Fisher Meredith LLP v JH & Anor (Rev 2)

A wasted costs order requires proof that the legal representative acted improperly, unreasonably or negligently, that the conduct caused identifiable wasted costs, and that the court should exercise its discretion to make the order. Where privilege prevents a full answer, an order should be made only exceptionally and where fairness is established.

In financial remedy proceedings, where the respondent has legal title to property but asserts that a third party owns it beneficially, the starting point is that legal and beneficial ownership coincide. The primary responsibility for bringing the third party’s claim before the court lies with the respondent and the alleged beneficiary, not the claimant. Joinder is desirable where appropriate, but is not an inflexible obligation on the claimant.

The appellant solicitors represented the wife in financial remedy proceedings. A final hearing was adjourned after the husband and the second respondent advanced, or clarified, a case that other family members were beneficial owners of shares held in the husband’s name. The District Judge ordered the wife’s solicitors to pay the wasted costs caused by the adjournment.

The appeal concerned whether the solicitors had negligently failed to identify and join the alleged beneficial owners, whether that failure caused the wasted costs, and whether the District Judge had properly exercised the wasted costs discretion.

1. Appeal allowed. The wasted costs order was set aside in its entirety and the £15,000 paid on account was ordered to be repaid.
2. Under Senior Courts Act 1981, section 51(6) and (7), the applicant must prove conduct falling within improper, unreasonable or negligent conduct, causation of identifiable wasted costs, and the amount of those costs. The court retains a discretion both whether to require the legal representative to show cause and whether ultimately to make an order. These principles were drawn from Ridehalgh v Horsefield [1994] Ch 205.
3. Where legal professional privilege prevents the practitioner from giving a full answer, Medcalf v Mardell [2003] 1 AC 120 requires exceptional caution. The court must be satisfied both that nothing unconstrained could resist the order and that making it would be fair.
4. The case-management discipline described in TL v ML [2006] 1 FLR 1263, and endorsed in Goldstone v Goldstone [2011] 1 FCR 324 and Edgerton v Edgerton & Anor [2012] EWCA Civ 181, is generally appropriate where the claimant says that property held by a third party belongs beneficially to the respondent. It is not a mandatory prescription in every case, as explained in A v A [2007] 2 FLR 467.
5. A different analysis applies where the respondent has legal title but asserts that a third party owns the property beneficially. The prima facie position is that the respondent owns it both legally and beneficially. The burden lies on the person asserting a different beneficial ownership, consistently with Stack v Dowden [2007] 1 FLR 1858. The primary duty to bring the third party’s claim before the court lies equally on the respondent and the alleged beneficiary.
6. The claimant may choose to join the alleged beneficiary where this assists enforcement or avoids later complications, but is not under an obligation to do so. Gourisaria v Gourisaria [2010] EWCA Civ 1019 illustrated that the burden of intervention rested on the husband and the alleged beneficiaries.
7. The District Judge’s conclusion that the adjournment was caused solely by the solicitors’ negligence was untenable. The parties had assented to determination of the preliminary issue without joinder, the late disclosure by the second respondent might independently have required an adjournment, the adjournment was a joint decision, and privilege prevented reliance on the solicitor-client discussions. The District Judge also failed to address the second-stage discretion required by Ridehalgh v Horsefield.
8. Joinder under the Family Procedure Rules 2010 is governed by broad case-management powers. The two grounds in CPR 19.2(2) and the former RSC O15 rule 6(2)(b) are materially equivalent and should guide joinder applications in financial remedy proceedings, with T v T and Others (Joinder Of Third Parties) [1996] 2 FLR 357 in mind.
9. H and the second respondent were made jointly and severally liable for the solicitors’ costs below and on appeal, assessed on the standard basis. Interest on the repaid sum was awarded at 2 per cent from payment until repayment.

• High Court (Family Division): allowed the appeal against the District Judge’s wasted costs order of 20 July 2011, set aside the order, and directed repayment of £15,000.