10 May 2022

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High Court grants relief from sanction over failure to notify defendants of success fee

Solicitors in 2012 would not have taken on a case like this without one, says judge

Birth injuries: Defendants admitted negligence prior to delivery

The High Court has granted relief from sanction to a law firm which notified the defendants in a clinical negligence case that it was acting under a conditional fee agreement (CFA) but did not mention there was a success fee.

Mr Justice Turner found the alleged impact on the defendants’ conduct of the case to be “illusory” and that no solicitor in 2012 would have taken on a case like this without one. He also provided guidance on the aspects of the Denton test.

In EXN v East Lancashire Hospitals NHS Trust & Anor [2022] EWHC 872 (QB), the claimant suffered from severe cerebral palsy as a result of the defendants' admitted negligence prior to her delivery in October 2011.

The claimant's solicitors, Price Slater Gawne (PSG), entered into the CFA on 6 March 2012; six weeks later, it informed the first defendant that the claimant was funded by way of a CFA. The letter of claim was sent in February 2018 – a delay not unusual in cases of this nature, Turner J noted – and the defendants made a full admission of liability. The case settled in December 2020.

The defendants claimed that PSG was in breach of the CPR by failing to notify it of the success fee, which could not be recovered as a result; the law firm said simply disclosing that it was acting under a CFA was sufficient. Last July, District Judge Hassall (as he then was) agreed with the defendants and declined to grant PSG relief from sanction.

Turner J said he agreed that PSG was in breach of paragraph 9.3 of the pre-action protocol: “The provision of a success fee is an integral part of the obligation to inform the other parties. The rule, properly construed, mandated unambiguous notice that such a fee was provided for in the CFA.

“PSG failed to do this and therefore remained in breach until 6 February 2018 when the letter of claim satisfied the requirements of paragraph 9.3.” Accordingly, PSG needed to ask the court for relief from the sanction.

On the first limb of the Denton test, the district judge said a failure to notify the other party of additional liabilities as soon as possible was a significant breach, adding: “I would have come to the decision I came to on significance irrespective any non-trivial duration of delay.”

Turner J said he would not have been as “emphatic” that any "non-trivial duration of delay" would render the breach significant, pointing out that the Court of Appeal in Denton “discouraged the deployment of a test of triviality at this stage”.

He went on: “Accordingly, although I may well have reached a different view, I do not consider that the district judge was wrong to find that the six year delay was, of itself, sufficient to render the breach serious.

“However, this means that the other factors potentially relevant to this issue (including materiality as opposed to duration) should be given no less weight because they fall to be considered under the third stage of Denton rather than the first.

Turner J said he was “unable to fault” DJ Hassall’s conclusion that there was no good reason for the breach. “I would, however, observe that reasons, rather like people, are not normally either wholly good or wholly bad.” Between the two ends of the spectrum – showing “contumelious disregard of an order of the court” and “entirely unavoidable” non-compliance – lay cases such as this “in which non-compliance, although culpable, is accidental and based on a genuine, albeit undoubtedly flawed, construction of the CPR”.

“It follows that it would distort the necessary flexibility involved in the exercise of a discretion to treat all bad reasons as if they were equally bad for the purposes of evaluating all the circumstance of the case at stage three.”

Turning to the third stage, Turner J noted that there were many factors were in favour of the solicitors, including that “PSG, in common with many solicitors at the time, believed that notice of the existence of a CFA with a success fee could, without breaching the requirements of paragraph 9.3, be postponed until they were, in due course, referred to in the letter of claim”.

This was even the view taken by the authors of the White Book until the Court of Appeal in Springer v University Hospitals of Leicester NHS Trust [2018] 4 WLR 61 “emphatically rejected this interpretation of the rules”.

But DJ Hassall “fell into error in concluding that the defendants sustained any prejudice of the type identified in Springer as a result of the default of PSG”. In Springer, there was a loss of opportunity of acting in a different and pro-active way because it had been unaware of the existence of any CFA for about two and a half years.

Here, the defendants knew how the case was being funded and there was no plausible suggestion they would have acted in a different way.

Further, the evidence pointed “overwhelmingly and inevitably to the conclusion that the defendants well knew that the CFA… would have provided for a success fee” and the defendants had not lodged any evidence to suggest the contrary.

In 2012, Turner J added, “it would have been wholly irrational for a firm of solicitors to take on a case of this nature without the benefit of a success fee”.

DJ Hassall also fell into error “in affording any significant weight to ‘inherent prejudice’ to the defendants arising out of or related to any notion that they were not fully aware of the existence of a success fee”.

“It was simply not open to [the defendants] to remain mute on the central issue as to their state of knowledge and then invite the district judge to treat the lacuna of information, for which they were directly responsible, as relevant to the speculative loss of a chance.”

Turner J granted relief from the sanction which would otherwise have followed from the operation of CPR 44.3B(1) from 17 April 2012 onwards.

Kevin Latham (instructed by Price Slater Gawne) for the claimant/appellant. Joshua Munro (instructed by Acumension) for the defendants/respondents.