Haydon v Strudwick

This is an application on the part of the Claimant for relief from sanctions under CPR 3.9. The application is dated 2 February 2010, and is supported by a witness statement of Michelle Julianne Victor dated 2 February 2010. The claim arose as a result of very serious injuries suffered by the Claimant in a road traffic accident on 8 January 2003. A request for detailed assessment was made in respect of the Claimant’s costs on 27 January 2010. The bill was brought in at £890,048.54. Of that sum the additional liability for a success fee in this case totals in round figures £300,000, with an after the event insurance policy (ATE) claimed at £1,045.

The Points of Dispute set out the following issue:

“Additional Liabilities

In the first instance, no notice of funding has ever been served or filed in this matter. A notice of funding should have been served with the proceedings and a further notice of funding should have been served once the second CFA was entered into.

The Defendant refers to CPR Part 44.15 and Practice Direction 19 thereon. The Defendant refers to the sanction within Part 44.3B.”

The Replies state as follows:

“Additional Liabilities

By a letter dated 6 March 2003 information required to be provided by the paying party under CPD 19.2 was given to the Defendant (both in person and via his insurer) prior to the issue of the claim.

It is also noted that the Particulars of Claim refer to the matter being funded by a conditional fee agreement.

In regard to the Defendant’s contention that a further notice of funding should have been served at the time of entry into the second CFA it is submitted that this is incorrect. CPD 19.3 poses a duty of a party to give notice of change “if the information that is previously provided is no longer accurate” (Claimant’s emphasis).”The information previously provided (at the time of entering into the first CFA had not changed) ie, that the matter was funded under a conditional fee agreement and the additional liabilities would be claimed at the conclusion of the proceedings. There is no requirement to give the details of the level of additional liabilities to be sought.

The issue that I have to decide is whether relief from sanctions, pursuant to CPR 3.9 should be granted to the Claimant, and thus permit recovery subject to assessment from the Defendant of the additional liabilities namely the success fee and ATE premium claimed in this case.

The accident, the subject of this claim, took place on 8 January 2003, when the Claimant, who was born on 21 October 1987, was a minor. The Claimant was a front seat passenger in a Peugeot 2005 motor vehicle, being driven by the Defendant along London Road in Devizes when the vehicle went out of control, hit a bus shelter before spinning across the carriageway and into a stone wall on the opposite side. As a result of the accident the Claimant suffered very severe injuries and loss. On 6 March 2003, the Solicitors acting on behalf of the Claimant wrote to the Defendant an initial letter of claim. The penultimate paragraph of that letter states:

“Although not specifically required under the terms of the Court Rules we can confirm that our client’s claim is being pursued with the benefit of a conditional fee agreement and that additional liabilities will be claimed for legal costs at the conclusion of the matter.”

The first CFA between the Claimant and his Solicitors was entered into on 14 November 2003. It was common ground that this CFA provided for a success fee on base costs.

On 8 March 2005 proceedings were issued, and served on the 18^th March 2005 They state as follows:

“The claim is funded by way of a conditional fee agreement which includes additional liabilities as provided for by the Civil Procedure Rules which the Claimant will seek to recover from the Defendant on the successful conclusion of the claim.”

“and the Claimant claims against the Defendant:

4.

Any additional liability under the Claimant’s conditional fee agreement.”

The Claimant’s Solicitors wrote to Capital Law Insurance, the Defendant’s Insurers, on 23 May 2006. In that letter it is stated:

“Whilst writing, given that our client is now deemed a patient, we feel it is necessary for the sake of completeness for an application to be made to the court for the header to be changed. We enclose our application together with draft order. Please confirm whether you are in agreement with the same. Similarly we have entered into a further conditional fee agreement with our client’s litigation friend now that she is acting for a patient rather than a minor.”

A second CFA which also provides for a success fee on base costs was entered into on 1st February 2006.

An ATE policy with Access Law was taken out on 18 September 2006. The amount of the policy was £1,050.

Counsel for the Claimant, Mr F Burton QC, and Mr R Wilkinson were also instructed under conditional fee agreements providing for success fees on Counsels’ base charges. Settlement was reached in relation to the claim on 20 July 2009, and court approval of the settlement in the sum of £1.4 million took place on 27 July 2009. Notice of Commencement for assessment of the bill of costs is dated 1 October 2009, and the Points of Dispute which first raised the issue of the Notice of Funding are undated. So too, are the Replies. On 11 December 2009, the costs draftsman for the Claimant emailed the Defendant seeking confirmation that the Defendant’s point of dispute regarding alleged failure to serve Notice of Funding was being maintained. It was intimated that if that was the case, the Claimant would be making an application for relief from sanctions forthwith. The email was responded to on 14 December 2009 by Mr Hannan, who stated that:

“The point raised in respect of the failure to serve a Notice of Funding is a valid point and as such will be maintained.”

On 26 January 2010 the Claimant’s costs draftsman again wrote to the Defendant’s Solicitors in the following terms:

“The Claimant has instructed Counsel to settle an application for relief under CPR 3 together with supporting documents. Whilst there has been some delay due to the Christmas and New Year period we anticipate that the application will be ready for issue soon. Once it has been issued we will obtain the earliest possible date for a hearing.”

The application for relief from sanctions was issued on 10 February.

At paragraph 10 Ms Victor states:

“10.

It is right that no form N251 was filed or served with the claim form when proceedings were issued and served. I did not have conduct of the claim at this stage, but it seems that this was simply an oversight.”

At paragraph 17 of her witness statement Ms Victor states:

“17.

I apologise that the notice was not given absolutely as the Rules required. Nevertheless I would suggest that the shortcomings were very technical. Moreover the substance of what ought to have been communicated to the Defendant was communicated to him and no prejudice can conceivably have been suffered by him.”

The following are the relevant provisions of the CPR and the Costs Practice direction:

Rule 44.3B ends with the proviso that rule 3.9 sets out the circumstances the court will consider on an application for relief from the sanction for failure to comply with any rule, practice direction or court order. Rule 44.3B is supplemented by Section 10 of the Costs Practice Direction, which states:

“Section 10 - limits on recovery under funding arrangements rule 44.3B

10.1

In a case to which rule 44.3B(1)(c) or (d) applies the party in default may apply for relief from sanction. 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 and 3.9 which deal with sanctions and relief from sanctions).”

Mr Whalan for the Claimant submitted that the breach in this case was a technical breach. He accepted that no Form 251 had been filed or served in this case. Nonetheless, the Defendant was from an early stage in the proceedings fully aware that this matter was being funded on the basis of a conditional fee agreement. As early as 6 March 2003 he submitted that the Defendant was on notice that the matter was to be funded by a conditional fee agreement, and that “additional liabilities will be claimed for legal costs at the conclusion of the matter”. Further the Defendant was on notice in the Particulars of Claim issued on 8 March 2005, and served on 18 March 2005 that the matter was being funded by way of a conditional fee agreement, which includes “additional liabilities”. He submitted that it was clear from the Particulars of Claim, and from the correspondence, that funding was by way of a CFA, and that the Defendant had also been notified with regard to the second CFA entered into in February 2006. In addition the costs estimates filed by the Claimant with the court also made reference to the fact that this matter was being funded by way of a CFA.

He took me to the issues upon which I need to be satisfied in rule 3.9, which were dealt with in detail in the witness statement of Ms Victor. In particular he drew my attention to the question of prejudice, and submitted that in this case the Defendant had suffered no prejudice. He also submitted that the reason put forward by Ms Victor for failure to strictly comply with the letter of the rules and practice direction in the service of N251 amounted to a good reason. The failure was not intentional, and the Defendant had been provided with the substance of the information required, and at the relevant times. That being so, the failing was more of a technical breach than a real one. Were the additional liabilities in this case to be disallowed the Defendant would suffer a windfall.

I was referred to the case of Montlake v Lambert Smith Hampton Group Ltd, a decision of Mr Justice Langley [2004] EWHC 1503 (Comm), where at paragraph 10 of the judgment it is stated:

“10.

Wasps never served a Form N251 upon LSH or its solicitors. However the letter before action, dated 15 April 2002, stated in terms “this claim is now being funded by a conditional fee agreement which provides for a success fee”. In fact the CFA was not finally entered into until 5 June 2002 and costs are claimed only after that date. It is clear that LSH was at all times aware and believed that the claim was being funded by a CFA which provided for a success fee. By 5 June proceedings had been issued but it had been agreed that they would not be served pending the completion of pre-action protocols.

11.

The court was informed of the existence of the CFA at the first Case Management Conference held on 7 February 2003.

12.

LSH submits that there have been breaches of the relevant practice directions. I agree. As to paragraph 4A.1 of the Protocols Practice Direction the letter did not relate to a CFA which had in fact then been concluded. As to paragraph 19(2) of the Costs Practice Direction no Form N251 was served with the claim form or at all. On the other hand, the objective of the practice directions to inform LSH of the CFA and success fee was effected.”

At paragraph 15 the Judge said:

“15.

CPR Rule 3.9 sets out the circumstances which the court may consider on an application to grant relief from a sanction. I see no need to address them in any detail. Essentially, in my judgment, LSH has from the outset had the information to which it was entitled and I cannot see any conceivable prejudice to LSH from the breaches of the practice directions nor has any prejudice been suggested save the failure to inform LSH whether or not there was an insurance policy available to Wasps in respect of the costs of LSH. But, as I have said, I do not think LSH was entitled to that information. The fact that there is no insurance was stated by Mr Railton QC, for Wasps, in the course of the hearing.

16.

In those circumstances I think Wasps are entitled to relief from the sanction provided for by Rule 44.3(B)(i)(c) and so are not to be deprived of the opportunity in principle to recover the agreed success fee if it is otherwise appropriate for an order for costs to be made in favour of Wasps.”

Mr Whalan submitted that in the light of the Montlake decision, relief from sanctions should be granted, and that the Claimant should not be deprived of the opportunity in principle to recover a success fee. He argued that following the Montlake decision the Claimant should not be restrained from recovering the success fee from the date that the CFAs were entered into, irrespective of the dates when the Defendant was put on notice of the claim for additional liabilities. He went on to argue that the use of the words “additional liabilities” in the documentation supplied to the Defendant, namely the letter of 6 March 2003, and in the Particulars of Claim, allowed not only recovery of the success fee claimed but also the after the event insurance premium. He argued that the word “additional liability” is defined at Rule 43.2(1)(o) to mean a percentage increase or success fee or an ATE premium.

Mr Hannan argued that there were three occurrences when the Claimant’s Solicitor was required to file and serve a Notice of Funding or provide the information set out in the Notice of Funding, and that the Claimant had not complied on any occasion.

The Claimant’s Solicitors originally advised that the matter was being funded with the benefit of a conditional fee agreement in their letter of 6 March 2003. However, the conditional fee agreement was not entered into until 14 November 2003, and the ATE policy was not taken out until 18 September 2006. He argued that the information provided in the Claimant’s Solicitor’s letter of 6 March 2003, and the Particulars of Claim served on 18 March 2005, did not give the Defendant the information which it was entitled to under CPR for the simple reason that as of 6 March 2003 neither the CFA nor the insurance premium had been taken out; and as of 18 March 2005 the insurance premium had not been taken out. In his words these were future events. I was referred to a decision of Master Campbell, in the case of Mehtap Kutsi v North Middlesex University Hospital NHS Trust paragraph 43, where it was said:

“… 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.”

Mr Hannan submitted that the first knowledge of the second CFA was made within the Claimant’s letter dated 23 May 2006 which stated:

“We have entered into a further conditional fee agreement with our client’s litigation friend now that she is acting for a patient rather than a minor.”

It was common ground that the second CFA was dated 1 February 2006, and therefore notice of the second CFA should in the Defendant’s submission have been made no later than 8 February 2006. In fact the notice was some 15 weeks thereafter. The date of the CFA was not stated, and Mr Hannan argued that it was not for the Defendant to chase the Claimant’s shortcomings in complying with CPR. In addition there was no reference to a success fee being claimed within the second CFA, which is required pursuant to the Costs Practice Direction rule 19.4. It was submitted by Mr Hannan that as both solicitor and counsel were claiming success fees, and given that the Claimant’s Solicitor had not notified the Defendant that a success fee was being claimed, the Solicitor should have notified the Defendant that a success fee on counsels’ fees were being claimed pursuant to the Costs Practice Direction 19.3(2).

So far as the insurance premium incepted on 18 September 2006, the Defendant submitted that there had been a wholesale disregard of the Costs Practice Direction at Section 19. No notice of an insurance premium had ever been given, and the fact that the Particulars of Claim provided that “additional liabilities” would be claimed was insufficient. This was not an accurate statement at the time it was made.

So far as the factors in CPR rule 3.9 are concerned, Mr Hannan referred me to a decision of Mr Justice Floyd, sitting with assessors, in the case of Anthony Peter Supperstone v Robert Alfred Hurst and Ann Stephanie Hurst [2008] EWHC 735 (Ch) at paragraph 39, where it was said:

“39.

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

Mr Hannan submitted the test is to establish either a good reason or prejudice to the Defendant, not both. He disputed that the application had been made promptly. The Points of Dispute were served on 6 October 2009, and there was an email exchange between the parties on 11 to 14 December 2009, some six weeks after the Points of Dispute were served. The Claimant’s application was dated 2 February 2009, after the Defendant put the Claimant on notice of an application under CPR Part 47 for delay in requesting a detailed assessment hearing. The Claimant’s application for relief from sanctions was made over three months after the Points of Dispute were served.

So far as the effect which the failure to comply has had on each party, Mr Hannan submitted that the Defendant had been prejudiced within the detailed assessment proceedings as offers had been made prior to the Claimant’s application being made. He conceded, however, that the Defendant would not have behaved differently had the Notice of Funding been given at the appropriate time, and that save for the detailed assessment proceedings, the Defendant had not suffered prejudice.

It is common ground that the relevant Notices of Funding N251 were not served by the Claimant in relation to either the 1^st or the 2^nd CFA in this case. In my judgment the Defendant was provided with information at an early stage of these proceedings that the matter was being funded by a conditional fee agreement. However I find that the Defendant was not provided with any or sufficient information with regard to the ATE policy. The information with regard to a potential claim for additional liabilities is contained in the following documentation, namely:

Supperstone was an appeal from a decision of Master Gordon-Saker who 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 by Form N251. The facts of that case 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 the CFA was signed. For the purposes of the appeal Floyd J assumed that the policy became effective on 11 March 2005. Accordingly, notice should have been given by 18 March 2005. No such notice was served, but 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 and dated 11 March 2005 commencing 20 May 2005 by Law Assist.”

The facts of this case are different from those of Supperstone. In this case, save for the reference to the use of the words “additional liabilities” in the letter of 6 March 2003, and in the Particulars of Claim, there is no reference whatsoever to the inception of the ATE policy and certainly no compliance with the provisions of CPD 19.4(3).

In Kutsi the facts related to the failure by the Claimant to provide information with regard to an ATE policy which had been taken out on 4 April 2007. The Defendant had not been notified of the existence of the policy until after the claim was settled. I distinguish the Kutsi decision on the facts of this case, which relate not only to the failure to give the relevant information concerning the ATE policy, but also a failure to comply with the provisions of the CPR and CPD in relation to notification concerning two CFA agreements.

The decision of Floyd J in Supperstone makes it clear at paragraph 39 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 will be refused relief. The test is that either a good reason has to be shown, or there has to be prejudice to the Defendant, but not both.

In granting relief from sanctions I am required to consider the factors set out in CPR rule 3.9:

The Claimant’s Solicitor admits that she made a mistake, referring to it “simply an oversight”. It is an open admission of fault on the part of the Claimant’s Solicitor in failing to provide the Defendant with the appropriate notice of funding.

Points of Dispute were served on 26 October 2009, making it plain the Defendant’s position regarding the Notice of Funding to which the Claimant responded in their Replies. Some six weeks after, in December 2009, there was an email exchange wherein the Defendant confirmed they maintained their objection. The Claimant’s application was dated 2 February 2009, and was made once a request for detailed assessment had been sought, but before the detailed assessment proceedings were listed for hearing, in June 2010. In all the circumstances I consider that whilst there has been some minor slippage or delay, the application has been made promptly.

I accept the evidence of the Claimant’s Solicitors at paragraph 21 of her witness statement, that the failure was not intentional.

On the facts of this case I prefer the submissions of the Claimant, and am satisfied that a “good” reason and explanation for the failure has been made out in relation to the CFAs but not in relation to the ATE policy. The Defendant was provided with the substance of the information required regarding the CFAs albeit not in strict accordance with sections 19.2 and 19.4(2) of the Costs Practice Direction. I incline to the view that the breaches in relation to the CFAs are more of a technical nature. The Defendant accepts they he has suffered no prejudice and would not have acted differently if form N251 had been served. In relation to the ATE policy the breach is more serious and I do not accept that a simple reference to “additional liabilities” is sufficient to infer that an ATE policy has been or will be incepted.

I accept the evidence of the Claimant, that in this case there has been no failure to comply with other rules relevant to the issues in this case.

In this case the failure was caused by the legal representative.

No trial date will be disturbed by the granting of this application.

The Defendant accepts that it has suffered no prejudice, save in relation to the detailed assessment proceedings where offers have been made prior to the Claimant’s application. In that respect any alleged prejudice, were I to grant relief from sanctions, can be dealt with at the conclusion of the detailed assessment proceedings by way of appropriate costs orders. In my judgment, were I not to grant relief from sanctions, the Claimant would suffer very real prejudice and be deprived of the opportunity in principle to recover a success fee and/or an ATE premium. The Defendant on the other hand would sustain a windfall.

In my judgment the purpose of the provisions of CPR and the relevant practice direction are to inform the parties to the litigation of the manner in which the proceedings are being funded, and to provide information to assist the disposal of the case in an efficient way. Almost from the outset in this case the Defendant was on notice that the matter was being funded by way of a conditional fee agreement, even though at that time the first agreement had not yet been entered into. The letter of 6 March 2003 makes it plain that additional liabilities (my emphasis) will be claimed for legal costs at the conclusion of the matter. “Additional liability” is specifically defined in CPR 43.2(2)(o) and means:

“The percentage increase, the insurance premium or the additional amount in respect of provision made by a membership organisation as the case may be.”

The Defendant could have been in no doubt from the outset of this litigation as to the basis of the Claimant’s funding of this case.

Of more significance, is the fact that the Defendant was informed of the existence of a conditional fee agreement in the Particulars of Claim served in March 2005. Reference to the existence of a CFA in the Claimant’s statement of case is something that the Defendant simply could not ignore. They could, had they wished, sought a Part 18 request for information in relation to the pleaded reference to the conditional fee agreement, but chose not to do so. Had a Defence been filed the Defendants would have had to plead to that issue or would have been deemed to admit it. This in my judgment is not a case where the Claimant’s Solicitor has simply failed to supply any information with regard to the existence of the conditional fee agreement until after the case has been disposed of, although notification of the existence of the ATE policy is another matter.

The Defendant has also been supplied with information as to the existence of the second CFA although in my judgment the changes occasioned by the second CFA are merely technical changes dealing with how the claim was to proceed now that the Claimant was a Patient and not a minor

So far as the ATE policy is concerned, I do not accept the submissions of the Claimant that the reference to “additional liabilities”in the letter of the 23^rd May 2006 and in the Particulars of Claim refers to the existence of an ATE policy, nor do I accept the evidence of the Claimant’s Solicitors at paragraph 15 of her witness statement:

“It must have been obvious to the Defendant from the previous references to additional liabilities and as a matter of common sense that there would be such a policy.”

In my judgment the failure to provide any details of the ATE policy, save for an oblique reference to “additional liabilities” renders this case more serious than that of Supperstone or Kutsi, insofar as the notification of the ATE policy is concerned.

I concur with the judgment of Langley J in Montlake, where, at paragraph 15 he states:

“… Essentially, in my judgment, LSH has from the outset had the information to which it was entitled and I cannot see any conceivable prejudice to LSH from the breaches of the practice directions nor has any prejudice been suggested save the failure to inform LSH whether or not there was an insurance policy available to Wasps in respect of the costs of LSH.”

In the circumstances, and for the reasons set out above, I grant relief from sanctions in respect of the additional liability claimed in respect of the first and second CFAs, respectively dated the 14^th November 2003 and the 1^st February 2006. In view of the failure by the Claimant’s Solicitors to provide any information with regard to the funding of the claim by virtue of the ATE premium, I am not minded to grant relief from sanctions in respect of the recovery of that premium, which will be disallowed when the matter comes to detailed assessment.

Accordingly, the Claimant can in principle recover an additional liability or success fee for the period or periods claimed in the bill of costs, subject to further argument at detailed assessment as to the reasonableness and level of success.

Finally, so far as the costs of this application are concerned, the Claimant has succeeded, and in principle should be entitled to his costs. Although I am prepared to hear further argument in relation to the matter, I would propose to assess the costs of this application at the detailed assessment, which is to take place in June 2010.