Civil litigation brief

The judgment of Mr Justice Floyd in Supperstone v Hurst [2008] EWHC 735 (Ch) provides important practical guidance for those seeking, or opposing, an application for relief from sanctions imposed by the rules.

The facts

Supperstone was a case in which a trustee in bankruptcy was seeking an order for sale of the matrimonial home. The application for sale was successful and Mrs Hurst was ordered to pay costs. Part of those costs included a figure of 30 per cent for a success fee due under a conditional fee agreement between the trustee's solicitors and the trustee and £3,570 due under the terms of an after the event insurance policy.

The rules require that a party file and serve on the other party information about a funding agreement within seven days of entering into that agreement. It was common ground that the notice was served late. The trustee took out its insurance policy on 11 March 2005 and the premium was paid on that day. The CFA was not signed until 20 May 2005. The obligation was to give notice of the insurance policy within seven days of it being taken out. However it is not clear whether this applies to the date on which the policy was paid for or the date it came to be in force. The judge assumed it was the earlier date. Notice should, therefore, have been given by 8 March 2005.

In fact notice was not given until 24 May 2005, the date before an appeal hearing. It was given by email and was inadequate in a number of respects.

• Service by email was not good enough under the Civil Procedure Rules.
• The Notice of Funding was not signed.
• The Notice of Funding did not contain the address of the insurer and the policy number as required by the practice direction.

Notwithstanding the defects the court exercised its discretion, gave the trustee's solicitors relief from sanction, and ordered the additional sum and the insurance premium to be paid.

The grounds of appeal

The first ground of appeal was that there was no evidence to support the explanation for late service of the notice. The Master, at first instance, was satisfied that the failure to give notice was not intentional. The reason for late service was because the trustee's solicitors believed the relevant date was the date that the policy came into force. The reason for service by email was that the parties had been habitually communicating by email and it was believed that the defendants' solicitors would accept service electronically.

Mr Justice Floyd did not interfere with the Master's discretion on this point. The Notice of Funding itself gave the date of the policy as commencing on 20 May, the copy document lodged at court was signed by the trustee's solicitors.

The second ground of appeal was that there was no evidence that Mrs Hurst was not prejudiced. When asked about this by the Master the Hursts' reply was that prejudice was irrelevant. On appeal it was suggested that a properly served notice would have altered their stance in negotiations.

The judge rejected the argument that it was for the applicant for relief to put forward a witness statement asserting that there had been no prejudice. The trustee had made it clear that he was making an application for relief from sanction. It was open to the Hursts to put material before the court to defeat the application. It did not require a witness statement from the trustee saying, in his opinion, the defendants had suffered no prejudice. Finally there was a submission that to allow relief from sanctions was to send out the wrong message. Relief should be restricted to very strong cases and depriving the trustee of additional costs was an appropriate financial penalty for the failure to observe the rules.

The judge stated: '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 normally be refused. It is vitally important to the administration of justice that the rules of procedure are observed.

'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 I have indicated then it is not open to challenge the grant of relief by way of appeal.'

Lessons to be learned

The fundamental lesson here is for anyone acting under a Conditional Fee Agreement, or who has a relevant insurance policy, to serve the notice as soon as possible. The second lesson is to serve the notice properly, in accordance with the rules and properly completed. The third lesson may be that anyone objecting to an application for relief from sanctions must put in evidence of prejudice. Finally it appears that actual evidence of prejudice may, in many cases, provide compelling reasons for refusing relief from sanctions.