courts when dealing with issues of non-compliance and relief from sanctions. I will not repeat these here in any detail.

In this case, the judge in the lower court, Hildyard J granted relief on the grounds that the non-compliance, while serious, had no significant adverse effect on the efficient conduct and progress of the litigation. In other words, it made no material difference to the defendants’ handling of the claim and they had not been prejudiced.

The defendants appealed on the grounds that Hildyard J had at the first stage of Denton wrongly concluded that they had not suffered any prejudice, at the second stage failed to attach any weight to the fact that the claimants had no good reason for non-compliance and, at the third stage, failed to appreciate the serious consequences for them if relief from sanctions was granted, allowing the claimants to benefit from a pre-Jackson funding arrangement. In addition, they submitted that he had wrongly focussed on the effect of the breach and not the consequences of granting relief when approaching CPR rule 3.9 (1).

The defendants appealed on the grounds that Hildyard J had at the first stage of Denton wrongly concluded that they had not suffered any prejudice, at the second stage failed to attach any weight to the fact that the claimants had no good reason for non-compliance and, at the third stage, failed to appreciate the serious consequences for them if relief from sanctions was granted, allowing the claimants to benefit from a pre-Jackson funding arrangement. In addition, they submitted that he had wrongly focussed on the effect of the breach and not the consequences of granting relief when approaching CPR rule 3.9 (1).

In dismissing the appeal, the Court of Appeal essentially concluded that Hildyard J’s analysis under stage one of Denton could not be characterised as wrong. Evidence established that the defendants’ solicitors would not have acted differently if they had received notice some 3½ months earlier. The failure to attach weight to there being no good reason under stage two did not mean that the exercise of his discretion was flawed or that there would be an automatic refusal of relief. The judge had to have regard to all the circumstances of the case. Following the approach in Denton, the judge was correct in applying less weight to the consequences of granting relief than the effect of the breach. He was fully aware that the relief would put the defendants at risk of potentially meeting substantial additional liabilities. However, he had to take into consideration the two main factors expressly stated in Denton, the effect of the breach and the interests of justice.

This is a very sensible and well-reasoned judgment. Whilst there is no room for complacency, the message from the courts is that they will follow the three stage test in Denton, having regard to all the circumstances of the case and the consequences of the breach when dealing with applications for relief from sanctions. Parties finding themselves in such situations would be well advised to be sensible and follow court’s approach in Denton.  This will avoid unnecessary and expensive litigation which was the whole purpose of Jackson reforms.