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Home > Judgments > 2008 archive

D & D v SMH [2008] EWHC 559 (Fam)

Appeal by a firm of solicitors against a wasted costs order arising from ancillary relief proceedings. Appeal allowed and order set aside.

This case raised the important point of whether a wasted costs order against the other party's solicitors can survive if the costs claim against the other party has been waived. The costs had arisen in the course of ancillary relief and trust proceedings arising from the couple's divorce. The husband had initially sought costs against the wife but a settlement was reached in the ancillary relief proceedings which meant that claim was dropped. However, the husband continued with a claim for wasted costs in relation to both the ancillary relief and trust proceedings. At a hearing to determine these issues, the trial judge found that all the claims should be dismissed save for costs for an adjournment application made by the wife's solicitors which he found was in their own interests.

Counsel for the appellant in this hearing argued that the consent order in the ancillary relief proceedings effectively ended any claims as "the Respondent expressly or by implication set aside the order of 5 January 2007 which was for the Appellants to show cause" and further, that he had taken into account the amounts he would have recovered in costs when settling with his wife. He had therefore suffered no loss and, if there was a loss, no causal link to the Appellant's action could be established. Counsel for the respondent argued that this claim was independent of the all the other proceedings.

In this judgment, Sumner J concludes that, although the solicitors actions had undoubtedly given rise to a loss, the appeal should be allowed primarily for the reason that a wasted costs order is "a punitive remedy to enable a litigant to recover costs not otherwise recoverable caused by a solicitors' improper conduct." In this case, the husband could have recovered the costs from his wife but the terms of the consent order had not ring-fenced these costs; he could therefore not show that any loss had resulted. Furthermore, there was no way of knowing whether the costs in questions had already been accounted for and so there was a danger of double-counting.

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Neutral Citation Number: [2008] EWHC 559 (Fam)

Case No: FD05D06812
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 19/03/2008

Before :

THE HON. MR JUSTICE SUMNER
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Between :

D & D (Appellants)

- and -

S M H (Respondent)

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Mr Edward Cross (instructed by D & D Solicitors) for the Appellants
Mr Anthony Kefford (instructed by Mears Hobbs & Durrant Solicitors) for the Respondents

Hearing dates: 25 January 2008
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Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.


.............................
THE HON. MR JUSTICE SUMNER

This judgment is being handed down in private on 19 March 2008. It consists of 6 pages and has been signed and dated by the judge. The judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the children and the adult members of their family must be strictly preserved.

The Hon. Mr Justice Sumner:
1. This is an appeal against a wasted costs order made by District Judge Greene following a 2 day hearing on 13 and 14 March 2007. There is also an appeal against the resulting costs order which was that there should be no order for costs. The hearing followed an application by Mr S H, the Respondent to this appeal, of 4 January 2007 and arose from a series of proceedings between him and his former wife, Mrs Moghadam. She was represented by a firm of solicitors, D & D of West London. It was against them that Mr H made his application. They are the Appellants in the present proceedings.

2. The appeal concerns less than £2,300 but raises an important point. Where a husband obtains a costs order against his wife and applies also for a wasted costs order against her solicitors in respect of the same costs, can that wasted costs order survive and be enforced against her solicitors when the husband has subsequently waived his costs claims against the wife?

Background
3. In order to understand the appeal I shall set out the proceedings which took place between the Respondent and his wife. The first application was by the wife in December 2005 for orders under the Family Law Act 1987, for a decree nisi of divorce, and for ancillary relief. They resulted in a 2 day hearing before His Honour Judge Mitchell on 21 and 22 June 2006 and an order for costs against the wife. I shall refer to these as the Family Law Act proceedings.

4. The next related to the intervention of the husband's brother, Dr H, in the wife's claim against the Respondent for ancillary relief. The brother claimed a 100% interest in the former matrimonial home. District Judge Greene, in his judgment of 12 December 2006 after a 4 day trial, accepted the brother's case. The wife was ordered to pay the husband's costs. This I shall refer to as the Intervener's proceedings.

5. By his application of 4 January 2007 the Respondent sought a wasted costs order against the Appellants as follows:

i) In respect of the Family Law Act proceedings, the costs of the 2 day hearing before His Honour Judge Mitchell.
ii) In respect of the Intervener proceedings, the costs of the 4 day hearing before District Judge Greene in November and December 2006.
iii) Further costs occasioned in the ancillary relief claim.

6. On 5 January 2007 the wife applied for an adjournment of the final hearing for ancillary relief listed 3 days later on 8 January. The application was dismissed by District Judge Bradley with costs against the wife. He also ordered the wife's solicitors to show cause why they should not pay the husband's costs of that hearing. I shall refer to this as the adjournment application.

7. On 8 January 2007 the Respondent and his wife came to terms on the wife's claim for ancillary relief at a hearing before District Judge Greene. The Respondent agreed to pay the wife £62,000. He also agreed to an order that all costs orders made against the wife in respect of his costs be set aside with no order for costs against the wife. I shall refer to this hearing as the ancillary relief proceedings.

8. On 14 March 2007, at the hearing of the Respondent's application for wasted costs orders, District Judge Greene made the following findings and orders. In respect of the Family Law Act proceedings he held that the claim failed. No claim for a wasted costs order had been made at the time and there had been delay.

9. In respect of the Intervener proceedings, he held that the criteria for a wasted costs order were stringent. Furthermore privilege had not been waived. He therefore dismissed the claim. There is again no appeal by the Respondent against those findings.

10. By the date of the wasted costs hearing in March 2007, the Respondent had informed the Appellants in relation to the costs of the adjournment application that he would be seeking those as wasted costs as well. In his judgment District Judge Greene held that there was no good reason for the application which was made by the solicitors in their own interests. He therefore made a wasted costs order against the Appellants in the total sum of £2,232. It is against that decision that the Appellants now appeal.

The appeal
11. Mr Cross, who appeared for the Appellants, made it clear in his skeleton argument of November 2007 that the appeal was limited in its scope. He did not seek to say that the wasted costs order was wrongly made in the first place. Having read the background I can say that that is readily understandable.

12. The one ground on which Mr Cross relies is that the effect of the consent order of 8 January 2007 was to bring to an end any effective claim for a wasted costs order. By agreeing to set aside all costs orders made against the wife and paying her a lump sum, the Respondent expressly or by implication set aside the order of 5 January 2007 which was for the Appellants to show cause. As the Appellants put it, the Respondent could not show that he had suffered any loss. This is disputed by Mr Kefford for the Respondent.

The judgment
13. District Judge Greene recorded in his judgment that Mr Cross was arguing that the consent order dealt with wasted costs. As all costs orders were to be set aside it was argued that the Respondent had given up or used the costs order as a bargaining counter.

"Therefore the husband retained the benefit of the costs orders".

14. Having outlined the argument upon which Mr Cross relied, District Judge Greene did not thereafter mention the point nor otherwise rule on it. He dealt with the reasons why he considered that the Appellants should pay the costs of the adjournment proceedings. He did not however further consider this defence.

15. Before me Mr Cross argued that the District Judge must have considered there was nothing in the point. That is of course one possible answer. Another is that he may have forgotten this defence when it came to the end of his judgment. It gives rise to an important matter of procedure.

16. Where a judge fails to deal with a relevant point on which a subsequent appeal is based, the proper course is for the prospective Appellant to draw this to the judge's attention promptly, having informed their opponents beforehand of their intention to do so. There should be an invitation to the judge to consider the point and to add to his judgment if he agrees. This may avoid either an appeal being necessary or the risk that on appeal the case may be sent back for further argument or adjudication.

17. This is as important in an appeal involving less than £2,500 as it is in cases involving much greater sums of money. In the circumstances of this case and bearing in mind the sum involved and the costs already incurred, I did not consider it appropriate to refer the matter back to District Judge Greene over 9 months later. I heard the argument afresh.

The Appellant's argument
18. In his skeleton argument Mr Cross said that the Respondent had enforceable orders for costs against his wife at the ancillary relief hearing on 8 January 2007. He compromised her claim for a lump sum with an order which included the cancellation of all his rights to recover costs from his wife.

19. He argued that in effect the Respondent must be taken expressly to have taken into account the sums which he would otherwise have recovered from his wife in costs in arriving at the amount of the lump sum. The result is that it cannot be shown that the Respondent has suffered any loss regarding costs.

20. It was implicit that the Respondent had traded off his liability to his wife against her liability to pay. At best it was ambiguous. This was insufficient to establish a casual link between the Appellant's conduct and a resulting loss to the Respondent.

The Respondent's submissions
21. Mr Kefford for the Respondent said that he had not waived any loss because at that stage all that had happened was that the Appellants had to show cause. This was a claim independent of the agreement reached on 8 January against a firm who was not a party to the proceedings on that date. It stood on its own. A quantified loss had been caused and the Respondent was entitled to claim it against the Appellants.

The law
22. Directions are given in relation to wasted costs orders under Part 48.7 of the Civil Procedure Rules 1998. It provides that the court must give the legal representative a reasonable opportunity to attend a hearing to give reasons why it should not make such an order. Part 48.7(4) provides –

"When the court makes a wasted costs order, it must –
a. specify the amount to be disallowed or paid; or
b. direct a costs Judge or a District Judge to decide the amount of costs to be disallowed or paid".

23. The Court of Appeal decision on wasted costs in Ridehalgh v Horsefield (1994) Ch 205 was approved by the House of Lords in Medcalf v Mardell (2003) 1 AC 120. The Court of Appeal considered that an earlier case of In Re: A Barrister (Wasted Costs Order) (No. 1 of 1991) (1993) QB 293 had rightly set out the three-stage test when a wasted costs order was contemplated.

i) Has the legal representative of whom complaint is made acted improperly, unreasonably, or negligently?
ii) If so, did such conduct cause the Applicant to incur unnecessary costs?
iii) If so, is it in all the circumstances just to order the legal representative to compensate the Applicant for the whole or any part of the relevant costs? If so, the costs to be met must be specified and in a criminal case, the amount of the costs.

24. It was also held that the process depends on the exercise of a discretion at 2 stages. The first was at the stage of the initial application to which I do not need to refer. In the judgment of Sir Thomas Bingham MR (as he then was), he said at p. 237 –

"The court has jurisdiction to make a wasted costs order only where the improper, unreasonable or negligent conduct complained of has caused a waste of costs and only to the extent of such wasted costs. Demonstration of a causal link is essential. Where the conduct is proved but no waste of costs is shown to have resulted, the case may be one to be referred to the appropriate disciplinary body or the legal aid authorities, but it is not one for exercise of the wasted costs jurisdiction."

25. Later at p. 239 he said –

"The second discretion arises at the final stage. Even if the court is satisfied that a legal representative has acted improperly, unreasonably, or negligently and that such conduct has caused the other side to incur an identifiable sum of wasted costs, it is not bound to make an order but in that situation it would of course have to give sustainable reasons for exercising its discretion against making an order."

Conclusions
26. On 8 January 2007 when the Respondent settled the wife's claim, he had already obtained an order for costs against her in respect of a 2 day hearing, a 4 day hearing and 3 days before, a failed application to adjourn. Those orders were of significant value. There is a figure given by the Respondent of £55,000 in a skeleton argument of 13 March 2007. The issue for the Respondent in whether he can show that he has any continuing loss after he has reached an agreement in which he specifically gave up his right to enforce those orders as well as paying her £62,000.

27. Mr Kefford argued that the wasted costs application was a quite separate claim against the Appellants. It is the nature of that claim which has to be understood.

28. The Respondent was seeking compensation because the improper acts of the Appellants had caused him to incur unnecessary costs on the adjournment application. He had had to be represented and resist successfully the application for the adjournment. They were undoubtedly unnecessary costs. He also obtained an order that the wife should pay the same costs. Three days later he agreed that he would not enforce that order against the wife.

29. A wasted costs application is a punitive remedy to enable a litigant to recover costs not otherwise recoverable caused by a solicitors' improper conduct. Here the costs were otherwise recoverable. He both gave his wife a lump sum and waived his rights to the very costs he subsequently sought to recover from the Appellants.

30. He could in all likelihood have safeguarded his claim against the Appellants by appropriate wording in the consent order of 8 January 2007. He did not do so. As a result I am not satisfied that the Respondent can show that any waste of costs resulted.

31. Furthermore, where the wasted costs application is not protected in the agreement with his wife, there is a risk that the Respondent may obtain double recovery. He would be giving credit to his wife for specified costs, and then seeking to recover the same costs from the Appellants. This he cannot do without appropriate safeguards in the wording of the agreement with the wife.

32. Whilst the amount of costs claimed is identifiable, there is therefore the difficulty for the Respondent in showing that he has not already recovered part or all of it from his wife. The fact that it was done by way of a waiver rather than payment does not in my judgment alter the situation.

33. Finally if I was wrong in respect of any of those conclusions, I consider the exercise of my discretion. I accept for this exercise that there is an identifiable sum of wasted costs. I would not nevertheless make an order against the Appellants.

34. My reasons are as set out above. The Respondent's act in waiving his orders for costs against the wife without ring-fencing his claim for a wasted costs order against the Appellants removes the causal link against the Appellants. He no longer has a loss to claim – if he does have then some or all of it has been accounted for, in effect paid, by the waiver. The doubts about its size is another reason to refuse to enforce the claim against the Appellants.

35. This is a somewhat unhappy solution when the Appellants undoubtedly caused the Respondent loss on 5 January, and their conduct of the earlier litigation gave rise to judicial criticism. But on the facts of this appeal I must hold that it succeeds and set aside the order made. I will rule later on costs in the absence of any agreement.