Konstantin Kagalovsky and Another v Balmore Invest Ltd and Others
Jurisdiction | England & Wales |
Judge | The Hon Mr Justice Turner |
Judgment Date | 13 May 2015 |
Neutral Citation | [2015] EWHC 1337 (QB) |
Docket Number | Case No: HQ13X03761/2/3 |
Court | Queen's Bench Division |
Date | 13 May 2015 |
[2015] EWHC 1337 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Turner
Case No: HQ13X03761/2/3
James Ramsden (instructed by Russell-Cooke LLP) for the Applicants
P J Kirby QC & Ms Gemma Witherington (instructed by Bond Dickinson LLP) for the 1 st Respondent
Roger Stewart QC & Ms Clare Dixon (instructed by Withers LLP) for the 2 nd Respondent
Hearing date: 6 th May 2015
INTRODUCTION
In this case the claimants seek a wasted costs order against solicitors, Kerman & Co. LLP ("Kermans"), and counsel, Mr Robert Levy QC ("Mr Levy").
Kermans and Mr Levy represented the eighth defendant, Mr Alexander Altman, in contempt proceedings brought against him by the claimants. Mr Altman lost and was sentenced to eighteen months imprisonment. 1
However, Mr Altman has so far escaped justice by remaining outside the jurisdiction. Attempts to extradite him have been unsuccessful. Furthermore, the claimants have incurred substantial costs which Mr Altman was ordered to pay. Predictably, he has not done so. It is against the background of this Pyrrhic victory that the claimants now seek to persuade the court to order Mr Altman's legal representatives to foot the unpaid bill.
THE WASTED COSTS JURISDICTION
Section 51 of the Senior Courts Act 1981 provides:
"(1) Subject to the provisions of this or any other enactment and to the rules of court, the cost of and incidental to all proceedings in—
The civil division of the Court of Appeal;
The High Court; and
Any County Court
Shall be in the discretion of the court…
(6) In any proceedings mentioned in subsection (1), the court may disallow, or (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court."
Those rules of court are to be found in CPR Part 46.8 which provides:
"(1) This rule applies where the court is considering whether to make an order under section 51(6) of the Senior Courts Act 1981 (court's power to disallow or (as the case may be) order a legal representative to meet, wasted costs).
(2) The court will give the legal representative a reasonable opportunity to make written submissions or, if the legal representative prefers, to attend a hearing before it makes such an order.
(3) When the court makes a wasted costs order, it will—
(a) specify the amount to be disallowed or paid; or
(b) direct a costs judge or a District Judge to decide the amount of costs to be disallowed or paid.
(4) The court may direct that notice must be given to the legal representative's client, in such manner as the court may direct—
(a) of any proceedings under this rule; or
(b) of any order made under it against his legal representative."
The Practice Direction to Pt.46.8 provides additional guidance in relation to the procedure to be adopted at paragraphs 5.6 to 5.8 inclusive:
"5.6 The court will give directions about the procedure to 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.
5.7 As a general rule the court will consider whether to make a wasted costs order in two stages—
(a) at the first stage the court must be satisfied—
(i) 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
(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved;
(b) at the second stage, the court will consider, after giving the legal representative an opportunity to make representations in writing or at a hearing, whether it is appropriate to make a wasted costs order in accordance with paragraph 5.5 above.
5.8 The court may proceed to the second stage described in paragraph 5.7 without first adjourning the hearing if it is satisfied that the legal representative has already had a reasonable opportunity to make representations."
In order for the conduct of the respondents in any given case to be such as to engage the wasted costs jurisdiction it must be improper, unreasonable or negligent.
THE SCOPE OF STAGE ONE
On 3 February 2015, I ordered, in accordance with the Practice Direction, that consideration of the wasted costs application should follow a two stage process. The hearing to which this judgment relates is the stage one hearing.
The rationale behind the procedure set out in the Practice Direction is not difficult to discern. Salutary as the wasted costs jurisdiction undoubtedly is in appropriate cases, there lurks the risk that satellite litigation, growing like Topsy, will come to generate costs and absorb the time and resources of the parties and the court to an extent which is disproportionate to the object to be achieved. By splitting the wasted costs application into two stages, the Practice Direction seeks to place a burden on the applicant to demonstrate a prima facie case as one of the preconditions to be fulfilled before a further and more detailed consideration of the substantive merits will be entertained. Thus unpromising applications can be nipped in the bud before they start taking up too much time and giving rise to disproportionate expense.
In the particular circumstances of this application, issues arise as to the proper scope of stage one. This is primarily because Kermans and Mr Levy QC seek to participate very fully indeed at this stage whereas the Practice Direction envisages that the respondents' representations, whether in writing or at a hearing, will be made wholly or mainly at stage two.
One can readily understand why legal advisers against whom a wasted costs application is made should want to engage with the process pre-emptively. By doing so they seek to maximise their chances of achieving a prompt termination of the process whilst preserving the opportunity to take a second bite of the cherry if they are unsuccessful at the first stage. Of course the danger is that the stage one process then becomes overburdened with detail and complexity when it is intended to be pragmatically lean and uncluttered.
It is to be noted however, that the Practice Direction sets out the procedure to be followed "as a general rule". The procedural route therein laid down is not therefore to be treated with mechanistic slavishness where the particular circumstances of the case demand a different approach in order best to achieve the overriding objective. In the more straightforward cases there may be little or no participation at the first stage on the part of the legal advisers against whom the order is sought. However, this case could not be regarded as being straightforward on any analysis and it would be both wrong and artificial for this court entirely to disregard the detailed submissions made on behalf of the respondents. Of course, the court in any case like this must be alert to the possibility that respondents may be tempted tactically to be over-inclusive in meeting a wasted costs application in order artificially to create the impression that the issue is less susceptible to summary determination than is really the case.
THE ALLEGATIONS
The claimants advance six categories of conduct which they contend fall within the scope of the wasted costs jurisdiction:
i) The submission of a dishonest defence to the committal application by Mr Altman;
ii) Actions designed to cause delay including the adjournment of the first listed hearing of the application for committal by way of the submission of that dishonest defence;
iii) Actions which resulted in a successful application being made for the disclosure of part of Kermans' file;
iv) Providing affidavits, witness statements and correspondence which contained incorrect and misleading information in light of the disclosure of Kermans' file;
v) Failing to comply promptly with the order for disclosure of Kermans' file; and
vi) The pursuit of irrelevant topics of cross-examination causing the trial, which had been realistically estimated to last for two days, to run onto five days with a sixth day for written submissions and a further hearing to address sanction and costs.
The claimants contend that costs have been incurred in excess of £400,000 as a result of the conduct of which complaint has been made.
In submissions made on behalf of Kermans, Mr Kirby QC articulated seven grounds upon which the claimants' application should be rejected:
i) Procedure. The wasted costs summary procedure was irremediably unsuited to the scale and complexity of the application in this case;
ii) Delay. The claimants are guilty of inordinate delay in the bringing of this application;
iii) Privilege. The respondents are prevented by the operation of legal professional privilege from being able fairly and fully to respond to the allegations;
iv) Changing allegations. The allegations themselves have changed over time and in some respects are not clear enough to enable the respondents to know with sufficient precision what case they have to meet;
v) Unsuitability. The wasted costs procedure is an inappropriate vehicle through which findings of dishonesty could be made against the respondents in the circumstances of this case;
vi) Particular allegations. In respect of none of the allegations have the claimants passed the threshold test of satisfying the court that it has before it evidence or other material which, if unanswered,...
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