The difficulty in passing stage one of a Wasted Costs Application
King & Ors v Stiefel & Ors  EWHC 453 (Comm)Background
Mr Justice Jacobs refused to allow a wasted costs application to pass stage one of the test outlined in the CPR Practice Direction 46, Para 5.5 as the issues were too complex and the costs were too high to justify a summary application for wasted costs against the Claimant’s lawyers.
The Respondent solicitors represented a number of Claimants in an action for unlawful means conspiracy. The claim was dismissed after a successful reverse summary judgement application by the Defendants. Cockerill J certified that the Claim was ‘totally without merit.’ The Defendants then sought an order for wasted costs against the legal representatives of the Claimants.
It is appropriate for the Court to make a wasted costs order against a legal representative if they acted improperly, unreasonably or negligently and the conduct caused a party to incur unnecessary costs. The Court will consider whether to make an order in two stages; firstly whether it has evidence before it which would be likely to lead to an order being made and secondly that an application is justified notwithstanding the likely costs involved.
In this case an application for wasted costs was brought on the primary basis that proceedings should never have been brought in the initial claim. The decision of the Court of Appeal in Dempsey v Johnson  EWCA Civ 1134 indicates that the Court will look to see evidence akin to abuse of process in determining hopeless cases. In this claim the Respondents believed they were wronged and brought a claim to seek remedy for the perceived wrong. Whilst their arguments were misconceived, it was determined they were not brought with abusive judgement./
The Applicants further submitted that, whilst the application did have a degree of complexity and would take some time to resolve, it would take no longer than 3 days. It was argued that although further substantial costs had been incurred in submitting the application, they would be minimal going forward.
Previously, Lord Bingham cited Ridehalgh v Horsefield  CH 205 as authority that wasted cost hearings should only be permitted if measured in hours and that costly cases should be controlled. Similarly, Lord Woolf said in Wall v Lefever  1 F.C.R. 605 that ‘wasted costs jurisdiction is salutary as long as it is not allowed to be a vehicle which generates substantial additional costs to the parties.’ Orders should only proceed in straightforward cases which are capable of disposal at a proportionate cost. Kagalovsky v Balmore Ltd  EWHC 1337 (QB), was dismissed on the basis that the Stage two application would likely last 2 -3 days.
The Applicants further submitted that, whilst wasted costs applications are intended for summary process, this is a general rule rather than an invariable one and that the material question is one of proportionality. The judge dismissed this argument on the basis that case law makes clear the applications are intended for summary process and in any event, looking at the proportionality of costs, in this case they were not justified.
The Respondents submitted that the wasted costs jurisdiction is intended to be a process for straightforward cases and the application brought was unsuitable. A considerable amount of Court time would be required to deal with the points raised and the Respondents estimated at least 5 days would be required for the stage two hearing.
It is clear that allegations of breach of duty should be confined to questions which are apt for summary disposal by the Court. Consideration will be given to the allegations themselves, along with the proportionality of costs and the time needed to reach a reasonable conclusion at both stages of the application.
Applying the Legal Principles to the Claim
Mr Justice Jacobs first referred to the grounds filed in support of the application. The Applicants statement compromised of 25 pages and 19 pages respectively which read as pleadings in a substantial professional negligence action. The facts to determine required consideration at trial and not determination in a summary process.
There were also substantial issues with causation. The application raised significant causation issues which in turn would be required to be evaluated at each point and were not straightforward issues.
The factual and legal background to the applications were also extremely complex. This in turn would make the stage two hearing lengthy and complex. The grounds relied on by the Applicants were of a large volume. They submitted documents comprising of 53 lever arch files which would require consideration prior to the Court considering any authorities.
The Court also dismissed the application on the basis that it could not be dealt with in hours and would more likely take days. The Applicants themselves submitted that 3 days would be required, which was too long for a summary determination (and a significant underestimate in any event). The Applicants relied on negligent conduct but also allegations of impropriety which the Court determined is the most serious ground to rely on. The Court agreed that, if the matter proceeded to stage two, the process would take as long as the original hearing, which was clearly a proportionality issue.
A further issue in determining dismissal were the level of costs involved in the application itself. At the point of the stage one hearing, the Applicants’ costs were over £500,000 combined.
There was also no waiver of privilege by the Respondents. This inhibited the Court in coming to any satisfactory conclusions as to what advice was given by the Respondents as to the merits of the claim.
In considering the arguments advanced, it was determined that the application was not a straightforward one. The complex arguments, likely time involved, and the costs incurred all impacted the decision that the application should not proceed to stage two.
Cockerill J noted that a complex wasted costs application may render the stage one hurdle harder to meet. The Court have a wide discretion when determining if an order is ‘suitable’ and the bar to pass the first stage is high.