When a lawyer seeks ‘wasted costs’, they are not asking for their client’s costs to be paid by the other party; they are seeking to have the costs paid by the other party’s legal representatives.
The term wasted costs is usually, and erroneously, interchanged. It is likely that the Court appreciates what is actually being sought, but it is a pet hate of mine.
What is a wasted costs order?
CPR 46.8 regulates the court’s authority to impose “wasted costs orders” against legal representatives under s51(6) Senior Courts Act 1981. It addresses the personal liability of lawyers, including solicitors and barristers, but also any regulated lawyer. This is a discretion available to the courts that is invoked to compensate parties for costs wasted due to misconduct of legal representatives.
A wasted costs order can disallow costs or permit the recovery of costs from the legal representative instead of the party. This is particularly important in situations where recovering costs from the party is impossible, such as under QOCS, but the conduct of the legal representative caused the costs.
The Ridehalgh v Horsefield test
In Ridehalgh v Horsefield [1994] Ch. 205, CA, the Court of Appeal examined the jurisdiction to award wasted costs under the Courts and Legal Services Act 1990. It emphasised that litigants should not suffer financial prejudice from unjustified conduct by their own or their opponent’s lawyers. Courts must also be cautious when awarding wasted costs to avoid creating a costly new form of satellite litigation.
Before ordering a wasted costs order, a three-stage test should be applied:
(a) Did the legal representative in question act improperly, unreasonably, or negligently?
(b) If so, did this conduct cause the applicant to incur unnecessary costs?
(c) If yes, was it appropriate, considering all circumstances, to order the legal representative to compensate the applicant fully or partially?
The test in Ridehalgh was later adopted as the acid test for unreasonable conduct costs awards in the small claims track CPR 27.14(2)(g) in the case of Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269.
Was the conduct improper, unreasonable, or negligent?
These terms are broadly interpreted but with important nuances. “Improper” conduct encompasses not only behaviour that deserves professional discipline but also significant deviations from proper standards. “Unreasonable” conduct covers actions that are vexatious or intended to harass rather than support the case, even if driven by excessive enthusiasm. “Negligence” is understood in a general sense, meaning a failure to meet the standards of a reasonably competent professional.
Causation between the conduct and the loss
There must be a causal link between that conduct and the costs incurred. The court must be satisfied that the legal representative’s actions caused unnecessary costs to be incurred or rendered previously incurred costs wasted. Without such causation, no order can be made. I once made an argument where the Judge was with me on the conduct point, but found that the costs incurred would have been incurred in any event.
Is it reasonable in all the circumstances to make the Order?
Even where fault and causation are established, the court must consider whether it is just in all the circumstances to impose liability. This reflects the discretionary nature of the jurisdiction and ensures that wasted costs orders are not imposed automatically.
‘Show cause’ opportunity
CPR 46.8(2) promotes fairness to legal representatives by providing a mechanism that prevents a wasted cost order from being made immediately, often because the representative did not anticipate such an argument. They must be given a reasonable chance to respond, either in writing or at a hearing, before any order is issued. The court can decide the amount of wasted costs itself or direct a costs judge to assess it.
Additionally, the court may require that the representative’s client be informed of the proceedings or any resulting order. In practice, courts usually follow a two-stage process.
The first stage involves assessing whether there is a strong prima facie case justifying further investigation and whether pursuing the matter would be proportionate. If these criteria are met, the second stage involves a thorough review of the legal representative’s conduct after providing them with an opportunity to respond. This is informally referred to as showing ‘just cause’ and once the prima facie has been established, it is for the respondent to such an application to demonstrate why such a costs order should not be made. It is not for the respondent to demonstrate in thre is no prima facie case. CPR 46.8 is intended to be an exceptional costs direction.
Courts are wary of allowing wasted costs applications to turn into complex, satellite litigation. Therefore, applications are often postponed until after the trial and may be denied if they require detailed factual investigation or if the costs of the application are disproportionate.
Conclusion
Seeking your ‘wasted costs’ when you actually mean the costs of and occasioned by an event, or costs thrown away, is unlikely to lead to any complications. Judges will question whether you meant seeking your client’s costs from the other party and I doubt that it will lead ot an unitended consequence.
Just remember that when you instruct counsel to seek, or invite the court to make a wasted costs order, you are asking the Court to make a legal representative personally liable for costs caused by their improper, unreasonable or negligent conduct. It is a high threshold test.
Whilst Ridehalgh was adopted as the acid test in Dammerman, the application of those cases in CPR 27.14(2)(g) is different. In those circumstances, you are still seeking costs from the other party, but you are asking the court to exercise discretion to allow costs not usually allowed in the small claims track.
Information
Alec Hancock is a practising Barrister at Magdalen Chambers in Exeter. For instructions on matters, please contact Magdalen Chambers via clerks@magdalenchambers.co.uk or by telephone on 01392 285 200.
