Kerry Underwood

Archive for April 2015

PORTALS AND FIXED RECOVERABLE COST: 76 FAQ’S

with 2 comments


If you can answer most of these questions then there is no need to book for Kerry on Tour; if you can’t then click here.

 

WHIPLASH AND MEDCO

 

Q1          Is the scheme confined to neck and associated injuries?

Q2          If the claim exits, or falls outside the portal do these whiplash/MedCo rules still apply?

Q3          Is use of MedCo compulsory?

Q4          Have pre-medical offers been banned?

Q5          What is the timescale for expert accreditation?

Q6          Can the report be prepared by someone who has treated the claimant?

Q7          When did fixed costs soft tissue medical reports come in?

Q8          When did the requirement to use MedCo in such cases come in?

Q9          What happens if I instructed an expert before 6 April 2015 but the CNF until on or after 6 April 2015?

Q10        Do the fixed costs medical report rules apply throughout the Fixed Recoverable Costs Scheme as well as the portal?

Q11        Does the Accreditation Scheme apply to FRC as well as the portals?

Q12        Does MedCo apply to EL (Employers Liability) and PL (Public Liability) matters?

Q13        Do the fixed medical report costs provisions apply to EL and PL claims?

Q14        Is a motorcyclist “an occupant of a motor vehicle” for the purposes of the definition of a soft tissue injury claim under the RTA Protocol?

Q15        What about a person in a side-car?

 

MEDICAL REPORTS

 

Q16        In EL/PL portal claims do you need to nominate a medical expert?

Q17        Is there any guidance as to appropriate fees for medical reports in cases where medical report fees are not fixed?

 

PREVIOUS CLAIMS HISTORY

 

Q18        When does the requirement to provide previous claims history apply?

Q19        Do the claimants’ previous claims history provisions apply to EL and PL claims?

 

GENERAL

 

Q20        Is it compulsory to use the portals?

Q21        Can a claim which exits the portal re-enter it?

Q22        Does the portal cover protected parties?

Q23        Does it cover cases where personal representatives are involved?

Q24        Does it cover children?

Q25        Does it cover bankrupts?

Q26        Is £25,000 the true upper limit of the portal?

Q27        What are vehicle related damages?

Q28        Does it cover MIB untraced driver claims?

Q29        Does it cover MIB uninsured drivers claims?

Q30        What happens if the claim becomes worth more than the limit?

Q31        What happens if the CNF is sent to the wrong defendant?

Q32        What happens if the claimant reasonably believes the claim is worth at least £1,000, and thus is above the small claims limit, but it then becomes clear that it is worth less than £1,000?

Q33        If an insurer does not respond to the CNF and the matter exits the portal can you issue proceedings without the need for a letter of claim?

Q34        Is there any case law on what constitutes complexity for the purposes of justifying taking the matter out of the portals?

Q35        Where personal injury damages are under £25,000 but the claim far exceeds that level because of the vehicle related damages which do not come into play for the upper limit the matter will be commenced in the portal.  If it falls out for any reason what costs regime applies?

EL AND PL

 

Q36        What happens if the claimants are considering applying for a Group Litigation Order?

Q37        What if there are complex issues of fact or law?

Q38        In a dog bite case against individual defendants what protocol and what costs regime applies?

 

FIXED RECOVERABLE COSTS

 

Q39        Can a claim that never entered a portal go to Fixed Recoverable Costs?

INFANT APPROVAL SETTLEMENTS

 

Q40        What fees do I get in relation to advice on an Infant Approval Settlement?

EXITING THE PORTAL

 

Q41        If the settlement monies and costs are not paid by the insurance company within 10 days can I exit the portal and issue proceedings?

Q42        If the defendant insurers fail to pay the medical fee with the Stage 1 costs on a soft tissue matter can I drop the claim out of the portal?

 

FEES

 

Q43        I recently completed an NI claim form for an RTA cases and in years gone by I would simply put “to be assessed” in the box where it asks for solicitors costs.  It no longer lets you type that in so I just put a fairly conservative figure down based on fixed recoverable costs.  The form was returned back to me saying they can’t issue the claim because my costs are too high.  I don’t understand this at all.  Even under Fixed Recoverable Costs there is a table and the costs recoverable depend on what stage you get to and is also linked to the settlement account.  The figure I put down was comfortably below the maximum costs recoverable, so in summary what figure am I supposed to put in that box?

COSTS

 

Q44        I want to settle a claim that has fallen out of the portal without proceedings being issued.  The level of costs is thus fixed by CPR 45.29C.  The insurers have offered to pay agreed damages but there is no reference to costs.

 

                Do I still need agreement to pay costs?

Q45        If a case drops out of the portal after Stage 1 costs have been paid and Part 7 proceedings are issued does credit have to be given for those Stage 1 costs against FRC?

Q46        Is a Pre-Action Disclosure Application in a claim that has exited the portal as interim application for costs purposes?

Q47        What fee do I get?

Q48        What is the position with multi-claimant matters?  Do you get just one fee or one for each claimant?

 

ADVOCACY

 

Q49        How is the advocacy fee calculated if you are representing more than one claimant?

 

COUNSEL

 

Q50        Is counsel’s fee for drafting pleadings every recoverable in an FRC case?

Q51        Is counsel’s fee for a conference every recoverable in an FRC case?

Q52        If I instruct counsel to conduct the advocacy in an FRC case and it settles is any fee recoverable in respect of counsel?

Q53        Is counsel’s fee recoverable from an interim application?

Q54        Does the advocacy fee vary depending on who undertakes the advocacy?

Q55        Can I ever recover an extra fee for counsel in the portal?

Q56        Is there any definition of “reasonably required”?

Q57        Can I recover the costs of counsel advising in liability in the portal?

Q58        How much is that fee?

 

SPECIALIST SOLICITORS

 

Q59        Can I instruct another firm of solicitors instead?

Q60        Can I instruct a specialist solicitor in my own firm and get the entire fee?

 

CFAs

 

Q61        I signed my client up to a CFA before 1 April 2013 but have only just issued the CNF.  Can I recover the success fee?

Q62        I have a child’s RTA claim from 2007.  Does this go into the portal?

Q63        Does the 12.5% London uplift apply in the portals?

Q64        I have a claim where there are two claimants and one claim is valued at £4,000 and one is valued at £9,000.  How do I calculate the court issue fee?

 

QOCS

 

Q65        Does QOCS apply to portal claims?

Q66        Does QOCS apply to FRC claims?

Q67        Does QOCs apply to Pre-Action Disclosure applications?

Q68        Does QOCS apply to other interim applications?

 

 

SECTION 57

 

Q69        Does section 57 Criminal Justice and Courts Act 2015 apply to portal claims?

Q70        Does section 57 apply to FRC claims?

MISCELLANEOUS

 

Q71        I have a small claims track case that has ended up in the Court of Appeal.  Are costs payable/recoverable?

Q72        Is a Noise Induced Hearing Loss claim covered by the EL/PL portal?

Q73        If it exits the portal does it go to FRC?

Q74        What is your authority for stating that NIHL claims are disease claims?

Q75        Are members of the Armed Forces employees for the purposes of the EL/PL portal?

Q76        What happens to such claims?

 

Written by kerryunderwood

April 28, 2015 at 10:10 am

Posted in Uncategorized

PERSONAL INJURY: QOCS, S.57 and 10% UPLIFT

with 7 comments


 

 

The issues raised in this blog are dealt with in Kerry’s course Qualified One Way Costs Shifting and Jackson Update – book here.

 

 

Type of work

 The current Qualified One Way Costs Shifting scheme covers all personal injury work without exception, but nothing else.  All relevant cases, irrespective of the parties’ financial circumstances, are covered.

CPR 44.13 states:

“(1)        This Section applies to proceedings which include a claim for damages –

(a) for personal injuries;

(b) under the Fatal Accidents Act 1976;

(c) which arise out of death or personal injury and survives for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934,

but does not apply to applications pursuant to section 33 of the Senior Courts Act 1981 or section 52 of the County Courts Act 1984 (applications for pre-action disclosure), or where rule 44.17 applies.

(2)          In this Section, “claimant” means a person bringing a claim to which this section applies or an estate on behalf of which such a claim is brought, and includes a person making a counterclaim or an additional claim”.

 

Section 57 applies “on a claim for damages in respect of personal injury” and by Section 57(8) “personal injury” includes any disease and any other impairment of a person’s physical or mental condition;”

 

DISCRIMINATION CASES

 Personal injury is not defined in the Civil Procedure Rules dealing with Qualified One Way Costs Shifting but CPR 2.3(1) provides that “a claim for personal injuries” means proceedings in which there is a claim for damages in respect of personal injuries to the claimant or any other person or in respect of a person’s death, and “personal injuries” includes any disease and any impairment of a person’s physical or mental condition.

Section 57(8) of the Criminal Justice and Courts Act 2015 uses exactly the same definition as CPR 2.3(1):

“”personal injury” includes any disease and any other impairment of a person’s physical or mental condition;”

 

Actual Injury

 Employment Tribunals have the power to award damages for actual personal injury arising out of discrimination, including physical, but more typically psychological, injuries, see for example Vento v Chief Constable of West Yorkshire Police (No 2) [2002] IRLR 102 Court of Appeal. The ordinary civil courts have the same power in relation to discrimination in non-employment fields, such as the provision of services.  Actual injury cases in the Employment Tribunal and in civil court discrimination cases would appear to be covered both by QOCS and Section 57 insofar as relevant, but in fact is it is not as simple as that.

In the civil courts the matter appears relatively straightforward – actual injury claims will be covered.

However the position in Employment Tribunals is less clear.  There are generally no costs in Employment Tribunals and therefore nothing to shift.  They are governed by entirely different costs rules and the Civil Procedure Rules dealing with QOCS – CPR 44.13 to CPR 44.17 – have no application.

Thus I am satisfied that QOCS does not apply to Employment Tribunal cases involving actual injury, let alone injury to feelings.

However on the face of it Employment Tribunal proceedings are capable of coming within section 57(1)……”proceedings on a claim for damages in respect of personal injury…..”.

As we have seen the duty under section 57(2) to dismiss the claim “includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest”. (Section 57(3)).

So, exaggerate your client’s future loss of earnings claim and the safest case will be dismissed in its entirety if there is a personal injury element.

Is a safe unfair dismissal claim lost because of exaggeration of future loss if there is a personal injury claim for discrimination included, even though there is no exaggeration in relation to the personal injury element? The answer appears to be yes, just as an ordinary personal injury claim is lost in its entirety if, for example, the credit hire claim is exaggerated.

 

Injury to Feelings

 Is injury to feeling s species of personal injury? Does it involve impairment of a person’s mental condition?

 

Shorter Oxford English Dictionary

 Impairment

No definition given.

  

Impair

  1. Make less effective or weaker; devalue, damage, injure.
  2. Become less effective or weaker; deteriorate, suffer injury or loss.

 

Impaired

  1. One that has been impaired.
  2. Of the driver of a vehicle or driving; adversely affected by alcohol or narcotics.

 

Impairment

The action of impairing, or fact of being impaired; deterioration, injurious lessening or weakening.

 

Impair

To make worse, less valuable, or weaker; to lessen injuriously; to damage, injury.

 

Impaired

Rendered worse; injured in amount, quality or value; deteriorated, weakened, damaged.

 

Roget’s Thesaurus gives the following alternative for “impair”:

 Damage, harm, diminish, reduce, weaken, lessen, decrease, blunt, impede, hinder, spoil, disable, undermine, compromise, threaten.

 

Roget’s Thesaurus gives the following alternatives for “impaired”:

Disabled, handicapped, incapacitated, debilitated, infirm, weak, weakened, enfeebled, paralysed, immobilised.

 

Roget’s Thesaurus gives the following alternatives for “impairment”:

Disability, handicap, abnormality, defect, deficiency, flaw, affliction, disadvantage, problem.

 

Those definitions seem to me to be potentially wide enough to cause injury to feelings to amount to an impairment of a person’s mental condition and thus to bring injury to feelings into the sphere of QOCS protection.

Injury to feelings awards are usually in the Employment Tribunal.  There costs do not follow the event and thus QOCS is of no application, for the reasons set out above.

However injury to feelings awards are also made in the County Court where costs do follow the event; discrimination in relation to the provision of services is a County Court, not an Employment Tribunal matter.

My view is that the court could legitimately decide the issue of whether injury to feelings is a species of personal injury either way, although it is significant that the word “injury” is used.

Employment Tribunals have the power to award damages for actual personal injuries arising out of the discrimination, including physical, but more typically, psychological injuries.  These are generally awarded under the “injury to feelings” ahead of damages.  The appellate courts have frequently said that there is no fine line between actual psychological injuries and injuries to feelings.

For example, in Birmingham City Council v Jaddoo UKEAT/0448/04/LA

the Employment Appeal Tribunal referred to “the inevitable overlap between injury to feelings and psychiatric damages…..” (Paragraph 31).

In Vento v Chief Constable of West Yorkshire Police (No 2) IRLR 102 the Court of Appeal said that tribunals should have “……regard…..to the overall magnitude of the sum total of the award for compensation for non-pecuniary loss made under the various headings of injury to feelings, psychiatric damage and aggravated damages” such that “in particular, double recovery should be avoided by taking appropriate account of the overlap between the individual heads of damage”.

In HM Prison Service v Salmon [2001] IRLR 425 the Employment Appeal Tribunal said that it is “necessary to stand back and consider the non-pecuniary award as a whole”.

On balance my view is that injury to feeling should be classed as a species of personal injury and that cases involving claims for injury to feelings should attract the protection of Qualified One Way Cost Shifting in the civil courts, but not in Employment Tribunals.

In Timothy James Consulting Ltd v Wilton [2015] IRLR 368 EAT

the Employment Appeal Tribunal overturned the decision of the Employment Tribunal that had made an award of £10,000.00 for injury to feelings but had then grossed it up to take into account income tax at the rate of 40% and thus awarded £16,666.00.

There was no dispute that £10,000.00 was the correct figure; the issue was whether it should be grossed up to take into account tax and thus the real issue was whether injury to feelings awards are taxable.

Historically it had always been assumed that such awards were free of income tax and the current legislation is the Income Tax (Earnings and Pensions) Act 2003 and section 406 provides:-

“This Chapter does not apply to a payment or other benefit provided—

(a)          in connection with the termination of employment by the death of an employee, or

(b)          on account of injury to, or disability of, an employee.”

This replaced, and is a similar wording to, section 148 of the Income and Corporation Taxes Act 1988.

Here the Employment Appeal Tribunal carried out an exhaustive analysis of the authorities.

The Employment Appeal Tribunal said that the reasoning of the Employment Appeal Tribunal in the case of Orthet Ltd v Vince-Cain [2004] IRLR 857 EAT was persuasive and was preferable to a decision in the First Tier Tribunal (Tax Chamber) in Moorthy v Commissioners for HM Revenue and Customs [2015] IRLR 4 UKFTT which had held that awards for injury to feelings were taxable.

Consequently the Employment Appeal Tribunal held that injury to feelings awards are not taxable and therefore reduced the award back to £10,000.00.

It was a necessary part of the reasoning here, and in the Orthet case, that “injury” could include the concept of injury to feelings.

This reasoning was necessary because of the wording of section 406 set out above which exempts payments made “on account of injury to, or disability of, an employee”.

There is no reference there to injury to feelings and therefore to come within that definition the Employment Appeal Tribunal here and in Orthet held that “injury” includes injury to feelings, or to put it another way injury to feelings is a species of personal injury itself.

Thus here the Employment Appeal Tribunal, at least equal in standing to the High Court, held that injury to feelings Is an injury.

However the feedback that I am getting from practitioners in discrimination cases in the civil courts is that those courts are not treating injury to feelings as personal injury and thus are not providing QOCS protection.

In Black v Arriva North East Limited [2014] EWCA Civ 1115

the Court of Appeal rejected an application for a costs capping order.

Here, the appellant appealed against a judgment in a disability discrimination case but had not taken out a sufficient level of After-the-Event insurance before such insurance became unrecoverable by virtue of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.  Thus any fresh premium, to cover the increased level of cover required, would not be recoverable.

Consequently the appellant sought to have Arriva’s costs capped at £50,000.00.

The Court of Appeal pointed out that this would now apply to all new cases as a result of Parliament ending recoverability of After-the-Event insurance premiums by means of LASPO 2012.

“So the argument could be raised in any appeal brought in respect of a case under that Act.  Such a result is difficult to square with the indication in the Practice Direction that an order for costs capping should only be made in exceptional circumstances” (paragraph 12).

The Court of Appeal also pointed out that it is not a function of costs capping orders to remedy the problems of access to finance for litigation.  “If for instance, the respondent’s costs were agreed to be proportionate, it would not be possible to exercise any jurisdiction to make a costs capping order simply because without it the appeal would not continue to be financially viable.”

That is because CPR 3.19(5) (b) only allows a costs capping order if “there is a substantial risk that without such an order costs will be disproportionately incurred;”

There were other fact- specific reasons for refusing a costs capping order in this case but they do not establish any new legal principles.

Interestingly one of the submissions made in favour of a costs capping order, but rejected, was that there was a lacuna in the law in that Qualified One-Way Costs Shifting applied in personal injury cases but not Equality Act cases.  As this is a disability discrimination claim in relation to the provision of services one would expect damages for injuries to feelings to be available.  The issue as to whether such damages are in fact damages for personal injuries, and thus covered by QOCS, does not appear to have been considered in this case.

“Another factor was that the potential subject of the Costs Capping Order – Arriva – had already incurred vastly more costs than £50,000.00 prior to the application being made and therefore the Costs Capping Order would have been retrospective:-

“The effect of what I have described is that by the time of the application, the major part of the solicitor’s costs of the appeal had been incurred. The effect of the order sought would, therefore, be that the Respondents will have already spent what is, if the costs capping order is made, in substance a budget laid down by the court without knowing that it had to stick to that insofar as it sought to recover its costs. In principle, the person who is the subject of the costs capping order ought, so far as possible, to know the budget to which he must work in advance.” (Paragraph 25).

 

QOCS

 QOCS protection is of no relevance in Employment Tribunals, neither in relation to actual injury or injury to feelings.

 

Section 57

  Applies to actual injury cases in civil courts arising out of discrimination.

May apply to injury to feelings cases in civil courts arising out of discrimination. – see the discussion of what is “injury” in Timothy James Consulting Ltd v Wilton [2015] IRLR 368 EAT.

Appears to apply to actual injury cases in Employment Tribunals arising out of discrimination.

May apply to injury to feelings cases in Employment Tribunals – see the discussion what is injury in Timothy James Consulting Ltd v Wilton [2015] IRLR 368 EAT.

Logically, in relation to injury to feelings awards, either both section 57 and QOCS apply in the civil courts or neither do.  The Simmons v Castle [2012] EWCA Civ 1039 10% uplift is subject to different reasoning, which I now consider.

 

Simmons v Castle 10% uplift

 Actual injury awards in the civil courts attract the Simmons v Castle [2012] EWCA Civ 1039 10% uplift.

The situation in relation to injury to feelings awards in the civil courts is unclear,  “general damages” awards attract the uplift and that is obviously a wider definition than “personal injury”.  My view is that injury to feelings awards being “general damages” do attract the 10% uplift in the civil courts.  That does not throw any light on the issue of whether injury to feelings is a species of personal injury.

In Employment Tribunals the position is even more complicated.

There remains the issue of whether injury to feelings awards in Employment Tribunals attract the 10% uplift.  Let us assume, as must be the case, that such awards are general damages and thus, on the face of it, attract the uplift.  Why is there any doubt?

In Chawla v Hewlett Packard Ltd [2015] IRLR 356 EAT

the Employment Appeal Tribunal held that the 10% uplift under Simmons v Castle [2012] EWCA Civ 1039 did not apply to injury to feelings awards nor actual personal injury awards in Employment Tribunal cases as the rationale does not apply as successful claimants do not generally recover their costs in Employment Tribunal cases.

The case was unusual in that an award for actual injury, as well as injury to feelings, was made. The EAT quoted from paragraph 15 of that judgment where Lord Judge, the Lord Chief Justice said:-

“15. Thirdly the increase we are laying down… is attributable to the forthcoming change in the civil costs regime initiated by Sir Rupert as an integral part of his proposed reforms which were unconditionally endorsed and supported as such by the judiciary publicly, and it was plainly on the basis that the 10% increase would be formally adopted by the judiciary that the 2012 Act was introduced and enacted.”

Here the EAT points out that Employment Tribunal claims are not included on the list of specific types of litigation dealt with in the report.

At paragraph 91 of the judgment the EAT says:-

“The rationale for the uplift… does not apply to litigation in the ET.  Accordingly the 10% uplift decided upon in that case does not apply to increase guidelines in cases on injury to feelings in discrimination cases in ET’s.”

This is in conflict with two previous decisions of the Employment Appeal Tribunal:-

Ozog v Cadogan Hotel Partners Ltd [2014] EqLR 691 EAT and

The Sash Window Workshop Ltd v King [2015] IRLR 348 EAT

In Ozog the point was conceded but the EAT said that the concession was rightly made.  In The Sash Window neither of the advocates nor the judge appeared to have a clue as to what the Simmons v Castle uplift was about, with references to inflation, the inflation uprating in Da’ Bell v NSPCC [2010] IRLR 19 EAT and that Simmons v Castle was decided because the level of general damages was generally low.  The Judge herself refers to the Da’ Bell v NSPCC inflation uplift as being 4 years old at the time of the hearing here.

The discussion and judgment on this point in The Sash Window are woeful.

Chawla is a much better reasoned decision and in my view is correct.

It is also in conflict with the Presidential Guidance 2014 which makes specific reference to the Vento guidelines on injury to feelings as having been updated by Simmons v Castle at paragraphs 13 and 14 which state:-

“13…tribunals may award a sum of money to compensate for injury to feelings…

  1. They follow guidelines first given in Vento v Chief Constable of West Yorkshire Police, which have since been updated by Da’ Bell v NSPCC and Simmons v Castle, but are still referred to as the “Vento” Guidelines.”

A previous decision of the Employment Appeal Tribunal took the same line as the EAT here –

Pereira de Souza v Vinci Construction UK Ltd UK EAT/0328/14, unreported

Leave to appeal to the Court of Appeal has been given in Pereira.

 

DOES QOCS APPLY S.57 10% UPLIFT
Personal injury civil claims yes yes yes
Personal injury Employment Tribunal claims no yes ?
Injury to feelings civil claims ? yes yes
Injury to feelings Employment Tribunal claims no yes ?

 

 

 

 

 

 

 

 

 

Written by kerryunderwood

April 24, 2015 at 12:15 pm

Posted in Uncategorized

CFAS: NEVER NAME THE DEFENDANT! (1)

with 7 comments


In Engeham v London and Quadrant Housing Trust & Another [2015] EWCA Civ 1530

the Conditional Fee Agreement, under the heading “What is covered by this agreement” said:-

“Your claim against the defendant L & Q for damages”.

In fact proceedings were issued against both L & Q and the Academy of Plumbing Ltd (APL) and was settled by a “Tomlin” order, the relevant terms of which read:-

“2.      [APL] do pay the Claimant’s costs of this action, such costs to be assessed on a standard basis by way of detailed assessment if not agreement.

  1. Upon payment by [APL] of the agreed sum and costs, [L & Q and APL] be discharged from all further liability to the Claimant in respect of the claims made by the Claimant in this action.

Schedule

  1. The Claimant has agreed to accept the sum of £10,000 plus costs in full and final settlement of the claims brought in this action.
  1. The sum of £10,000 be paid by [APL] to the Claimant’s solicitors by 4 pm on 26 July 2011.”

I deal with the issue of a win below but in relation to the named defendant both courts below held that Ms Engeham could not recover any costs in relation to the action against APL as the words in the Conditional Fee Agreement quoted above “were not wide enough to encompass an action against anybody else.”

That matter was not before the Court of Appeal as Ms Engeham did not pursue that point but the court confirmed the correctness of the lower courts’ decision:-

“On this further appeal, Ms Engeham does not seek to challenge those conclusions, and I consider that she was right to do so. It follows, that the only costs which she can now recover are costs which relate to her action against L & Q.”

Thus naming a defendant means that costs cannot be recovered in relation to work against any other party and thus it remains crucial not to name the defendant in any Conditional Fee Agreement – see my post CFAs: Never Name the Defendant! (2)

This case thus follows the reasoning in

Brookes v DC Leisure Management Ltd and Technogym UK Ltd [2013] EW Misc 17 (CC) Exeter County Court

dealt with in my post referred to above.

Win

What the Court of Appeal was actually considering here was whether the outcome of the action represented a win for the claimant Ms Engeham under the terms of the Conditional Fee Agreement.

The Principal Costs Officer and Master Haworth held that it was not a win, but on further appeal HH Judge Mitchell sitting with Master Hurst, Senior Costs Judge, held that it was a win and APL now appealed against that decision, seeking to restore the order of the first two courts.

The definition of a win was the one contained in both the Underwoods Model Conditional Fee Agreement and the Law Society Model Conditional Fee Agreement:-

“Your claim for damages is finally decided in your favour, whether by a court decision or an agreement to pay you damages or in any way that you derive benefit from pursuing the claim.

‘Finally’ means that your opponent:-

  • is not allowed to appeal against the court decision; or
  • has not appealed in time; or
  • has lost any appeal.”

APL argued that Ms Engeham had not won against L & Q and as they were the only defendant named in the Conditional Fee Agreement she had not won anything under that agreement and so was not bound to pay her solicitors anything and under the indemnity principle she could not recover costs from anyone in respect of her non-existent liability to pay costs.

Here the terms of the Tomlin order provided for payment of damages by APL but that such payment acted as a discharge for both L & Q and APL.

The Court of Appeal upheld the decision of HH Judge Mitchell that APL were liable for the costs of Ms Engeham’s action against L & Q.

The court pointed out that as far as Ms Engeham was concerned the object was to obtain damages for her injuries. She had done that. She had won. True it was that the action against L & Q was not finally decided in her favour by an agreement to pay her damages if one read into the Conditional Fee Agreement a clause that it must be L & Q who actually pay the damages, but there was no reason to do so.

As the court said:-

“It frequently occurs that a settlement is achieved with an action, but the person who pays the damages is not the defendant who is being sued.”

The Court of Appeal said that the parties could not have contemplated “that a win was restricted to causing L & Q to be the payer, even if L & Q was the only anticipated defendant at the date of the CFA. I therefore consider that the “win” clause in the CFA is not limited by reference to the identity of a person who actually pays the damages. Once one construes the CFA in that way, it seems to me that the Tomlin order is plainly an agreement to pay damages within the meaning of the CFA. The fact that those damages were to be paid by APL and not L & Q is not relevant.”

The Court of Appeal also pointed out that had Ms Engeham just sued L & Q and L & Q had brought Part 20 proceedings against APL, who then made payment in an overall settlement, she would have won against L & Q.

The court said:-

“Other examples abound, such as a parent or a related company, a shareholder or a simple well-wisher making the payment of damages.”

That is perhaps not a valid point – the “win” would still have been against the named defendant, whoever actually paid the damages. The argument here was that there had not been a win within the proceedings against the named defendant.

Comment

This is a very fact specific case. A differently worded Tomlin order may have resulted in Ms Engeham recovering no costs. As Simon Gibbs says in his always excellent blog – Wrong defendant named in CFA – again:-

“The important point to note is that for many – probably most – cases where the wrong defendant is named, this decision will be of no assistance.  The Court of Appeal has recognised that expressly naming one party as defendant in a CFA limits the scope of what the agreement covers.  Perhaps the classic example of this problem arises where a CFA in a highway tripping claim names a local authority as defendant but it is subsequently discovered the correct defendant is actually another party (eg utilities company), with the claim then being successfully pursued against that other party.  Ordinarily, and absent a rather unusual final costs order, there will be no recoverable costs given the limitation of the CFA.”

As the High Court said in

Law v Liverpool City Council [2005] EWHC 90020 (Costs):-

“If the CFA as drafted is such that it can include a claim against any potential Defendant, then the present problem would not arise.”

In Brierley v Prescott [2006] EWHC 90062 (Costs)

the High Court said that it is commonly the case that Conditional Fee Agreements do not identify the opponent and that there is no requirement that they should, provided that “the particular proceedings” to which they relate are specified. The court said:-

“…the sin therefore was one of addition: including an unnecessary detail.”

As stated in my post – Conditional Fee Agreements, Damages-Based Agreements and Contingency Fees:-

“The key lesson to be drawn from these cases is that the defendant should never be mentioned in a Conditional Fee Agreement, but rather simply the date of the accident, and possibly the rough location, so that “the particular proceedings” are specified.”

The decision in Engeham has been widely misreported, as pointed out by Simon Gibbs. I suspected that that was the case and as I said in my post:-

“I have not yet got the full Judgment and my advice remains that you should not name the defendant in a Conditional Fee Agreement.”

That advice is reinforced, not changed, by the Court of Appeal’s decision in this case.

Previously four courts have reached four different conclusions in cases where the wrong defendant has been named in a conditional fee agreement; what all four decisions have in common is that each states that there is never any need to name a defendant and doing so risks all costs being lost.

In Hailey v Assurance Mutuelle Des Motards SCCO: CCD 1405291

the Senior Court Costs Office held that if the wrong defendant was named in a Conditional Fee Agreement then there was no valid retainer and thus the indemnity principle meant that no costs could be recovered.

However the court held that disbursements could be recovered as these were payable by the claimant in any event, win or lose.

I do not pretend to understand the logic of this decision. The claimant won and therefore there must have been an implied term that he would pay his lawyers in the circumstances. Either the retainer is invalid in which case nothing is recoverable, or it is valid, in which case disbursements and costs were both recoverable.

There can be no logic in holding the retainer valid in relation to disbursements but not valid in relation to costs. If there was no retainer because there was no successful action against the driver of the motorcycle then clearly disbursements in relation to a completely different matter, which the court found this was, against the insurer could not be covered by that retainer.

Here the accident had occurred in France and thus the action, under French and apparently European Union Law, was against the insurer and not the driver of the motorcycle; the Conditional Fee Agreement wrongly named the driver rather than the insurance company and that part of the claim had been struck out.

Nevertheless it was the same accident which occurred on the same date.

In Brierley v Prescott [2006] EWHC 90062 (Costs)

the Conditional Fee Agreement covered:-

“Your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000”

where the true defendant should have been the other driver, a Mr Prescott. There Master Gordon-Saker said:-

“In my view the words “your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000” meant “the claim for damages arising out of the accident and which was being handled by Hertz”. “

He also said that the intention of the parties was obvious and that there was only ever one claim and therefore he held that the Conditional Fee Agreement was binding and the claimant was bound to pay his own solicitors under that agreement which meant that he could recover those costs from the defendant.

That decision is far better reasoned and clearly gives intention to the will of Parliament.

Simon Gibbs appeared for the defendant in each case and in Brierley v Prescott Simon Gibbs conceded that if the agreement had been expressed to cover “your claim for damages for personal injury suffered on 7 January 2000” without identifying the opponent, he would have no argument.

The court there said that it is commonly the case that Conditional Fee Agreements do not identify the opponent and that there is no requirement that they should, provided that “the particular proceedings” to which they relate are specified. As the court said “the sin therefore was one of addition: including an unnecessary detail.”

The key lesson to be drawn from these cases is that the defendant should never be mentioned in a Conditional Fee Agreement, but rather simply the date of the accident, and possibly the rough location, so that “the particular proceedings” are specified.

In that case the claimant and his solicitor had sought retrospectively to replace the 2002 agreement with one in 2005 but backdated. The court had this to say about that:-

“Although this is perhaps not the right vehicle to decide the point, I think it likely that a conditional fee agreement can have retrospective effect. However for the reasons suggested by Colman J in Arkin v Borchard Lines Ltd (Costs Judgment) [2001] NLJR 970, an agreement made after the conclusion of the proceedings to vary a conditional fee agreement relating to those proceedings would be unenforceable as contrary to public policy.”

In Law v Liverpool City Council [2005] EWHC 90020 (Costs)

the court also said that there was no requirement to name a defendant. There, Liverpool City Council were named as the defendant but in fact the property concerned, where the injury took place, had been transferred to Berrybridge Housing Association just two months before the accident. They were not named in the Conditional Fee Agreement. There the court held that there was a retainer, allowing the claimant to recover base costs but that there was no valid Conditional Fee Agreement, as the claim was not against Liverpool City Council, and therefore no success fee could be recovered.

The court said:-

“If the CFA as drafted is such that it can include a claim against any potential Defendant, then the present problem would not arise.”

It also said:-

“In my judgment, when it became apparent that the second defendant needed to be added the claimant and the solicitor should have considered the point and if it was the intention of both of them to have a CFA as well as a retainer covering the second defendant then a fresh CFA agreement should have been entered into or the existing one properly varied in writing and signed. This should have been effected.” (Paragraph 22).

In Brookes v DC Leisure Management Ltd and Technogym UK Ltd [2013] EW Misc 17 (CC) Exeter County Court considered a case where the CFA stated that it covered:-

“Your claim against Exeter City Council for damages for personal injury suffered in an accident at work on or about 19 May 2006”.

In fact the true defendants were DC Leisure Management Ltd and Technogym UK Ltd.

Yet again the court pointed out that it was unnecessary to name any defendant at all:-

“The claim could have been defined in relation to the date of the accident only, but the naming of a particular defendant evidences a clear intention to identify a particular legal claim against a particular Defendant.”

“Although the statutory requirement is that the CFA must be in writing, it does not have to identify the Defendant.”

In that case the court upheld the decision of Master Gordon-Saker sitting in the Senior Courts Costs Office that no costs would be recovered.

Thus on virtually identical facts we now have the following conflicting decisions:-

  1. All costs can be recovered (Brierley v Prescott).
  2. Base costs, but no success fee can be recovered (Law v Liverpool City Council).
  3. Disbursements only can be recovered (Hailey v Assurance Mutuelle Des Motards).
  4. Nothing can be recovered (Brookes v DC Leisure Management Ltd).

That is four different possibilities on the same facts. The ingenuity of the courts knows no bounds. I wonder how many further variations they can come up with.

For the sake of completion in the case of Scott v Transport for London (2009) Hastings County Court 23 December 2009 unreported the court allowed an appeal against the decision of the District Judge who had refused to allow any costs in relation to a Conditional Fee Agreement referred to “your claim against Lambeth Council” when in fact the defendant was Transport for London. Thus the County Court allowed costs in full as did the court in Brierley v Prescott.

Insofar as anything is clear from these decisions it is that you should never name a defendant in a Conditional Fee Agreement.

None of these problems are avoided by the fact that the Conditional Fee Agreement is a post 31 March 2013 one where the success fee is not recoverable from the other side. The central point in all of the above cases is that the retainer was invalid, in full or in part, and thus the claimant, that is the person entering into the Conditional Fee Agreement, was not liable to pay their own solicitors because of the defective retainer and therefore because of the indemnity principle those costs could not be recovered from the other side.

Exactly the same principle applies where the success fee is not recoverable, that is that if the claimant is not liable to pay it to the solicitor then obviously the solicitor cannot charge the success fee to the client. As we have seen above there is also the risk that the defendant will be off the hook in relation to base costs as the only retainer is the potentially defective Conditional Fee Agreement.

Please see my related blogs:-

CFAS: NEVER NAME THE DEFENDANT! (2)

CONDITIONAL FEE AGREEMENTS, DAMAGES-BASED AGREEMENTS AND CONTINGENCY FEES

Written by kerryunderwood

April 23, 2015 at 12:21 pm

Posted in Uncategorized

INDUCEMENTS IN PERSONAL INJURY CASES

with 13 comments


INDUCEMENTS IN PERSONAL INJURY CASES

Sections 58 to 61 of the Criminal Justice and Courts Act 2015 introduce rules against inducements to bring personal injury claims. These are largely uncontroversial and came into effect on 13 April 2015, by virtue of The Criminal Justice and Courts Act 2015 (Commencement No. 1, Saving and Transitional Provisions) Order 2015 (SI 2015 no. 778).

Section 58 applies to regulated persons, which includes solicitors, and makes it unlawful to offer an inducement to make a personal injury claim, but not if the benefit is related to the provision of legal services in connection with a claim.

Thus offering a discount, or a no win no fee agreement, or offering to pay disbursements or cover adverse costs etc. does not amount to an inducement. An inducement is an offer of a benefit that is intended to encourage the person to make a claim or to seek advice about making a claim or which is likely to have that effect (section 58(2)).

A benefit may be an inducement regardless of when or how the offer is made, when it is received, whether it is subject to conditions or whether it is to be received by a third party (section 58(3)).

Section 58(4) provides that if a person other than the regulated person offers a benefit in accordance with arrangements made by or on behalf of the regulated person then the regulated person is to be treated as having offered that benefit.

Section 58(5) gives the Lord Chancellor power to make regulations as to the circumstances in which a benefit is related to the provision of legal services in connection with a claim, including provision about benefits relating to –

(a) fees to be charged in respect of the legal services;

(b) expenses which are or would be necessarily incurred in connection with the claim, or

(c) insurance to cover legal costs and expenses in connection with the claim.

Section 59(4) provides that breach of section 58 does not make a person guilty of a criminal offence and does not give rise to a right of action for breach of statutory duty.

Section 59 also provides that the appropriate regulator, the Solicitors Regulation Authority in the case of solicitors, must ensure that it has in place appropriate arrangements for monitoring and enforcing the restriction in section 58 and empowers the regulator to make rules and allows those rules to provide for any penalty that the regulator could impose for any other breach of another restriction.

The effect of this is that the SRA can make offering an inducement a disciplinary offence resulting in a solicitor being struck off the roll. Sections 59(5) and (6) allow the regulator to make rules which reverse the burden of proof, which means that if the regulator considers that there is an offer of an inducement, then it is for the solicitor to show that it was for some other reason, or that it was a benefit related to the provision of legal services in connection with the claim.

Section 60 is an interpretation section and section 60(1)(c) wrongly refers to the Law Society as the regulator for solicitors. It is in fact the Solicitors Regulation Authority.

Section 60(2) states:-

“benefit” means—

(a) any benefit, whether or not in money or other property and whether temporary or permanent, and

(b) any opportunity to obtain a benefit;

“claim” includes a counter-claim;

“legal services” means services provided by a person which consist of or include legal activities (within the meaning of the Legal Services Act 2007) carried on by or on behalf of that person;

“personal injury” includes any disease and any other impairment of a person’s physical or mental condition.”

Section 61 provides that regulations under section 58 or 60 are to be made by statutory instrument. The only regulations made to date are the ones commencing these provisions with effect from 13 April 2015 and they are the Criminal Justice and Courts Act 2015 (Commencement No. 1, Saving and Transitional Provisions) Order 2015.

Between them the sections are an all embracing prohibition on inducements in personal injury cases.

Written by kerryunderwood

April 17, 2015 at 12:17 pm

Posted in Uncategorized

EXAGGERATION = FRAUD – KEY COURT OF APPEAL CASE

with 10 comments


EXAGGERATION = FRAUD – KEY COURT OF APPEAL CASE

The Court of Appeal has said that exaggerating injuries for financial gain is fraud. This is a very important decision that suggests that the fundamentally dishonest threshold will be very much lower than most people thought. This is of key relevance in relation to the whole claim being dismissed under Section 57 of the Criminal Justice and Courts Act 2015 and to defeat Qualified One Way Costs Shifting protection.

In Hayward v Zurich Insurance Company plc [2015] EWCA Civ 327

the Court of Appeal overturned a first instance decision that a claimant should repay a large part of a personal injury award from an earlier settled action.

It will now be very difficult for the settled cases to be reopened.

Here the claimant had been injured at work and liability was admitted and shortly before trial the action was settled for £134,973.11, the insurer having argued that the claim was exaggerated. It settled for around one third of the sum claimed.

After settlement the insurers were informed that the claim had been inflated and they successfully sued the claimant for fraudulent misrepresentation in claimed rescission of the agreement. The judge held that the true value of the claim was £14,720.00 and ordered the claimant to repay the balance.

On appeal it was argued that the insurer had settled the original action on the basis that it was overstated and fraudulent and thus should not be allowed to reopen the case simply because it now had better evidence to establish one of the factors that it had taken into account when deciding to settle. To allow the insurer to reopen the case would make settlements difficult, if not impossible.

The Court of Appeal upheld those submissions. It pointed out that the contract was one to compromise a disputed claim and that the misrepresentation on which the claim for rescission was based consisted of some of the very facts averred by the claimant in advancing the claim. This was not a case of collateral representations designed to induce the settlement as in cases such as:-

Gilbert v Endean [1878] 9 Ch D 259 or Dietz v Lennig Chemicals [1969] 1 AC 170.

Consequently the defendant could not now have the agreement set aside simply because he could now show that the statements put forward by the claimant had been wrong.

“In deciding to settle the defendant takes the risk that those statements are in fact untrue (or, to put it more accurately, would not be proved at trial) and pays a sum commensurate with his assessment of that risk. He could have taken the case to trial in order to disprove the statements in question; but by settling he agrees to forego that opportunity and he cannot reserve the right to come back later for another attempt. If it were otherwise no settlement would be final.” (Paragraph 16 of the Judgment).

By entering into the settlement the defendant implicitly agrees not to seek to have it aside on the basis that the statements made in support of the claim were faults.

The Court of Appeal went on to say that the position would be different where the factual statements advanced by the claimant and replied upon by the defendant were not merely faults but were fraudulent. However the court went on to say:-

“If it is in any case sufficiently apparent that the defendant intended to settle notwithstanding the possibility that the claim was fraudulently advanced, either generally or in some particular respect – the paradigm being where he has previously so asserted – there can be no reason in principle why he should not be held to his agreement even if the fraud subsequently becomes demonstrable.” (Paragraph 19 of the Judgment).

The Court of Appeal said that it cannot be right that a defendant who has made an allegation of fraud against the claimant but decided not to have it tested in the court should be allowed, whenever he chooses, to revive that allegation as a basis for setting aside the settlement.

That was the case here.

Parties who settle claims with their eyes wide open should not be entitled to revive them only because better evidence comes along later. Here Zurich had alleged fraud from the outset and what happened afterwards was that better evidence of that fraud came to light after the settlement contract had been made.

At paragraph 33 the court said:-

“To extend the law of rescission in the manner here under consideration would have the most unfortunate consequences. The first would be that it would become almost impossible to compromise a whole swathe of litigation if settlements were vulnerable to being set aside in this manner. Apprehension by one party that his opponent may persuade the trial judge of matters which he denies, and disbelieves, is an everyday characteristic of litigation, and a healthy driver towards settlement, as every mediator knows. If the principle contended for were correct, almost any litigant could say that he was influenced to settle a case for more than it was worth because of a fear that the judge might believe his opponent, even though he did not. To be able to treat as an actionable misrepresentation the opponent’s statement of his case merely because of such an everyday apprehension would expose almost any settlement to subsequent attack if fresh evidence became available. Indeed, there is nothing in the reliance test propounded by the judge that would even make the obtaining of fresh evidence a necessary condition. The public policy which encourages settlement of litigation would be gravely undermined if, in effect, dissatisfaction on either side led, with or without later forensic research, to the settlement being impugned on the ground that the opponent’s case contained a misrepresentation which, without being believed, influenced the terms of settlement.”

This case would have been decided differently had the new section 57 of the Criminal Justice and Courts Act 2015 been in force at the time.

The court clearly found fundamental dishonesty, indeed fraud, and therefore there could have been no question of any part of the claim being allowed to stand; the whole claim would have had to have been dismissed, even though the Defendant was liable for part of the damages.

The case is potentially significant in relation to the definition of fundamental dishonesty, both in relation to section 57 and also in relation to Qualified One-Way Costs Shifting.

Working on the basis that anything that constitutes fraud has also passed the fundamental dishonesty test, that is assuming that fundamental dishonestly is in fact a step short of fraud, then any exaggeration for financial gain will constitute fundamental dishonesty and thus trigger the loss of Qualified One-Way Costs Shifting protection and also the loss of the whole claim which otherwise would have been successful.

Here the allegation of the defence was as follows:-

“The Claimant has exaggerated his difficulties in recovery and current physical condition for financial gain.”

There was no direct reference to fraud or dishonesty.

Indeed the whole point of the second action was that they had now discovered that the claimant had acted fraudulently and they had not taken that into account when setting the first action.

Here the court said, at paragraph 20:-

“The employers had in their Defence not simply put them in issue but positively asserted that they were dishonestly advanced: see para. 2 above. Ms Adams [counsel for the insurance company] argued that the relevant paragraphs did not amount to a plea of fraud, but I cannot see how an averment that the Appellant was exaggerating his disability “for financial gain” can be anything else.”

Later at paragraph 26 another judge of the Court of Appeal referred to “the grossly inflated amount which he received upon the settlement of his fraudulently exaggerated claim”.

Written by kerryunderwood

April 8, 2015 at 11:54 am

Posted in Uncategorized

COSTS AGAINST LAWYERS

with 3 comments


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:-

“51         Costs in civil division of Court of Appeal, High Court and County Courts.

  1. Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in—
  1. the civil division of the Court of Appeal;
  2. the High Court; and
  3. 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.”

WASTED COSTS

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

the judge said:-

“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

  1. 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’).
  2. 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.
  3. 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 –

(a) of any proceedings under this rule; or

(b) of any order made under it against his legal representative.

 

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 –

(a) at the first stage the court must be satisfied –

(i) that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved;

(b) at the second stage, the court will consider, after giving the legal representative an opportunity to make representations in writing or at a hearing, whether it is appropriate to make a wasted costs order in accordance with paragraph 5.5 above.

 

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

This sectionnoteType=Explanatory Notes has no associated

  1. 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.
  2. 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:-

  1. his criticisms of the solicitors as being responsible for the expert’s failings; these were unnecessary for his findings;
  2. his criticisms left no scope for explanation by these solicitors, suggesting that the judge closed his mind;
  3. 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:

  1. Has there been an improper, unreasonable or negligent act or omission?
  2. As a result, had any costs been incurred by a party?
  3. 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.

(2)       …

(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 two-stage approach

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.

Threats

The threat of a wasted costs order should not be used as a means of intimidation. However, if one side considered that the conduct of the other was improper, unreasonable or negligent and likely to cause a waste of costs it was not objectionable to alert the other side to that view. There appears to be a fine line between ‘threatening’ and ‘alerting’.

 

Advocacy

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.

 

The application

 

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:

  1. the court does not serve a pleading informing the lawyer of the precise charges to be answered;
  2. the court will be both the prosecutor and the adjudicator;
  3. 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:

  1. satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order; and
  2. 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):

  1. it is satisfied there is nothing the lawyer could say, if privilege had been waived, to resist the order; and
  2. that it is in all the circumstances fair to make the order.

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.

HELD: Appeal allowed.

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.

 

Unsuccessful applications

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.

 

Tribunals

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:

  1. summary assessment;
  2. agreement of a specified sum by the paying person and the person entitled to receive the costs;
  3. 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:

  1. disallow all or part of the costs which are being assessed; or
  2. 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

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…

(3) “Wasted costs” means any costs incurred by a party: —

(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 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.

HELD:

  1. 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.
  2. 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.
  3. 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.

  1. 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.
  1. 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)

 

 

Damages-Based Agreements

 

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.”

 

 

Amercing

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.

NON-PARTY COSTS ORDERS

 

General

The power to make a non-party costs order is derived from sections 51(1) and (3) of the Senior Courts Act 1981:

51 Costs in civil division of Court of Appeal, High Court and county courts.

  1. Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in-

(a) the civil division of the Court of Appeal;

(b) the High Court; and

(c) any county court,

shall be in the discretion of the court.

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:-

  1. if it is within the wasted costs jurisdiction;
  2.  if it is otherwise a breach of duty to the court, for example acting without authority, or in breach of an undertaking;
  3. 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:

  1. 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.
  2.  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.
  3. 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.
  4. Accordingly, in the circumstances it would not be appropriate to make such an order.

The Court of Appeal said:

“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.”

  1. 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.

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 paragraph 37:

“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.”

 

In Adris and Others v Royal Bank of Scotland [2010] EWHC 941

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.

However the solicitors failed to obtain after-the-event insurance and failed to explain to the claimants that they would have to pay the other side’s costs if the claims were lost.

The High Court held that this was a “gross breach of duty” towards the clients and that the solicitors were effectively acting without instructions as the clients were “prevented from giving instructions on anything like an informed view of the case” and said “it is obvious that if the clients had been told of the true position they are likely to have instructed (the law firm) not to progress the claims”.

The solicitors were made the subject of a non-party costs order upon the application of the defendant.

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.”

He went on to say:-

“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

Posted in Uncategorized

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