England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/05/2013

Mr Justice Tugendhat :

1. Thames Chambers Solicitors ("the Solicitors") appeal by leave of Leggatt J from an order by HHJ Collender QC dated 14 December 2012. He ordered that the Solicitors:

"do pay the wasted costs of the Defendant in the action in the period between 14 March 2011 and 14 December 2012, such costs to be subject to a detailed assessment on the indemnity basis if not agreed, and for the avoidance of doubt, and in accordance with the order of the court made on 30 November and sealed on 10 December 2012, such order includes the cost of the hearing on 14 December 2012."

2. The wasted costs order was made in proceedings in which a Mr Rajesh Singh was the Claimant. The Claimant was formerly a solicitor. On 1 June 2010 he issued a claim form claiming some £23,000 in debt. On 29 June 2010 he was declared bankrupt under the name Rajesh Pathania.
3. On 4 February 2011 he was struck off the Roll of Solicitors. On 23 February 2011 a default judgment which he had obtained earlier was set aside. On 14 March he instructed the Solicitors. They represented him thereafter. On 28 June 2011 he was discharged from his bankruptcy (that did not mean that his debts had been paid: they had not).
4. There then followed numerous steps in the proceedings. Solicitors for the Defendant state that on 24 February 2012 they made the search as a result of which they learnt that the Claimant was bankrupt.
5. On 2 March 2012 the Defendant's solicitors wrote to the Solicitors enquiring about his bankruptcy. The Solicitors replied in a letter dated 5 March saying:

"We … [were] quite surprised to see the request you made so late and close to the hearing date. We do not understand as to why you require a consent letter from our client's trustee in bankruptcy. Please note we have arranged to attend a meeting with our client's trustee and the documents will be forwarded to you in due course".

6. On 6 March 2012 the Defendant applied to strike out the claim on the grounds that the claimant had been made bankrupt. The judge adjourned a hearing which had been due to take place on 8 March. On 9 March the Claimant met his Trustee.
7. On 13 March 2012 the Trustee provided a witness statement confirming that he had not consented to the prosecution of the action and stating that he would consider what course to adopt. He said that he had only been made aware of the proceedings on 8 March.
8. On 16 March 2012 Mr Recorder Thompson made an order which included the following:

"1. Subject to the other provisions of this order, the claim (including the Defendant's application to strike out the claim, for security costs, wasted costs and contempt of court) be stayed until 16 June 2012.

2. The trustee notify the court and the defendant as to whether he will consent to the continuation of the case by 16 June 2012.

3. The case be struck out if the trustee does not consent to its continuation by 16 June 2012…

6. Subject to paragraph 7 of this order, the Claimant to pay the Defendant's costs in the case on an indemnity basis to date from 29 June 2010.

7. The Claimant's Solicitors to provide a witness statement by 30 April 2012 addressing the following points:

(a) The current financial standing of the Claimant and whether there is any reason why he should not be made subject to a costs order in these proceedings;

(b) As to their state of knowledge and that of their counsel as to the financial standing of the Claimant since the commencement of these proceedings and whether there are grounds why they or their counsel should not be liable for wasted costs in these proceedings from 29 June 2010;

(c) Whether there are specific items of costs that should be excluded from the scope of point 6 of this Order.

8. The matter be listed before a circuit judge at the first available date after 16 June 2012… "

9. On 23 March 2012 the Trustee entered into a Deed of Assignment whereby he assigned the cause of action to the Claimant for a consideration of £2300. The Trustee thereafter had no interest in the claim, and so did not give consent to the continuation of the proceedings. The possibility that the Claimant might re-acquire title to the cause of action by assignment was not one that had been provided for in the Order of 16 March 2012.
10. The Order of 16 March 2012 was correctly made (as is not in dispute), for the reasons given by Gibson LJ said in Nelson v Nelson [1997] 1 All ER 979 at p973g:

"… s.306 of the Insolvency Act 1986 … vested in the trust in bankruptcy property such as the bankrupt's claimed interest in [the subject matter of that claim] on the bankruptcy…. the question to be answered is whether the bankrupt had capacity to retain a solicitor to commence the proceedings which he did commence. These proceedings are not a nullity such as would have been the case if the plaintiff did not exist. But they were liable to be stayed or struck out because the bankrupt did not have any interest in the property, such interest as he did have prior to the bankruptcy order having vested in the trustee in bankruptcy. They might be stayed pending the decision of the trustee in bankruptcy to take over the proceedings. Alternatively, if the trustee did not wish to do so, a defendant could apply to strike out the action".

11. Once the Claimant had re-acquired title to the cause of action on 23 March, it might have been open to him to apply to vary the Order of 16 March, because once he had title to the cause of action, he no longer needed the consent of the Trustee to proceed. I cannot speculate as to what would have happened if he had made such an application. The Claimant might have faced a strong argument for the Defendant that his abuse of process should not be rewarded: see Pickthall v Hill Dickinson LLP [2009] EWCA Civ 543 at para [27] and para 39 below.
12. However, the Claimant argued that the action had not been struck out. He submitted that the effect of the Assignment was that the condition in the Order of 16 March 2012 had been fulfilled (that is to say that it was to be treated as consent given by the Trustee).
13. By an order dated 6 July 2012 HHJ Collender QC adjourned the proceedings and made other directions. At p9ff of the transcript of the hearing of 6 July 2012 there are recorded lengthy exchanges between counsel and the court on the subject of wasted costs.
14. Mr Mustakim asked that the Solicitors should pay the costs. He stated that that had been canvassed before Mr Recorder Thompson. He referred the court to CPR r.48.7 and para 53 of the Costs Practice Direction, and to the Solicitors' letter of 5 March. He submitted that the Solicitors had shown their error of law in not understanding the requirement for the consent of the Trustee. The case had been litigated for two and half years without the cause of action being vested in the Claimant.
15. Mr Power responded, stating that there should be formal directions. HHJ Collender QC noted that the allegation that the Solicitors had continued with litigation that was unauthorised was a straightforward one.
16. On 13 September 2012 HHJ Collender QC made an order that a hearing listed for 13 September be relisted on 30 November and that:

"Both parties are to file and serve by 19 September 2012 further evidence upon which they seek to rely in support of their respective cases, including for the avoidance of doubt evidence relied upon by the Claimant or his advisers in respect of the applications for wasted costs orders made and in respect of the Defendant's submissions."

17. On 19 September 2012 Mrs Ramasamy of the Solicitors made a witness statement. It included the following:

"7. I confirm that our firm was only instructed in March 2011 however the proceedings were already commenced by the Claimant in June 2010. The Claimant at that time had instructed a public access barrister to conduct his case.

8. I also confirm that before instructing our firm the Claimant had explained to the firm that he is bankrupt, however, he disclosed to us a list of IVA file which included a list of cases including the case against the Defendant…[A copy is exhibited].

9. The Claimant also confirmed to us that he had provided amongst others the same lists to the then Official Receiver. The Official Receiver after receiving all documents and including the IVA discharged the Claimant from public examination. I enclose herewith the copy of the e-mail correspondence with the Official Receiver…

10. I have also been shown a letter from his Insolvency Advisor who had prepared and submitted the IVA on behalf of the Claimant which included the lists of cases. I enclose herewith the copy with the nominees report from Ashcrofts …

11. The Claimant explained in his instructions that when his IVA was rejected the Official Receiver valued the litigation at nil and the Official Receiver had expressed no interest in the cases which the Claimant was pursuing or may pursue in future.

12. As the firm was of the belief that the Claimant had demonstrated that all information was known to the Official Receiver and as such we were able to represent the Claimant. Counsel was instructed that the Claimant had been told by the Official Receiver that he could pursue the cases.

13. As such we believe that neither the firm nor the council should be made liable in this proceeding from 29 June 2010 or at all. …".

18. On 30 November 2012 HHJ Collender QC declared that the action had been struck out in accordance with the provisions of the Order of 16 March 2012. He ordered the Claimant to pay the Defendant's costs (on the indemnity basis) incurred between 29 June 2010 and 30 November in accordance with paras 6 and 7 of the Order of 16 March.
19. The Claimant applied for permission to appeal this order. That was refused on paper by Males J on 8 April 2013. The Claimant renewed his application orally before me on the same date as the hearing of this appeal. I refused the application for the same reasons as those given by Males J, namely:

"As explained by HHJ Collender QC there was a distinction between consent by the Claimant's Trustee in bankruptcy to the continuation of the action and an assignment of the debt by the Trustee to the Claimant. The Order of Recorder Thompson, from which there was no appeal, required consent by the Trustee, failing which the action would stand struck out. No such consent was given. The Judge was then entitled to make the cost order which he made."

20. On 30 November 2012 HHJ Collender QC also ordered:

"3. The Defendant's application made against the Claimant's Solicitor for wasted costs of the action for the period from 14^th March 2011 to date is adjourned on the Claimant's application to 14^th December … such adjournment being on the basis that and it is ordered that the Claimant's Solicitors do in any event pay the costs of the Defendant for the hearing on 14^th December 2012 caused by the adjournment".

21. In giving judgment on 30 November 2012 HHJ Collender QC explained what was behind the Order made on 16 March by Recorder Thompson. He said:

"5. … There was a good deal of discussion before him about the status of an action continued, as this action certainly was, by the Claimant in the absence of the important requirement of the law that the Trustee in bankruptcy should consent to the continuation of the action which had been commenced before the bankruptcy. It is quite clear from the letter of from Solicitors for the Claimant, dated 5^th March 2012, that they did not at that time understand the significance or importance of having a trustee's consent to continuation of an action by a bankrupt… [he set out the passages letter cited above]. There are then various other comments about the hearing. But, of course, the consent of a trustee to the continuation of proceedings by a bankrupt is a very important requirement of the law. There are – and I need not spell them out – safeguards intrinsic in that requirement to prevent the continuation (perhaps the reckless continuation) by an undischarged bankrupt of proceedings which have no prospect of success and may cause considerable expense to a sued party…"

22. After stating that the action would be struck out, HHJ Collender QC went on to say this in his judgment:

"7. … The court may console … the Claimant that the fact that the action was struck out is not the end of the chose in action; the claim still could be pursued by other action, as, although there may be all sorts of possible arguments about abuse of process, the action is not barred by limitation…"

23. After delivering his judgment HHJ Collender QC went on to say this:

"Now the question is the wasted costs application, … the order which was made on the two previous hearings before Mr Recorder Thompson and that before myself, when the question was raised and part of my order in July was to enable the solicitor to take such steps as seemed appropriate to deal with the matter. Let me first of all understand what you are applying for: it is for costs between the date of instruction, which was the 14^th March 2011, and you say until – there are a number of possible dates – until deed of assignment to – you say… [Mr Mustakim made clear that the claim was for costs to date]".

24. Mr Power then stated that he did not represent the Solicitors, but referred the court to CPR r.48.7. Mrs Ramasamy then stated to the court that she was not prepared for the wasted costs application, and referred to her witness statement of September 2012. HHJ Collender QC then referred to the Order of 16 March and said to her:

"… the fact of the matter is that, when you accepted instructions, you knew that the Claimant was bankrupt and you had no information from anybody on your own statement to demonstrate that you were in any way misled as to the position as to the lack of consent by the trustee…"

25. After further exchanges with the judge Mrs Ramasamy asked for an adjournment.
26. On 14 December 2012 HHJ Collender QC made the order the subject of this appeal. In his Judgment given on that date he said this:

"2. The question before me today is whether or not I should make a wasted costs order against the Claimant's solicitors. The basis of the application is straightforward. The Defendant says that from the date when Thames Chambers, the Claimant's solicitors, were instructed, that is 14 March 2011, to date, those solicitors wrongly conducted litigation on the Claimant's behalf without having ensured that there was consent from either the Official Receiver or later the Trustee in bankruptcy to the continuation of that litigation.

3. At some time the matter came to light, there is an unimportant dispute as to whether it was in January or March 2012, but in March an e-mail was sent by the Defendant's solicitors, raising the issue, as they had got wind of the fact that the Claimant was bankrupt, and the litigation brought against the Defendant was not authorised. The Claimant's solicitors, Thames Chambers, wrote a curious letter in response to that request on 5^th March 2012 [and he cites the passage from the letter set out above].

4. Mrs Ramasamy tells me that she knew when the Claimant consulted her firm that he was a bankrupt. She tells me, as the best I can understand it and from the statements which she has made in the case, that she thought there was no difficulty. The reference to attending a meeting "with our client's Trustee and the documents will be forwarded in due course", she tells me, is really that she thought she would be able to produce a consent. In fact she was not. What she was able to produce in due time was an assignment, by the Trustee if the action for £2,000, thereby effectively washing his hands of the matter. Such was quite different to a consent by the Trustee to the future pursuit of the proceedings.

5. The important thing about a consent order is that if you are sued by a bankrupt, the danger is that even if the claim is a wholly preposterous one you will be put to expense which cannot be recouped, in reality, because any costs order made will be unenforceable because the bankrupt cannot pay. That is why a Solicitor of the Senior Courts must be careful, when they are instructed by a bankrupt, to ensure before they take any steps in the proceedings and take any part in the consideration of them, that those proceedings are backed by, with all the protections that that backing gives, the Trustee. The assignment was given after the discharge of the bankruptcy.

6. This is in my judgement a very clear case, where the costs order sought should be made. I therefore make an order that the Claimant's solicitors, Thames Chambers Solicitors, pay those costs which on detailed assessment are not found to be due to the Defendant from 14 March 2011 to today's date."

THE PROVISIONS OF THE CPR

27. CPR r.48.7 applies where the court is considering making a wasted costs order under the Senior Courts Act 1981 s.51(6). By r.48.7(2) the court is required to give the legal representative a reasonable opportunity to attend a hearing to give reasons why it should not make such an order. Further provisions include:

"(4) When the court makes a wasted costs order, it must- (a) specify the amount to be … paid; or (b) direct a costs judge … to decide the amount of costs to be … paid…

(6) Before making a wasted costs order, the court may direct a costs judge or a district judge to inquire into the matter and report to the court.

(7) The court may refer the question of wasted costs to a costs judge … instead of making a wasted costs order."

28. The Costs Practice Direction (CPR Pt 48) provides:

"53.3 A party may apply for a wasted costs order –

(1) by filing an application notice in accordance with Part 23; or

(2) by making an application orally in the course of any hearing

53.4 It is appropriate for the court to make a wasted costs order against a legal representative, only if –

(1) the legal representative has acted improperly, unreasonably or negligently;

(2) his conduct has caused a party to incur unnecessary costs, and

(3) it is just in all the circumstance to order him to compensate that party for the whole or part of those costs.

53.5 The court will give directions about the procedure that will be followed in each case in order to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit.

53.6 As a general rule the court will consider whether to make a wasted costs order in two stages –

(1) in the first stage, the court must be satisfied –

(a) that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(b) the wasted costs proceedings are justified notwithstanding the likely costs involved.

(2) at the second stage (even if the court is satisfied under paragraph (1)) the court will consider, after giving the legal representative an opportunity to give reasons why the court should not make a wasted costs order, whether it is appropriate to make a wasted costs order in accordance with paragraph 53.4 above.

53.9 A wasted costs order is an order –

(1) that the legal representative pay a specified sum in respect of costs to a party; or

(2) for costs relating to a specified sum or items of work to be disallowed.

GROUNDS OF APPEAL

29. The grounds of appeal are that: (1) that no application, or proper application for a wasted costs order was made by the Defendant; (2) in the absence of a causative link, no wasted costs order should be made against the Solicitors; (3) the court did not lay down a fair and proper procedure, nor consider the guidance of the Court of Appeal in dealing appropriately with wasted costs orders; (4) the order was unjust by reason of a procedural irregularity and (5) it did not comply with CPR r.48.7(4).

Submissions for the Solicitors

30. The procedural point made for the Solicitors is that no Part 23 application was made. This is correct as a matter of fact, but it is clear from the Costs Practice Direction para 53.3(2) that a Part 23 application is not always necessary. Mr Power cited Regent Leisuretime Ltd v Skerrett [2006] EWCA Civ 1032 at para [36]:

"It seems to me that although an oral application in the course of the hearing is possible pursuant to paragraph 53, that is only likely to be sensible if the scope of the application to the costs said to have been wasted is narrow and clear;…"

31. In that case the Court of Appeal allowed an appeal on the ground that in the circumstances of that case the judge ought to reqire a Part 23 application to be issued.
32. Mr Power noted that, as stated in the White Book para 48.7.16, the wasted costs regime is neither punitive nor regulatory but compensatory. A person seeking orders for wasted costs has to show that the conduct complained of has caused them loss.
33. Mr Power submitted that scope of the costs sought was neither narrow nor clear, and that there was no evidence before the court on 30 November 2012 of what the actual costs were which the Defendant was claiming. On 14 December two bills were presented to the court adding up to a total of £70,000 (p28-9 of the transcript). Mr Mustakim had then said that the application that day was about the principle whether a wasted costs order should be made, not about how much, as that was to be dealt with by the costs judge. Mr Power states that the figure now requested from the Solicitors is £62,391.92. A further sum in costs is requested by the Defendant against the Claimant in respect of the period before the Solicitors were instructed.
34. Mr Power submitted that the test applied by HHJ Collender QC in para 5 of his judgment was too high a test. A solicitor does not warrant that the client has a good cause of action, or that the client is solvent: see Nelson v Nelson at p974j.
35. As to causation, he submitted that the Claimant would or could have carried on the action himself even if the Solicitors had not been instructed.
36. Further, he submitted that it was unjust that the order should be made in respect of the period after 23 March 2012, when the Claimant re-acquired title to the cause of action, and no longer needed the consent of the Trustee. The proceedings brought by a bankrupt were not a nullity (Nelson v Neslon and Heath v Tang [1993] 4 ALL ER 694). The Solicitors did not do anything wrong.
37. He submitted that the effect of CPR r.48.7(2) was not that the burden was on the solicitor to exculpate herself but that solicitor should not be called upon to reply unless there was an apparently strong prima facie case. He submits that the form of the order is not in accordance with CPR r.48(7)(4) either (a) or (b).
38. The provisions of para 6 and 7 of the Order of 16 March relate to the costs to be paid by the Claimant, and not, so he submits, to any wasted costs to be paid by the Solicitors.

Submissions for the Defendant

39. Mr Mustakim cites Pickthall v Hill Dickinson LLP [2009] EWCA Civ 543 where the Court said, in the words of Mann J:

"15. … In my view the starting point is that where a man starts proceedings knowing that the cause of action is vested in someone else, then it is hard to see why those proceedings are not an abuse. He has started proceedings in which, even if he proves all the facts he wants to prove and establishes all the law he wants to establish, he will still lose because he does not have a right to sue. It is hard to see how that cannot be an abuse. Only people who own causes of action, or who have an appropriate interest in proceedings, have any business asserting the cause of action or starting proceedings. Any other use of the court's proceedings is improper….

27 … A permitted amendment would not so much cure the abuse of process as be a reward for it. It seems to me to be wrong in principle to confer such rewards on those who act in that way."

40. He also relied on the words of Waller LJ in Nelson v Nelson [1997] 1 All ER 970f:

"… if the solicitor commences an action for a bankrupt in relation to a cause of action which is vested in the bankrupt's trustee, there will on most occasions be negligence bringing into play the jurisdiction which does not depend on an analogy with breach of warranty of authority".

41. In Nelson the Court of Appeal allowed the solicitors appeal against the order that they pay costs because the client had not told them that he was an undischarged bankrupt, but had grossly misled them, and they had acted without negligence (p972a-c). In the present case the Solicitors had not been misled, as Mrs Ramasamy's witness statement makes clear, and as the judge found at para 4 of his judgment.
42. Mr Mustakim submitted that the evidence before HHJ Collender QC was in the form of paragraphs 8 and 12 of the witness statement of Mrs Ramasamy and the letter of 5 March 2012. What it was that she was alleged to have done wrong was made clear to her on a number of occasions. The point had first been raised before Mr Recorder Thompson. Whether or not what was said on that occasion was clear enough, what was said on the subsequent hearings before HHJ Collender QC was undoubtedly clear enough. Adjournments were granted at her request to enable her to deal with the matter.
43. He submitted that there was a clear causal link between the conduct of the Solicitors and wasted costs. The Claimant had been given an opportunity by para 7(c) of the Order of 16 March to state whether there were items of costs that should be excluded from the scope of a costs order, and the costs to be paid by the Claimant and the Solicitors were the same (in respect of the period after the Solicitors were instructed). No such items had been identified, whether by the Claimant of by Mrs Ramasamy. It follows that all the costs incurred after the Solicitors were instructed were caused by their having acted improperly, unreasonably and negligently.

Discussion

44. In my judgment there was a strong prima facie case as from 16 March 2012 that the Solicitors had acted improperly, unreasonably and negligently. That was the first stage of the proceedings in accordance with para 53.6(1) of the Costs Practice Direction.
45. Mrs Ramasamy knew that when she accepted instructions from the Claimant he was a bankrupt. Any competent solicitor must know that the assets of a bankrupt vest in a trustee, and that proceedings to enforce a claim can be pursued only with the consent of the trustee. But she herself did not understand the need for that consent, as she made clear in the letter of 5 March 2012.
46. By 14 December 2012 HHJ Collender QC was clearly entitled to find that they acted improperly, unreasonably and negligently, and that they ought to be subject to a wasted costs order. Given the time during which the proceedings had been conducted by the Solicitors, and the number of applications that had been made, it was clear that the costs in question would be likely to be substantial.
47. In the circumstances of this case, it was not necessary that the Defendant issue a Part 23 application. The case against the Solicitors on whether they had acted improperly, unreasonably and negligently had been made sufficiently clear.
48. The Solicitors were given a reasonable opportunity, indeed more than one opportunity, to give reasons why the wasted costs order should not be made.
49. I do not accept the Solicitors' submission that the issue of causation has not been fully investigated. Although paras 6 and 7 of the Order of 16 March relate to costs to be paid by the Claimant, there was no separate point to be advanced in respect of any order against the Solicitors (other than that it should relate to costs after they had been instructed). I reject the argument that if the Solicitors had not been instructed the Claimant would have pursued the claim in person. That is speculation. The claim was liable to be struck out, because the Claimant had no interest in the cause of action. I decline to assume that the costs would have been the same, or that the Defendant would not have discovered promptly that the Claimant was a bankrupt.
50. In my judgment the order of 14 December 2012 is properly made pursuant to CPR r.48.7(4)(b).
51. For these reasons the appeal is dismissed.