EXN v East Lancashire Hospitals NHS Trust & Ors.

Relief from sanctions for failing to disclose a conditional fee agreement with a success fee requires the court to apply the three-stage test in Denton v White. Notice of a conditional fee agreement must make clear that it provides for a success fee. A lengthy breach may be serious or significant, but duration does not remove the need to assess culpability, materiality and prejudice in the round. Where the evidence establishes that the opposing party knew of the likely success fee, speculative or inherent prejudice cannot justify refusing relief. If the first-instance judge gave significant weight to irrelevant prejudice, the appellate court must exercise the discretion afresh.

The claimant, who had suffered severe cerebral palsy following admitted negligence, entered into a conditional fee agreement in 2012. Her solicitors informed the first defendant that the claim was funded by a conditional fee agreement, but did not expressly state that it provided for a success fee. The claim was later admitted and settled for a lump sum and periodic payments.

A District Judge held that the solicitors had breached the applicable funding-notification rules and refused relief from the resulting costs sanction. The claimant appealed. The central issues were whether the notification was sufficient, how the breach should be assessed under Denton v White, and whether the defendants had suffered relevant prejudice.

1. The appeal was allowed in part. Relief from the sanction under CPR r 44.3B(1) was granted for the period from 17 April 2012 onwards, but not for the period before that date.

2. The applicable preserved rules required notification of the funding arrangement as soon as possible and, in any event, within seven days of entering it or, where applicable, in the letter before claim. A reference merely to funding by conditional fee agreement was insufficient. The notification had to make unambiguous that a success fee was provided for.

3. The court applied the three stages identified in Denton v White: assess the seriousness and significance of the breach; identify why it occurred; and evaluate all the circumstances, giving particular weight to efficient and proportionate litigation and compliance with rules and orders.

4. The six-year delay was capable of making the breach serious. That did not mean that duration alone determined the exercise of discretion. Culpability fell towards the lower end where the breach resulted from an accidental and genuinely held, though mistaken, construction of the rules. Factors such as materiality and prejudice remained relevant at the third stage.

5. The District Judge had wrongly attached significant weight to inherent or speculative prejudice. The evidence showed that the defendants knew how the claim was funded and would not have acted differently had the letter expressly mentioned the success fee. Their failure to provide evidence of actual prejudice could not be converted into a relevant loss of opportunity.

6. Because an irrelevant factor had materially affected the exercise of discretion, the appellate court was required to exercise the discretion afresh. The absence of significant prejudice, together with the other circumstances, justified relief from 17 April 2012 onwards.

• High Court (Queen's Bench Division): On appeal from the decision of District Judge Hassall dated 1 July 2021, the court allowed relief from sanctions for the period from 17 April 2012 onwards, but not before that date.