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CA rejects law firm’s bid to reverse relief granted over funding notice failure

Appeal court: focus on the effect of the breach [1]

Appeal court: focus on the effect of the breach

Mishcon de Reya has failed in its bid to overturn the grant of relief from sanctions made in favour of claimants who are suing the London law firm for professional negligence but failed to serve their funding notice in time.

In rejecting its appeal [2], the Court of Appeal said it was not right to say that courts should consider the impact of granting relief on the conduct of the litigation, as well as the effect of the default or breach.

The claim is being brought by former Mishcon clients over the alleged loss of chance to obtain £5m when selling their interests in corporate entities that owned football club Queens Park Rangers.

The letter of claim was sent in December 2009, after which pre-action correspondence continued for some years. In February 2013, the claimants switched lawyers from Charles Fussell & Co to DLA Piper and entered into conditional fee agreements with the firm and counsel, and an after-the-event (ATE) insurance policy.

It should have notified the defendant within seven days but only did so in June 2013. DLA described the failure as an innocent oversight.

It issued the claim a week later and also applied under CPR 3.9 for relief from sanctions, which was opposed by Mishcon.

After delays due first to the Mitchell ruling and then Denton, Mr Justice Hildyard eventually granted relief, saying: “Whilst the default in this case was serious in the sense that it occurred in respect of a rule for which an automatic sanction is imposed in the event of its breach, I do not consider in the round that it occasioned serious and/or significant adverse effect on the efficient conduct and progress of this litigation nor of the conduct and progress of other litigation in these courts.

“Despite the need to encourage compliance, I do not consider it would be just to withhold relief from sanction.”

Mishcon appealed. At stake was the uplift on costs incurred in the period between the seven days and the actual notification – about £45,000 of DLA’s costs and £17,000 of counsel’s, along with an ATE premium that could potentially be as high as £1.43m.

Giving the appeal court’s ruling, Lady Justice Gloster dismissed several grounds of challenges to Hildyard J’s judgment, including the contention that he had accorded no or inadequate weight to the evidence that if relief was granted, the costs of the proceedings could be increased by £1.43m.

“I am not persuaded that the distinction which the appellants [Mischon] seek to draw is well-founded,” said Gloster LJ. She noted that one of the conjoined cases in the Denton ruling involved the late filing of a costs budget, a situation that was “analogous to the present case” given the sanction that attached to such a failure, and that the Court of Appeal there had focused on the effect of the breach, and not on the consequence of granting relief.

She continued that even if in appropriate circumstances it would be relevant to look at any increase in costs caused by the grant of relief, here it did not help Mishcon because the costs of the litigation would be the same – the ATE would still be payable, just by the claimants.

Gloster LJ was also unconvinced by the submission that Hildyard J did not give enough weight to the possibility of the claimants recovering their losses from DLA.

She said: “Even if the claim against DLA was unanswerable, he was nonetheless was entitled to take the view, in the light of the comments made in paragraphs 21 and 41 of Denton, and in all the circumstances of the case before him, that it was preferable to grant relief, rather than encourage what would inevitably be satellite litigation involving the respondents suing their own solicitors.

“The appellants’ complaint that the beneficiaries of such relief were the respondents’ solicitors, rather than the respondents themselves, is also somewhat unrealistic. In reality, of course, on the hypothesis that DLA was negligent, the likelihood is that any detriment caused as a result of the grant of relief from sanctions (in the event that the appellants were to be ultimately unsuccessful at trial) will be that of the appellants’ professional indemnity insurers, and the benefit of any relief from sanctions will enure to DLA’s professional indemnity insurers.”

Lords Justice Patten and Christopher Clarke agreed.