WASTED COSTS & NON-PARTY COSTS ORDERS AGAINST SOLICITORS: 5 NEW CASES
There has been a flurry of recent cases concerning wasted costs orders and non-party costs orders, including non-party costs orders against solicitors.
Wasted costs orders can only be made against lawyers but non-party costs orders can be made against any person whatsoever, and that can include solicitors and such orders have a much lower threshold than wasted costs orders.
For a detailed examination of the whole subject see my blog: WASTED COSTS AND NON-PARTY COSTS ORDERS: UNIFIED.
Non-party costs order may be made before costs have been assessed
the Court of Appeal refused a renewed application for permission to appeal against a non-party costs order and confirmed that a non-party costs order may be made before costs have been assessed.
Here a non-party costs order had been made against the applicant on the basis that he was the driving force behind his wife’s claim and he sought permission to appeal against that order, his main argument being that it was wrong for a non-party costs order to be made before costs have been assessed.
The Court of Appeal, having considered the wording of CPR 46.2 and the authorities on the application of that rule said that there was no basis for that submission.
The applicant could take any point about what costs should be allowed and about proportionality during the course of the assessment of costs.
An interesting twist in this case was that the husband was a solicitor and therefore was also acting as his wife’s solicitor as well as being joined as a party for the purposes of making a non-party costs order.
The application for a wasted costs order failed but the application for a non-party costs order was successful.
Mr Emezie, the husband and solicitor, raised the point about legal professional privilege but the court held that while that was clearly relevant in relation to a wasted costs order it was not relevant in relation to a non-party costs order:-
“…I do not see how the existence of legal professional privilege advances Mr Emezie’s position in relation to the present costs issue. The order made by the judge was not a claim for wasted costs, where sometimes the existence of legal professional privilege does put the lawyer against whom wasted costs are sought in professional difficulties.”
“16. This is a claim for a non-party costs order on the basis that Mr Emezie was the driving force behind his wife’s claim. I do not see how anything which is subject to legal or professional privilege could, if revealed, have constituted a defence to that claim. It was clear from the documentation, from the correspondence and from the course of events in court that Mr Emezie was indeed the driving force behind his wife’s conduct of the litigation.”
Although this decision only relates to an application for permission to appeal it is a brief and useful judgment, dealing not only with the issue of a non-party costs order being made before costs had been assessed but also the differences in principle between a wasted costs order and a non-party costs order.
It is a reminder that a solicitor faces a double jeopardy. Only lawyers are subject to wasted costs orders and the threshold for making such an order is high.
However lawyers are also potentially liable as a real party to the action and thus subject to a non-party costs order, where, as this cases demonstrates, the threshold is much lower and issues such as professional privilege do not come into play.
A solicitor can be liable for a non-party costs order in a variety of situations. Here it was because the solicitor was the husband of the nominal party and “was the architect of these proceedings brought by his wife and… the controlling mind.”
In that sense the fact that he was a solicitor was irrelevant.
There will be other cases, particularly in relation to costs matters, where the only point of that aspect of the dispute is potentially to benefit the solicitor as a solicitor and in those circumstances a solicitor can also be subject to a non-party costs order.
No security for costs in wasted costs applications
a High Court Master dismissed an application for security for costs to be made by a solicitor facing a wasted costs application and this appears to be the first authority on whether security for costs is available in such a situation.
That of itself was said to be significant as both security for costs applications and wasted costs applications were common.
The defendant sought a wasted costs order against the solicitor after proceedings by his client MA Lloyd and Son Ltd were struck out or abandoned and when the defendant PPC was unable to enforce a costs order against that client.
The court said:-
“From the literal wording it clearly provides that only a defendant to a claim may apply for security under these proceedings. The application for costs against Mr. McCarthy stands to be considered by the court pursuant to its discretionary jurisdiction under s.5 l of the Senior Coutts Act 1981. In my view it cannot be accepted that applications for costs arising as a consequence of a claim being brought should themselves be treated as equating to a substantive claim and I therefore do not accept that CPR Part 25 is intended to give the court jurisdiction to order security against a party in respect of issues relation to what are clearly ancillary proceedings.” (Paragraph 11).
Here the application for security had been made by the solicitor facing the wasted costs application.
The Master also declined to make an order for security as a sanction under CPR 3.1(5) as there was nothing about PPC’s conduct in bringing the wasted costs application which could be described as objectionable so as to give rise to an order for costs under that rule. The court said:-
“At paragraph 25.12.3 of the White Book it states “Rule 3.1(5) provides for applications for security for costs against any party, whether claimant, defendant, third-party or respondent to an appeal, who fails to comply with the rule” (emphasis added). The decisions on Olatawura v Abiloye  EWCA Civ 998 and Ali v Hudson  EWCA Civ 1793, referred to in paragraph 3.1.5 of the White Book, indicate that the circumstances in which it will be appropriate to order a payment into court will normally be limited to cases where a party has been flouting court rules, orders or procedures or otherwise considered to be demonstrating a want of good faith. In this context it is apparent that the want of good faith refers to the manner in which a party is litigating in accordance with the overriding objective. In my view there is nothing about the behaviour or conduct of the Defendant in the present case which can be described as objectionable so as to give rise to an order for costs under this rule.” (Paragraph 12).
Here the court said that the real purpose of the security application appeared to be to stifle the wasted costs application.
As the court had ruled that it had no power in the circumstances to make an order for security of costs it was not strictly necessary for it to consider whether grounds had been made out for granting security, had the court had the power so to do.
Nevertheless the court did, for the sake of completeness, do so and held that, even if it had had the power to order security for costs, it would have exercised its discretion against making such an order.
The court said that in those circumstances it was permissible to consider the strength of the application for a wasted costs order and although obiter the court’s comments are useful in considering when a court is likely to exercise its wasted costs discretion.
While accepting that wasted costs applications involve a high threshold the court here took into account the fact that Mr McCarthy was the supervising solicitor of an unqualified lawyer who had much of the day to day conduct of the cases. The court viewed it as significant that three separate sets of proceedings were commenced against the defendants on identical or very similar grounds and that they were all struck out or abandoned.
“Prima facie it is difficult to see how this could have occurred without “improper, unreasonable or negligent act or omission” (derived from the wording of s.51(7) of the Senior Courts Act 1981) by someone. Whether that is as a result of the acts or omissions of the legal advisers to the Claimant or as a result of instructions given by Mr. Key, acting on behalf of the Claimant, is a matter for the Court hearing the Main Application, however it is, in my view, appropriate to have in mind the following matters: (i) That the witness statement of Mr. Key dated the 3rd May 2016 (his sixth witness statement) contains material which strongly suggests that his legal advisers failed to provide him with adequate advice and/or commended proceedings and/or made certain applications without any, or at least adequate, instructions from Mr. Key; (ii) That I have ruled that the witness statement of Mr. Key just referred to is evidence upon which PPC may rely at the hearing of the Main Application to be heard on the 25th July 2016 and for the purposes of this application; (iii) That Mr. McCarthy failed to file or serve any evidence in the Main Application by 4th April 2016 in accordance with the directions made in the Order of the Court dated 4th March 2016 and (iv) That I understand that an application by Mr. McCarthy dated the 7th June 2016 and filed on the 23rd June 2016, seeking permission for Mr. McCarthy to file a witness statement in reply to the wasted costs application, was heard by the Hon Mr. Justice Singh on the 27th June 2016 and was dismissed. Therefore, and notwithstanding the provisions of CPR 46.8(2)… on the evidence presently available to the court, PPC has a very strong case against Mr. McCarthy for the recovery of some wasted costs although the precise circumstances and quantum will need to be considered…” (Paragraph 13(d)).
CPR 3.1(5) provides:-
“(5) The court may order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, practice direction or a relevant pre-action protocol.”
Third-Party funders, non-party funders, non-party costs order and security for costs
the Technology and Construction Court, part of the High Court, dealt with the related issues of disclosure of the identity of a third-party funder, costs orders against non-parties and security for costs orders.
Only a defendant can make an application for security for costs, but a claimant qualifies as a defendant if the original defendant makes a counterclaim.
The claimant, defending a counterclaim, applied for an order that the defendant/counterclaimant disclose the identity of its third-party funder and that it state whether such funder came within the conditions set out in CPR 25.14(2)(b).
CPR 25.14(2) (b) follows immediately the two rules that deal with an order for security for costs against a party and the relevant part reads:-
“(1) The defendant may seek an order against someone other than the claimant, and the court may make an order for security for costs against that person if –
- it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and
- one or more of the conditions in paragraph (2) applies.
(2) The conditions are that the person…
- has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings; and
is a person against whom a costs order may be made.”
The court held that it had the power to make an order for disclosure of the identity of a third party funder and had power to order that third party funder to provide security for costs.
However on the facts of this case the court declined to so order. The defendant’s evidence, that its funding came from itself and a third party which had no agreement to receive a share of the proceeds, nor receive a fee and who had taken no security, had not been contradicted.
In the alternative the claimant submitted that the court had power under Section 51 of the Senior Courts Act 1981 and CPR 46 to make a costs order against a third party, which can include a third party funder.
Such orders are generally known as Non-Party Costs Orders.
To give effect to that power the court had an ancillary power to order disclosure of the identity of the third party funder and, where appropriate, the basis of the funding agreement.
The court held that it would be inappropriate to make such an order at this stage as it would be intrusive and a fishing expedition. It would only become appropriate as and when the claimant was seeking a costs order against a third party funder and only then if there appeared to be grounds on which such an order might be made.
Here the application was “really in the alternative to the application for security for costs against the defendant…”.
Wrong information re funding arrangement: No wasted costs order made
In Price v Egbert H Taylor and Company Ltd, Birmingham County Court, 16 June 2016 (unreported) Claim no. A04YM127: Appeal ref: BM5/007/A
the court declined to make a wasted costs order against the solicitor for the claimant where that solicitor had wrongly advised the defendant that the claim was being funded by way of a pre-Jackson funding arrangement with a Conditional Fee Agreement with a recoverable success fee.
As a result of that statement the court held that the claimant was estopped from arguing that Qualified One-Way Costs Shifting applied as QOCS does not apply where such an agreement is in place.
The substantive action was struck out for failure to serve in time.
The effect of this was that the successful defendant was able to enforce the costs order against the claimant personally.
The court’s decision here did not affect either way the ability or otherwise of the claimant to sue the solicitors in negligence, either in relation to the failure to serve in time and/or the false statement concerning the funding arrangements which resulted in the claimant being deprived of the protection of Qualified One-Way Costs Shifting.
For further information about that aspect of the case please see my post – QOCS & Estoppel
Here the court found, one might think somewhat surprisingly, that there had been no improper and/or unreasonable conduct by the claimant’s solicitor and neither had there been a negligent act or omission.
The court said:-
“It is clear that “negligent” in this context does not mean that which is actionable as a breach of the duty of the solicitor to his client. It must be something more than that – “mere negligence”, it must be an act or omission akin to an abuse of process or breach of duty to the Court. I accept Mr Walder’s submissions that whilst the claimant’s solicitor may be criticised for a number of “errors” in the way in which it managed and recorded its relationship with the claimant, its acts and omissions fall short of the failures required to form the basis of a “wasted costs” order in respect of the hearing of 27 November 2015 nor at all. Therefore, I do not make a “wasted costs” order against the claimant’s solicitor in respect of the hearing of 27 November 2015.” (Paragraph 72 of the judgment).
The hearing of 27 November 2015 was an adjourned hearing which was adjourned for the claimant’s solicitor to show cause as to why a wasted costs order should not be made.
The decision may or may not be right on that point, but given the court’s finding on the estoppel point it is hard to see how the claimant’s solicitors obvious negligence in giving false information about the method of funding does not amount to negligence for the purposes of the wasted costs regime.
The whole point here was that if the defendant realised that the claimant enjoyed QOCS protection it may well have acted differently and it was effectively mislead by the wrong information given.
One suspects that the judge here was influenced by the fact that the claimant, who now has to pay costs due to the negligence of his own solicitor, has what looks like a cast iron case against the solicitor’s professional negligence insurers.
Thus the defendant is likely to get its costs and the claimant is likely to recover them from the solicitor’s insurers and the solicitor will be covered for negligence.
Had a wasted costs order been made it is unlikely that the solicitor’s professional negligence insurance would have covered that order.
That is not a sound basis for making a decision and on the wasted costs point this decision should be treated with caution.
£101,000.00 costs order against solicitor working for firm not authorized to conduct litigation.
the Queen’s Bench Division of the High Court made a wasted costs order against a solicitor in the sum of £101,058.00.
This is a long and detailed judgment running to 26 pages and it examines thoroughly the relevant case law in relation to wasted costs orders.
Mr McCarthy was a qualified solicitor who was employed by Charles Henry, a body registered with the Solicitors Regulatory Authority, but which was neither a firm of solicitors nor a limited legal partnership and which was not authorised to conduct litigation.
Mr McCarthy was responsible for the conduct of the litigation on behalf of MA Lloyd and Son Ltd.
The other side – PPC International Ltd – alleged that he acted in a way that was improper or unreasonable within the meaning of the wasted costs jurisdiction and that MA Lloyd and Son’s case was “solicitor-led”.
There were three sets of proceedings brought MA Lloyd and Son on broadly similar grounds.
In relation to one set of proceedings for alleged breaches of a Confidentiality Agreement an application to serve out of the jurisdiction was dismissed and MA Lloyd and Sons were ordered to pay the costs.
In the second set of proceedings the company was ordered to pay money into court and failed to do so and the action was consequently struck out.
The third action was stayed.
MA Lloyd and Son Ltd then went into administration with minimal prospects of the successful defendant in these cases recovering costs from them.
Here the judge was satisfied that the solicitor, Mr McCarthy, had supervised the conduct of the litigation so as to come within the jurisdiction in section 51(6) of the Senior Courts Act 1981 and he determined that wasted costs were indeed caused by the solicitor’s conduct of the proceedings, which had been unreasonable and improper.
Consequently it was proper to order Mr McCarthy, as legal representative of MA Lloyd and Son Ltd, to pay those wasted costs of £101,058.00.
The court said:-
“12. Mr McCarthy is a qualified solicitor. From a date at some time during 2012, he was employed by “Charles Henry” which is not a firm of solicitors or limited legal partnership, but which Mr Leigh Ellis the solicitor for PPC (in his Thirteenth Statement dated 1 February 2016) ‘understands to be a company limited by guarantee and a charity, which describes itself as ‘providing legal support to members of the public’ and which states on its formal notepaper that it “retains solicitors and other lawyers as consultants and enjoys direct access to the Bar”.
- The legislation in this field provides that only certain persons or bodies are licensed or authorised to carry out “reserved legal activities” (including advocacy and the conduct of litigation). Charles Henry was registered with the SRA (Solicitors Regulatory Authority) and Leigh Ellis in that witness statement states his understanding that it was not at any time licensed or authorised to carry out reserved legal activities. By comparison a qualified solicitor, doubtless subject to maintaining his practising certificate, would be authorised to carry out those activities. Mr McCarthy was a qualified solicitor. It is not suggested that he was not authorised or licensed to carry out the relevant activities.
- I find the role of Charles Henry in this litigation, as a body not authorised or licensed to carry out reserved legal activities, at least opaque. In this, I am in good company. In proceedings between Norseman Holding Limited –v- Warwick Court (Harold Hill) Management Company Limited  EWHC 3868 (QB) Coulson J, stated that ‘certain aspects of NHL’s conduct of the litigation generally, and this appeal in particular, can only be described as extraordinary’:
“Throughout all this game playing, an issue arose – and continues to arise – in relation to the nature of those representing NHL. Charles Henry are on the record as solicitors, and indeed that is confirmed in a witness statement dated 18 January 2013 signed by Keith Gregory, who describes himself as a trainee legal executive at Charles Henry.
However it appears that Charles Henry are not an authorised body recognised by the Solicitors’ Regulation Authority for the purpose of carrying out litigation, and, at the contested hearing in front of Judge Davies on 21 January 2013, that was expressly confirmed by NHL’s Counsel, Mr Shrimpton who described Charles Henry as ‘not a firm and not able to conduct litigation’…..
Even for the purposes of this appeal, the issue as to who is acting for NHL as their solicitor is wholly muddled. In his skeleton argument, at paragraph 22, Mr Butler said that it was common ground that Dr Eiland was the solicitor conducting the litigation on behalf of NHL. I have seen nothing to confirm that Dr Eiland is or was NHL’s solicitor. Orally, I was told that this was wrong and that NHL’s solicitor is Mr Rory McCarthy, but again I have seen nothing to suggest that he is acting on the record as NHL’s solicitor.
There is, therefore, an unacceptable muddle as to who – if anyone – could be said to be the solicitor acting on behalf of NHL. That muddle lies at the heart of what happened next. At the hearing of 21 January 2013, before Judge Davies, NHL were represented by Mr Shrimpton of counsel. Mr Gregory and Mr McCarthy sat behind him. Dr Eiland was not in Court……”
At paragraph 57 the judge said this:-
“57… it is trite that where a party has direct knowledge of facts and matters, and may reasonably be expected to lodge evidence on points of importance, a Court may properly draw adverse inference against the person who has failed to bring such evidence before the Court. In my judgment this applies to the question whether Mr McCarthy was conducting the litigation, but also to the questions whether the Court is satisfied that it was unreasonable or improper conduct on his own part as opposed to that of others, and to the question whether it is the conduct of the solicitor which has caused costs to be incurred as opposed to instruction by the client or following the wishes of the client as expressed to the legal representative.”
The judge found that the costs had been unreasonably incurred:-
“59. Whether costs were unreasonably and/or improperly incurred. I refer above to the agreement as to the nature of the conduct of proceedings which resulted in the orders which PPC now seek to recover as wasted costs. The number of applications made by or on behalf of MAL, either simple applications or applications for permission for appeal, is extraordinary; as to be blunt is the vacuous nature of much of the material put forward under them. I would have had no hesitation in concluding that the conduct was improper and unreasonable in the sense explained in Ridehalgh, and that there was abuse of process in the refusal to pay previous costs orders which had been imposed, a continued series of purposeless and hopeless challenges and applications, which with few exceptions appear to have been for the ulterior purpose of attempting to outlast PPC’s willingness to litigate, and a repeated willingness to embrace and or seek delay.”
The wasted costs order was made against the solicitor personally and unless Charles Henry had insurance to cover it then Mr McCarthy is personally liable for that sum.
Please see my related blog:-