Source: https://kerryunderwood.wordpress.com/2015/04/01/costs-against-lawyers/
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COSTS AGAINST LAWYERS | Kerry Underwood
General The power of the court to award Wasted Costs against a legal representative arises from the Courts and Legal Services Act 1990, Section 4(1), which enacted a new section 51 of the Supreme Court (now Senior Courts) Act 1981 (“SCA 1991”), which relates to both the High Court and County Court, as well as the Court of Appeal. The power to make a non-party costs order also derives from section 51. Wasted costs orders can only be made against representatives; non-party costs orders can be made against anyone.
Sections 51(1) and (3) of the Senior Courts Act 1981 read:-
Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in—
the civil division of the Court of Appeal;
any county court,shall be in the discretion of the court.
The court shall have full power to determine by whom and to what extent the costs are to be paid.”
Section 51(6) deals with wasted costs orders.
“(6) In any proceedings mentioned in subsection (1), the court may disallow, or (as the
case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court.”
The concept of wasted costs includes both disallowing costs and also ordering actual payment of costs.
Need for evidence as to costs wasted
In Nwoko v Oyo State Government Nigeria [2014] EWHC 4538
“Mr Newman originally suggested that I should somehow summarily assess those costs by taking a broad brush. At one stage it was suggested that the relevant figure was 20%, and another time it was suggested it should be 80% of that figure. That approach is quite unacceptable. In order for the court to deal with it, even on a broad brush basis, it is incumbent upon a party to come before the court with proper evidence to identify what costs have been caused by what deficient conduct. I accept that in many cases it may be that some estimates have to be made, but it is unacceptable for any party simply to throw at the court a large schedule, a schedule containing a large bunch of figures which the court is then expected to plough through in order to arrive at some principled decision. It is simply impossible for the court to do that.”
A party can succeed in an application for a wasted costs order against its own lawyer, or against the other side’s lawyer (Medcalf v Mardell [2002] UKHL 27 [2003]).
It is anticipated that the introduction of Qualified One-Way Costs Shifting, and consequent non-liability of a losing claimant in a personal injury matter to pay costs, will lead to an increase in applications by defendants for wasted costs orders against solicitors for claimants. The wasted costs jurisdiction is not affected by Qualified One-Way Costs Shifting.
Although the system has been in place since 1 April 2013 it only applies to cases where there is no recoverable additional liability, that is a success fee or After-the-Event insurance premium, and thus there is a long tail of pre 1 April 2013 cases. Furthermore the issue of whether a case attracts Qualified One-Way Costs Shifting or not cannot be made until the end of the case, and therefore there needs to be either a trial or a disposal hearing. Consequently few cases have yet reached that stage and we do not yet know how successful defendants who would be unable to recover costs from the actual claimant, will use the wasted costs jurisdiction.
Non-party costs orders are bound to increase as a result of Qualified One-Way Costs Shifting as the CPR gives specific power for such orders to be made against the recipients of special damages, subject to exceptions.
A solicitor representing a party in an action can be made the subject of a non-party costs order, which involves a lower threshold for a wasted costs order.
Wasted Costs Orders The SCA 1981, section 51(7) defines the concept of “wasted costs” as being costs incurred by a party resulting from the improper, unreasonable or negligent act or omission of any legal or other representative or anyone employed by the representative, or costs which, in the light of any such act or omission occurring after the costs are incurred, the court considers it is unreasonable to expect that party to pay.
A wasted costs order always involves criticism of the party against whom it is made. Consequently such orders are likely to be on the indemnity basis, although the court is free to make a wasted costs order on the standard basis.
A lawyer is not allowed to charge her or his own client those costs. So if, for example, a wasted costs order is made at the suit of the other party the lawyer cannot pass that charge on to the client.
Where the court is considering making a wasted costs order under this section the rule which applies is CPR 46.8 which states as follows:
“46.8
This rule applies where the court is considering whether to make an order under section 51(6) of the Senior Courts Act 19813 (court’s power to disallow or (as the case may be) order a legal representative to meet, ‘wasted costs’).
The court will give the legal representative a reasonable opportunity to make written submissions or, if the legal representative prefers, to attend a hearing before it makes such an order.
When the court makes a wasted costs order, it will –
(a)specify the amount to be disallowed or paid; or
(b)direct a costs judge or a district judge to decide the amount of costs to be disallowed or paid.
4. The court may direct that notice must be given to the legal representative’s client, in such manner as the court may direct –
Practice Direction 46
“5.1 A wasted costs order is an order –
(a) that the legal representative pay a sum (either specified or to be assessed) in respect of costs to a party; or
(b) for costs relating to a specified sum or items of work to be disallowed.
5.2 Rule 46.8 deals with wasted costs orders against legal representatives. Such orders can be made at any stage in the proceedings up to and including the detailed assessment proceedings. In general, applications for wasted costs are best left until after the end of the trial.
5.3 The court may make a wasted costs order against a legal representative on its own initiative.
5.4 A party may apply for a wasted costs order –
(a) by filing an application notice in accordance with Part 23; or
(b)by making an application orally in the course of any hearing.
5.5 It is appropriate for the court to make a wasted costs order against a legal representative, only if –
(a) the legal representative has acted improperly, unreasonably or negligently;
(b) 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;
(c) it is just in all the circumstances to order the legal representative to compensate that party for the whole or part of those costs.
5.6 The court will give directions about the procedure to be followed in each case in order to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit.
5.7 As a general rule the court will consider whether to make a wasted costs order in two stages –
5.8 The court may proceed to the second stage described in paragraph 5.7 without first adjourning the hearing if it is satisfied that the legal representative has already had a reasonable opportunity to make representations.
5.9 On an application for a wasted costs order under Part 23 the application notice and any evidence in support must identify –
(a) what the legal representative is alleged to have done or failed to do; and
(b) the costs that the legal representative may be ordered to pay or which are sought against the legal representative.”
Section 67 of the Criminal Justice and Courts Act 2015 requires a court to report to the appropriate regulatory body any lawyer who is made the subject of a wasted costs order.
“67 Wasted costs in certain civil proceedings
Section 51 of the Senior Courts Act 1981 (costs in civil division of Court of Appeal, High Court, family court and county court) is amended as follows.
After subsection (7) (wasted costs) insert—
“(7A)Where the court exercises a power under subsection (6) in relation to costs incurred by a party, it must inform such of the following as it considers appropriate—
(a) an approved regulator;
(b) the Director of Legal Aid Casework.”
3. After subsection (12) insert –
“(12A)In subsection (7A)—
“approved regulator” has the meaning given by section 20 of the Legal Services Act 2007;
“the Director of Legal Aid Casework” means the civil servant designated under section 4 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.””
It is the court that makes the order for wasted costs not a costs judge. In the normal course of events it is the trial judge who should make the order. In Re P (a Barrister), (wasted costs order) [2001] EWCA Crim 1728, [2002] 1 Cr App Rep 207, (2001) Times, 31 July, the Court of Appeal held that in almost all wasted costs applications the trial judge should be the judge to deal with the matter. The court concluded that the jurisdiction was a summary jurisdiction to be exercised by the court which had ‘tried the case in the course of which the misconduct was committed’. Although the trial judge could decline to consider an application in respect of costs, it would only be in ‘exceptional circumstances’ that it would be appropriate to pass the matter to another judge.
As we have seen usually the trial judge will hear the wasted costs application.
However in Mengiste v Endowment Fund [2013] EWCA Civ 1003
the Court of Appeal held that this was an exceptional case where apparent bias had been shown by the judge and the Court of Appeal concluded that the judge should have recused himself.
Apparent bias was shown by:-
his criticisms of the solicitors as being responsible for the expert’s failings; these were unnecessary for his findings;
his criticisms left no scope for explanation by these solicitors, suggesting that the judge closed his mind;
the repetition of his criticisms of the solicitors.
Once a judge does deal with the wasted costs order it is difficult to overturn that decision, as in Persaud v Persaud [2003] EWCA Civ 394, 147 Sol Jo LB 301 where the Court of Appeal held that it was not right to interfere with the judge’s discretion.
The leading authority and guide to wasted costs is Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA, where in appeals backed by the Bar Council, the Law Society and the Solicitors Indemnity Fund, the Court of Appeal set aside wasted costs orders against two solicitors and a barrister and in the lead case declined to make an order in a case referred to them by a different division of the Court of Appeal. In delivering the judgment of the court the Master of the Rolls said, at Page 38 LTL, that while judges must not reject the weapon which Parliament intended to be used for the protection of those injured by the unjustifiable conduct of the other side’s lawyers, they must be astute to control what threatened to become a new and costly form of satellite litigation.
Lord Bingham reiterated this view in Medcalf v Mardell [2002] UKHL 27 [2003] approving the approach of the Privy Council in a New Zealand case that wasted costs orders should be confined to questions which are apt for summary disposal by the court, such as failures to appear; conduct which leads to an otherwise avoidable step in the proceedings; the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument. Such matters can be dealt with summarily on agreed facts or after a brief enquiry. Any hearing to investigate the conduct of a complex action is itself likely to be expensive and time-consuming. Compensating litigating parties who have been put to unnecessary expense is only one of the public interests to be considered.
In Jackson v Cambridgeshire County Council UK EAT/0402/09, the Employment Appeal Tribunal (EAT) made the point that where an application cannot be fairly resolved without disproportionate investigation it can be dismissed on that basis alone.
In future, anyone considering applying for a wasted costs order should think twice.
The Practice Direction supplementing rule 46.8 helpfully embodies the major findings of the Court of Appeal in Ridehalgh. Because wasted costs orders are made under the statute, and rule 46.8 and its supplementary Practice Direction govern merely the practice and procedure, not the principles, this is an area in which decisions made prior to 26 April 1999 are still of relevance and assistance.
In Harrison v Harrison [2009] EWHC 428 QB, the High Court held that wasted costs were neither a punitive nor a regulatory jurisdiction, but rather a compensatory one and thus as a prerequisite an applicant had to show that the conduct complained of had caused them loss – see Ridehalgh.
In addition even where ‘improper, unreasonable and negligent’ conduct was shown, an order was within the court’s discretion.
Here the applicant applied for a wasted costs order against junior counsel who had acted for the respondent in a without notice application. Costs had been agreed at £205,000 of which all but £20,000 had been paid by the time of the application and the applicant conceded that the respondent was likely to pay the balance.
The applicant contended that the without notice application had been settled and argued by counsel without any or sufficient regard to her duty to bring to the attention of the court facts or arguments which were adverse to her client’s case and thus her conduct had been ‘improper, unreasonable and negligent’ in terms of section 51(7) of the SCA 1981.
The court held that on the balance of probabilities the applicant had failed to prove loss even if all of the allegations were proved, and thus no order should be made.
That judgment confirmed a three-stage test to be adopted when considering a costs order as set out in Re a Barrister (wasted costs order) (No 1 of 1991) [1993] QB 293, [1992] 3 All ER 429:
Has there been an improper, unreasonable or negligent act or omission?
As a result, had any costs been incurred by a party?
Should the court exercise its discretion to order the lawyer to meet the whole or any part of the relevant costs?
Only if all three questions were answered in the affirmative would an order be made. (See para 53.4 of the Practice Direction about costs supplementing CPR Pts 43–48.)
Improper, unreasonable or negligent conduct
“Improper” covered, but was not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It also covered conduct which according to the consensus of professional, including judicial, opinion could be fairly stigmatised as being improper whether it violated the letter of a professional code or not (Page 23 Judgment, Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA).
“Unreasonable” included conduct which was vexatious, designed to harass the other side rather than advance the resolution of the case: it made no real difference that the conduct was the product of excessive zeal and not improper motive.
Legal representatives should not lend assistance to proceedings which were an abuse of process and they were not entitled to use litigious procedures for purposes for which they were not intended, as by issuing or pursuing proceedings for purposes unconnected with success in the litigation, or pursuing a case known to be dishonest. Nor were they entitled to evade rules intended to safeguard the interests of justice, as by, knowingly failing to make full disclosure on a without notice application or knowingly conniving in incomplete disclosure of documents. However, conduct was not unreasonable simply because it led to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test was whether the conduct permitted a reasonable explanation. It is not unreasonable to be optimistic.
“Negligent” did not mean conduct which was actionable as a breach of the legal representative’s duty to his own client. There is of course no duty of care to the other party. Negligence should be understood in an untechnical way to denote failure to act with competence reasonably expected of ordinary members of the profession. However, the court firmly rejected any suggestion that an applicant for a wasted costs order needed to prove under the negligence head anything less than he would have had to prove in an action for negligence. It adopted the test in Saif Ali v Sydney Mitchell & Co [1980] AC 198, [1978] All ER 1033, HL, ‘advice, acts or omissions in the course of their professional work which no member of the profession who is reasonably well-informed and competent would have given or done or omitted to do’; an error ‘such as no reasonably well-informed and competent member of that profession could have made’.
In Persaud v Persaud [2003] EWCA Civ 394, 147 Sol Jo LB 301, the Court of Appeal held that there had to be something more than negligence, more akin to abuse of process or breach of duty to the court, to make a legal representative subject to jurisdiction for a wasted costs order.
However, in Dempsey v Johnstone [2003] EWCA Civ 1134, [2004] PNLR 2, [2004] 1 Costs LR 41 the Court of Appeal held that negligence alone would justify the making of a wasted costs order, and the correct test was whether no reasonably competent legal representative would have continued with the action when there was a hopeless case.
Wasted costs orders should carefully balance two important public interests:
that lawyers should not be deterred from pursuing their clients’ interests by fear of incurring a personal liability to their clients’ opponents and that they should not be penalised by orders to pay costs without a fair opportunity to defend themselves and that such orders should not become a back-door means of recovering costs not otherwise recoverable against a legally aided or impoverished litigant; and
that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their or their opponents’ lawyers.
In Wall v Lefever [1998] 1 FCR 605, (1997) Times, 1 August, CA, Lord Woolf warned that appeals against wasted costs orders or the refusal thereof should not be used to create subordinate or satellite litigation which was as complex and expensive as the original litigation.
In Gill v Humanware Europe plc [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877, the Court of Appeal reviewed existing case law, in the context of an appeal from a decision of the Employment Appeal Tribunal (“EAT”).
The court accepted that the principles to be applied were the same as in a non-employment case. Employment tribunals and the EAT have their own set of rules but in relation to wasted costs the relevant wording is identical, rule 34C of the Employment Appeal Tribunal (Amendment) Rules 2004, stating:
“ (1) The Appeal Tribunal may make a wasted costs order against a party’s representative.
(3) “Wasted costs” means any costs incurred by a party (including the representative’s own client and any party who does not have a legal representative):
(a) as a result of any improper, unreasonable or negligent act or omission on the part of any representative; or
(b) which, in the light of any such act or omission occurring after they were incurred, the Appeal Tribunal considers it reasonable to expect that party to pay.
Here there was a dispute about the facts of the alleged improper conduct of the respondent’s barrister at the employment tribunal hearing and the EAT made a wasted costs order against her, without giving her the chance to make oral submissions.
The Court of Appeal allowed her appeal and held that the jurisdiction in a wasted costs application should only be exercised in a reasonably plain and obvious case. Courts should think carefully before hearing a wasted costs application in a case in which there is a conflict of evidence to be resolved.
Here a better course would have been to report the matter to the Bar Standards Board, which could have investigated the alleged misconduct properly and, if appropriate, referred it to a hearing before a disciplinary tribunal, which had the power to order compensation.
In Casqueiro v Barclays Bank plc [2012] ICR Digest D 37
the Employment Tribunal allowed an appeal against a wasted costs order made by an Employment Tribunal Judge under Rule 48 of the Employment Tribunals Rules of Procedure 2004 where the Judge had failed to specify the amount, as required by Rule 48(7), but instead had ordered the costs to be assessed by the county court.
The EAT also held that the Employment Judge had failed to apply the correct test as set out in Ridehalgh v Horsefield, in particular by failing to address whether the representative’s conduct had caused the other party to incur unnecessary costs and whether it was just to order him to compensate the respondent for the whole or part of the costs.
Rule 48(1) allows for wasted costs orders against a party’s representative and Rule 48(7) provides:
‘“When a tribunal or employment judge makes a wasted costs order it must specify in the order the amount to be … paid.”’
Rule 41(1), which applies to an “ordinary” costs order, provides:
‘“The amount of a costs order against the paying party shall be determined in any of the following ways-
(a) the tribunal may specify the sum which the paying party must pay to the receiving party…
(c) the tribunal may order the paying party to pay the receiving party the whole or a specified part of the costs of the receiving party, with the amount to be paid being determined by way of a detailed assessment in a county court…”’
As there was no express provision in Rule 48 for county court assessment, in contrast to Rule 41(1)(c), there was no power to refer a wasted costs order to a county court for assessment.
The court will consider the making of a wasted costs order in two stages. First, the court must be satisfied that the evidence before it, if unanswered, would be likely to lead to a wasted costs order being made and the wasted costs proceedings are justified notwithstanding the likely costs involved. Secondly, the court will give the legal representative the opportunity to give reasons or show cause why the order should not be made and then consider, in the light of any such evidence, whether to make the wasted costs order. The Court of Appeal has emphasised that judges should approach their task with caution and, where possible, consider the applicability of other sanctions of a disciplinary nature. (See section 53.6 of the Practice Direction about costs supplementing CPR Pts 43–48.)
In Re Wiseman Lee (Solicitors) (Wasted Costs Order) (No 5 of 2000) [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877 the court made a wasted costs order against the defendant solicitors in their absence with permission to make representations against the order by a given date. When no representations were received, the order was drawn up. The solicitors’ appeal was allowed on the ground that a legal representative must be allowed to make representations before a wasted costs order is made under CPR 48.7(2). Although this was a criminal matter the principle applies equally to civil matters.
In Gill v Humanware Europe plc [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877 the Court of Appeal said that on the facts of that case the EAT should have referred the matter to the Bar Standards Board, rather than make a wasted costs order, and pointed out that the appropriate disciplinary body had power to order compensation.
Although the legislation intended to encroach on the traditional immunity of the advocate by subjecting him or her to wasted costs jurisdiction, full allowance must be made for the fact that an advocate in court often had to make decisions quickly and under pressure. Mistakes would inevitably be made, things done which the outcome showed to have been unwise. Advocacy was more an art than a science; it could not be conducted according to formulae. It was only when, with all allowances made, an advocate’s conduct of court proceedings was quite plainly unjustifiable that it could be appropriate to make a wasted costs order against him.
In Robinson and another (appellants) v Hall Gregory Recruitment Ltd [2014] IRLR 761 EAT, the Employment Appeal Tribunal reminded itself that the wasted costs jurisdiction should be approached with caution, bearing in mind the constitutional position of the advocate and the fact that from their point of view the jurisdiction was penal.
Applications for wasted costs are best left to the end of the trial and are governed by CPR Pt 23. Applications can be made orally in the course of any hearing or on application under CPR Pt 23. Such application, and the evidence in support, must identify what the legal representative is alleged to have done or not to have done and the costs that he may be ordered to pay. In addition the court has power to make a wasted costs order on its own initiative. The court should be slow to initiate an enquiry because:
the court does not serve a pleading informing the lawyer of the precise charges to be answered;
the court will be both the prosecutor and the adjudicator;
difficult and embarrassing issues on costs could arise if an order was not made. The costs of the enquiry would have to be borne by someone and it would not be the court.
In Gill v Humanware Europe plc [2010] EWCA Civ 799, [2010] ICR 1343, [2010] IRLR 877, the Court of Appeal held that the procedure to be adopted should depend upon the circumstances. Sometimes the application will be made at the end of a substantive hearing, sometimes not. Sometimes the person against whom it is to be made will have been present throughout that hearing, sometimes he or she will not.
If the application is made at the end of a hearing at which the respondent has been present, it may be possible to deal fairly with the whole application there and then. On the other hand it may be necessary to allow an adjournment for the respondent to make representations or even to call evidence from witnesses not then present.
In particular, there is no invariable requirement for a two-stage process, at which the court considers first whether there is a strong prima facie case for the making of a wasted costs order and then at a second stage decides whether it is appropriate to make one.
If the respondent has not been present at the hearing at which his or her conduct has been considered, there will have to be an adjournment. Whether or not there will then have to be an oral hearing will depend upon the nature of the issues in question and the way in which they will have to be resolved.
A relevant issue is the amount of money at stake. If it is small then it may be sensible, fair and proportionate to decide matters without an oral hearing. If the sum is large, or if a reputation is at stake, or issues of fact have to be decided, then an oral hearing will be necessary.
If no oral hearing is to be held then the respondent to the wasted costs application should be asked if he or she wishes to amplify their written submissions in the light of that decision.
In Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA, the Court of Appeal considered some situations where it would be appropriate for the judge to initiate a wasted costs enquiry. These included a failure to appear at court, lateness and negligence leading to an otherwise avoidable adjournment, gross repetition or extreme slowness.
Judges should not make lawyers ‘show cause’ where the issue went to the merits. This should be left to the parties. An example of a case where the court did intervene was R v Secretary of State for the Home Department, ex p Abbassi (1992) Times, 6 April, CA.
On an application under CPR Pt 23, the court may proceed to the second of the two-stage process without adjourning the hearing if it is satisfied that the legal representative has already had a reasonable opportunity to give reasons why the court should not make a wasted costs order; in other cases the court will adjourn the hearing before proceeding to the second stage (See para 53.7 of the Practice Direction about costs supplementing CPR Pts 43–48).
The court should determine the procedure to be followed to meet the requirements of the individual case. The overriding requirements are that any procedure has to be fair and as simple and summary as the circumstances permit. Elaborate pleadings should in general be avoided. No formal process of discovery or interrogatories would be appropriate. The court could not imagine any circumstances in which the applicant should be permitted to interrogate the respondent lawyer (Ridehalgh v Horsefield [1994] Ch 205, CA, p 38).
In Godfrey Morgan Solicitors Ltd v Cobalt Systems Ltd (UKEAT/0608/10/LA) [2012] ICR 305, 155 Sol Jo (no 34) 31, EAT, the EAT held that in this context ‘interrogate’ meant to serve written interrogatories and did not prevent the cross-examination of the lawyer on the subject of the application.
On the other hand, the respondent must be entitled to present a full defence and must be informed of the conduct complained of, the amount claimed and the alleged causal link between the two. Hearings should be measured in hours, not days or weeks.
One of the drawbacks of the summary procedure was that the lawyers involved were often unable to make use of documents protected by legal professional privilege to justify their actions, it being a matter for the clients alone to decide whether to waive their privilege. The matter was considered by the House of Lords in Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120, [2002] 3 All ER 721 on 27 June 2002. The court concluded that a party can seek a wasted costs order against his opponent’s legal representatives as well as his own. However, this poses a problem if the opponent does not wish to waive his privilege to assist his legal representative. The legal representative then has no ammunition with which to defend himself. The case centred around allegations of fraud contained in a notice of appeal drafted by leading and junior counsel and whether counsel had before them reasonably credible material which as it stood established a prima facie case of fraud. In order to justify their pleading counsel would need to obtain a waiver of privilege from their clients to release such material: such waiver was not forthcoming. The barristers argued that that they could not tell their tale to the court and fairness required that all relevant material should be before the court and if this could not happen, then no order for wasted costs should be made.”
At paragraph 23 Lord Bingham stated:
“Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is:
satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order; and
that it is in all the circumstances fair to make the order.”
At paragraph 40 Lord Steyn recognised that the burden of proof is on the party applying for the order. There is no shift in the evidential burden when barristers, and presumably solicitors, are prevented by professional privilege from telling their side of the story. The court should not speculate or guess about the material that was before the lawyers. Lord Steyn observed:
“Without knowing the barristers’ side of the story, I am unwilling to speculate about the nature of the documents before them … Lawyers are entitled to procedural justice. Due process enhances the possibility of arriving at a just decision. Where due process cannot be observed it places in jeopardy the substantive justice of the outcome.”
It was impossible to determine the issues fairly and the wasted costs order had to be quashed.
At paragraph 61, Lord Hobhouse reiterated the observations in Ridehalgh v Horsefield [1994] Ch 205, [1994] 3 All ER 848, CA that the respondent lawyers are entitled to the benefit of any doubt. He stated:
“The answer given therefore was not to treat the existence of privileged material as an absolute bar to any claim by an opposing party for a wasted costs order but to require the court to take into account the possibility of the existence of such material and to give the lawyers the benefit of every reasonably conceivable doubt that it might raise.
So, all that the lawyer has to do is to raise a doubt in the mind of the court whether there might not be privileged material which affected its decision whether or not to make a wasted costs order and, if so, in what terms and the court must give the lawyer the benefit of the that doubt in reaching its decision, including the exercise of its statutory discretion. I see nothing unfair about this approach.”
The Court of Appeal followed this approach in Dempsey v Johnstone [2003] EWCA Civ 1134, [2003] All ER (D) 515 (Jul) where a costs order was made against the defendant solicitors for pursuing a hopeless case. It was held that in the absence of privileged material it is not possible to reach a conclusion adverse to the defendant on the question of whether no reasonably competent legal adviser would have evaluated the chance of success as justifying continuation of the proceedings. Without any waiver of privilege in relation to counsel’s advice, it was impermissible to infer from the continuance of legal aid that the claimant’s legal representatives were asserting good prospects of success.
The House of Lords concluded that it should not make an order unless (Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120, [2002] 3 All ER 721):
it is satisfied there is nothing the lawyer could say, if privilege had been waived, to resist the order; and
In this case, the court concluded it was impossible to determine the issues fairly as they were unaware of the nature of the documents before the barristers and consequently quashed the wasted costs order.
Solicitor’s liability for costs when representing a bankrupt
In Thames Chambers Solicitors v Miah [2013] 4 Costs LR 82
Mr Justice Tugendhat, sitting in the High Court, held that a judge had been correct to make a wasted costs order against solicitors who had acted for a bankrupt client for two and a half years. Any competent solicitor would have known that the assets of a bankrupt vest in his trustees and that proceedings to enforce a claim can only be pursued with the trustee’s consent, which had not been forthcoming. The solicitors had acted improperly, negligently and unreasonably and so would pay the wasted costs of the defendant.
In Nelson v Nelson (7 February 1996, unreported), CA, a firm of solicitors instituted proceedings, including obtaining a Mareva Injunction, on behalf of a client whom they were unaware was an undischarged bankrupt. A bankrupt was not entitled to bring an action relating to his property, the cause of action having vested in his trustee in bankruptcy. Nevertheless, he had the capacity and authority to retain solicitors, and solicitors acting for him without knowledge of his bankruptcy were saying no more than that they had a client and that the client had authorised the proceedings. The solicitors did not represent that a client had a good cause of action, and in commencing the proceedings warranted no more than they had authority from the client to do so. In those circumstances there had been no breach by them of their duty to the court, nor had they been negligent, and thus the court should exercise its discretion in their favour when considering an application for costs against them personally by a defendant.
No wasted costs on ex parte application
There is no power in the court to make a wasted costs order in favour of, or (by parity of reasoning) against, a person who elected to oppose an ex parte application for leave to apply for judicial review. In R v Camden London Borough Council, ex p Martin [1997] 1 All ER 307, [1997] 1 WLR 359, such a person was not a party for present purposes. The modern practice of the court in regularly hearing and sometimes inviting the participation of such persons could not make it otherwise; only legislation or a rule change could make it so.
Stay need not be lifted to seek wasted costs order
If a case is settled and stayed by way of consent order, it is still possible for a party to make an application for a wasted costs order. In Wagstaff v Colls [2003] EWCA Civ 469, (2003) Times, 17 April, 147 Sol Jo LB 419, the Court of Appeal reversed a judgment that disallowed a party’s application to lift a stay so an application for wasted costs could be made. The court held it to be unnecessary to require the stay to be lifted for the purpose of bringing a wholly different claim which might be connected with the stayed proceedings but where the connection was wholly tangible. There was thus nothing to prevent an application for a wasted costs order being made and entertained after a final order had been made, and perfected, entering judgment for or against the claimant.
Consideration of the issue of whether wasted costs should be awarded was only sensible if the scope of the costs sought was narrow and clear
In (1) Regent Leisuretime Ltd (2) Stephen Amos (3) Peter Barton v (1) Philip Skerrett (2) Ken Pearson & Reynolds Porter Chamberlain [2006] EWCA Civ 1032, [2006] All ER (D) 34 (Jul), the appellant third party firm of solicitors (R) appealed against the judge’s decision that the issue as to whether R should be liable for wasted costs should be investigated. The first claimant company (L), the second claimant (A) and the third claimant (B), who were directors and shareholders of L, had issued proceedings against the first and second defendant solicitors (S and P), alleging professional negligence in the performance of their duties in earlier proceedings. R, who had been instructed to act in the matter by P’s insurers, acknowledged service of the claim form on behalf of both S and P, although R had no instructions from S and did not contact him in connection with the matter. R subsequently served a defence, and further amended defences on behalf of both P and S. When P informed S of R’s actions, S contacted R and stated that they had no authority to act for him. As S had not been served personally with the claim, he then assumed that it was not proceeding against him. However, R later contacted S informing him to prepare for trial in the matter. S applied for the claim against him to be struck out. The judge granted that application on the grounds that:
S had been an undischarged bankrupt at the time the claim was issued and no permission had been sought from or given by the court to bring proceedings against him; and
the proceedings had never been served on S.
S then applied for an order that R pay all his costs lost, wasted or thrown away on an indemnity basis. A and B made a similar application on their own behalf. The judge found that it was obvious that R had had no authority to act as they had, and considered that the issue as to whether R should be liable for wasted costs should be investigated. R contended that the judge had erred in his decision because he had not received the required quantification of the costs sought to decide whether they were likely to be awarded, or whether a separate hearing would be proportionate. A and B submitted that, if R had not acknowledged service on S’s behalf, they would have served him another way, so that their pre-trial costs had been wasted. S submitted that, as a result of R’s conduct, he had incurred costs in trying to extricate himself from the action.
The referral to the second stage of the issue as to whether wasted costs should be awarded was only sensible if the scope of the costs sought was narrow and clear. In the instant case, there had been insufficient material for the judge to make that determination. S, A and B were all litigants in person and their recoverable costs would, in any event, be limited. Further, both A and B had, in any event, incurred costs in pursuing the action against P, and their wasted costs in respect of the claim against S were likely to be modest. Moreover, so far as S was entitled to recover his costs in applying for the claim to be struck out, the parties liable for those costs were A and B, as in the light of S’s status as an undischarged bankrupt, no claim against him should have been made in any event. The judge’s order for assessment of wasted costs was, accordingly, set aside.
In Chief Constable of British Transport Policy v Soods Solicitors Ltd (2012) 156 Sol Jo (29) 31, [2012] All ER (D) 163 (Jul), DC, the Divisional Court dismissed the appeal by way of case stated against the District Judge’s refusal to award wasted costs against the respondent firm of solicitors. The claimant chief constable applied for the forfeiture, pursuant to s 298 of the Proceeds of Crime Act 2002 (‘PCA 2002’), of money which had been seized from an individual H. Shortly before the hearing, the respondent firm of solicitors came on the record purporting to act for a Ugandan company, SFK, which applied to be joined to the action pursuant to s 301 of the PCA 2002. That application was refused and the matter was adjourned.
It subsequently became clear that SFK was not a real company and that documents that had been provided by it had been forged. The forfeiture proceedings then proceeded unopposed and, following the conclusion of those proceedings, the claimant applied for wasted costs from the respondent, pursuant to s 145A(1) of the Magistrates’ Court Act 1980.
In May 2011, a district judge refused that application on the basis that, although the respondent should have exercised greater caution in its dealings with SFK, the claimant’s costs would have been incurred in any event as SFK would have made the application as an unrepresented party if necessary. The appellant appealed by case stated.
The principal question posed for the consideration of the court was whether, in the circumstances, the judge had applied the correct test for causation for wasted costs. He had. The appeal would be dismissed.
In the instant case, the appellant’s argument was fatally flawed as no wasted costs order could be made unless there had been a finding of fault against the respondent. The judge had not made a finding of fault against the respondent and there was no question before the court as to whether the judge had been correct or incorrect in so finding. Accordingly, the appeal would be dismissed as the real point had not been stated in the case and had not been for decision at the instant hearing.
In Tolstoy-Miloslavsky v Aldington [1996] 1WLR 736 the Claimant sought to set aside a libel judgment on the basis that it had been obtained by fraud; the application was struck out as an abusive process.
The successful party applied for a non-party costs order against both solicitor and counsel for the unsuccessful applicant.
The judge ordered the solicitors to pay 60% of the defendant’s costs on the ground that they have put themselves in the position of third party funders of the litigation.
In Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120, [2002] 3 All ER 721, the House of Lords had to consider whether s 51(6) of the SCA 1981 conferred a right on a party to seek an order against the legal representative of the other party. The court upheld an earlier decision of Brown v Bennett (No 2) [2002] 2 All ER 273, [2002] 1 WLR 713 where Mr Justice Neuberger concluded that s 51(6) should be construed on a wide basis to cover the legal representative of any party to the proceedings. The House of Lords affirmed that judgment. Wasted costs orders are likely to become more common.
If the application is unsuccessful it is clear that the unsuccessful applicant can expect to pay the costs. In Bellamy v Central Sheffield University NHS Trust [2003] All ER (D) 50 (Jul), CA, the Court of Appeal upheld the principle that an unsuccessful applicant should normally pay the costs to the respondent. Denial of a successful party’s costs of success had to be explained. Some idea of the costs that can be incurred in a wasted costs application can be gathered by the estimates in Chief Constable of North Yorkshire v Audsley [2000] Lloyd’s Rep PN 675. The costs of the wasted costs application were estimated to be £130,000 when the amount in dispute was £169,000. Unsurprisingly the judge declined to issue a Notice to Show Cause on the grounds that the costs of the application were likely to be disproportionate.
In Hallam-Peel & Co v Southwark London Borough Council [2008] EWCA Civ 1120, [2008] All ER (D) 200 (Oct), the Court of Appeal held that a wasted costs order should not have been against solicitors who raised a new point in possession proceedings which led to further adjournments.
The judgment points out that different lawyers will look at the same case in different ways and have thoughts and ideas about them that others will or may not have. The same lawyer may also see it differently six months on and consider investigating an angle which had not previously occurred to him or her.
Here it meant that the solicitor should not be penalised by a wasted costs order when their counsel thought of a new point which they had not previously considered.
In Koo Golden East Mongolia v Bank of Nova Scotia [2008] EWHC 1120 (QB), [2008] All ER (D) 254 (May), the defendant bank claimed a wasted costs order against the solicitors who had acted for the unsuccessful claimant in a claim to trace and recover missing gold. It contended that it was entitled to a wasted costs order because the solicitors’ conduct was persistently negligent and unreasonable in making and continuing to have the Central Bank of Mongolia as a party to the action because the solicitors should have appreciated that the bank was immune from suit because of the provisions of the State Immunity Act 1978. In dismissing the claim the court gave the following reasons:
a bill of costs should have been served before making the application;
the claimant should have been given a proper opportunity to pay the costs;
the absence of an application to strike out the claim was hardly consistent with the submission that it was misconceived;
the suggestion that ‘no reasonable solicitor could have been optimistic’ was well below the threshold for sufficient negligence or unreasonableness to justify a wasted costs order;
even a binding authority fatal, or almost fatal, to the client’s case might not justify a wasted costs order.
The power to make a wasted costs order is discretionary. In R (on the application of Hide) v Staffordshire County Council [2007] EWHC 241 (Admin), [2007] All ER (D) 402 (Oct), the claimant’s advocate had engaged in behaviour which could properly be regarded as improper, unreasonable and/or negligent. The proceedings were entirely unnecessary and were doomed to failure and a reasonably competent solicitor would have known that. Nevertheless, the judge concluded that no wasted costs order should be made against the solicitor as it was likely to result in the solicitor’s bankruptcy and that would be a disproportionate consequence.
From 3 November 2008, the Tribunal Procedure (Upper Tribunal) Rules 2008 and the Tribunal Procedure (First-Tier Tribunal) (Health, Education and Social Care Chamber) Rules 2008 provide that a tribunal shall not make an order in respect of costs other than for wasted costs or if the tribunal considers that a party or its representative has acted unreasonably in bringing, defending or conducting the proceedings. The Upper Tribunal may also make an order in respect of costs in proceedings on appeal from another tribunal, to the extent and in the circumstances that the other tribunal had the power to make an order in respect of costs. Either tribunal may make an order for costs on an application or on its own initiative. The amount of costs to be paid may be ascertained by:
summary assessment;
agreement of a specified sum by the paying person and the person entitled to receive the costs;
assessment as to the whole or a specified part of the costs incurred by the receiving person, if not agreed.
Following an order for assessment, the paying person or the receiving person may apply to the High Court in the Upper Tribunal and to the county court in the First-Tier Tribunal for a detailed assessment of costs in accordance with the Civil Procedure Rules 1998 on the standard basis or, if specified in the order, on the indemnity basis.
CPR 44.14 provides that on an assessment of costs between the parties where a party or his legal representative fails to comply with a rule, practice direction or court order or it appears to the court that the conduct of a party or his legal representative, before or during the proceedings which gave rise to the assessment proceedings, was unreasonable or improper the court may:
order the party at fault or his legal representative to pay costs which he has caused any other party to incur.However, unlike s 51 of the SCA 1981, CPR 44.14 contains no provision preventing the solicitor from rendering a charge to his or her client in respect of any between-the-parties costs which have been disallowed. This is the case even though CPR 44.14(3) requires the solicitor to notify the client in writing of any order based upon his misconduct no later than seven days after the solicitor receives notice of the order if the party is not present when the order is made. One possible remedy is for the court to ask the solicitor to undertake not to render a charge to the client as an alternative to the court initiating an investigation under s 51 of the SCA 1981.
Employment tribunals have a significant personal injury jurisdiction in their own right but decisions on wasted costs are also relevant to cases conducted in the ordinary courts. Indeed, many recent decisions are those of the Employment Appeal Tribunal (“EAT”).
In Robinson and another (appellants) v Hall Gregory Recruitment Ltd [2014] IRLR 761 EAT
the Employment Appeal Tribunal dealt with the issue of costs orders and wasted costs.
Here a 17 year old girl brought various Employment Tribunal claims and lost all of them except one in respect of notice pay of £285.00.
Among her claims was one for personal injury, specifically that she had suffered a miscarriage as a result of her treatment at work. The Employment Tribunal said in relation to this that the claimant had “made a very serious assertion for which she has provided no evidence.”
It ordered her to pay £5,025.00 costs and made a wasted costs order of £10,050.00 against the solicitor.
The Employment Appeal Tribunal overturned both orders. In relation to the Claimant it held that the Employment Tribunal had omitted an important stage in the process of deciding to make a costs order, namely that of considering whether it had been appropriate to have done so as required by Rule 40(2) of the 2004 Rules of Procedure.
The claimant had been 17 years old and, on its finding in relation to the solicitor Mr Ojo, had not been properly advised. The tribunal did not appear to have had regard to those matters. It should have been obvious that, particularly given her age, her means were likely to have been of relevance both in deciding whether to make an order and as to how much it should be. The tribunal ought not to have made findings against her in relation to her means without having given her an opportunity to make representations or present evidence and thus the appeal against the costs order would be allowed.
The relevant part of Rule 40 reads as follows:-
“(2) A tribunal… shall consider making a costs order against a paying party where, in the opinion of the tribunal…, any of the circumstances in paragraph (3) apply. Having so considered, the tribunal… may make a costs order against the paying party if it… considers it appropriate to do so.
(3) The circumstances referred to in paragraph (2) are where the paying party has in bringing the proceedings, or he or his representative has in conducting the proceedings, acted vexatiously, abusively… or otherwise unreasonably…”
Rule 41 provides that the tribunal can specify a sum to be paid up to £20,000.00 and at Rule 41(2) that the tribunal “may have regard to the paying party’s ability to pay when considering whether it… shall make a costs order and how much that order should be.”
In relation to the wasted costs order the EAT reminded itself that an Employment Tribunal had to approach that jurisdiction with caution, bearing in mind the constitutional position of the advocate and the fact that from their point of view the jurisdiction was penal.
The tribunal had to consider the possibility that issues of privilege might prevent a representative mounting a proper defence and that they should be given the benefit of any doubt.
A representative could (and indeed had to) argue a case which they considered hopeless and for which they had been advised was hopeless if those were the instructions of the client. There was a clear distinction between that situation and that of a representative lending assistance to proceedings which were an abuse of process.
Even if proper advice had been given it was possible that the Claimant would have insisted that the case continue and the solicitor would have been obliged to carry on.
Rule 48 of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004, insofar as relevant reads:-
“(1) A tribunal… may make a wasted costs order against a party’s representative.
(2) In a wasted costs order the tribunal… may:—
(a) disallow, or order the representative of a party to meet the whole or part of any wasted costs of any party…
(b) which, in the light of any such act or omission occurring after they were incurred, the tribunal considers it unreasonable to expect that party to pay.
(4) In this rule “representative” means a party’s legal or other representative or any employee of such representative, but it does not include a representative who is not acting in pursuit of profit with regard to those proceedings. A person is considered to be acting in pursuit of profit if he is acting on a Conditional Fee Agreement.
(6) … The tribunal… shall also have regard to the representative’s ability to pay when considering whether it shall make a wasted costs order or how much that order should be.”
Note that under clause 58(3) of the Criminal Justice and Courts Bill, currently before Parliament, a court which makes a wasted costs order under section 51(6) of the Senior Courts Act 1981 must report the matter to the approved regulator, that is the Solicitors Regulation Authority in the case of a solicitor. Presumably Employment Tribunals would take the same action if a wasted costs order is made under Rule 48.
It should also be noted that although there is reference to a Conditional Fee Agreement it is illegal to act under such an agreement in Employment Tribunal matters – see Regulation 1(4) and 1(6) of the Damages-Based Agreements Regulations 2013.
In Godfrey Morgan Solicitors Ltd v Cobalt Systems Ltd (UKEAT/0608/10/LA) [2012] ICR 305, 155 Sol Jo (no 34) 31, EAT, the EAT gave guidelines on the proper approach to applications for wasted costs orders.
The appellant solicitors, Godfrey Morgan Solicitors, appealed against a wasted costs order made against them by an employment tribunal. They had been acting under a contingency fee agreement for an employee, Mr Willimott, in an unfair dismissal claim against the respondent employer Cobalt Systems Ltd.
The claim was listed for a two-day hearing. When the solicitors told C that he would have pay for counsel, Mr Willimott stated that he had understood that he would not have to pay anything upfront and that he could not afford to proceed with the claim.
The solicitors did not inform Cobalt’s solicitors that the claim had been withdrawn until a few days before the hearing. Cobalt’s solicitors applied for a wasted costs order against Godfrey Morgan Solicitors. The tribunal found that Godfrey Morgan Solicitors had wanted a settlement but when that was not available, they had failed promptly to advise Mr Willimott about his position and had failed to implement Mr Willimott’s instruction to withdraw the claim.
The tribunal ordered Godfrey Morgan Solicitors to pay the costs incurred by Cobalt’s solicitors from the date at which it became clear that the case would not settle. Godfrey Morgan Solicitors submitted that the judge had (1) erred in refusing to allow them to produce documents which cast doubt on criticisms made about their advice to Mr Willimott; and (2) acted contrary to the rule laid down in Ratcliffe Duce & Gammer v Binns (t/a Parc Ferme) UKEAT/0100/08/CEA, by allowing Cobalt to cross-examine them and to make submissions on the wasted costs issue.
The correspondence and attendance notes Godfrey Morgan Solicitors sought to produce showed them in a less bad light. However, the judge’s decision not to allow those documents in so late in the day was within his discretion.
There was no general rule as Elias J. appeared to propound in Ratcliffe. His observations were on any view obiter and were made in the context of a very different procedural situation. As regards the making of submissions, it was standard practice in the context of other kinds of issue for one party to be able to comment on the other party’s submissions; there was nothing different about a wasted costs application. As for cross-examination of the representative against whom costs were sought, it was a fair and proportionate way of helping the tribunal get the right result in the instant case.
Save in straightforward cases tribunals should be reminded not only of the terms of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 2004 SI 2004/1861, Sch 1, para 48, but also of the Court of Appeal’s guidance in Ridehalgh v Horsefield [1994] Ch 205, CA (Civ Div) at pp.226–239, and to refer to the relevant aspects of that guidance in its reasons.
The statement in Ridehalgh that the court could not imagine any circumstances in which the applicant should be permitted to interrogate the respondent lawyer referred to written interrogatories and did not prohibit cross-examination.
It was always wise to follow the approach outlined in Ridehalgh at p.231 F–G. As emphasised in Ridehalgh, the right procedure for determining claims for wasted costs would depend on the circumstances of the particular case. Proportionality was an important consideration. The only essential requirement was that the representative had a reasonable opportunity to make representations as to whether an order should be made. That could mean that an application for wasted costs could not be dealt with in the substantive hearing.
Tribunals would often understandably wish to deal with such applications there and then in the interests of economy. However, sometimes that would simply not be fair, and the representative would be entitled to more time to make representations.
As the Court of Appeal said in Ridehalgh, although the procedure had to be as simple and summary as possible, that could only be so far as fairness permitted.
Applications for wasted costs orders would often involve not only quite large sums but also what might be very serious criticisms of the representative’s competence or conduct which might have serious repercussions. Judges had to resist the temptation to treat wasted costs issues as matters of ancillary significance.
In any case where privilege had not been waived the tribunal had to give full weight to the warnings in Ridehalgh and ought to make it clear that it had done so. However, it would not always be necessary for a tribunal to consider privileged material in order to decide whether a representative was at fault.
The amount of detail required in written reasons in relation to a wasted costs order would vary enormously. The issues would sometimes be important and would not always be straightforward. In such cases, thorough treatment would be required.
Wasted costs orders were also disproportionately likely to generate appeals, so the EAT would need to have a clear account of the tribunal’s reasoning: Ridehalgh applied (para 36). Appeal dismissed.
In Fisher Meredith v JH and PH (Financial Remedy: Appeal: Wasted Costs) [2012] EWHC 408 (Fam), [2012] 2 FCR 241, the High Court revisited all of the authorities in relation to wasted costs and reaffirmed their relevance in a rapidly changing costs environment. Costs do not now follow the event in family matters, but the court here held that that made no difference to the principles in relation to applications for wasted costs. This is significant as the trend in all civil litigation is moving away from costs following the event.
In personal injury matters there has been no date announced for any increase in the small claims limit but since 1 April 2013 there has been a system of Qualified One Way Costs Shifting whereby claimants will, in general, not liable for defendants’ costs in the event of defeat. Clearly parties and their lawyers are likely to look more closely at making wasted costs applications if ordinary costs are not available. It is equally clear that there will be no lowering of the significant threshold to be overcome to succeed in such an application.
In Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278 the Court of Appeal held that solicitors who help their clients by funding the cost of disbursements should not be liable for costs if the case fails even if no After-the-Event insurance is in place.
Although both appeals related to pre-Jackson cases the Court of Appeal recognised that the situation was likely to become much more common post-Jackson with the abolition of legal aid for all but a small number of clinical negligence cases and with the abolition of recoverability of After-the-Event insurance premiums.
The issue of solicitors being able to fund disbursements without being at risk of an adverse costs order is regarded as one of access to justice and the Court of Appeal allowed the Law Society to intervene. The Court of Appeal specifically approved the funding of disbursements generally with the client repaying the solicitor at the end and also the solicitor paying disbursements on a contingency basis, that is without recovering them from the client if the case is lost. Although not necessary for the judgment in these two cases by extension it allows solicitors to agree only to charge the client for disbursements actually recovered from the other side.
The Court of Appeal also recognised the importance of the decision in relation to Qualified One Way Costs Shifting:
“Defendant’s insurers can undermine the principle of qualified one way costs shifting (which will limit recovery of costs by insurers in failed personal injury actions) by pursuing the solicitors acting for the claimant who fails.”
The point here is that, contrary to popular belief, costs orders against claimants are made for the full sum, but may only be enforced beyond the level of damages with permission of the court.
Under CPR 44.16(3) where the claim is for the benefit of another, the court will usually order that beneficiary to pay costs. Thus if the solicitors had been held to be beneficiaries, then they could be ordered to pay the excess of costs awarded over the damages sum. The Court of Appeal conducted an exhaustive analysis of case law, stating at Paragraph 45:
“…the legislation does visualise the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that such a solicitor was ‘the real party’ or even ‘a real party’ to the litigation.”
and at paragraph 47:
“…payment of disbursements, without more, does not incur any potential liability to an adverse costs order.”
Shortly afterwards the Court of Appeal came to the same conclusion in another case.
In Heron v TNT (UK) Limited and Mackrell Turner Garrett (a firm) [2013] EWCA Civ 469 the Court of Appeal dismissed an attempt by the employers’ insurers to obtain an order for costs against solicitors who had been acting for the employee until they withdrew from the case.
The claimant had not had after-the-event insurance. In a passage quoted with approval by the Court of Appeal the Judge at first instance said:
“As to the suggestion [the solicitors] stood to gain a substantial financial benefit from the case (both in terms of profit costs and a success fee), this is undoubtedly true in the sense that any solicitor engaged on a CFA has an interest in the outcome of the case. If the submission [is] that this of itself will render a solicitor liable to a [wasted costs order] or [non party costs order], it is simply contrary to the public policy that parties, and in particular, impecunious parties, should have access to justice when they do not have the means to fund litigation themselves. There must be additional factors before an order can be appropriate.”
The Court of Appeal went on to say, at paragraphs 36 – 38:
“36. Based on the facts as found by the judge and with which I would not interfere, the application has to be put on the basis that the failure by MTG to obtain ATE insurance (and the subsequent failure to admit that fact to Mr Heron) is itself sufficient not only to give rise to a breach of duty to him but, in addition, to demonstrate that MTG had become a ‘real party’ to the litigation, the person ‘with the principal interest’ in its outcome, or that it was acting ‘primarily for his own sake’. If that was so, as I have said, every act of negligence by a solicitor in the conduct of litigation (thereby giving rise to a conflict) which means that an opposing party incurs costs which might not otherwise have been incurred would be sufficient. When pressed by Beatson LJ during the course of argument, Mr Bacon was unable to identify a principled way of drawing the line so as to avoid this consequence.
I do not accept that the law goes anything like that far. A solicitor is entitled to act on a CFA for an impecunious client who they know or suspect will not be able to pay own (or other side’s costs) if unsuccessful (see Sibthorpe v Southwark BL [2011] 1 WLR 2111 at para. 50; Awwad v Geraghty [2001] QB 570 at 588; Dolphin Key v Mills [2008] 1 WLR 1829 at para. 75). As far as the other side is concerned, whether the solicitor has negligently failed to obtain ATE insurance to protect his client (as opposed to not being able to obtain such insurance) does not impact on the costs they will incur unless it is demonstrably provable that the costs would not have been incurred (as in Adris). That is not the case here.
Mr Sachdeva argued that the appeal was an attempt to short circuit threatened professional negligence proceedings by Mr Heron to which MTG would be able to put in issue questions of breach, causation, contributory negligence and quantum all of which could be challenged by cross examination. Speaking for myself, I doubt how live some of those issues will be but that arguments can be deployed with the benefit of tested evidence is beyond question. It is certainly appropriate for that forum to determine the extent to which MTG may be liable to compensate Mr Heron for any costs that he will have to pay to his employers’ insurers; this summary procedure is not.” (emphasis added)
Lord Justice Jackson has suggested that solicitors acting under a damages-based agreement may be liable for the other side’s costs in the event of defeat, following the principles set out in
Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655 Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655Arkin v Borchard Lines Ltd [2005] EWCA Civ 655, [2005] 3 All ER 613
Few others share this view and in any event almost no damages-based agreements have been signed, except in employment matters where there is generally no costs-shifting in any event.
Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655 In Wilsons Solicitors (In a Matter of Wasted Costs) v Craig and Sybil Johnson and Others UK EAT/0515/10/DA, the employment judge had made a wasted costs order on the ground that a Case Management Discussion had been abortive due to the appellant’s solicitors not having properly prepared the case. On appeal the EAT upheld the order and gave the following guidance:
“Wasted costs orders are always, as the cases emphasise, a serious matter, involving as they do a finding of negligence (at least) on the part of the representative. We have observed a tendency among some judges to deal with them without full reasoning. That is to be deprecated. In every case where a wasted costs order is made the judge should remind himself or herself of the terms of rule 48 and of the relevant principles appearing from the authorities; and it is good practice to do so explicitly in the reasons given. But the Judge’s reasons here have to be assessed in the light of the submissions made. It is clear from the materials that we have set out above that Mr Wilson took no point before the Judge about the extent of his own responsibility for the defects in the presentation of his clients’ case: rather, he attempted to defend his pleadings and his conduct of the hearing on their merits. There are of course strict limits on what he could have said: the whole point about privilege is that the representative is unable to disclose what passed between him and his client. But in our view it would have been perfectly proper for Mr Wilson, as he did before us, to draw the Judge’s attention to the well-known passages in Ridehalgh and/or Ratcliffe and to have made the point, as a matter of principle, that the Judge could not assume that deficiencies in the way the case was formulated were his responsibility rather than his clients. He did not do so. Instead his case apparently was that his pleadings had been satisfactory and the case sufficiently clarified. In those circumstances we do not think that the Judge can be blamed for not explicitly addressing the question of whether Mr Wilson might not have been responsible for the defects which she found.”
In the 15th Century a litigant who had wasted the court’s time, for example by failing to attend a hearing or to comply with an interim order, could be amerced by being ordered to pay compensation to the Crown. Indeed both parties could be amerced if, say, they had settled the matter but not let the court know thus leaving the judge with nothing to do. Given that the court service is now required to be a profiteering sector, some would say racketeering given the astronomical court fees and poor service, it is surprising that the revival of amercing has not found its way on to the statute book.
General The power to make a non-party costs order is derived from sections 51(1) and (3) of the Senior Courts Act 1981:
Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in-
3. The court shall have full power to determine by whom and to what extent the costs are to be paid.”
Non-Party Costs Orders are also known as Third Party Costs Orders.
The principles, law and practice in relation to Non-Party Costs Orders have very recently been thoroughly reviewed by Mr Justice Akenhead in Weatherford Global Products Ltd v Hydropath Holdings Ltd [2014] EWHC 3243 (TCC). The case creates no law but it is a very useful examination of the law.
Other recent cases which have considered the authorities in non-party costs orders include:-
Excelerate Technology Ltd v Cumberbatch & Ors (Rev 1) [2015] EWHC 204 (QB) (16 January 2015)
Deutsche Bank AG v Sebastian Holdings Inc and Another [2014] 4 Costs LR 711.
The fact that the court is considering making a Wasted Costs Order against a lawyer does not prevent it also considering a Non-Party Costs Order against that lawyer, or indeed anyone else. (See Excalibur Ventures and Others v Psari Holdings and Others [2014] EWHC 3436.
The breadth of the court’s discretion has often been stressed and successful appeals will be rare; the appellant court should not interfere with the discretion of the trial judge unless he has plainly erred – see Alan Phillips Associates Ltd v Dowling (t/a the Joseph Dowling Partnership) [2007] EWCA Civ 64, [2007] BLR 51.
This has recently been confirmed by the Court of Appeal in Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546.
Solicitors Wasted Costs Orders can only be made against legal representatives, including solicitors and barristers and such orders are made under section 51(6) of the Senior Courts Act 1981 and are dealt with in my piece above – Wasted Costs Orders.
However where a court declines to make a Wasted Costs Order it can still make a costs order against a solicitor, or other lawyer, under the general, and very wide power to make a Non-Party Costs Order under sections 51(1) and (3) of the Senior Courts Act 1981, set out above.
However in Tolstoy-Miloslavsky v Aldington [1996] 1WRL 736
the Court of Appeal held that there was no jurisdiction under sections 51(1) and (3) to make an order for costs against legal representatives acting purely as legal representatives; in such cases an order could only be made under the Wasted Costs Orders Provisions of section 51(6).
In that case the Court of Appeal stated that there were only three categories of conduct which can give rise to an order for costs against a solicitor:-
if it is within the wasted costs jurisdiction;
if it is otherwise a breach of duty to the court, for example acting without authority, or in breach of an undertaking;
if the solicitor acts outside the role of solicitor, for example in a private capacity or as a true third party funder for someone else.
The fact that a solicitor is working on a contingent fee, or no fee at all, as compared with an old fashioned retainer is irrelevant. In Tolstoy the court said:-
“There is, in my judgment, no jurisdiction to make an order for costs against a solicitor solely on the ground that he acted without fee. It is in the public interest, and it has always been recognised that it is proper, for counsel and solicitors to act without fee. The access to justice which this can provide, for example in cases without the scope of legal aid, confers a benefit on the public. Section 58 of the Act of 1990, which legitimises conditional fees, inferentially demonstrates Parliament’s recognition of this principle. For it would be very curious if a legal representative on a contingent fee and, therefore, with a financial interest in the outcome of litigation, could resist an order for costs against himself but one acting for no fee could not. Whether a solicitor is acting for remuneration or not does not alter the existence or nature of his duty to his client and the court, or affect the absence of any duty to protect the opposing party in the litigation from exposure to the expense of a hopeless claim. In neither case does he have to “impose a pre-trial screen through which a litigant must pass:” see per Sir John Donaldson M.R. in Orchard v South Eastern Electricity Board [1987] QB 565 572-574.”
The mere fact of acting under a Conditional Fee Agreement is not a factor which points in favour of imposing a non-party costs order, even though there is a financial interest in winning which is not present under a normal retainer: Hodgson v Imperial Tobacco [1998] 1 WLR 1056.
In Hodgson a large number of plaintiffs brought actions against three tobacco companies, claiming damages for personal injuries by reason of cancer caused by smoking cigarettes manufactured by the defendants. The plaintiffs had conditional fee agreements with their legal representatives under section 58 of the Courts and Legal Services Act 1990.
The defendants requested the disclosure of the agreements, indicating that in due course the might, if so advised, wish to seek an order for costs against the plaintiff’s legal advisers personally. The plaintiffs refused to disclose the agreements and applied for an order debarring the defendants from seeking costs against the plaintiff’s legal representatives other than by way of a wasted costs order. At a hearing for directions in chambers the judge refused to make a pre-emptive order relating to costs and, further, ordered that the parties and their legal advisors should not make any comment to the media about the litigation without leave of the court.
The Court of Appeal dismissed the appeal against the refusal to make the pre-emptive order relating to costs. It held as follows:
The existence of a conditional fee agreement did not entitle a legal adviser to come to any additional or collateral arrangement with his client which would not be permissible without such an agreement.
Therefore, a legal adviser acting a under a conditional fee agreement which complied with section 58 of the Act of 1990 was no more at risk of being made personally liable for the costs of a party other than his client than one who was not acting under such an agreement.
In any event, any pre-emptive order would have to be so qualified that in practice it would not provide the plaintiff’s lawyers with any legal protection.
Accordingly, in the circumstances it would not be appropriate to make such an order.
“There is no reason why the circumstances in which a lawyer acting under a conditional fee agreement can be made personally liable for the costs of a party other that his client should differ from those in which a lawyer who is not acting under a conditional fee agreement would be so liable…it is in the public interest and perfectly proper for counsel and solicitors to act under a conditional fee agreement.”
The Court of Appeal revisited this subject in Flatman and Germany v Weddall and Barchester Healthcare Ltd [2013] EWCA Civ 728 and quoted from the Judgment in Myatt v National Coal Board (Number 2) [2007] 1WLR 1559:
” In my judgment, the third category described by Rose LJ in the Tolstoy-Miloslavsky case should be understood as including a solicitor who, to use the words of Lord Brown in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, is ‘a real party … in very important and critical respects’ and who ‘not merely funds the proceedings but substantially also controls or at any rate is to benefit from them’. I do not accept that the mere fact that a solicitor is on the record prosecuting proceedings for his or her client is fatal to an application by the successful opposing party, under s.51(1) and (3) of [the Senior Courts Act 1981], that the solicitor should pay some or all of the costs. Suppose that the claimants had no financial interest in the outcome of the appeal at all because the solicitors had assumed liability for all the disbursements with no right of recourse against the clients. In that event, the only party with an interest in the appeal would be the solicitors. In my judgment, they would undoubtedly be acting outside the role of solicitor, to use the language of Rose LJ.”
Thus, as Eady J put it, if a funder is “a real party” in the sense that he has an interest in the outcome of the litigation it may not matter that it would be inappropriate to describe that funder as “the real party”. Eady J went on:
“It may suffice, depending upon the circumstances, that the funder has something to gain alongside the nominal party. In the case of a solicitor, for example, it is not necessary to demonstrate that in the event of the litigation leading to a successful outcome he would be the sole beneficiary. Even though his client may recover compensation for himself, the solicitor could still be regarded as benefiting, or potentially benefiting, from the case to the extent that a costs order should be made against him.”
In Myatt the Court of Appeal had upheld the lower court’s decision that the Conditional Fee Agreements were unenforceable and went on to hold that a non-party costs order could be made against solicitors on the record. Here the court did make such an order as the appeal proceedings had been launched so as to protect the solicitors claim for costs.
The court of appeal specifically confined its decision to cases where litigation was funded by a Conditional Fee Agreement and where the issue was the enforceability of that agreement.
In such cases parties considering applying for an order should warn the solicitor at risk at an early stage, so as to give the solicitor a reasonable opportunity to decide whether to continue with the proceedings.
Orders against Solicitors – Case Law In HU v SU [2015] EWFC 535
the Family Court made a Wasted Costs Order against the mother’s solicitors in respect of a directions hearing which was necessary because of the failure of the solicitors to seek the leave of the court to extend the time for compliance with the directions order given at an earlier hearing and their failure to comply with those directions.
The conduct of those solicitors was characterised by the court as incompetence and “redolent of past poor practices which should no longer feature in private or public law family proceedings.”
The court said that it was satisfied that the conduct of the solicitors was so serious and so inexcusable that it amounted to improper and unreasonable conduct and it caused the father to incur unnecessary costs.
It thus satisfied the provisions of CPR 46.8 and the three stage test set out by the Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205.
The court ordered the costs to be paid on an indemnity basis.
The conduct included incorrectly addressing two letters to the court, sending letters to the father’s solicitors and not to the court and failing to give any idea as to when the steps required by the earlier directions order would be complied with.
The mother was legally aided. The father was privately funded.
In Globe Equities v Globe Legal Services Ltd, an order under the SCA 1981, s 51 was made against a firm of solicitors who had created a limited liability company through which to lease their office premises. The company litigated with the freeholder and lost. The court held that the solicitors were the real defendants and the actions were continued for their benefit which enabled them to remain in the premises for over two years without paying rent; furthermore that the defences and counterclaims in the actions were hopeless. The Court of Appeal having analysed the authorities came to the firm conclusion that pure funders with no personal interest in the litigation, who do not stand to benefit from it, are not funding as a matter of business and do not seek to control its course, are immune from an order for costs under the SCA 1981, s 51.
The governing principle is as stated by Millet LJ in Abraham v Thompson [1997] 4 All ER 362, [1997] 37 LS Gaz R 41, CA:
“It may be unjust to a successful defendant to be left with unrecovered costs, but the plaintiff’s freedom of access to the courts has priority … it is preferable that a successful defendant should suffer the injustice of irrecoverable costs than that a plaintiff with a genuine claim should be prevented from pursuing it.”
Simon Brown LJ concluded that nothing in the facts of this case took it out of the general principle that pure funders generally are exempt from the SCA 1981, s 51 liability for costs.
Funding disbursements In Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278, the Court of Appeal held that solicitors who help their clients by funding the cost of disbursements should not be liable for costs if the case fails even if no After-the-Event insurance is in place.
In Heron v TNT (UK) Limited and Mackrell Turner Garrett (a firm) [2013] EWCA Civ 469, the Court of Appeal dismissed an attempt by the employers’ insurers to obtain an order for costs against solicitors who had been acting for the employee until they withdrew from the case.
the solicitor took on claims under the Consumer Credit Act 1974 on the basis that it was cost free to the claimants whose cases had been referred by a claims management company. Here the solicitor’s literature had represented that “your solicitor will purchase, at their cost, a legal expenses insurance policy” [i.e. ATE insurance] but had failed to do so.
Solicitors Litigating Personally
In Virdi v RK Joinery Ltd [2014] EWHC 3492 the High Court upheld a Costs Order against a non-party, and commented on the nature of such orders and the duties of solicitors when litigating personally.
The High Court rejected the first instance judge’s finding that it was appropriate to apply the same standards to Mr Virdi’s conduct of his personal affairs as would have applied to his professional conduct.
“I see no justification for holding a solicitor, or any other professional person, to the same standards in the conduct of his private affairs as would apply to him when acting for a client in the course of his profession. The responsibilities and burdens of professional life are, quite rightly, of a stringent nature and subject to regulation in the public interest. But lawyers (or other professionals) are entitled to conduct their personal affairs as they chose, so long as they do not bring their profession into disrepute or otherwise infringe the Code of Conduct which governs their professional lives. The judge appears to have been judging Mr Virdi’s conduct as if he had been the solicitor on the record acting for Mrs Virdi, but that was not the position.”
Nevertheless the original order was upheld and the High Court found that the crucial point was that Mr Virdi, and Mr Virdi alone, generated Mrs Virdi’s unsuccessful defence in the action. With his legal knowledge and experience he was clearly the dominant partner. He “made the running in the events that led up to the litigation.”
The High Court took the view that the judge’s refusal to find that Mr Virdi had acted dishonestly was “possibly benevolent.”
“60. The case for making a Costs Order against him would, of course, be much stronger if he had acted dishonestly and deliberately persuaded his wife to advance a defence which he knew to be force… there is a wide spectrum of circumstances in which the discretion to make a third party costs order may legitimately be exercised. The authority shows that dishonesty is not a necessary ingredient, and (importantly) that the pursuit of speculative litigation falls into the same category as impropriety.”
Consequently Mr Virdi could be regarded as the “real party” and thus could properly be made the subject of a non-party costs order.
Written by kerryunderwood April 1, 2015 at 11:03 am
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June 25, 2015 at 9:38 am	Reply	Thanks so much for sharing your wealth of knowledge. I am a litigant in person and have made a wasted costs application against the solicitor who previously had carriage of the claim against me. Not only did she refuse to cooperate throughout in any way, shape or form, but, also, she refused to discuss quantum and to provide me with key documents upon which her client’s claim was based. In other words, I felt that her conduct of the claim against me was akin to harassment. The position is that, now that we are practically at the doors of the court, her successor has made a Part 36 offer that’s lower than an offer I made before proceedings were issued. However, I’ve now spent nearly two years working on the case, which, even at £19 per hour, comes to quite a bit, especially when I add in disbursements. I also feel that I shouldn’t have to pay the Claimant’s costs. Could you tell me if you feel that this scenario is suitable for a wasted costs order? Obviously, the application is a high risk strategy in terms of costs, given my relatively diminutive hourly rate. It doesn’t seem fair to me that a competent litigant in person gets £19 per hour, whilst an incompetent solicitor can recover hundreds. I have a legal background, by the way, although I’m no longer practising.
February 18, 2017 at 1:01 pm	Reply	I cannot advise on the limited information that you have given me. However the general situation is that if the claimant accepts your Part 36 offer late, then you pay the costs up to the date of expiry of the Part 36 offer, that is generally 21 days after the offer was made, but the successful claimant then pays all of your costs from that date onwards and does not recover their own costs. As stated above I cannot advise in detail on the basis of your comment on the blog, but the key issue seems to me to be as to why the claimant is now making a lower Part 36 offer, rather than accepting your original offer. I presume that you have drawn the claimant’s attention to that fact. What I do not know is whether you have withdrawn your original offer or whether it remains, and has remained throughout, capable of assessment. Although you can get a wasted costs order, even if you have lost, that is even more unusual. The reason for that is that the court has the power to adjust costs in such a situation and not to award the winning party all of their costs and indeed to order the winning party to pay costs. The general point of a wasted costs order is that a party has won and recovered its costs but due to the conduct of the losing party the claimant has been put to extra costs. There are no hard and fast rules in relation to wasted costs, but rather each case depends on its facts. I do give a large number of examples in my blog Wasted Costs and Non-Party Costs Orders: Unified
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