COSTS BITES 73: IN A WASTED COSTS APPLICATION THE APPLICANTS FAILED TO GET PAST THE FIRST STAGE

In  King & Ors v Stiefel & Ors [2023] EWHC 453 (Comm) Mr Justice Jacobs refused to allow a wasted costs application to pass stage one of the process. The issues were too complex and the costs to high, to justify a substantial application for wasted costs against the claimants’ lawyers.

“The authorities set out above speak with one voice as to the nature of the summary process. It is not simply, in my view, a question of considering proportionality by reference to the costs. The cases make clear that wasted costs applications are indeed intended to be summary, and are not a vehicle for a complex professional negligence action.”

THE CASE

The respondent solicitors had represented a number of claimants in an action for unlawful means conspiracy.  That action was dismissed after a six day reverse summary judgment application by the defendants. Permission to appeal was refused by the Court of Appeal. The defendants then sought to obtain an order for wasted costs against the barrister and solicitors who represented the claimants.

THE ISSUES ON THE FIRST STAGE OF THE APPLICATION

A wasted costs application is, except in the most clear of cases, usually a two stage process.   One of the tests at the first stage, described as the “threshold issue” is whether the application is suitable for summary determination.  In this case the judge held that this was not a case for summary determination.

THE ARGUMENTS

The arguments in outline

1. 1. The Respondents submitted, as their primary position, that there was a short answer to the present application. The wasted costs jurisdiction is intended to be a summary process for determination of straightforward cases, and the applications made by the Applicants were entirely unsuitable for that process. They submitted that the cases advanced were in effect substantial professional negligence actions, and that a considerable amount of court time would be required to deal properly and fairly with the points raised.

1. 1. The Applicants acknowledged that the applications might have a degree of complexity, and would take some time to resolve. However, as previously stated, they estimated that this would take no longer than 3 days, and that justice required the Applicants being permitted to seek recovery of substantial costs which they would otherwise have no prospect of recovering. Although further substantial costs had been incurred in preparing the applications, the work on their side had now been done and the costs from this point would not be so significant.

THE LEGAL PRINCIPLES

The judge considered the law relating to wasted costs, in particular as to avoiding lengthy and complex hearings.

The case-law

1. 1. In Medcalf v Mardell [2002] UKHL 27, Lord Bingham at [24] citing Ridehalgh v Horsefield [1994] Ch 205, 238-239, reiterated that wasted costs hearings should only be permitted if measured in hours; and he urged courts to be astute to control costly satellite litigation.

1. 1. Lord Bingham also cited the Privy Council case of Harley v McDonald [2001] 2 AC 678 at p 703, para 50:

“As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in court or are facts that can easily be verified. Wasting the time of the court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed.”

1. 1. Lord Bingham went on at [24]:

“Save in the clearest case, applications against the lawyers acting for an opposing party are unlikely to be apt for summary determination, since any hearing to investigate the conduct of a complex action is itself likely to be expensive and time-consuming. The desirability of compensating litigating parties who have been put to unnecessary expense by the unjustified conduct of their opponents’ lawyers is, without doubt, an important public interest, but it is, as the Court of Appeal pointed out in Ridehalgh v Horsefield, at p 226, only one of the public interests which have to be considered.

1. 1. Similarly, Lord Hobhouse said (at [57]) that the jurisdiction is discretionary and should be reserved for those cases where the unjustifiable conduct can be demonstrated without recourse to disproportionate procedures.

1. 1. Similar statements and sentiments, to those in Medcalf, have been made and can be found in many cases, before and after Medcalf v Mardell, where wasted costs applications have been dismissed.

1. 1. In Hedrich v Standard Bank London Ltd [2008] EWCA Civ 905 the Court of Appeal held at [10] (5) that “hearings should be measured in hours not in days or weeks“ in the context of the following passage:

“The overriding requirements of the procedure to be followed are that any procedure must be fair and must be as simple and summary as fairness permits. Hearings should be measured in hours not in days or weeks. Judges must not reject a weapon which Parliament has intended to be used for the protection of those injured by the unjustifiable conduct of the other side’s lawyers, but they must be astute to control what threatens to become a new and costly form of satellite litigation (238G–239A).”

1. 1. The court reiterated this point at paragraph [78], Ward LJ saying that:

“I cannot emphasise strongly enough the established authority that this is a summary remedy which should be capable of being dealt with in hours rather than days”.

Ward LJ had sympathy for the applicants, who had “spent a fortune in this sorry litigation”, but nevertheless dismissed the appeal from the refusal of the judge to order wasted costs. He referred to the need for “this form of satellite litigation … to be rigorously confined”.

1. 1. Similarly, Lord Woolf MR said in Wall v Lefever [1998] 1 F.C.R. 605 at 614:

“The wasted costs jurisdiction is salutary as long as it is not allowed to be a vehicle which generates substantial additional costs to the parties. It should not be used to create subordinate or satellite litigation, which is as expensive and as complex as the original litigation. It must be used as a remedy in cases where the need for a wasted costs order is reasonably obvious. It is a summary remedy”.

1. 1. Likewise, in Re Merc Property Ltd [1999] 2 BCLC 286, Lindsay J explained at p. 300a that the “wasted costs jurisdiction has to be reserved for summary process in clear cases” and dismissed the application before him, observing with apparent concern that it had taken up “a whole day”.

1. 1. In Lady Archer [63] Jackson J said:

“Despite the best efforts of judges, and dare I say it, textbook writers, the true nature of the wasted costs jurisdiction is still insufficiently appreciated. This is a procedure for dealing with relatively straightforward claims which are capable of summary disposal at a proportionate cost. It is not a vehicle for mounting a complex professional negligence action in circumstances where much of the relevant evidence is obscured from the court’s view”.

1. 1. More recently, Bryan J in Lakatamia Shipping Co Ltd v Baker McKenzie LLP [2021] EWHC 2702 (Comm) [75] warned against applications which have “all the hallmarks of heavy satellite litigation the furtherance of which is to be deprecated”.

1. 1. Mr Taylor submitted, and I accept, that a good indicator of whether an application is apt for summary disposal is the degree of complexity involved in the allegations made against the representative and, in particular, the number and variety of those allegations:

a. In Kagalovsky v Balmore Invest Ltd [2015] EWHC 1337 (QB), Turner J refused a wasted costs application, reasoning at [30] that “the sheer number and variety of allegations and the volume of material generated in support of this application is sufficient of itself to show that the case could not be characterised as “plain and simple”“. The stage 1 application was refused because of the “further time and resources which would be involved in proceeding to a substantive determination of this application [which] would be disproportionate and inconsistent with the concept of summary determination” [30]. The Court reasoned that given the stage 1 hearing lasted one day, the stage 2 hearing would likely last around two or three days.

b. In Re Freudiana Holdings Ltd [1995] 11 WLUK 442 the Court of Appeal held that the wasted costs application (which involved points of claim running to over 40 pages) should not have been pursued in light of the “sheer number of allegations [made against the representative]”.

c. In Lakatamia at [77] Bryan J found that the application was “worlds away” from a summary determination as “the allegations are of wide scope – they most closely resemble allegations of professional negligence”. At [37] he noted that the Stage 1 application had already “resulted in the deployment of very much more than half a day of judicial time” and dismissed the application at that stage.

APPLYING THOSE PRINCIPLES TO THIS CASE

The judge gave a large number of reasons as to why the application should not proceed on the basis that there could not be a “summary process”.

1. 1. I consider that the present applications are wholly unsuitable for determination in the summary process described in the authorities. This is by no stretch of the imagination a straightforward case. There are numerous aspects of the case which, individually and collectively, lead to that conclusion.

1. 1. First, the statement of grounds filed in support of the applications comprise 25 pages of allegations from the Primekings Parties and 19 further pages from the TS Parties. These documents read as though they are pleadings in a substantial professional negligence action, and in reality that is indeed what the applications entail. The grounds contain numerous alternative cases, which would require the court to look at the development of the Claim, and the strike-out applications, at different points in time. There are various allegations as to what the Respondents knew or ought to have known, or were or should have been aware of, or ought to have done. The Primekings Parties’ grounds contains some 23 allegations as to what ought to have been known or done. The TS Parties adopt these and add some of their own. The cases advanced would therefore require extensive fact findings on these matters, and ordinarily these would require careful consideration at a trial rather than determination in a summary process.

1. 1. Secondly, not only will consideration need to be given to the conduct of the Respondents at each of the points in time relied upon by the Applicants, but significant questions will arise as to causation at each point in time. Indeed, as the discussion in Section G below shows, the applications raise a fair number of causation issues. In my view, these are far from straightforward and are inherently unsuitable for summary determination.

1. 1. One of the important causation issues arises from the fact that the Kings are plainly determined litigants who, as Cockerill J’s judgment indicates, firmly believe in the existence of the conspiracy which the Claim was designed to expose. This is also evidenced by the broad canvas of litigation involving the Kings described earlier. There is a substantial argument, on causation, that – irrespective of the nature of the advice given by the Respondents or of their assistance in advancing the Claim – the Kings would have been determined to litigate, and that the Applicants would have been facing a claim which they would have needed to apply to strike out anyway. The Applicants’ response is that the Kings would not have been able to formulate their own claim, and would have needed assistance from the Respondents which, on the Applicants’ wasted costs argument, should never have been provided. That argument might have some force if no proceedings could properly have been started in any shape or form. But for reasons set out in Section G, I disagree with that proposition on the basis of the present evidence.

1. 1. If the Applicants were to fail on the argument that the Respondents should never have lent any assistance at the start of the proceedings, then they would need to rely on one or more of their alternative cases; namely that the proceedings should have been discontinued at some stage between issue and the hearing of the strike-out case. However, the alternative cases, based on discontinuance, will be met by the argument that, having started, the Kings could and would have continued. These and other causation arguments are, in my view, unsuitable for determination in a summary process.

1. 1. Thirdly, the factual and legal background to the applications is extremely complex, as can be seen from the very lengthy judgment of Cockerill J. This will necessarily make a Stage 2 hearing lengthy and complex. I recognise that I came to this case afresh, not having dealt with the reverse summary judgment/strike out application. Even so, I spent some time reading into the case prior to the hearing, heard argument over the better part of 2 days, and have now subsequently spent far longer in reviewing the materials and writing this judgment. My view during the hearing was that this was a complex case unsuitable for determination in a summary process, as envisaged by the case-law, and this still remains my firm view.

1. 1. Fourth, as Mr Flenley submitted, the Primekings Parties’ grounds identified a very large volume of documents on which they proposed to “refer to and rely upon”. These comprised approximately 16,000 pages of documents, which would (at 300 pages per lever arch file) fill 53 lever arch files, even before the court starts to consider any authorities. I accept Ms Addy’s point that, at least for the purposes of the Stage 1 application, the core documents could be distilled down to a couple of (double-sided) lever arch files. However, if the application were to proceed to Stage 2, on the wide-ranging basis proposed in the applications, a very large amount of underlying documentary material would be in play.

1. 1. Fifth, this is obviously not a case where the application could be dealt with in hours rather than days. Even on the Applicants’ case, approximately 3 days would be required for Stage 2. I consider that this is likely to be a significant underestimate. Mr Taylor submitted that a minimum of 4-5 days would be required, and in my view that is correct. Mr Flenley submitted that the stage 2 hearing would be measured in weeks rather than days. There is force in that submission. It is certainly not difficult to see that the Stage 2 process will last at least as long as the original hearing before Cockerill J.

1. 1. This is unsurprising, given the width and nature of the case advanced. This requires most of the significant decisions reached by Cockerill J to be revisited through the prism of a question different to those which she was, at least directly, considering: namely whether no reasonably competent legal advisor would have evaluated that the chance of success on each relevant argument was such as to justify commencing or continuing with the proceedings. Ms Addy summarised the applicants’ argument in her reply submissions as follows: having regard to Cockerill J’s judgment, which in her submission could not be challenged, the position is that “no reasonable lawyer, properly considering the matters, should have put their name to the pleading or issued and served the claim form”.

1. 1. This formulation of the principal argument tends, however, to oversimplify the case being advanced in the grounds of the Applicants and the written and oral submissions which were advanced on their behalf. The Applicants rely not simply on negligent conduct, but also upon allegations that the Respondents acted improperly (as well as unreasonably). Impropriety is the most serious of the grounds upon which wasted costs orders can be sought. Moreover, various different themes or strands were apparent in the Applicants’ case, and the argument on their behalf. These included the following: the Respondents improperly pursued a hopeless case; the court should infer that positive advice as to the merits of the Claim and its prospects of success was given by the Respondents to the Kings; the Respondents lent themselves to an abuse of process; there was an insufficient basis for pleading the case. Viewed overall, the case advanced is in my view far more wide-ranging than the case advanced in Medcalf, where the ultimate decision (after, in effect, the Stage 2 hearing) was that the application was not suitable for determination in the summary wasted costs jurisdiction.

1. 1. In the context of the wide-ranging allegations advanced, CPR PD 54 paragraph 5.7 envisages that, subsequent to the Stage 1 hearing, evidence may be served by the respondent for the purposes of the Stage 2 hearing. Mr Taylor indicated that Mr Newman would wish to serve evidence, albeit that the evidence could not reveal privileged matters. It can hardly be said to be unreasonable for Mr Newman to wish to do so, given the width and seriousness of the allegations which are made against him. It is also not difficult to envisage that the Applicants may wish to challenge that evidence, and that cross-examination would be required.

1. 1. Sixth, the complexity of the applications is in my view reflected in the amounts which, as I was told, had been spent by the Applicants in reaching the present stage. The Primekings Parties costs in the application to date are £360,000 and the TS Parties’ costs to date £200,000. If this were a straightforward matter, it is difficult to see costs on that scale being incurred.

1. 1. A related point, which needs to be specifically considered under CPR PD 46 paragraph 5.7 and to which I will return below, is whether the wasted costs proceedings are justified “notwithstanding the likely costs involved”. The Applicants did incur significant costs on the strike-out application. Cockerill J ordered very significant payments on account, as previously described. The total amounts potentially in play, in the wasted costs applications, are obviously larger than those payments, and there is also claim for interest. The Primekings Parties’ costs (prior to any detailed assessment) were around £878,000, of which £597,500 was ordered as a payment on account. The TS Parties’ costs were (prior to any detailed assessment) around £615,000, of which £420,000 was ordered as an interim payment.

1. 1. It is therefore clear that the incurred and prospective costs of the wasted costs exercise will be very significant. If it is correct that the Stage 2 hearing will last at least as long as the hearing before Cockerill J, then it is reasonable to assume that the Applicants’ costs (including those already spent) will approach those which were incurred for the reverse summary judgment/ strike out applications. As can be seen from the above figures, the Primekings Parties have already spent, in relation to the wasted costs application to date, around 40% of the amount which was spent on strike-out, and this was in preparation for a Stage 1 hearing estimated to last 1 ½ days (or 3 days with judicial pre-reading). The TS Parties’ figure is somewhat lower (32%), but still significant. In addition, substantial costs have been incurred, and will be incurred in the future, by the Respondents: the figures to date are £240,000 (Mr Newman) and £140,000 (Metis Law). It is reasonable to assume that further significant sums, at least of the same broad order of magnitude, would be incurred on the Respondents’ side for a Stage 2 hearing.

1. 1. Seventh, there has been no waiver of privilege by the Kings. This means that the court would be considering the substantial case advanced with, as Jackson J put it in Lady Archer, much of the relevant evidence obscured from the court’s view. I accept that privilege is not a trump card. However, the cases in which the court will be able to come to safe or satisfactory conclusions, in the absence of waiver of privilege, will be relatively rare. Lord Hobhouse gave an example, at paragraph [62] of Mardell, of a case where it would be clear that privileged material could not assist the legal adviser.

1. 1. In a case such as the present, however, I do not think it likely that the court could come to any safe or satisfactory conclusions, on important aspects of the case advanced by the Applicants, without seeing privileged material. For example, in the absence of such material, the court would be unable to reach any conclusions as to what advice was actually given by the Respondents to the Kings, and whether (as the Applicants submit) this was positive advice as to the prospects of success or merits of the claim. Similarly, in so far as the case is advanced on the basis that there was insufficient material to plead the conspiracies relied upon, the absence of waiver of privilege means that the court will not have the full range of material that was or might have been available to the Respondents. In that context, I note that at two points in paragraph [442] of her judgment, Cockerill J referred to the possibility that the Kings’ legal team had material, which she had not seen, which justified certain allegations that were made.

1. 1. Against this background, and in accordance with the decision in Ridehalgh approved in Medcalf, the court will have to give the benefit of any doubts to the Respondents. As Lord Hobhouse said at [61]:

“The answer given [in Ridehalgh] therefore was not to treat the existence of privileged material as an absolute bar to any claim by an opposite 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 could affect 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 that doubt in reaching its decision, including the exercise of its statutory discretion”.

As discussed in Section G below, this will in turn have an impact on the question of whether it is likely that a wasted costs order would be made.

1. 1. Eighth, having considered the various arguments advanced by the Applicants, I am far from persuaded that this is a straightforward case for wasted costs at all, whether one is looking at the conduct of the Respondents, or causation. I address each of the principal arguments of the Applicants, as briefly as possible, in Section G of this judgment. Viewed overall, I do not consider that it is likely that a wasted costs order would be made, on the basis of the existing evidence and other materials available to me. But for present purposes it is sufficient to state that there are substantial arguments as to each of the grounds, such that a summary process is in my view wholly inappropriate.

1. 1. Accordingly, I conclude that the applications are not suitable for summary determination, and that in these circumstances (including consideration of the costs involved) the court’s discretion should be exercised against this case proceeding to Stage 2. I will, however, now address the arguments raised by the Appellants against this conclusion.

1. 1. Ms Addy submitted that it is only a general rule, but “not an invariable one” that the wasted costs jurisdiction is intended to be a summary process and should not normally lead to overly long or complex hearings. She submitted that the material question is one of proportionality, namely whether the wasted costs proceedings are justified notwithstanding the likely costs involved.

1. 1. I do not accept this submission. The authorities set out above speak with one voice as to the nature of the summary process. It is not simply, in my view, a question of considering proportionality by reference to the costs. The cases make clear that wasted costs applications are indeed intended to be summary, and are not a vehicle for a complex professional negligence action. This is also, in my view, inherent in the requirement in paragraph 46 PD.5, that the court must be satisfied that it has before it “evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made”. The court is therefore required to form a view, at Stage 1, as to the likelihood of a particular result based on the material which exists. Where the case is very complex, and (as here) has a large number of allegations and alternative cases, with obvious issues as to causation, there are likely to be very real difficulties in the court reaching the positive conclusion that an applicant needs (i.e. that the evidence would be likely to lead to a wasted costs order being made), because the case is so complex and the result unclear. This point was expressed very crisply by Cockerill J in her brief reasons dated 18 August 2021.

1. 1. In any event, even if I were simply to focus on the question of costs, I would reach the conclusion that the wasted costs proceedings are not justified. The proceedings will require a very substantial expenditure of costs on both sides, and it is not difficult to see that the overall costs of the Applicants (leaving aside the Respondents) will approach or exceed the costs which they seek to recover. Given the complexity of the case and the other matters described above, I do not consider that the proceedings are justified notwithstanding the costs involved.

1. 1. The main thrust of Ms Addy’s submission on this issue, both in her oral opening and particularly in her reply, was that the court should exercise its case management powers to simplify the case. She submitted that the court could make case management directions which required the Applicants to choose which of their alternative cases they wished to advance. She identified two obvious points in time: the point when the Claim was commenced in February 2020, and the time of the detailed costs certificates in November 2020. In her reply submissions, she said that Stage 1 was not a binary or “all or nothing” process. She did not abandon any of the alternative cases, but submitted that the court could take the view, for example, that it was not satisfied in relation to causation “the further along the proceedings go”. That should not, however, detract from the primary case, namely that the proceedings should not have happened in the first place. The court could therefore take the view, whether by reference to causation or by reference to a question of proportionality, that all the alternative cases should not be pursued. She said that the baby should not be thrown out with the bathwater: i.e. that the court should focus on the two key points in time that she had previously identified.

1. 1. In his reply submissions, Mr Lightman said that his clients would limit their application for the stage 2 hearing to three points in time: namely the issue of the claim form, the date of service of the Particulars of Claim, and the date of the response to the Request for Further Information. He went on to say that this meant that he was not pursing points raised at paragraphs 40 – 43 of the TS Parties’ grounds. These concerned the allegation that the case should have been discontinued upon service of the skeleton argument for the reverse summary judgment/ strike-out hearing. I did not, however, understand this to mean that the TS Parties no longer supported the Primekings Parties’ case, including the various alternative cases and dates advanced in the grounds of both parties.

1. 1. In my view, the court’s task at the Stage 1 hearing is to consider the application as presented, and suitability for summary determination, as a whole. The Respondents had submitted from the outset, at the consequentials hearing, that the case was not suitable for summary determination. Cockerill J’s August 2021 reasons had in effect warned of the potential problems of a complex application. Complex applications were nevertheless launched. No part of the grounds was abandoned, apart from paragraphs 40 – 43 of the TS Parties’ grounds. For the reasons given, I have no doubt that, when considered as a whole, these applications are wholly unsuitable for the wasted costs process described in the authorities.

1. I have, however, given consideration to whether it would be appropriate to permit the applications to proceed to Stage 2 on the basis of the two key points in time which Ms Addy identified. Even on that basis, however, the case is in my view a complex one, unsuitable for the summary process, for largely the same reasons set out above. Furthermore, as discussed in Section G below, I am not persuaded that, even on this more limited basis, a wasted costs order is likely to be made.