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Notification of Funding Mandatory or merely a good idea Since
Notification of Funding: Mandatory or merely a good idea? Since the Access to Justice Act 1999 was implemented, successful litigants have been able to recover the additional costs associated with a Conditional Fee Agreement (CFA) from their opponent. However, this was subject to the requirement to notify one’s opponent in advance that a case was being funded by way. A failure to comply with this requirement would prevent a party from being able to recover any success fee and after the event insurance (ATE) policy. In practice, however, this is not always the case. The Rules The basic rule is set out in CPR Rule 44.15(1): ‘A party who seeks to recover an additional liability must (my emphasis) provide information about the funding arrangement to the court and to other parties as required by a rule, practice direction or court order.’ This is supplemented by CPR Rule 44.3B(1): ‘A party may not recover as an additional liability(c) any additional liability for any period of the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order.’ The details as to the notification required are set out in the Costs Practice Direction at section 19. In summary: • • • A party must serve a Notice of Funding (N251) on their opponent with the Claim Form. The N251 must state whether the case is funded by a CFA and/or an ATE policy together with the date of the same and details of the insurer where applicable. There is no requirement to provide notification prior to the issue of proceedings, but such notification is recommended and may be required by a pre-action protocol. Finally, the Practice Direction to the Pre-Action Protocols, at section 4A.1, adds: ‘Where a person enters into a funding arrangement…he should (my emphasis) inform other potential parties to the claim that he has done so.’ Two issues have arisen in relation to these provisions. Firstly, what is the position with regards to notification pre-proceedings and, secondly, when will the Court exercise its discretionary powers under CPR 3.9 to provide relief from sanctions to a defaulting party for failing to comply with the above requirements? Surprisingly, there has been no definitive ruling from a higher court on either of these issues, but there has been a number of cases which, not unsurprisingly, have provided varying answers to these questions. Notification pre-proceedings The issue in relation to pre-proceedings notification can be simply stated as whether notification is mandatory or merely recommended. In Bainbridge v MAF Pipelines Ltd. (2004), District Judge Arkless held that the requirement in the Practice Direction to the Pre-Action Protocol that a party ‘should’ provide notification was mandatory: ‘Essentially in this context “should” equals “must”’ (at paragraph 14) A failure to provide notification to the Defendant pre-proceedings, therefore, prevented the Claimant from recovering any additional liabilities. By contrast, in Metcalfe v Clipston (2004), Master Campbell came to the opposite conclusion: ‘I would construe should as meaning “ought to” which is not the same as “has to” or “must” (paragraph 49) He therefore concluded that whilst it would be good practice if a party provided notification pre-proceedings, a failure to do so did not result in any sanctions on the defaulting party. The same conclusion was reached in the unreported cases of Hardcastle v Leeds and Holbeck Building Society (2002) and Choudhury v Kingston Hospital NHS Trust (2006). The issue once again came before Master Campbell in the recent case of Cullen v Chopra (2007). This was a clinical negligence claim against the Claimant’s GP. The Claimant entered into a CFA on 24th January 2005 and a Letter of Claim was sent to the Defendant on 8th September 2005, some 8 months later. With the Letter of Claim was an N251 advising the Defendant that the matter was, and had been since January, funded by way of a CFA. The matter settled in favour of the Claimant and costs were sought, to include a success fee from the date of the CFA. The Defendant objected to having to pay a success fee for the period between January and September, arguing that there was an obligation on the Claimant to provide notification to the Defendant at the outset and a failure prevented the Claimant from recovering any success fee for the period when notification had not been provided. Not surprisingly, Master Campbell, having already reached the conclusion that pre-proceedings notification was merely recommendatory in Metcalfe, reached the same conclusion and declined to penalise the Claimant for failing to notify the Defendant of the existence of the CFA until the Letter of Claim was sent. Relief From Sanctions Where a court finds that a party has failed to comply with the requirements to provide notification of the existence of a CFA, they retain a discretion under CPR 3.9 as to whether to grant relief from sanctions and, contrary to rules 44.15(1) and 44.3B(1)(c), allow the defaulting party to recover a success fee and/or ATE premium. In Montlake v Lambert (2004), the Claimant notified the Defendant in the Letter of Claim that the matter was being funded by way of a CFA. However, when proceedings were issued, they failed to serve an N251. The issue of notification was raised by the Defendant in their skeleton argument a few days prior to the Detailed Assessment Hearing and shortly thereafter, the Claimant made an application under CPR 3.9 together with a supporting witness statement. The application was successful. Langley J held that the Defendant was well aware of the funding position and had suffered no prejudice from the failure and the Claimant would therefore be granted relief and allowed to recover the success fee. In stark contrast is the case of Connor v Birmingham City Council (2005). The facts were similar to Montlake, save that the Claimant did not make the application for relief until the Detailed Assessment hearing. Judge Hamilton QC was far less accommodating of the Claimant: ‘It seems to me that if a litigant is going to take advantage of the mechanism for financing litigation through a conditional funding (sic) agreement, with success fees and so on, it is incumbent on him to comply strictly with the rules.’ (at paragraph 12) Even thought the Defendant was aware of the CFA and despite being unable to demonstrate any prejudice as a result of the Claimant’s default, the Court refused the application for relief and disallowed the success fee. ‘To suggest that prejudice is the only factor, or the determinative factor in this matter, however, would in my judgment be mistaken’ (at paragraph 10) Similarly, in Metcalfe (supra), Master Campbell opined that, had he held that preproceedings notification was mandatory, he would have refused any application for relief from sanctions. In relation to the issue of prejudice, he held that it was not necessary for the paying party to demonstrate a tangible prejudice: ‘The fact remains that the Claimant’s costs were running up at double the usual rate, and this was a factor the Defendant was entitled to know about.’ (paragraph 73) Recently, this issue has come before the courts again in the case of Supperstone v Hurst (2008). The Claimant had taken out an ATE policy on the 11th March 2005 and had thereafter entered into a CFA on the 20th May 2005. This was notified to the Defendant by way of an N251 e-mailed to the Defendant’s solicitors on the 24th May 2005, the day before the final hearing of the matter. The Claimant was awarded costs and sought to recover a success fee and ATE premium. The Defendant objected that service of the N251 was defective because it was served by e-mail, was not signed and failed to particularise the ATE insurance details. The Claimant applied for relief from sanctions, principally on the basis that the failure to notify was based on a good reason, namely the errors in the N251 were genuine omissions and there was clearly an intention to comply with the notification requirements. Floyd J held that, on balance, relief from sanctions would be granted, but expressed the following caveat: ‘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 this failure, relief from sanctions will usually be refused. It is vitally important to the administration of justice that the rules of procedure are observed.’ (Paragraph 39) Conclusion As can be seen, the issue of notification of CFAs can lead to serious problems for a party who fails to comply with the relevant rules. It is possible to persuade a court that preproceedings notification is not mandatory or that any failure should be saved by granting relief from sanctions, but the simplest way to avoid such issues is to ensure that notification is always provided at the earliest possible time and that an N251 is served in the correct form at the correct time. Paul Jones Technical Director LCN Cases Cited: Bainbridge v MAF Pipelines Ltd. (2004) (Teeside CC 19/3/04) (Unreported) Metcalfe v Clipston  EWHC 9005 (Costs) Hardcastle v Leeds and Holbeck Building Society (2002) (QBD 21/10/02) (Unreported) Choudhury v Kingston Hospital NHS Trust (2006) (SCCO 2/5/06) (Unreported) Cullen v Chopra  EWHC 90093 (Costs) Montlake v Lambert  EWHC 1503 (Comm) Connor v Birmingham City Council (2005) (Birmingham CC 16/3/05) (Unreported) Supperstone v Hurst  EWHC 735 (Ch) This article was written by Paul Jones of Legal Costs Negotiators Ltd, Armstrong House, 1 Houston Park, Salford Quays, Manchester, M50 2RP. It first appeared in the Personal Injury Law Journal in June 2008.
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