Wasted costs – some comfort for legal professionals

The Commercial Court has considered the circumstances in which wasted costs orders can be made against the legal representatives of a defeated party to a claim.

In its recent judgment in Anthony King and others v Barry Stiefel and others the Commercial Court has considered the circumstances in which wasted costs orders can be made against the legal representatives of a defeated party to a claim. The court dismissed the applications saying that wasted costs applications should only be made in respect of straightforward applications which can be dealt with summarily. 

Under section 51(7) of the Senior Courts Act 1981 the court may make a wasted costs order where costs are incurred by a party "as a result of any improper, unreasonable, or negligent act or omission on the part of any legal representative". This provision is also reflected in CPR PD 46 at paragraph 5.5 which requires an applicant to show both that "the legal representative's conduct has caused a party to incur unnecessary costs, or has meant that costs incurred by a party prior to the improper, unreasonable or negligent act or omission have been wasted" and that it is "just in all the circumstances to order the legal representative to compensate that party for the whole or part of those costs".

CPR PD 46 provides, at paragraph 5.7, that the court will generally consider whether to make a wasted costs order in two stages.

• At the first stage the court must be satisfied that: i) there is enough evidence before it that would be likely to lead to a wasted costs order being made; and ii) the wasted costs proceedings are justified notwithstanding the likely costs involved.
• At the second stage, the court will consider, having given the legal representative an opportunity to make representations in writing or at a hearing, whether it is appropriate to make a wasted costs in accordance with PD 46 paragraph 5.5 (as referred to above).

A wasted costs application must therefore be successful at stage one before the court will consider making the order sought at stage two of the process. In this way, the court operates as a filter with the aim of restricting the scope for costly satellite litigation.

In King v Stiegel the court dismissed the wasted costs application at stage one. In so doing, it followed the leading decisions in Ridehalgh v Horsefield[1] and Medcalf v Mardell[2] which set out key principles regarding wasted costs applications. Amongst these, a wasted costs claim must not be allowed to proceed if it cannot be properly dealt with by means of a simple and summary procedure and at a cost which is proportionate to the sum claimed. In addition, lawyers responding to a claim for wasted costs are put into a difficult position if their client declines to waive privilege. The court must make full allowance for the inability of those lawyers to tell the whole story.

The underlying facts in King v Stiegel were complex. They involved a claim for an alleged unlawful means conspiracy in the context of a number of other associated proceedings. The court drew parallels with the fictional Jarndyce v Jarndyce proceedings. The wasted costs application followed a successful reverse summary judgment/strike out application where, in an excoriating judgment, Cockerill J found that the underlying claim brought by the claimants had been totally without merit.

The defendants found themselves unable to enforce the costs order made against the claimants  and sought wasted costs orders against the barrister and solicitors who had represented the claimants in the underlying claim. The defendants were ordered to file and serve written statements of grounds, identifying what each of the claimants' lawyers was alleged to have done or failed to do and the costs that were sought against each of them. Those statements of grounds were lengthy and complex, asserting a number of allegations against the barrister and solicitors on a number of alternative bases. The defendants argued that the barrister and solicitors had acted improperly, unreasonably and/or negligently (including by lending themselves to an abuse of process) by advising the claimants to proceed with the claim and facilitating the issue and prosecution of the claim.

The defendants argued that it was not necessary for every wasted costs claim to be capable of being addressed in a simple and summary procedure. Rather, they submitted that some cases call out for a remedy even if there is a degree of complexity to the application, particularly bearing in mind the very significant costs that the defendants had incurred and in respect of which they had no real prospect of recovery from the claimants in the underlying claim. Jacobs J rejected this holding that "The authorities … speak with one voice as to the nature of the summary process. … The cases make clear that wasted costs applications are indeed intended to be summary, and are not a vehicle for a complex professional negligence action".

He held, furthermore, that the applications were unsuitable for the summary procedure because of their complexity, involving as they did lengthy pleadings, voluminous underlying documents, and significant factual causation issues. He considered that any second stage hearing would be lengthy and would result in the incurring of further costs at least equivalent to those which the defendants were seeking to recover.

He also held that, in view of the uncertainties around both causation and the conduct of the lawyers, the defendants had failed to meet the requirement of demonstrating on the evidence that a wasted costs order was likely to be made at the second stage.

He also applied the general principle that, as the claimants had not waived privilege, the court should be slow to conclude that in advancing a hopeless case the lawyers had acted improperly, unreasonably or negligently; without waiver of privilege the court would not be able to determine what advice had in fact been given to the claimants.

The court also considered whether the findings of Cockerill J in the underlying claim were binding upon lawyers in the context of the wasted costs application. The defendants argued that it would be an abuse of process for lawyers to challenge any aspect of the judgment. The judge disagreed with this, confirming that the underlying decision was only binding upon the parties to those proceedings and therefore not immune from challenge in the context of a wasted costs application. The lawyers were therefore entitled to argue that Cockerill J's decision had been wrong, although Jacobs J acknowledged that "the scope for such challenge is likely in most cases to be somewhat limited, because the prior decision (here of a High Court judge) – even if not binding as res judicata – would be persuasive authority as a matter of precedent".

Comment

This decision will be useful to solicitors and barristers who find themselves defending wasted costs applications and, in particular, those which involve complex allegations akin to professional negligence. The decision is a reminder of the difficulty of bringing such an application and emphasises the fact that anyone considering making one should do so with care and only in the context of straightforward matters which can be dealt with summarily. It also remains the case that a court will be reluctant to grant an application where lawyers are unable to properly defend the application because their client has refused to waive privilege.

[1] [1994] Ch 205

[1] [2002] UKHL 27