Hedrich & Anor v Standard Bank London Ltd

A wasted costs order requires improper, unreasonable or negligent conduct by a legal representative, unnecessary costs caused by that conduct, and justice in all the circumstances. A solicitor need not invariably take possession of every client file or inspect every computer record. The solicitor may generally accept instructions that documents have been lost unless surrounding circumstances require further investigation. Where disclosure is piecemeal, relevant issues are known, and the solicitor is told that a complete electronic record has been recovered, it may be negligent not to obtain and inspect it. Nevertheless, a prima facie breach is insufficient. The applicant must show, on the evidence available at the first stage, a sufficient likelihood that the conduct caused costs which would otherwise have been avoided. Failure to establish that causation requirement is fatal.

Standard Bank London Ltd sought a wasted costs order under section 51(6) of the Supreme Court Act 1981 against Zimmers, the solicitors who had acted for Burkhard Hedrich and Hedrich Consult in a discontinued commission claim. The underlying claim concerned commission allegedly due under a consultancy agreement. During the trial, extensive computer material was disclosed and revealed that Mr Hedrich had acted for competitors in breach of the agreement. The claim was then discontinued, and Standard Bank obtained an indemnity costs order, but Mr Hedrich was impecunious.

The application alleged negligent and unreasonable handling of disclosure. The issue was whether Zimmers should have obtained and inspected the complete contents of Mr Hedrich’s hard drive earlier and, if so, whether that failure probably caused the costs claimed.

1. Applicable principles. The court applied the two-stage approach in paragraphs 53.4 and 53.6 of the Part 48 Practice Direction. The legal representative’s conduct must be improper, unreasonable or negligent, must cause unnecessary costs, and must make it just to order compensation. The judge followed Dempsey v Johnstone [2003] EWCA Civ 1134 and Morris v Roberts [2005] EWHC 1040 rather than the additional abuse-of-process requirement suggested in Persaud v Persaud [2003] EWCA Civ 394.
2. Scope of the solicitor’s disclosure duty. Although best practice may require a solicitor to take possession of potentially relevant files or inspect them at the client’s premises, failure to do so is not automatically a breach. A solicitor may accept the client’s account that documents have been lost unless circumstances cast doubt on it or require further inquiry. On the earlier facts, Mr Zimmer was entitled to accept that the T-On-line emails had been lost.
3. Prima facie negligence. By 24 October 2005 Mr Zimmer knew that disclosure had been piecemeal, that the accessibility of the emails had been questioned, that Mr Kaul had recovered emails from the computer, and that breach of the exclusivity provision was a live issue. He should have asked for access to the hard-drive material. Had he done so, he would probably have obtained the CD-ROM and discovered the damaging documents by 4 November. This established a good prima facie case of negligent breach of the duty to the court.
4. Causation and outcome. The evidence did not show that it was sufficiently likely that earlier disclosure would have avoided the costs claimed. Mr Hedrich might have discontinued, continued with new representation, conducted the case himself, suppressed the documents, or obtained an adjournment. The necessary causation element was therefore not established. The wasted costs proceedings were dismissed. The judge also expressed grave reservations about their proportionality.