Dempsey v Johnstone

A legal representative does not incur wasted-costs liability merely by pursuing a hopeless case. Under section 51 of the Supreme Court Act 1981, negligence has an untechnical meaning: failure to exercise the competence reasonably expected of ordinary members of the profession. No additional requirement of abuse of process applies, although pursuit of a hopeless case will commonly be assessed by asking whether any reasonably competent practitioner could have continued.

The jurisdiction is penal and must be exercised cautiously. Where relevant advice and instructions remain privileged, an adverse inference is permissible only if nothing in the privileged material could answer it. Incorporation of a joint-venture company does not invariably extinguish the parties’ antecedent contractual obligations; survival of those obligations depends on the agreement proved.

The claimant brought proceedings arising from a joint venture to exploit a domestic security system. After abandoning his intellectual-property case, he continued a contractual claim alleging that an agreement with the respondent survived the formation of the venture company. The claim was later withdrawn and struck out.

HHJ George in Liverpool County Court ordered the claimant’s solicitors to pay the respondent’s costs incurred after 22 February 2002. He found that no reasonably competent solicitor could then have considered the remaining claim capable of success. The solicitors appealed against both the preliminary determination that a wasted costs order was available and the resulting order.

The central questions were whether negligence alone could engage section 51 of the Supreme Court Act 1981, whether the solicitors had been negligent in pursuing the claim, and whether privilege prevented the necessary adverse inference.

1. Appeal allowed unanimously. Section 51 of the Supreme Court Act 1981 permits a wasted costs order for an improper, unreasonable or negligent act or omission. Following Ridehalgh v Horsefield, negligence bears an untechnical meaning. It denotes failure to exercise the competence reasonably expected of ordinary members of the profession. Liability does not require gross negligence or, in every case, conduct akin to an abuse of process.

2. Per Latham LJ, with whom Aldous and Mance LJJ agreed, pursuit of a hopeless case requires particular caution. A representative is not liable simply because a claim is plainly doomed to fail. In this context the court should ordinarily ask whether no reasonably competent representative would have continued. Abuse of process may describe many such cases, but negligence alone can suffice, for example where a practitioner overlooks binding authority plainly fatal to the case.

3. The county court wrongly found the pleaded contractual claim legally incapable of success. Patel v Patel established no rule that obligations arising from a joint venture can never survive incorporation of the venture company. The claimant’s pleadings were capable of alleging an agreement independent of the company arrangements. Whether such an agreement existed depended on the evidence.

4. The court could not find that no reasonably competent adviser would have assessed the claim as worth pursuing. The claimant had not waived privilege in the advice and instructions. Under Medcalf v Mardell, an adverse finding could be made only if nothing in that privileged material could answer the proposed inference. The extension of legal aid and the later decision not to oppose summary disposal did not establish negligence.

5. Mance LJ added that Ridehalgh remained authoritative despite broader language in Persaud v Persaud suggesting that negligence alone never suffices. Where the complaint is simply pursuit of a hopeless case and no particular negligence is identified, abuse of process will often be the appropriate focus. The ultimate inquiry may nevertheless remain whether any reasonably competent practitioner could have pursued the case.

6. The wasted costs order was set aside. The respondent was ordered to pay the appellants’ costs in the Court of Appeal and below, subject to detailed assessment if not agreed. Questions of causation and abatement for counsel’s involvement did not require determination.

1. Court of Appeal (Civil Division): The solicitors’ appeal was allowed unanimously. The wasted costs order was set aside, with costs here and below.
2. Liverpool County Court: HHJ George determined on 6 December 2002 that a wasted costs order could be made and, on 27 January 2003, ordered the claimant’s solicitors to pay the respondent’s costs incurred after 22 February 2002.