Kagalovsky & Anor v Balmore Invest Ltd & Ors

A wasted costs application must satisfy the court that the alleged conduct was improper, unreasonable or negligent and that the summary procedure is suitable. The stage-one process requires a prima facie case which, if unanswered, would be likely to result in a wasted costs order, together with justification for continuing in light of the likely costs. The procedure is flexible, but complex allegations concerning matters outside the face of the court, professional integrity and extensive evidence will ordinarily make summary determination inappropriate. A court may therefore refuse to proceed beyond stage one where the application is not a plain and simple case and further hearings would be disproportionate.

The applicants sought a wasted costs order against solicitors and counsel who had represented the eighth respondent in contempt proceedings. The contempt proceedings had resulted in an eighteen-month sentence, but the respondent remained outside the jurisdiction and had not paid the costs ordered against him. The applicants alleged six categories of improper conduct, including advancing a dishonest defence, causing delay, disclosure failures, misleading evidence and correspondence, and irrelevant cross-examination. The application was heard at stage one under the Practice Direction to CPR Part 46.8. The central issue was whether the application was suitable for summary determination.

1. The application failed at stage one and was not permitted to proceed further. The court declined to determine the individual allegations, privilege, causation or whether each allegation independently disclosed a prima facie case.
2. Under section 51 of the Senior Courts Act 1981 and CPR Part 46.8, the wasted costs jurisdiction is engaged only where the relevant conduct is improper, unreasonable or negligent. The court retains discretion over the costs jurisdiction and must apply the procedure proportionately.
3. The Practice Direction contemplates a two-stage process. At stage one, the court must be satisfied that material which is unanswered would be likely to lead to a wasted costs order and that continuation is justified notwithstanding the likely costs. At stage two, the legal representative must have a reasonable opportunity to make written submissions or attend a hearing.
4. The procedure is stated as a general rule and is not to be applied mechanistically. Legal representatives may make fuller submissions at stage one where the circumstances require it, although the court must guard against tactical over-inclusion and avoid allowing stage one to become a detailed merits hearing.
5. The allegations here concerned matters outside the face of the court, challenged the professional integrity of practitioners with long careers, involved numerous and varied issues, and generated substantial documentary material. The application could not be characterised as plain and simple. A further hearing would probably last at least two or three days, with a real possibility of witness evidence, making continuation disproportionate. The guidance in Re Freudiana Holdings Ltd and Medcalf v Mardell supported that conclusion.
6. The application was dismissed at stage one. The judge made no final findings on the alleged conduct, privilege, delay, causation or quantification.