Lakatamia Shipping Co: Facts of the Case

 In Lakatamia Shipping Co Ltd and Others v Baker McKenzie LLP [2021] EWHC 2702 (Comm) (‘Lakatamia Shipping’), the High Court of Justice considered an application for wasted costs against Baker McKenzie LLP, a law firm which had represented the Defendant (madam Su) in a previous action (Lakatamia v Su [2021] EWHC 1907 (Comm)).

Following a 17-day Trial judgment had been entered in the Claimant’s favour against Madam Su, it being found that the same had dissipated assets which were subject to a freezing order. As a result of the finding, the Claimant was awarded substantial damages, in addition to costs to be assessed on the indemnity basis if not first agreed. The Claimant had concerns as to how it would recover costs. It was therefore necessary to consider the option of seeking a wasted costs order against the Defendant firm, the Court having the power to order the same.

Wasted Costs Orders

The key wasted costs provisions can be found within the Senior Courts Act 1981 at s.51(6)/(7), as guided by the key decision in Ridehalgh v Horsefield [1994] Ch 205. It is also key to note that non party costs orders are also a possibility (s.51(3), CPR 46.2). As set out in s.51(6), in any relevant proceedings, the Court may disallow/order a legal or other representative to meet a portion, or potentially the entirety, of the wasted costs incurred by a party to the case. Section 51(7)(a)/(b) limits the scope of such wasted costs to circumstances in which the legal or other representative has acted improperly, unreasonably or negligently through act or omission.

These provisions are largely mirrored within the Civil Procedure Rules, PD 46 para 5.5 – 5.7, which frame the question around a straightforward multi-step exercise:

A. The relevant party has acted improperly, unreasonably or negligently (PD46 5.5(a));

B. said act has caused costs to be wasted, including where the costs prior to the act have been ultimately wasted (PD46 5.5(b);

C. It is just in all the circumstances to order the legal representative to pay such wasted costs (PD46 5.5(c)).

Practice Direction 46 para 5.7 of the Civil Procedure Rules gives further guidance on the methodology of considering an application for wasted costs. This is a two-stage process –

1. The Court must first be satisfied that the evidence before it may prima facie culminate in a wasted costs order being made (PD46 5.7(a)(i)). They must also be satisfied that the proceedings are justified notwithstanding the likely costs involved (5.7(a)(ii)) and;

2. Stage 2 of the test simply requires the Court to invite written or oral submissions on the point to assist in a determination being made (PD46 5.7(b), CPR 46.8). 

Wasted costs orders are therefore likely to be considerably contested in that they, in effect, seek to assert some degree of malpractice against a legal representative. If proven, they may lead to an order to pay costs pursuant to the limits of any wasted costs orders.

Lakatamia Shipping Co: Arguments from the Claimant

In Lakatamia Shipping the Claimant notified the Defendant firm of an intention to seek such an Order supported by a 37-page witness statement and a detailed letter. A rebuttal followed. 

In considering stage 1 of the test (PD46 5.7(a), PD46 para 5.5(a)), the causal element of the same was highlighted, PD46 para 5.5(b) requiring the unreasonable/improper/negligence act or omission on the part of the legal or other representative to have caused the wastage of costs, with any such order also needing to be just in the circumstances pursuant to PD46 5.5(c) (para 9, 17). The Claimant would thus firstly need to ‘show cause’ in order to satisfy this stage (Ridehalgh at pp 239D-F).

 The definition of improper, unreasonable and negligent conduct was assisted by the Ridehalgh decision. Improper conduct ‘covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty,’ whereas unreasonable ‘describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive…The acid test is whether the conduct permits of a reasonable explanation’ .

Finally, negligent was considered to be an untechnical term which simply is meant to ‘denote failure to act with the competence reasonably to be expected of ordinary members of the profession.’  

In further considering the same, the Court was reminded of the summary nature of the process, and of the potential implications of a conflict of interest arising between a client and a legal representation in relation to questions such as the waiving of legal privilege. 

Armed with the Ridehalgh definitions, the Claimant asserted that the Defendant had acted improperly and/or unreasonably and/or negligent in providing certain misleading information as to the source of funding, in filing its witness evidence, in engaging with disclosure and otherwise in pursuing a doomed-to-fail argument. The Defendant rejected that this four-pronged assault was a prima facie case sufficient to satisfy PD46 para 5.5(a).

Decision from the Court and Guidance on Wasted Costs Orders

In respect of the concerns raised as to funding, this was considered to be a causally weak argument even if proven, and in any event, would not justify any wasted costs proceedings. Turning to the concerns as to the witness evidence, the actions of the Defendant were not considered to reflect improper, unreasonable or negligent act or omission, and even if this was the case, causation was again likely to be an issue, in addition to the obvious difficulties in quantifying any incurred wasted costs. Equally it was considered by the Court that PD46 para 5.7(a)(ii) was not met – the proceedings were not justified given the likely costs involved. 

In considering the question of disclosure conduct, it was not considered that the delay in obtaining relevant documents was the result of any improper and/or unreasonable and/or negligent act or omission, given that the Defendant would have been duly advised of disclosure obligations. The pleaded case was again, ultimately doomed to fail on the grounds of causation, even if proven, nor would wasted costs proceedings be justified notwithstanding the likely costs involved.

In considering the final pleaded conduct issue, the pursuing of a ‘hopeless’ argument on the issue of Monegasque law, it was considered that the same point had been properly arguable and that any associated costs would have been limited.

Both item by item and otherwise broad-brush, the application as a whole was not considered suitable for summary determination under the stage 2 wasted costs procedure (PD46 5.7(b)) and equally given the Claimant’s failure to establish a causal conduct/costs, it was not considered that a sufficient prima facie case had been established. The Court was further mindful of the likely costs involved, 6 reasons for rejection of the application being outlined by the Court.

The decision brings into sharp focus the requirements for seeking wasted costs orders. Demonstrating an improper/unreasonable/negligent act or omission is not enough, because ultimately without causation, costs have not been wasted nor can they be quantified. Where a positive case on causation can be demonstrated, it may well be possible to satisfy stage 1, should the proceedings be justified notwithstanding the likely costs involved. Nevertheless, proceeding to stage 2 successfully is still likely to be a considerably contested matter, because, straightforwardly put, a firm facing allegations of such conduct is likely to fight tooth and nail to oppose any such adverse determination.

How can ARC Costs Assist?

The ARC Costs team of Costs Draftsmen and Costs Lawyers are always happy to help with costs challenges, including those involving wasted costs.

Whether you have been ordered to pay costs or wish to recover your costs, we can assist as independent costs experts.

We can be contacted via email at info@arccosts.co.uk, or by telephone on 01204 397302. For more information on legal costs, please find out more about our speciality areas of expertise and our services on our legal costs page.

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