Regent Leisuretime Ltd & Ors v Skerrett & Anor

A wasted costs application requires a disciplined two-stage inquiry. At the first stage, the court must have material which, if unanswered, would be likely to justify an order, and must find the proceedings justified in view of the likely costs. An oral application is suitable only where the costs said to be wasted are narrow and clear. Otherwise, the applicant should issue a Part 23 application notice supported by evidence identifying the costs sought. The court must test misconduct, causation and proportionality. Costs incurred before the legal representative’s conduct cannot be attributed to it. A direction that the matter should be investigated is insufficient without material supporting a prima facie case.

The claimants brought negligence proceedings against two solicitors, alleging failure to advise a company to sue National Westminster Bank before the claim became statute-barred. The first defendant was an undischarged bankrupt when the proceedings were issued, and no permission had been obtained under section 285(3) of the Insolvency Act 1986. Reynolds Porter Chamberlain, instructed by insurers for the second defendant, acknowledged service and filed a defence on behalf of the first defendant without his instructions.

HHJ Overend struck out the claim against the first defendant and directed an investigation of wasted costs following oral applications by the claimants and the first defendant. Reynolds Porter Chamberlain appealed against that direction. The central issue was whether the first-stage threshold had been met, or whether the applications should instead be remitted for proper determination.

Lloyd LJ delivered the judgment, with which Mummery LJ agreed.

1. Applicable framework. Rule 48.7 of the Civil Procedure Rules and section 53 of the Costs Practice Direction governed the applications. A wasted costs order required improper, unreasonable or negligent conduct, causation of unnecessary costs, and justice in ordering compensation. Paragraph 53.6 required a two-stage inquiry: sufficient material at stage one, together with justification in view of likely costs, followed at stage two by an opportunity for the legal representative to give reasons against the order.
2. Inadequate first-stage material. The judge had no quantification of the costs sought and no sufficient material linking them to the solicitor’s conduct. A conclusion that the matter needed investigation was not a prima facie conclusion that the paragraph 53.4 criteria were met. The reference in the order to paragraph 53(1) was treated as an error intended to refer to paragraph 53.6(1).
3. Proper procedure. Although an oral application was permissible, it was normally appropriate only where the scope of the alleged wasted costs was narrow and clear. In this case the applicants should have issued a Part 23 application notice supported by evidence identifying the costs sought. The proposed procedure would not have saved time or money because a further hearing was inevitable.
4. Conduct, causation and proportionality. Acting without instructions was not necessarily improper, unreasonable or negligent in circumstances involving a successor practice and common insurance interests. Costs incurred before Reynolds Porter Chamberlain’s involvement could not have been caused by its conduct. Later costs claimed by the claimants were unlikely to be significant or distinct from costs relating to the second defendant. The first defendant’s costs were, on the face of it, attributable to the claimants’ own proceedings, which had been commenced without the required insolvency permission. The likely recoverable sums were also disproportionate to the costs of a further wasted-costs hearing.
5. Disposition. The appeal was allowed. Paragraphs 3 and 4 of HHJ Overend’s order were set aside, and the wasted-costs applications were dismissed.

1. Court of Appeal (Civil Division). Allowed Reynolds Porter Chamberlain’s appeal and set aside paragraphs 3 and 4 of HHJ Overend’s order. The wasted-costs applications were dismissed.
2. Queen’s Bench Division, Plymouth District Registry. On 17 June 2005, HHJ Overend struck out the claim against the first defendant and directed that the issue of Reynolds Porter Chamberlain’s liability for wasted costs be investigated following oral applications.