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Getting wasted... A look at the wasted costs regime

The wasted costs regime is set out in Section 4 of the Courts and Legal Services Act 1990, enacting section 51(7) of the Senior Courts Act 1981 which defines wasted costs as being costs incurred by a party “as a result of any improper, unreasonable or negligent act or omission” on the part of that representative. CPR r.48.7 and the Practice Direction to part 48 govern the wasted costs procedure. It requires the legal representative to be given a reasonable opportunity to give reasons why the order should not be made against them.

The Court will generally consider the application in two stages, a stage one hearing to consider whether there is prima facie case to answer and then a stage two hearing where the Court will go on to take a more detailed consideration of the application. A wasted costs order can be made at any time up to and including the detailed assessment. It should ordinarily be made before the trial judge unless there are any grounds for bias.

The leading authority on wasted costs is the Court of Appeal decision of Ridehalgh v Horsefield and Another [1994] Ch 205. The Master of the Rolls set out the meaning of improper, unreasonable and negligent conduct. This case was endorsed by the House of Lords in Medcalf v Mardell [2002] UKHL 27. It was made clear that wasted costs applications are only for the clearest of cases.

In the recent case of Kagalovsky and Balmore v Wilcox and others [2015] EWHC 1337 (QB) handed down in May 2015, Mr. Justice Turner in dismissing a wasted costs application, made it clear that wasted costs applications are designed for allegations of a summary nature. This means 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 argument. Such matters can be dealt with summarily on agreed facts or after a brief enquiry.

One of the most important factors to bear in mind in making a wasted costs application is that the accused lawyers are likely to be bound by their client’s privilege. This will entitle the lawyers to be given the benefit of the doubt as to the basis of their instructions.

There are many reported cases of wasted costs applications failing. These are generally where the allegations are too complicated and the costs of pursuing them are out of proportion to the costs of the original action. It is also worth bearing in mind that it is not the lawyer’s role to impose a pre-trial screen even if the lawyer may think the client’s case is doomed to fail. Even un-meritorious clients have the right to be afforded a Defence.

My top tips for successful wasted costs applications are:

  1. The application should be simple and summary as fairness permits. Avoid complex and convoluted arguments.
  2. The respondent lawyers to an application must be told very clearly what they have done wrong. This does not require formal pleadings but there should be a clear statement of allegations.
  3. The wasted costs application is not a separate trial and therefore will not involve disclosure and not normally cross examination (although there may be exceptions, such as allegations of dishonesty).
  4. The regime is not designed so that lawyers can be interrogated.
  5. The hearing should be measured in hours, not days. The longer and more complex the hearing, the less suitable the application is likely to be and it is more likely to fail a stage one hearing.
  6. Costly satellite litigation should be avoided and if the application is costing the same or more than the trial itself then this may be a factor in the Court declining to exercise its discretion at a stage one hearing.
  7. Avoid any delaying in making the application and make it as close to the end of the trial as possible. Delay is likely to cause the parties memories to fade and increase costs which could be a reason why the Court may dismiss the case at a stage one hearing where there is a risk of prejudice to the accused lawyers.

The moral to us all is caveat litigator.

Gemma Witherington was junior to PJ Kirby QC in the recent High Court case of Kagalovsky and Balmore v Wilcox and others [2015] EWHC 1337 (QB).