UK: The Wasted Costs Jurisdiction: A Review

Last Updated: 21 August 2008
Article by Clive Brett and Shao Inn Foster

Following Ridehalgh v Horsefield (1994), the court will make a wasted costs order against a solicitor or barrister in civil proceedings if it can be shown that: the legal representative has acted improperly, unreasonably or negligently; his conduct has caused a party to incur unnecessary costs; or it is just in all the circumstances to order him to compensate the party for the whole or part of those costs.

This three-stage test is now incorporated in the Practice Direction to Part 48 of the Civil Procedure Rules. The court has a discretion to make a wasted costs order, but it will not make such an order unless it considers that all three parts of the test have been met.

Although the test was clearly set out in Ridehalgh (and was later approved by the House of Lords in Medcalf v Mardell (2002)), several first instance decisions have recently been overturned on appeal, on the basis that the test had been incorrectly applied (Ratcliffe Duce & Gammer v L Binns t/a Parc Ferme (2008) and Mitchells (A Firm) v Funkwerk Information Technologies York Ltd (2008)).

Summary nature of remedy

The procedure to be followed in determining applications for wasted costs must meet the requirements of the case at hand but the procedure must be as simple and as summary as fairness permits. An oral hearing may not always be necessary. In Re Thomas Boyd Whyte Solicitors and Re Haskell Solicitors (2007), it was found that a judge could make a wasted costs order against a legal representative without an oral hearing as long as the legal representative had notice of the judge's intention and had a full opportunity to make representations.

In the recent case of Hedrich & Others v Standard Bank London Ltd & Others (2008), the Court of Appeal made clear that a wasted costs order is a summary remedy that should be capable of being dealt with in hours not days. The Court held that although litigants should not suffer loss resulting from misconduct of legal representatives, this type of satellite litigation should be rigorously confined.

Assessment of the legal representative's conduct

In Ridehalgh, the Court of Appeal stated that a legal representative has not acted "improperly, unreasonably or negligently" merely because he acted for a party who had pursued a case that was doomed to fail. However, a legal representative should not lend his assistance to proceedings which are an abuse of process.

The concept of the "hopeless case" was considered further in Dempsey v Johnstone (2003). It was held there that the appropriate test was whether no reasonably competent legal adviser would have evaluated the chance of success as being such as to justify continuing with the proceedings. In Mitchells Solicitors (2008), the court found that where it is alleged that the legal representative has presented a "hopeless case", a wasted costs order can only be made against him if he is shown not only to have acted improperly, unreasonably or negligently, but also to have lent assistance to proceedings which have amounted to an abuse of process or a breach of the legal representative's duty to the court.

In KOO Golden East Mongolia v Bank of Nova Scotia & Ors (2008), the fact that a claim had been abandoned on appeal did not mean that it had been pursued negligently. Where a party believes that the opposing side is pursuing a claim that is "doomed to fail", it should consider applying for the claim to be struck out rather than expecting to pursue wasted costs. In this case, the court found that there was no basis upon which a wasted costs order could be made as the claimant's conduct could not be categorised as negligent or unreasonable and as the issues surrounding the claim were not so straightforward that the outcome was a certainty.

Causation

Demonstration of a causal link between the conduct complained of and the waste of costs is also essential. The legal representative's liability is determined in part by assessing whether, but for the conduct complained of, the party seeking to invoke the wasted costs jurisdiction would be out of pocket to the extent of the costs in question (Brown v Bennett).

In D v H (2008), H entered into a settlement by consent where he agreed to pay his wife a lump-sum and all costs orders made in his favour against his wife were to be set aside. Prior to the settlement, H had brought a wasted costs application against his wife's legal representative in which he sought to recover the same costs to which he had waived his rights as a result of the settlement. The court found that H's agreement to forego costs had removed the causal link to the extent that H no longer had any loss to claim.

In KOO, the court found that part of the claim for wasted costs was misconceived as the defendant banks had not suffered any loss. There was every chance that the claimant would pay the costs, especially as they had paid a previous order for assessed costs. Here, not only were the costs in question the subject of assessment, no bill had yet been presented and no demand had yet been made by the defendant banks for payment at the time the application was brought, nor when it was heard.

In Hedrich v Standard Bank, disclosure of certain emails had been given by the claimant during the trial following which the claim was discontinued. When the defendant bank could not recover costs from the claimant it sought wasted costs from the claimant's solicitors on the basis that the late disclosure was due to the solicitor's negligence. The Court of Appeal dismissed the claim on the basis that the solicitor was not negligent and that by the time the relevance of the CD Rom containing the emails was plain, all of the costs had been incurred so causation had not been established.

Personal Circumstances of the professional may be taken into account

The exercise of the wasted costs jurisdiction is always subject to the discretion of the court. Even if the first two stages of the test are met, the court may still decline to make a wasted costs order. It is clear that when exercising their discretion, the courts will consider the effect of a wasted costs order upon the legal representative.

In R (on the application of Hide) v Staffordshire County Council (2007), the court refused to make an order for wasted costs against the solicitor advocate even though it had been satisfied that her behaviour was unreasonable and negligent. It also found that the action was unnecessary and doomed to failure but there was a significant risk that a wasted costs order would cause the legal representative to become bankrupt. The court thought that this would be a disproportionate consequence.

A finding of liability for wasted costs could also result in loss of reputation for the legal representative. In Re 9MD Ltd: Southcombe & Anor v One Step Beyond (2008), the court of appeal stated that solicitors were entitled to take steps to protect their reputation and should not be held to ransom by a wasted cost application, even where the sums in issue were modest.

In Re Boodhoo (2007), a wasted costs order had been made against a solicitor who had withdrawn from the case on the day of the trial as he had no instructions from his client. On appeal, the court quashed the wasted costs order having found that the Recorder had failed to appreciate the professional difficulties faced by the solicitor in the circumstances. A decision to withdraw should be respected where the solicitor genuinely believed that he could not properly represent his client.

Although the courts remain willing to make wasted costs orders, recent decisions have often been in the favour of solicitors facing such applications. It is clear that the courts are exercising their jurisdiction to grant wasted costs orders with care.

Practical tips

The burden of showing that a wasted costs order should be made lies on the applicant. However, when on the receiving end of a wasted costs application, the following should be borne in mind:

  • Where it is alleged by the other side that a "hopeless case" has been pursued, an effective counter may be to argue that the applicant should have applied to strike out the claim at the earliest opportunity.

  • Is the response hampered by the client's refusal to waive privilege? If so, it is likely that the court will make allowances for this and may give the legal representative the benefit of the doubt, especially where there is a real risk of unfairness. It is only when, with all allowances made, the legal representative's conduct is plainly unjustifiable that a wasted costs order is usually considered appropriate.

  • The costs incurred must have been as a result of the legal representative's conduct. Consider whether there has been a break in the chain of causation.

  • Consider whether there has in fact been a loss suffered, or whether the costs are "otherwise recoverable". If at the time the wasted costs proceedings were commenced or when they are heard the party who is liable to pay assessed or agreed costs has not failed, refused or indicated an unwillingness or inability to pay, it may be possible to argue that no loss has been suffered.

  • When exercising their discretion, the courts have shown some sympathy for the legal representative. If granting the order may lead to a disproportionate outcome, then there may be scope to resist.

If a wasted costs order is made, consider carefully whether the court or tribunal has correctly applied the Ridehalgh test.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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