Court of Appeal softens Mitchell guidance but insists no return to old culture of non-compliance

The Court of Appeal has today allowed appeals against a trio of judgments which it said did not correctly apply the well-known Mitchell guidance on relief from sanctions: Denton v TH White Ltd, Decadent Vapours Ltd v Bevan, Utilise TDS Ltd v Davies [2014] EWCA Civ 906.

In doing so it has taken the opportunity to clarify and amplify the Mitchell guidance (outlined here), which the court said remained "substantially sound" but had been misunderstood and was being misapplied by some courts. In particular, some judges were approaching applications for relief on the basis that, unless a default could be characterised as trivial or there was good reason for it, they were bound to refuse relief. That, the court said, was not the correct approach and was not what was said in Mitchell.

The court replaced the Mitchell guidance with a three-stage test, expressing the hope that this new guidance would avoid the need in future to resort to the earlier authorities (which have been numerous). In summary: (i) the court must identify and assess the "seriousness and significance" of the breach; (ii) the court must consider why the breach occurred; and (iii) the court must always have regard to all the circumstances of the case, a point that was being overlooked in some cases following Mitchell.

Interestingly, however, Lord Justice Jackson disagreed with Lord Dyson MR and Lord Justice Vos on the detail of this third aspect of the test. The latter considered that the two factors set out in CPR 3.9(1) (namely (a) the need for litigation to be conducted efficiently and at proportionate cost; and (b) the need to enforce compliance with rules, practice directions and orders) were to be given particular weight, whereas Lord Justice Jackson thought they were amongst the matters to be considered, no more no less.

The present judgment represents a clear softening of the approach adopted in many decisions following Mitchell, in which judges had taken an unduly draconian approach. The extent to which the court's approach has been relaxed should not however be overstated. The decision emphasises that there is to be no return to the "traditional approach of giving pre-eminence to the need to decide the claim on the merits". That approach should have disappeared, the court said, following the Woolf reforms and there was certainly no room for it in the post-Jackson era. Compliance, it seems, is still king.

However, at the same time as emphasising the need for strict compliance, the decision makes it clear that the courts are ready to penalise those who try to hold their opponents to what the court sees as an overly strict approach. Heavy costs sanctions will be imposed on those who unreasonably refuse to agree extensions of time or who unreasonably oppose applications for relief from sanctions. In this way the court hopes to put an end to the satellite litigation and non-cooperative approach that Mitchell has generated.

As a practical matter, in light of this decision litigating parties should continue to make every effort to comply with rules and court orders, as it is clear that the court will not allow a return to the old culture of non-compliance and therefore relief from sanctions may not be easy to come by. But parties should also think carefully before trying to make mileage out of an opponent's breach; such an attempt could backfire in the form of heavy costs sanctions.

The new test

The new three-stage test is as follows:

1. First, the court must identify and assess the "seriousness and significance" of the breach: this replaces the test of "triviality" derived from Mitchell and is intended to give a more flexible approach. If the breach is neither serious nor significant, relief will usually be granted and the court is unlikely to need to spend much time on the second and third stages. At this first stage, the court should concentrate on an assessment of the particular breach in question, though other breaches could come in to play at the third stage.
2. Second, the court must consider why the breach occurred, similar to the Mitchell test of asking whether there was "good reason" for the breach. It would be inappropriate, the court said, to produce an encyclopaedia of good and bad reasons. The judgment in Mitchell gave some examples (such as where a party or his solicitor suffered from a debilitating illness or was involved in an accident) but these were no more than examples.
3. Third, the court must evaluate all the circumstances of the case so as to enable it to deal justly with the application, including the two factors set out in CPR 3.9: (a) the need for litigation to be conducted efficiently and at proportionate cost; and (b) the need to enforce compliance with rules, practice directions and orders. The court must always have regard to all the circumstances of the case. The relevant factors would vary from case to case but might include the promptness of an application for relief and other past or current breaches.

A division of opinion

The decision was unanimous up to this point, but the panel parted ways in setting out the detail of the third stage.

Lord Dyson and Lord Justice Vos said that the two factors set out in CPR 3.9 were of particular importance and should be given particular weight when all the circumstances of the case were considered (though they resiled from the statement in Mitchell that they should be given “paramount importance": that had encouraged the idea that other factors were of little weight, rather than merely "less weight" as the court had said). Anything less would, they said, inevitably lead to the court slipping back to the old culture of non-compliance which the Jackson reforms were designed to eliminate.

Lord Justice Jackson, on the other hand, said the rule did not require these factors to be given greater weight than other considerations, though they had to be considered in every case. The weight to be attached to them was a matter for the court having regard to all the circumstances.

Satellite litigation and non-cooperation

The court recognised the satellite litigation and non-cooperation between lawyers that Mitchell had generated, expressing the view that this had been caused by a failure to apply Mitchell correctly. It pointed to CPR 1.3 which provides that “the parties are required to help the court to further the overriding objective”, saying that parties who opportunistically and unreasonably oppose applications for relief from sanctions take up court time and act in breach of this obligation.

"We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage. In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation. The parties should in any event be ready to agree limited but reasonable extensions of time up to 28 days as envisaged by the new rule 3.8(4)."

The court will be more ready in the future to penalise those who unreasonably refuse to agree extensions of time and unreasonably oppose applications for relief from sanctions through heavy costs sanctions, which the court said may go beyond an order to pay the costs of the application for relief. In an appropriate case, such conduct may be taken into account when costs are dealt with at the end of the case, so that the winning party's costs may be substantially reduced or the losing party may be ordered to pay indemnity costs.