Robinson -Tait & Anor v Cataldo & Anor

This is my decision on two applications made by the First Claimant in these proceedings for relief against sanctions. Both applications relate to the Claimants’ solicitor’s failure to comply fully with the Costs Practice Direction requirements as to the giving of a Notice of Funding regarding an after-the-event (“ATE”) insurance premium and regarding certain conditional fee agreements (“CFAs”) with success fees.

The claim form, which was issued in November 2007, related to the beneficial ownership of a villa in Sicily, formerly owned by the First Claimant’s husband. After his death, the First Claimant had granted a power of attorney in respect of the villa to the First Defendant. Subsequently, the First Defendant had arranged a sale of the villa for the benefit of the Second Defendant, his daughter. At a case management conference in October 2008, permission was given for the joinder of the Second Claimant, who is the son of the First Claimant and who is still a child. The Second Claimant was joined on the advice of Italian lawyers which was to the effect that, under the Italian law of intestacy, the Second Claimant was entitled to a 50% interest in the villa.

Before giving details of the Notice of Funding that was served in this case, and the complaints the Defendants make of it, it is convenient to outline the progress of the dispute from start to finish. The events complained of in the Particulars of Claim occurred in 2002. At that time there was correspondence between the First Defendant and a dual qualified English/Italian solicitor instructed by the First Claimant. That correspondence did not resolve the matter and the First Claimant later turned to other solicitors. The senior solicitor who now represents her, Mr Irvine, has done so since the summer of 2003. In July 2003 he obtained Counsel’s written advice and, in March 2004, he attended Counsel in conference with the client. In November 2004, Mr Irvine entered into the first of three CFAs he has made with the First Claimant. This first CFA was made in his capacity as a partner in the firm of Collyer Bristow. That CFA endured until the end of May 2005 when Mr Irvine became a partner in Wallace LLP, and took the client to that firm. Under the currency of the first CFA, Mr Irvine obtained the further written advice of Counsel and made efforts to obtain ATE insurance. During Mr Irvine’s first 13 months with Wallace LLP, he acted for the First Claimant on non-CFA terms. According to the bill before me, most of the work done in that period related to attempts to secure ATE funding. In July 2006, the First Claimant and Wallace LLP entered into a second CFA which lasted just four months, until Mr Irvine set up in practice in his own firm, Irvine & Partners. According to the bill, the work being undertaken during those four months, again consisted mainly of attempts to obtain ATE insurance.

The third and final CFA between Mr Irvine and the First Claimant is dated 1 November 2006. According to the bill before me, draft Particulars of Claim were settled by February 2007 and after a further conference with Counsel in March 2007, further work was done on the Particulars of Claim in April and July 2007.

On 31 July 2007 an ATE insurance policy was taken out with QBE Insurance (Europe) Ltd. The policy provided for a limit of indemnity of £125,000, for which a staged premium was payable. If the case settled before issue of proceedings, the premium would be £4,357.50. On issue of proceedings, the premium would be £19,057.50 and this is the sum claimed in the bill before me. Had the case got within 60 days or less before trial, the premium would have been £41,475.

By November 2007 Mr Irvine had in place a CFA, an ATE policy, the settled Particulars of Claim, and the issued claim form. However, the claim form and Particulars of Claim were not served until February 2008, and no letter before claim or other correspondence was entered into with the Defendants before service. At the hearing I was told that this was because the Claimants’ solicitors feared that, had they warned the First Defendant of the prospect of litigation in this country, he might then have pre-empted those proceedings by applying to the Italian courts for a declaration of non-liability. Under EU law the first court seised with a matter would have had sole jurisdiction in that matter. I am told that this point had been raised by Counsel in his first written advice and had been repeated later in conference.

The progress of the claim after service in February 2008 was comparatively swift. On 23 April 2008 the Defendants lost an application for further information of the Particulars of Claim and a short extension of time was given for service of the Defence. The Defence was served on 2 May 2008, both sides filed allocation questionnaires by mid-June 2008. On 11 July the Defendants made an offer to settle in the sum of £92,404.60 including costs. At a case management conference on 1 October 2008, full directions were given for a trial to take place between June and October 2009, with a time estimate of four days. In December 2008, the Claimants made a Part 36 offer of £80,000, plus interest, plus costs, which offer was accepted in principle in January 2009, and was approved on behalf of the Second Claimant at a hearing in April 2009. At that hearing the Defendants were ordered to pay the Claimants the sum of £50,000 on account of costs.

The amended bill of costs in this matter totals £246,740.78. The items which relate to the applications for relief against sanction are the ATE premium, approximately £19,000; and the success fees claimed under the first two CFAs, of approximately £4,000.

To date the Claimants have given only one formal Notice of Funding: this Notice is dated 4 February 2008 and was served along with the claim form and the Particulars of Claim. It refers to a CFA dated 29 November 2006 which provides for a success fee. No mention is made of the ATE policy taken out the previous July and no mention is made of the CFAs previously made with Mr Irvine in respect of Collyer Bristow’s fees and Wallace LLP’s fees. Mr Irvine has put before me three witness statements in support of his applications. In the first he describes the mistake as to the ATE policy as follows:

“[7] … notice of the CFA in form N251 was served on both Defendants, together with the particulars of claim, on 4 February 2008. I fully intended that the Notice should inform the Defendants, both of the CFA and provide the information required concerning the ATE policy. This information is included in the handwritten draft form N251 that I prepared for engrossment in my office. For reasons that I cannot fully explain, this part of the form was not transcribed and the Notice was served without the ATE information. As far as I can ascertain, the form was typed by a temporary secretary who omitted this part of the form. I was involved in a trial at this time, and consequently extremely busy. As such, I missed the error when signing and submitting the form to the Defendant. I very much regret the omission”.

In relation to the failure to disclose the earlier CFAs, Mr Irvine explained in his second witness statement as follows:

“[3] The Claimant’s application dated 4 March 2010 seeks relief from sanctions, should relief be required, for a failure to give notice of the two previous CFAs, ie those with Collyer Bristow and Wallace LLP. … If relief is required, I ask for it primarily on the basis that when serving Notice of the CFA, as I did on both Defendants on 4 February 2008, my understanding of the rules was that I needed to give notice only of the extant CFA, ie that dated 29 November 2006 between the First Claimant and Irvine & Partners. The two previous CFAs with Collyer Bristow and Wallace LLP, having come to an end, I concluded that there was no requirement to give separate notice of them.”

Lengthy and familiar as they are, I think I must now set out several provisions of the CPR and Costs Practice Direction, which relate to applications for relief against sanctions such as those now before me. CPR 44.15(1) provides as follows:

“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.”

In CPR 43.2 the term “additional liability” is defined to include a percentage increase payable as a success fee under a CFA and any insurance premium paid or payable in respect of an after the event policy of insurance.

In this case, no complaint is made about the time of service of Form N251, but only as to its content. Paragraph 19.4 of the Costs Practice Direction identifies the information which should have been provided in that Notice, unless the Court otherwise ordered. This part of the practice direction has recently been amended and therefore I here set out the version applicable in the year 2008.

“19.4

[1] Unless the Court otherwise orders, a party who is required to supply information about a funding arrangement, must state whether he has –

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

taken out an insurance policy to which Section 29 of the Access to Justice Act 1990 applies;

made an arrangement with a body which is prescribed for the purposes of Section 30 of that Act;

or, more than one of these.

[2] Where the funding arrangement is a conditional fee agreement, the party must state the date of the agreement and identify the claim or claims to which it relates (including Part 20 claims, if any).

[3] Where the funding arrangement is an insurance policy, the party must state the name and the address of the insurer, the policy number and the date of the policy, and must identify the claim or claims to which it relates (including Part 20 claims, if any).

[4] Where the funding arrangement is by way of an arrangement of a relevant body, the party must state the name of the body and set out the date and terms of the undertaking it as given and must identify the claim or claims to which it relates (including Part 20 claims, if any).

[5] Where a party has entered into more than one funding arrangement in respect of a claim, for example a conditional fee agreement and an insurance policy, a single notice containing the information set out in form N251 may contain the required information about both or all of them.”

Non-compliance with the Costs Practice Direction is punished by CPR 44.3B which provides as follows:

“[1] A party may not recover as an additional liability –

… (c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or Court order; …”

As the applications for relief against sanctions, paragraph 10.1 of the Costs Practice Direction draws attention to CPR 3.9, which rule provides as follows:

“3.9(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, Court orders and any 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 the likely trial date can still be met if relief is granted;

(h)

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

(i)

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

In his first and second witness statements Mr Irvine deals in some detail with each of the matters listed in CPR 3.9.

In the final hearing before me, counsel for the Claimants did not seek to argue that there was no requirement to give notice of the first and second CFAs in this case. In my judgment he was right not to advance such an argument. To my mind the Costs Practice Direction, paragraph 19.4, clearly obliges parties to give notice in respect of all relevant funding arrangements, whether they be multiple ATE insurance policies, or multiple CFAs between a litigant and his legal representative. This much is made plain by the last line in paragraph 19.4(1) and by paragraph 19.4(5).

Counsel for the Defendants opposed any grant of relief against sanctions in two main ways. First, reliance was placed on a dictum of Floyd J in Supperstone v Hurst [2008] EWHC735(CH):

“I agree that relief and sanctions should not be granted lightly and any party who fails to comply with 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.”

Counsel for the Defendants submitted that there was no good explanation for any of the failures by the Claimants in this case. As to the failure to disclose the ATE policy, the explanation given was that the fee earner concerned had been too busy to settle a proper Notice of Funding, something that should have taken no more than six minutes of his time. The failure to disclose the earlier CFAs was simply a misunderstanding of the effect of the practice direction.

The second challenge, which arose in going through each of the list of factors set out in CPR 3.9, was to place emphasis upon the prejudice caused to the Defendants. He submitted that the failure to serve a proper Notice of Funding had subjected the Defendants to significant prejudice in the form of an information imbalance between the parties. The Defendants had been refused proper information funding, to which they were entitled and had therefore been forced to negotiate settlement on the basis of misleading and inadequate information. Although some information was supplied later (as I shall describe in the relation to the case made by the Claimants) the Claimants never supplied the complete information to which the Defendants were entitled until the day before the final hearing before me. The information imbalance concerning the failure to disclose the earlier CFAs was made all the more serious because of the Claimants’ decision not to follow any pre-action protocol stage: there is a separate obligation in the pre-action protocol direction to give notice of any additional liabilities that may be claimed.

In seeking relief against sanctions, counsel for the Claimants drew attention to several other indications the Claimants’ solicitors had given as to the existence of ATE and, also, as to the possible existence of costs incurred by earlier firms of solicitors. In a letter dated 14 July 2008, Mr Irvine had responded to several requests for information made by the Defendants’ solicitors, as follows:

“It is difficult for us to give you an accurate estimate of costs, both because we are not the only firm to advise the Claimant under a CFA, and because preparations for trial are continuing apace, with a result that costs are continuing to increase rapidly. However, as at today’s date, the base cost of this firm total approximately £25,000 plus Counsel’s fees of £13,800 plus VAT and other disbursements, principally Court fees. Counsel is also acting under a CFA. In addition, there must be added the premium for the ATE policy acquired before the institution of proceedings. The cost of the policy depends largely on the time in the action at which settlement is achieved or judgment obtained.”

Receipt of that letter by the Defendants meant that the existence of ATE insurance was disclosed, albeit some five months later than the practice direction requires, and without the full particulars (eg as to the name and address of the insurer, the policy number and the date of the policy). Mr Irvine sent a second letter to the Defendants’ solicitors dealing with ATE insurance on 23 October 2008:

“As we believe you are aware, our client has the benefit of ATE cover. This policy is effected with QBE Insurance (Europe) Ltd. It is a staged premium policy. One premium was payable after the institution of proceedings, but if the claim settles no more than 60 days before the date listed for the commencement of the trial. A higher premium is payable if the claim is settled 60 days or less before the beginning of the trial.”

In his first witness statement (paragraph 12) Mr Irvine explains that he sent this letter at the request of the insurers who were concerned that the Defendants should be made expressly aware that the premiums were stepped. Unhappily, this disclosure also failed to supply formal details of the insurance, but it did supply the name of the insurer.

The solicitors for the Defendants replied to the letter of 14 July 2010, and other correspondence, on 22 August 2008 on terms which clearly indicate their then awareness of the existence of insurance and the existence of earlier firms of solicitors.

“Given that we received no pre-action correspondence in this matter, whether from your firm or any other firm instructed by the Claimant, we are surprised to note that other firms have acted on this CFA for the Claimant. Please could you identify the firms and the extent of their costs? …

You give no figure for the premium of the ATE policy, nor even a bracket of figures. …

We raise these points with you to give you a further opportunity to be constructive and to provide answers. If you fail to do so, we shall bring this correspondence to the Court’s attention on any cost assessment hearing and explain that your … as such as to preclude the opportunity to make an offer that may be effective as to costs, and that all adverse inferences should be drawn from this in relation to the discretion that may be exercised on matters relating to costs”.

Both sides sought to find support for their case in the advice the Defendants’ solicitor gave by email dated 26 March 2008 to his clients which, amongst other things, explained the effect of the Notice of Funding as to CFAs and ATE insurance. In his witness statement (paragraph 3.1) Mr Duncan McNair stated as follows:

“On 5 February 2008 the First Defendant passed to me a letter addressed to him dated 4 February 2008 from Irvine & Partners to which was attached particulars of claim and also a Notice of Funding. … in particular I did not consider that there was any after the event (“ATE”) insurance in place, as none of the boxes on the standard N251 Notice of Funding of Case form indicated that that was the position. Naturally therefore, I assumed that there was no ATE insurance, nor therefore any ATE premiums. Nothing in Irvine & Partners’ correspondence at that time suggested that there was any ATE insurance in place. Indeed, I gave some immediate advice to the First Defendant … discussing the basic principles of a CFA arrangement, but not giving advice about any ATE insurance, since it seemed plain to me that there was none in place. By email to the clients dated 26 March 2008 (at page 3) I gave more detailed advice, following telephone discussions with Mr Cataldo on these issues, which we both regarded as highly important to the case as we went forward. It can be seen from the email that I referred (at the first paragraph) to just a single CFA agreement being in existence; and also (at the fourth paragraph) to my understanding that there was no ATE insurance policy in place”.

In the email dated 26 March 2008 just referred to, the first paragraph explains that the Claimant was pursuing the case with the benefit of a (that is to say, a singular) conditional fee agreement. The fourth paragraph is as follows:

“In order for a party suing who has the benefit of a CFA to protect their position in the event that there may in the future be an order for costs made against them, normally that person would take out an insurance policy (called an “After The Event” policy), against the payment by them (or their solicitors) of an insurance premium, so they receive cover against an “adverse costs order”, ie an order might be made in the future whereby the costs of their opponents should be paid by that party. In this case it seems that no such insurance policy has been taken out (at least according to the terms of the Notice of CFA served upon you when the proceedings themselves were served). Thus [the First Claimant] does run a risk that in the event (albeit we believe this is not very likely) that she did not obtain any damages or compensation in this case, she would be liable to have to pay your legal costs, because you have won the case”.

Counsel for the Claimants placed emphasis on the words “at least according to the terms of the Notice of Funding” in this email which left open the possibilities that the Notice of Funding might be wrong, or that insurance might be taken out later.

Counsel for the Claimant also drew my attention to the guidance given by the Court of Appeal in earlier cases which are not expressly referred to by Floyd J in Supperstone v Hurst. This guidance is most conveniently summarised in the judgment of Arden LJ in CIBC Mellon Trust Co v Stolzenberg [2004] EWCA Civ 827:

“Conclusions on the discretion issue;

(a)

Legal principles relevant to CPR 3.9.

We have not been shown any authority in which there has been an application under CPR 3.9 to set aside a judgment entered in default of compliance with an order of the Court. However, in Woodhouse v Consignia plc [2002] 1 WLR 2558, Brooke LJ gave the following guidance as to the manner in which a Court should approach the task of applying CPR 3.9 in the context of deciding whether to lift an automatic stay:-

"32.

This rule is a good example of the way in which the draftsman of the Civil Procedure Rules has sometimes endeavoured to set out in a codified form the various matters which the Court may have to take into account when deciding how to exercise its discretion in a context with which it will be all too familiar. One of the great demerits of the former procedural regimes was that simple rules got barnacled with case-law. Under the new regime the draftsman has sought to dispense with the need for litigants to be familiar with judge-made case-law by drawing into one place the most common of the considerations a Court must take into account when deciding whether a litigant should be granted relief from a sanction imposed on him.

33.

The circumstances in which a Court may be asked to make a decision of this kind are infinitely varied. This is why the rule instructs the Court to consider all the circumstances of the particular case, including the nine listed items. On the other hand, the rule would lose much of its praiseworthy purpose of encouraging structured decision-making if Courts did not consciously go through the exercise of considering all the items on the list when determining how, on balance, it should exercise its discretion. Provided it does so, and in this way ensures that the risk of omitting any material consideration is minimised, it is most unlikely that an Appeal Court will interfere with its decision. If it fails to do so, an Appeal Court may not be able to detect that it has taken all material matters into account, and it may be obliged to exercise its discretion afresh for this reason."

In Flaxmann-Binns v Lincolnshire County Council [2004] EWCA 424, also involving an application to lift an automatic stay, this Court (Lord Phillips MR and Clarke and Jacob LJJ) endorsed that guidance adding only the following dictum of Mance LJ in Hansom and others v Makin and Wright [2003] EWCA Civ 1801 at paragraph 20:-

'… at the end of the day, the right approach is to stand back and assess the significance and weight of all relevant circumstances overall, rather than to engage in some form of 'head-counting' of circumstances."

The dictum of Mance LJ makes it clear that although the Court must go through each of the matters in the list in CPR 3.9 as a separate and distinct exercise the result is not ascertained by adding up the "score" of either side on each point. If that were the right method, there would be a danger of double-counting. The object of CPR 3.9 is to ensure that all the right questions are asked. That produces "structured decision-making". In addition to going through the subparagraph of CPR 3.9, the Court must ask itself if there are any other circumstances that need to be taken into account. However, having done all this, the Court is then also required to stand back and form a judgment to the aggregate of the relevant circumstances that have been identified in going through the list to see whether it is in accordance with the overriding objective in the CPR to lift the sanction. This overall "look see" is simply the overriding objective in action”.

Having considered as carefully as I can the submissions made to me by counsel for both sides, I have reached the conclusion that, in exercising the discretion whether to grant relief against sanctions, I should apply the guidance given by the Court of Appeal and I should not treat the dictum of Floyd J in Supperstone v Hurst as an authoritative restatement of it. CPR 3.9 gives a list of factors, all of which must be considered. None of them amount to a pre-requisite to the grant of relief, or indeed to its refusal. I do not accept that it is usually necessary for an applicant for relief to show a good explanation for his failure to comply with a rule, practice direction or Court order before obtaining that relief. Indeed, a moment’s reflection will show that there are in fact very few good reasons for failing to comply with rules, practice directions or Court orders. Although the quotation from Floyd J’s judgment in Supperstone v Hurst, relied on by Counsel for the Defendant, appears to say that the giving of a good reason is usually required if an application for relief is to succeed, I think that quotation has been taken out of context. This is perhaps most readily demonstrated by the facts of Supperstone v Hurst itself. The failures to comply with the Cost Practice Direction in that case, and the explanations for those failures which were given, were as follows:

(i)

Delay in giving notice: the Claimant’s solicitor assumed that the obligation to give notice did not arise until the ATE policy came into effect, some nine days after it was incepted (see Judgment paragraph 23).

(ii)

Failure to give to the address of the insurer and the policy number: there was a clear intention to give a correct notice, the failures were caused simply by omission (Judgment paragraph 27).

(iii)

Failure to serve by the correct method: the Claimant’s solicitor thought that the Defendant would accept service electronically (see again Judgment paragraph 27).

The full context in which the quotation from Floyd J appears is as follows:

“(38)

Mrs Hurst also argued that to allow the Respondent relief from sanctions was to send out the wrong message. It was submitted that unless relief from sanctions was restricted to very strong cases, such as those where an applicant had a cast iron excuse or those where to refuse relief from sanction would be to deny a party a fair trial, the result would be that rules would simply not be complied with. He said in this case there was no explanation and it could not be said that depriving the Respondent of these items of costs was anything other than an appropriate financial penalty for the failure to observe the rules.

(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.

(40)

It is nevertheless inescapable that the rules give the Courts the power to grant relief from sanction. Provided that power is exercised in accordance with the rules and the exercise of the discretion in granting or refusing relief is not flawed in any of the ways that I have indicated then it is not open to challenge the grant of relief by way of appeal.

(41)

I therefore dismiss the appeal”.

The full quotation I have made indicates to me that Floyd J did not accept the proposition that relief from sanctions was restricted to very strong cases such as those where the applicant had a cast iron excuse, or those where to refuse relief from sanction would be to deny a party a fair trial. However, I do accept that the quality of an explanation on the one hand and the degree of prejudice suffered by the opposing party on the other can be determinative factors. In those very rare cases in which the applicant can show a good explanation for his failure, relief against sanctions is likely to follow. However, in cases in which the opposing party can show real and substantial prejudice, relief against sanctions is much less likely to be given, even if the applicant can show a good explanation for his failure.

In my judgment the Notice of Funding given by the First Claimant in this case was inadequate in two major respects: it failed to disclose full details of the ATE policy, and it failed to disclose the existence of the earlier CFAs. As to all of these failures, the quality of the explanations given for them do not count in favour of the grant of relief. However, looking at the various factors overall, I think that relief should be granted in respect of all of these mistakes. The mistake as to earlier CFAs was small and of little significance. The mistake as to the ATE policy was much larger but, in my judgment, in fact caused the Defendants no prejudice in this case (factor (h)), and the mistake was to a large extent remedied within a few months of commencement and before the compromise was agreed. I do not accept that the information imbalance between the parties which Counsel for the Defendants relied upon is a significant factor in this case. If it were, then it is unlikely that relief against sanctions would ever be given as to mistakes as to Notices of Funding, and plainly that would be disproportionate. The information the Defendants were seeking included the amount of insurance premium paid and the amount of percentage increase by way of success fee likely to be claimed. This was information the Defendants would not be entitled to until after conclusion of proceedings. I detect from the Defendants’ solicitor’s advice to his clients (summarised above) an awareness that the Claimant might later claim an ATE premium in addition to success fees which, as a matter of tactics, the Defendants would be able to oppose.

In my judgment, the failures to comply with the Cost Practice Direction requirements in this case, were of a minor nature which have had no substantial effect on the Defendants about which they are entitled to complain. The main substance of the information the Defendants were entitled to receive was disclosed (informally) within the first few months of commencement. The further details (the policy number, the date of the policy, and the claims to which it related) although supplied much later, are of much less significance. The administration of justice is not put in jeopardy by the mistakes made in this case. Those mistakes, made by the solicitor, not his clients, were not made intentionally. That solicitor’s compliance with other rules, practice directions and Court orders in this case is not open to serious criticism.

In these circumstances I will grant to the Claimants the full relief against sanctions sought on their behalf.

I intend now to fix a date for hearing argument as to the cost of these applications, unless those costs can be agreed. I invite the parties to defer any such argument until the detailed assessment of the bill herein, which I have provisionally appointed for 2 consecutive days commencing Thursday 17 June 2010, starting at 11 a.m. each day.