Barrister Tom Restall warns that the CoA has raised the stakes by offering a ‘third way’ on costs after it attempted to provide clarity on the Mitchell ruling
The Court of Appeal’s (CoA’s) recent decision is more ominous than you may think
Some judges have been misunderstanding and misapplying Mitchell. So says the Court of Appeal in its very recent decision in the three conjoined appeals of Denton, Decadent and Utilise  EWCA Civ 906. This is now the leading case on how Mitchell should be interpreted. But there is a major sting in the tail.
The Court gives us a new three stage test for applications for relief from sanctions.
First, assess the “seriousness” or “significance” of the breach rather than whether it was “trivial”. Then, ask what the reason was for the default. Finally, consider all the circumstances of the case. A lack of a good reason for a serious breach does not automatically mean relief will be refused.
The factors specifically cited in rule 3.9 (need for litigation to be conducted efficiently and to enforce compliance) are no longer of “paramount importance” (per Mitchell) but “particular importance”. All in all, this is probably a slight watering down of the Mitchell approach.
But it is what the CoA then goes on to say that is more ominous.
Litigants have been “taking advantage” of minor non-compliance by the other side in order to gain a Mitchell windfall. They have been unreasonably opposing applications for relief from sanctions.
Such opportunism must be penalised. “Heavy costs sanctions” should be imposed on them. Paying the costs of the application may not be enough. The costs order at the end of the case may need to take this conduct into account. If the unreasonable respondent goes on to win the case, a “substantial reduction” in its costs recovery may be made. If it goes on to lose, it may be ordered to pay indemnity costs – thereby freeing the other party from their costs budget.
Surely that would only happen in an extreme case?
At present it is comparatively rare for judges to find that an interim application should have been conceded and therefore to impose a costs sanction. Yet the CoA pronounced, surprisingly, that “it should be very much the exceptional case” that a contested application for relief is necessary. In Decadent and Utilise, the court reversed the judges below, holding that relief should have been granted. The CoA then went further, saying that the other party ought to have consented to relief being granted.
This is harsh. It is one thing to penalise non-compliance with the CPR or court orders, because normally it is easy to understand what you must do to comply. By contrast, whether to agree an application for relief is potentially a very difficult question of judgment.
The merits of the applications in Decadent and Utilise were not obvious to the two experienced judges sitting in the High Court who dealt with them below. The court’s new guidance is unlikely to make the merits of most applications completely clear cut.
The strength of the court’s discouragement of contested applications may have broader consequences. If good applications for relief must be conceded, should weak ones not be made?
Perhaps respondents should seek costs penalties against litigants who make poor applications – even though that application might represent the applicant’s last chance of resurrecting his recently struck out claim. Whether this increased willingness to penalise unreasonable behaviour is applied to interim applications more generally remains to be seen.
The irony is that this aspect of the decision risks generating satellite litigation about satellite litigation (arguments about costs consequences of opposing procedural applications), which is the very type of thing the CoA wanted to avoid.
For both the perpetrators and the victims of non-compliance, the court has seriously raised the stakes.
Tom Restall, barrister, 9 Gough Square