Kutsi v North Middlesex University Hospital NHS Trust

This judgment sets out my reasons for dismissing the application of the claimant for relief from sanctions under CPR 3.9. The application notice was issued out of this court on 23 July 2008 and sought an order that the claimant be permitted to recover from the defendant the cost of an insurance premium she had paid in respect of a policy of an insurance taken out on 4 April 2007. The purpose of the policy was to insure against the risk of incurring a costs liability in clinical negligence proceedings the claimant had brought against the Defendant. Contrary to CPR 44.15 and CPR 44.3B, the defendant had not been notified of the existence of the policy until after the claim was settled, as a result of which the claimant needed the court to grant relief from sanctions before she could attempt to recover the premium from the defendant on detailed assessment. Her application was supported by two witness statements made by her legal representative Alexandra Bennett dated 18 September and 5 October 2008 respectively and opposed by a witness statement made by her opposite number, Philip John Hatherall, dated 21 October 2008. At the conclusion of the hearing on 10 November 2008, I informed the parties that the application had failed and that my reasons would follow in writing.

The claimant is the widow of the late Mr Engin Kutsi who died at the Middlesex Hospital on 13 April 2003 following allegedly negligent treatment at the hospital for severe gastrointestinal bleeding. Messrs Stewarts solicitors were instructed by the claimant on whose behalf a letter of claim was written on 16 May 2006. On 11 April 2006 a protective claim was issued and the claim form was served on the defendant on 7 August 2006. On 1 November 2006, the claimant signed a Conditional Fee Agreement (“CFA”) with Stewarts and Notice of Funding in form N251 was served on that date on Messrs Capsticks, the solicitors instructed by the defendant. On 14 March 2007, Stewarts served particulars of claim together with a further Notice of Funding. On 4 April 2007 the claimant took out the insurance policy with Law Assist to protect her against her liability for the defendant’s costs should the proceedings have failed. On 8 May 2007 the defendant served its defence; on 18 May 2007 the claimant served her Allocation Questionnaire and on 25 May 2007 the defendant served its Questionnaire. Witness statements were exchanged by the parties on 14 November 2007 and a settlement was agreed on 28 November 2007 on terms that the defendant would pay agreed damages of £150,000.00, subject to court approval, to the claimant plus her legal costs. On 18 December 2007, the court approved the settlement bringing the proceedings to an end save for the quantification of the claimant’s costs.

On 5 February 2008 Stewarts sent Capsticks a breakdown of costs marked “without prejudice” for possible agreement. That breakdown sought overall costs (including VAT and disbursements) of £220,064.86 of which £140,816.75 related to the period covered by the CFA. Of that sum, £55,965.00 was attributable to the success fee claimed at 100% of base costs. On 7 March 2008 the defendant served objections to the breakdown and on 18 March 2008 the court ordered that a payment be made of £100,000.00 to the claimant on account of the costs sought. Ongoing negotiations led to the parties coming “very close to agreement” (Bennett 1 paragraph 17) being then “only £5,000.00 apart” (Hatherall 1 paragraph 19.)

On 20 June 2008 Stewarts wrote to Kain Knight (costs draughtsman for the defendant) in the following terms:-

“Dear Sirs

RE Engin Kutsi (deceased) without prejudice save as to costs

Further to our previous correspondence in this matter we note your offer to put forward in full and final settlement of our client’s claim for costs including interest the sum £175,000.00.

Unfortunately it has become apparent to us on further investigation that the position that the premium for the insurance cover in respect of our client’s conditional fee agreement which our client is liable was, by oversight, omitted from the breakdown of costs with which we previously sent you. The amount of the premium is £80,325.00.

In all the circumstances, we are prepared to accept in full and final satisfaction of our client’s claim in respect of costs, the sum of £180,000.00 plus the amount of the premium making a total of £260,325.00.

If we do not have your confirmation within the next 7 days that this offer is acceptable to you, then we feel that we shall have no further alternative but to request our costs draughtsman to finalise our bill of costs for service upon you as soon as possible so that the detailed assessment procedure can be invoked.

We apologise for having overlooked including the amount of the insurance premium in our figure, but we anticipate that you would have been expecting to see such an item in our breakdown in any event.

We look forward to hearing from you

Yours faithfully

Stewarts Law LLP”

Kain Knight responded by email on 23 June 2008 in the following terms:-

“Thank you for your letter dated 20 June 2008 which arrived by fax late on Friday afternoon.

To enable me to take instructions with regard to the ATE premium that you now seek to recover, I would be grateful if you would provide a breakdown showing exactly how the premium was calculated together with a copy of the relevant policy schedule. At the same time I would be grateful if you could provide disclosure of the CFA and risk assessment for your firm and counsel as previously requested.

Generally, the premium claimed appears extraordinarily high and far in excess of what I would normally expect to see for a clinical negligence case. In any event, so far as I can see, the defendant was never notified that an ATE policy had been taken out and non-notification prevents you from recovering this premium as an additional liability.

We look forward to hearing from you…”

On 26 September 2008, the claimant served a bill of costs under CPR 47.6 together with the policy schedule for the Law Assist policy. The policy document said this:-

Pre-issue contingent Premium £3750.00

Insurance premium tax (IPT) £187.50

Post-issue

On 23 July 2008 the claimant issued her application for relief from sanctions which I dismissed having heard argument on 10 November 2008.

An After the Event (“ATE”) insurance premium is an additional liability to which CPR 44.15 applies. This provides as follows:-

“(1)

a party who seeks to recover an additional liability must provide information about the funding arrangement to the court and to the other parties as required by a rule, practice direction or court order”.

CPR 44.32(1)(o) defines “additional liability as follows:-

“… the percentage increase, the insurance premium … as the case may be”.

Paragraph 19.2 of the Costs Practice Direction, (“CPD”) specifies the time when a party must serve and file on his opponent information about his/her funding arrangements. S 19.2 (4) provides that the relevant period is within 7 days of entering into the funding arrangement concerned.

CPD s 19.4 identifies information which must be provided by the party giving notice unless the court orders otherwise; in particular, such party must state whether he has:-

“entered into a conditional fee agreement which provides for a success fee within the meaning of s 58(2) of The Courts and Legal Services Act 1990”

or

“taken out an insurance policy to which s 29 of The Access to Justice Act 1999 applies”.

In addition, CPD s 19.4(2) requires that the receiving party must:-

“state the date of the agreement and identify the claim or claims to which it relates”.

In the case of an insurance policy, the receiving party must, under CPD 19.4(3):-

“state the name and address of the insurer, the policy number and the date of the policy and must identify the claim or claims to which it relates”.

Sanctions apply where a party fails to comply with the rules and practice directions I have recited. CPR 44.3B provides as follows:-

a party may not recover as an additional liability –

CPD s 10(1) provides that:-

“in a case to which part 44.3B(1)(c)… applies, the party in default may apply for relief from sanctions. He should do so as quickly as possible after he becomes aware of the default. An application, supported by evidence, should be made under part 23 to a costs judge or district judge of the court which is dealing with the case. (Attention is drawn to rules 3.8 & 3.9 which deal with the relief from sanctions).”

Relief from sanctions is governed by CPR 3.9 which provides as follows:-

“(1)

On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including –

(a)

the interests of the administration of justice;

(b)

whether the application for relief has been made promptly;

(c)

whether the failure to comply was intentional;

(d)

whether there is a good explanation for the failure;

(e)

the extent to which the party in default has complied with other rules, practice directions and court orders and any other relevant pre-action protocol;

(f)

whether the failure to comply was caused by the party or his legal representative;

(g)

whether the trial date or likely date can still be met if relief is granted;

(h)

the effect which the failure to comply had on each party;

(i)

the effect which the granting of relief would have on each party.

(2)

An application for relief from sanctions must be supported by evidence.”

As I have said, in the present case, the ATE policy was taken out on 4 April 2007. Accordingly (this is common ground) notice under CPD s 19.2(4) ought to have been given by 11 April 2007. In the event, the first intimation given to the defendant that such a policy was in existence was in Stewarts’ letter to Capsticks dated 20 June 2008.

Both Mr Mallalieu and Mr Williams referred to this case which provides the only guidance about relief from sanctions following a failure to give information about an insurance premium claimed as an additional liability.

Supperstone was an appeal from a decision of Master Gordon Saker who had upheld the finding of the Costs Officer that the appellant had had adequate notice of funding, albeit that the information had been conveyed by email rather than via form N251. The facts were that the respondent had taken out an insurance policy with Law Assist on 11 March 2005 with the premium being paid on that date. Nine days later a CFA was signed. For the purposes of the appeal, Floyd J assumed that the policy became effective on 11 March 2005. Accordingly, notice needed to be given under CPD s 19.2(4) by 18 March 2005. In the event, no such notice was served; instead, on 24 May 2005 the respondent provided the following information to the appellant via a notice attached to an email that the case was now being funded by :-

“a conditional fee agreement dated 20 May 2005 which provides for a success fee…

an insurance policy issued on dated 11 March 2005 commencing 20 May 2005 by Law Assist”.

The notice was inadequate in a number of respects; service by email was not good enough under CPR 6 CPD 3.1(2)(b); the notice was not signed as required by CPD 19.3(4) ; the address of the insurer and the policy number, as required by CPD 19.4(3) was omitted.

Upholding the Master’s decision to allow relief from sanctions, Floyd J was not persuaded that evidence was lacking to support the explanation for late service of the notice (see judgment paragraphs 30-31,) nor that the appellants had suffered prejudice in that they would have behaved differently had the Notice of Funding been given at the appropriate time (paragraphs 37-38). At paragraph 39, Floyd J then said this:-

“I agree that relief from sanctions should not be granted lightly and a party who fails to comply with the CPR runs a significant risk that he would be refused relief. Thus if a party does not have a very good explanation, or [emphasis added] the other side is prejudiced by his failure, relief from sanctions would usually be refused. It is vitally important to the administration of justice that the rules of procedure are observed.”

Mr Mallalieu accepted very frankly that there had been an error on Miss Bennett’s part which had two components. The first of these was his instructing solicitor’s lack of awareness that a further notice needed to be served dealing with the insurance policy, in addition to the information given about the existence of the CFA. The second was that her dealings with Law Assist had led Miss Bennett away from the course she had intended to take in March 2007 namely to inform Capsticks of the existence of ATE cover (a draft letter dated 28 March 2007 to Capsticks was exhibited as ACB 5 in support of this submission). However the letter was not sent due to an e mail written by Law Assist to Miss Bennett on 30 March 2007 which said this:-

“In this particular case as there is a premium indemnity guarantee, underwriters are not prepared to extend the offer any longer and would not want you to mention in any correspondence to the defendants about ATE insurance. I hope you understand their position.”

In her reply of the same date, Miss Bennett said this:-

“I appreciate the position re not revealing any details of ATE (although I think that the defendants assume that ATE is in place (in some shape or form) in any event once they have notification of the claimants’ Srs [solicitors] acting under a CFA.)”

In Mr Mallalieu’s submission, in this exchange of emails, Miss Bennett had allowed herself to be diverted from the course that she had originally intended to take, namely to notify Capsticks of the existence of the ATE policy. It followed that Miss Bennett’s omission was not of a wilful or mendacious nature. On the contrary, there had been no intention to mislead or gain a tactical advantage: Miss Bennett had simply made a mistake and her misunderstanding had been unintentionally compounded by the email exchange with Law Assist. In any event, Capsticks were experienced in handling clinical negligence claims and would have assumed that an ATE policy had been taken out (Bennett 1 paragraph 24).

With regard to the factors set out in CPR 3.9, Mr Mallalieu submitted as follows:

On the facts of the present case, the interests of the administration of justice would be served by the application for relief being granted; whilst the rules of court must be obeyed, the solicitors had made a mistake, no more, no less.

The problem had come to light on 20 June 2008. Miss Bennett was then on maternity leave and since it had not been clear to her colleague and conducting partner, Mr Nick Knowles whether or not the insurance policy had been disclosed in any form to Capsticks, any action had been deferred until her return on 14 July 2008. Counsel’s opinion had then been taken and the application for relief issued on 23 July 2008. It followed that the application for relief had been made promptly.

It was accepted that the failure was the result of a deliberate thought process and in that sense had been “intentional” but there had been no deliberate or wilful failure to comply with the rules. Miss Bennett accepted that she had made a mistake for which she had apologised.

(d) Whether there is a good explanation for the failure

Whilst he accepted that whether or not the explanation was “good” would be a matter for the court, Mr Mallalieu submitted that here there had been a valid explanation. In these circumstances, in the sense that the explanation had not been one which was wholly exculpatory, then it was “good”. In Supperstone, Floyd J had found that the solicitor’s explanation, namely a mistaken belief that the notice had not been due until later and/or that electronic service was valid was a good explanation. Mr Mallalieu urged on me that I should make a similar finding on the facts before me.

Save in respect of the insurance point, Mr Mallalieu submitted there was no evidence of any breaches of which the defendant could complain. Whilst it was right that proceedings for detailed assessment had not been commenced within 3 months of the date of the settlement in compliance with CPR 47.7, the reason for that was that the parties had been very close to agreement and it was plainly sensible not to incur the additional costs of the formal assessment process unless or until those negotiations broke down.

It was common ground that the breach had been caused by the legal representative; the claimant was blameless.

In Mr Mallalieu’s submission, the defendant had failed to show any genuine prejudice. The only information to which the defendant had been entitled was the identity and address of the insurer, the policy number and the date of the policy and the identity of the claim or claims to which it related. Specifically, what the defendant was not entitled to know was the quantum of the premium or the level of cover which the policy provided. In his witness statement, Mr Hatherall had made a number of complaints, none of which were valid. He had stated, for example, at paragraph 21, that the size of the premium had come as a complete shock but even if the correct information had been provided, Mr Mallalieu pointed out that the defendant still would not have known the level of the premium until the bill had been served. Concern was also expressed that the premium had been staged “so the Solicitor’s failure to provide the required notices takes on even more serious implications” (see Hatherall paragraph 17). In fact, by the time the policy was taken out, the first staged premium period had passed so even if the appropriate information had been given, the level of the premium would still have been upwards of £80,000.00. All these factors supported the claimant’s case that the defendant was unable to advance any specific evidence to suggest that it would have approached the case differently had it had timely notice of the policy. Absent an ability on the defendant’s part to point to any prejudice, in the face of a simple error, it was appropriate for the court to grant relief from sanctions.

Mr Williams submitted that on any view, the present case was much more serious than Supperstone as no notice whatsoever of ATE insurance had been given until long after the proceedings had been concluded and at a point when the issue of costs had almost been agreed. Moreover, in Supperstone the mistake had been of a technical nature in that notification of the insurance policy had been given, but the information provided had lacked the policy number and address of the insurer and had been sent by email. The position here was different. No notice of ATE insurance had been given as a result of an elementary error in procedure by the claimant’s solicitors. This had been compounded by the exchange of e-mails between Stewarts and Law Assist which called out for clarification. Instead, the mistake had not been corrected until after the substantive proceedings had been resolved. CPR 44.15 was a rule to be obeyed and if relief from sanctions was to be given in the present case, it would be difficult to conceive of any circumstances in which relief would be refused. That in itself would effectively repeal CPR 44.15 in so far as it related to ATE. As Floyd J had stated in Supperstone, relief from sanctions should not be granted lightly; in the present case it would be against the interests of justice for the court to do so. That dealt with CPR 3.9(a). As to the balance of the rule:-

Mr Williams pointed out the application had not been made until 8 months after the settlement of the substantive proceedings and a full month after the point about notice had been taken.

Mr Williams submitted that Miss Bennett had made a positive decision to withhold the notice. Whilst he did not seek to argue that the error was anything other than negligent, rather than contumacious, it was deliberate all the same.

Floyd J had stated that absent good reason, the application would usually be refused. On the facts before me, no good reason had been shown. The claimant’s solicitor had simply been unaware of rudimentary CPR principles. She had also failed to ask First Assist for clarification of their obscure e-mail concerning notification of the details of the policy. Her explanation was not “good” for the purposes of the rule.

Mr Williams contended that the difficulty with the ATE policy was not limited to the compliance problem involving CPR 44.15. The detailed assessment had only been commenced after the defendant had applied to the court for an order for this purpose and contrary to the guidance given in Hollins v Russell (2003 EWCA) Civ 718, the CFA had not been disclosed. The defendant still awaited details about whether any “before the event” insurance had been in place and the bill itself lacked any explanation for the discrepancy between the figure of £49,959.29 (inclusive of disbursements and VAT) being a costs estimate filed on 11 June 2007 and the figure now sought in the bill.

It was agreed that it was the latter against whom, Mr Williams submitted, the claimant would have a water-tight remedy.

But for the dispute the claim would probably have been settled without a hearing.

Mr Williams submitted that having almost resolved the costs of action, the defendant had now been ambushed with a claim for an ATE premium which was more than the entirety of the base costs and disbursements which his client had believed he was facing. Had the defendant known that the claimant had ATE insurance, the defence might have been conducted in an entirely different way. Compliance with the practice direction would have obliged the claimant to notify the defendant of the identity of the insurers and since NHS Trusts deal with numerous claims, in all likelihood, the defendant would have known what its potential exposure was likely to be once First Assist had been identified as the insurer. In short, there had been no good explanation for the failure and if relief from sanctions was granted, this would leave the defendant with a strong and understandable sense of injustice given that at the moment it believed the costs were about to be settled, a claim for a further £80,000.00 had been advanced arising solely from an error by the claimant’s solicitors.

It is common ground that the omission to notify the defendant of the insurance policy was a mistake by Miss Bennett, she having been unaware of the CPR requirement in this respect (Bennett 1 paragraph 13(i)), a matter which she described as being her “own legal error” (Bennett 1 paragraph 24). To that extent I accept that the omission was unintended and in no sense were the rules of Court deliberately flouted.

Miss Bennett further advanced by way of explanation the fact that she had drafted (but not sent) a letter which would have put the defendant on notice of the insurance but for her concern that had she done so, Legal Assist would have avoided the policy for the reason given in the e-mail of 30 March 2007. I do not find this explanation persuasive, still less to be “good” for the purposes of CPR 3.9. In the first place, the draft letter of 28 March 2007 was not written to put the defendant on notice of an existing policy but instead had been to ascertain the level of the defendant’s costs, in case these had a bearing on the amount of cover which the claimant would need to buy in the future (my emphasis) to protect herself against an adverse costs order. In other words, even if the letter had been sent, it would not have given the defendant the information to which it would become entitled under the CPR for the simple reason that as of 28 March 2007, the policy had yet to be taken out. Second, following my intervention, Mr Mallalieu conceded in argument that the insurer’s e-mail was ambiguous; that being so, in my judgment it would nave been sensible for Miss Bennett to have taken the discussions further. Whilst the insurer was right that the quotation for the premium need not be revealed, clearly the requirement that no mention should be made in any correspondence to the defendant about the existence of the policy was not. I agree with Mr Williams that Stewarts should have sought clarification from First Assist and the firm has placed itself in an invidious position in not having done so.

Miss Bennett (Bennett 1 paragraphs 20 and 24) also prayed in aid the fact that she had assumed that both the defendant and Capsticks, being experienced in clinical negligence claims, would have taken it for granted that there was an insurance policy. I infer from this that she felt there was almost some sort of duty or responsibility on the defendant to obtain clarification from the claimant about her insurance arrangements and ability to satisfy an adverse costs order (see Bennett 1 paragraph 22 and Bennett II paragraph 22). Mr Hatherall took issue with these views (Hatherall 1 paragraph 27) and for my part, I agree with him that it is for the claimant and not the defendant to make the running under CPR 44.15 and that Stewarts were left wanting in this respect in having failed to serve the appropriate notice in the first place.

Mr Mallalieu accepted that the issue of relief from sanctions is a matter for the discretion of the court, having regard to the factors set out in CPR 3.9. In exercising my discretion, I have also taken account of the fact that the legal error was made by an experienced solicitor (4 years post qualification experience) in the clinical negligence department at Stewarts charging £270.00 an hour. Whilst there is no suggestion (costs apart) that Miss Bennett handled the case anything other than competently and effectively in the best interests of her client, and that it is a fact of life that mistakes happen, Mr Williams is nonetheless right, in my judgment, to be critical of the firm’s failure to be aware of rudimentary CPR principles. Mr Williams was commendably measured in his criticisms but in my view, the point could have been taken further. In the costs breakdown, Mr Knowles at £300 an hour, has claimed over 50 hours on documents post CFA. In my judgment, it would have been reasonable to expect the firm to have had in place a system under which the partner with overall responsibility for the case checked the file to prevent the occurrence of omissions in the nature complained of, a fortiori, where, as here, the day-to-day case handler was on maternity leave. This is a further matter which has weighed with me in exercising my discretion whether or not to grant relief.

Looked at in the round, I have concluded that the combination of these factors fall short of providing a “good explanation” for the failure. Accordingly, the interests of the administration justice would not be served by granting relief, Floyd J having said that it is vitally important that the rules of court are observed. Moreover the facts of the present case are not on all fours with those in Supperstone where the breaches were far less grave. Where, as here, the party seeking relief does not have a good explanation, relief from sanctions will usually be refused. It is for this reason that I have concluded it would be wrong to grant the application.

In view of this finding, I do not consider it is strictly necessary for me to deal with the remaining criteria under CPR 3.9. Lest the matter goes further, I would add for completeness that I consider the application for relief was made promptly under CPR 3.9(1)(b) once the problem was identified on 20 June 2008, having regard to Miss Bennett’s absence on maternity leave and the anticipated date of her return. I would not have dismissed the application on that ground.

CPR 3.9(1) (c) and (d) I have already covered (in addition to (a)). In respect of (e) I am satisfied that there were no grave or culpable defaults in respect of other rules or practice directions; in particular, the decision not to apply for detailed assessment within 3 months was justified in the context that, but for the insurance point, the costs of the action would surely have been resolved without the need to serve a formal bill. Arguments about disclosure of the CFA and any discrepancies between the schedule and the bill are for detailed assessment. Point (f) is agreed – the failure was caused by the legal representative. As to (g), the point is neutral.

That leaves (h) and (i)- the effect of non compliance on each party and effect of relief on each party. These sub-sections to the rule would encompass prejudice to the defendant if relief was granted (the suggested lack of it being relied on by Mr Mallalieu), but in my opinion, Mr Williams was right to submit that the guidance given in paragraph 39 of Supperstone is not a cumulative test but is in the alternative. Accordingly even if there is a good explanation, relief from sanctions will in all likelihood be refused if the other side suffers prejudice by the failure. Likewise, even if no prejudice is shown, relief from sanctions will still be refused absent a good explanation. It follows that where, as here, I have found that no good explanation was advanced, it is neither here nor there whether the defendant suffered prejudice as a result of the failure to serve the notice. For that reason, Mr Mallalieu’s submissions on prejudice under CPR 3.9(h) and (i) fail.

A final point is this; during the course of argument I put to Mr Williams the fact that if relief from sanctions was granted on terms that the costs of the assessment so far are met in their entirety by the claimant, then the parties will be placed in the position they would have been had notice N251 been served correctly; in other words the defendant would be required to pay the costs of the action including the ATE premium but only after they have been subjected to the rigours of detailed assessment. Mr Williams’ riposte in this respect was to ask rhetorically that if relief were to be given here, where the solicitors had deliberately and negligently omitted to serve any notice of funding, in what circumstances, if any, would relief from sanctions ever be refused in the future? Unlike their predecessors (the Rules of the Supreme Court), the CPR consider the effect of a breach of the rules on the interests of the administration of justice (see Securum Finance Ltd v Ashton [2001 Ch 291 (CA), [31-35]). That is a telling point. As I have said, the facts in the present case are far removed from those in Supperstone where the breach was of a technical nature, contrast here where no notice of any sort about insurance was given until long after the action had been settled. In these circumstances I agree with Mr Williams and if I was to give relief from sanctions on facts such as these, the effect would be to drive a coach and horses through CPR 44.3(B) and 44.15. The application fails for this additional reason also.

Relief from sanctions is refused and the claimant is to pay the defendant’s costs of the application to be assessed and set off. If Mr Mallalieu is instructed to apply for permission to appeal, any submissions should be made very briefly and in writing in order to save costs. There is no reason for the parties to attend when this judgment is handed down.