Judges need to be wary of lawyers who behave “tactically” to create an artificial impression that an application for wasted costs is less susceptible to summary determination than is really the case, the High Court has warned.
Mr Justice Turner was ruling in Kagalovsky & Anor v Balmore Invest Ltd & Ors [2015] EWHC 1337 (QB), in which the claimants sought a wasted costs order against the lawyers for one of the defendants.
The defendant was sentenced to 18 months in prison for contempt but has so far escaped justice. He has also failed to pay the costs ordered against him, leading to the attempt to have his lawyers pay them.
Turner J followed the two-stage procedure set out in the practice direction to part 46.8: 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. 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.
Turner J said: “The rationale behind the procedure set out in the practice direction is not difficult to discern. Salutary as the wasted costs jurisdiction undoubtedly is in appropriate cases, there lurks the risk that satellite litigation, growing like Topsy, will come to generate costs and absorb the time and resources of the parties and the court to an extent which is disproportionate to the object to be achieved.
“By splitting the wasted costs application into two stages, the practice direction seeks to place a burden on the applicant to demonstrate a prima facie case as one of the preconditions to be fulfilled before a further and more detailed consideration of the substantive merits will be entertained. Thus unpromising applications can be nipped in the bud before they start taking up too much time and giving rise to disproportionate expense.”
He said that in this case, issues arose as to the proper scope of stage one, primarily because the defendant lawyers sought to participate “very fully indeed at this stage, whereas the practice direction envisages that the respondents’ representations, whether in writing or at a hearing, will be made wholly or mainly at stage two”.
The judge continued: “One can readily understand why legal advisers against whom a wasted costs application is made should want to engage with the process pre-emptively. By doing so, they seek to maximise their chances of achieving a prompt termination of the process while preserving the opportunity to take a second bite of the cherry if they are unsuccessful at the first stage.
“Of course, the danger is that the stage one process then becomes overburdened with detail and complexity when it is intended to be pragmatically lean and uncluttered.”
While there may be little or no participation from the lawyers during the first stage in more straightforward cases, Turner J accepted that this case “could not be regarded as being straightforward on any analysis”.
But he continued: “Of course, the court in any case like this must be alert to the possibility that respondents may be tempted to be tactically over-inclusive in meeting a wasted costs application in order to artificially create the impression that the issue is less susceptible to summary determination than is really the case.”
However, this was not what happened here, even though there had been three hearings relating to stage one, while the first stage hearing had involved nine bundles, lengthy skeleton arguments and three bundles of authorities, with the defendant lawyers’ costs being a combined £188,000.
Turner J decided that the application fell at the first stage, describing it as “demonstrably unsuitable for summary determination”.
The reasons included that:
• The claimants’ central allegations would require the resolution of issues concerning matters which did not occur in the face of the court;
• The allegations call into question the professional integrity of practitioners, all of whom have enjoyed long careers unblemished by any suggestion of impropriety; and
• 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 this case could not be characterised as ‘plain and simple’;
• Despite the relatively high level of costs alleged to be at stake, the further time and resources which would be involved in proceeding to a substantive determination of this application would be disproportionate and inconsistent with the concept of summary determination.