Case No: HC10C01299
Neutral Citation Number: [2013] EWHC 1087 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 01/05/2013

Before:

THE HONOURABLE MR JUSTICE PETER SMITH
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Between:

	(1)	Mulugeta Guadie Mengiste
(2)	ADDIS Trading Share Company	
Claimants	
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	(1)	Endowment Fund For The Rehabilitation of Tigray
(2)	ADDIS Pharmaceutical Factory Plc
(3)	Mesfin Industrial Engineering Plc	

Defendants	
-and-
	Rylatt Chubb	Respondents	
			
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Mr Spink QC and Mr Assersohn (instructed by MS Legal) for the Claimants
Mr McPherson QC (instructed by RPC) for the Respondents

Hearing dates: 25th and 26th March 2013

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Judgment
Peter Smith J: 
INTRODUCTION
1.	On 22nd March 2013 I handed down a judgment on the merits on this case.  In that judgment I stayed the Claimants’ claim against the Defendants in this jurisdiction subject to provisions to lift that stay in certain circumstances set out in that judgment.  Detailed reference should be made to the judgment in that regard.
2.	The judgment was highly critical of the Claimants’ expert (called Mr Jones throughout the entirety of the proceedings and previous rulings).  I will repeat that description of him.
3.	I refer to the detailed criticisms in the judgment.  They are summarised in the Defendants’ skeleton argument in respect of the wasted costs application in paragraphs 40-48 inclusive.  
ORDERS
4.	On the hand down (amongst other things) I made ancillary orders requiring the Claimants to pay the Defendants’ costs on a standard basis from 16 April 2010 until 8 May 2012 and on an indemnity basis thereafter (paragraph 3), and ordered an interim payment of £400,000 by 19th April 2013 (paragraph 4).
5.	The Defendants had indicated that they intended to apply for a wasted costs order against the Claimants’ solicitors Rylatt Chubb and that application was heard on 25th & 26th March 2013.  I will set out below the chain of events following hand down of the judgment which led to the Defendants’ application.  Before that matter could be considered I dealt with and dismissed an application by the Claimants’ solicitors that I should recuse myself from consideration of the wasted costs order against them.  I also rejected an application by them to postpone the application.
6.	At the hearing I indicated that the Defendants’ wasted costs application satisfied the test to be applied at the first stage (paragraph 4 of the order) and gave directions for the hearing of the second stage.  That has now been fixed for the end of May 2013.  
7.	I also extended time for permission for Rylatt Chubb to appeal to the Court of Appeal my decision to dismiss the recusal application and the decision related to the first stage until written judgment on the stage 1 is handed down.  There is an error in paragraph 6 of the order in that regard which refers to the written judgment in relation to the recusal application when it meant to refer to the first stage of the wasted costs application.  I delivered an oral judgment in respect of the recusal application and I subsequently approved a transcript of it on 9th April 2013.  I refer to that judgment because much of the material in that application overlaps with the present application.  Once again that judgment sets out the substantial criticisms of Mr Jones’ evidence.   
BASIS OF DEFENDANTS’ CLAIM
8.	It is important to note precisely what is the basis of the claim and what is not the basis of the claim.  It is also important to appreciate that the Defendants have only intimated a claim against Rylatt Chubb; they have not intimated a claim against anybody else.  For their part the Claimants and Rylatt Chubb have declined to give any assurance to the Leading Counsel who was involved in the case until the hand down Lance Ashworth QC that there will not be some kind of claim brought against him by either of them.
INTIMATION OF CLAIM
9.	The draft judgment was sent out on 26th February 2013 for consideration by the parties’ lawyers with a view to the hand down as a final judgment.
10.	On 8th March the Defendants’ solicitors quite properly warned Rylatt Chubb that they were in the process of considering whether or not to apply against them for wasted costs “although as things stand it seems likely that any application will be directed against your firm”.
11.	The letter requested large amounts of material in relation to the communications between Rylatt Chubb and Mr Jones.  As I said in the judgment I gave on the hand down on the recusal application Rylatt Chubb did not reply to those requests presumably because of issues of privilege.  In the schedule they identified a number of paragraphs where I was critical of Mr Jones and the way in which Mr Jones was apparently prepared for his role as an expert.  
12.	The key paragraph from the judgment is paragraph 229 where I said:-
“It is unfortunate that Mr Jones (through his inexperience) was allowed to serve such a series of tendentious reports.  Anyone reading the reports who is familiar with litigation within this jurisdiction would know that the tenor of the reports was inappropriate.”
13.	I allowed the draft judgment to be released to Rylatt Chubb’s (and other lawyers) professional indemnity insurers and lawyers retained by them.
14.	Mr Ashworth QC in his response to the draft judgment attempted to write out all of the criticisms.  On 15th March 2013 my Clerk informed all parties that I had rejected all of Mr Ashworth’s criticisms of the final judgment and that the parties “can accordingly proceed on the basis that the final judgment will substantially follow the draft”.
15.	The day before (14th March 2013) Rylatt Chubb wrote a long letter on the wasted costs application to MS Legal the Defendants’ solicitors inviting them to confirm by Monday 18th March that there would be no application for wasted costs.  Various details of the supposed law and its application to the facts were set out.  It is significant to note that Rylatt Chubb prayed in aid the quite understandable difficulties they faced in dealing with such an application where questions of privilege would be involved in respect of which they could not give any evidence in response to the application against them.  
16.	MS Legal responded by a letter dated 18th March 2013.  In that letter it was made clear that there was only one basis upon which the Defendants were seeking a wasted costs order against Rylatt Chubb.  I set it out in full because Rylatt Chubb misunderstood the basis from the start and continued to misunderstand it during the course of the present hearing.  The basis is:-
“1 Rylatt Chubb should not have relied upon Mr Jones’ reports and/or relied on Mr Jones as an expert witness given that
(a) the content of Mr Jones’ reports was inappropriate and tendentious
(b) Mr Jones’ reports demonstrated that he did not understand his duty to the Court (see for example paragraphs 85, 86, 87, 91 and 92 of the draft judgment);
2 Said conduct caused the Defendants to incur unnecessary costs; and 
3 In all circumstances it is just to order that Rylatt Chubb compensates the Defendants.”
17.	They then went on to refer again to paragraph 229 of the draft judgment.
18.	It is quite clear that the Defendants are basing their case not on what role Rylatt Chubb might have had in the gestation of Mr Jones’ reports nor on any matters of privilege that might arise between the Claimants and Rylatt Chubb in relation to the gestation of Mr Jones’ reports.  Their case is a relatively simple one namely that however the reports of Mr Jones were gestated, Rylatt Chubb should not have allowed the reports in that form to be led in evidence in a case where they were solicitors instructed to act on behalf of the Claimants.  In effect they should have refused to act or refused to continue to act.  Further the secondary complaint is that having seen Mr Jones’ poor performance (for example in his qualifications cross examination on 30th April 2012) they should not have continued to represent the Claimants in the case if continued reliance was to be made on Mr Jones.  In short having seen the Claimants’ case fall apart on the 8th May 2012, instead of seeking an adjournment to try and recover it they should have done the opposite.  
19.	It is true that the letter of 8th March 2013 was preliminary and it is also true that until 15th March 2013 Rylatt Chubb would not be clear whether or not Mr Ashworth QC’s suggested alterations to my draft judgment had been accepted.  
20.	It follows that recourse to matters of privilege is not required for the purpose of meeting the claim as formulated by the Defendants.  It does not matter how the reports were gestated and how Mr Jones came to be giving evidence on behalf of the Claimants despite his obvious inadequacy.  The sole point thus is whether Rylatt Chubb should have continued in the case knowing the inadequacy of the reports and the inadequacy of Mr Jones.  For example it might be that Rylatt Chubb strenuously argued against reliance on the reports.  That does not matter.  What does matter is that they continued in the proceedings throughout despite the shortcomings of the Reports and Mr Jones’ performance.  It is quite a short point.  Despite its shortness there is authority on this as I shall set out below.
21.	In that context I refer again to paragraph 10 of my judgment on the recusal and the need to give Mr Jones a warning in accordance with the decision of the Court of Appeal in Symphony Group v Hodgson [1994] QB179 and my decision in Philips v Symes [2004] EWHC 2330 at paragraphs 65-74.  As I said those paragraphs of my judgment dealt with what the opposing party need to do if they are contemplating making a wasted costs order against a witness.  It has nothing to do with what the instructing solicitors need to do when they participate in a case on behalf of a client with a witness whose evidence might give rise to substantial criticism. 
THE PRESENT APPLICATION
22.	As the Defendants made clear again in paragraph 6 of their skeleton supporting their application Rylatt Chubb’s response was based on a fundamental misconception as to the basis of the Defendants’ claim.  For example in paragraph 37 of Rylatt Chubb’s skeleton argument dated 21st March 2013 Mr Graeme McPherson QC representing Rylatt Chubb said:-
“(37) Although (as set out above) the criticisms that D make of Rylatt Chubb – rather than of Mr Jones – are yet to be particularised, Rylatt Chubb infers that it will be D’s case
(a) that Rylatt Chubb ought to have somehow caused those (presently unidentified) parts of Mr Jones’ report which were “inappropriate and tendentious” to be removed; and
(b) that Rylatt Chubb failed to take adequate steps to draw to Mr Jones’ attention the nature and scope of his duties as an expert”.
23.	Mr McPherson QC made the following submission in writing, which he repeated orally, that such an application was bound to fail (a) because the Claimants had not waived privilege and (b) Rylatt Chubb were consequentially wholly unable to explain to the Court in effect the part they had in the gestation of the reports, what advice they gave and whether that advice was acted on.
24.	As I have said that is not the complaint.  The complaint is that Rylatt Chubb should not have continued to participate in the litigation.   The supposed difficulties are not relevant and do not arise.  
25.	There are a number of authorities (entirely fact based of course) where Courts have sometimes made a wasted costs order against lawyers who continued to participate in hopeless litigation and sometimes where the Court declines to make such an order.  Of course I accept that lawyers should not be penalised merely because they assist in the presentation of a weak case.  More than that is required as the authorities show.  They are summarised in Jackson & Powell Professional Liability (7th Edition) paragraphs 12-016 to 022.  As I said on the recusal application it is a short point and merely involves examination of the criticisms of Mr Jones made by the Defendants which I accepted and considering whether or not Rylatt Chubb should have continued to act for the Claimants in the context of that criticism.  The criticism came very early (well before the trial even started).  I have of course not heard Rylatt Chubb on these issues and that is all for stage 2.  
JURISDICTION TO MAKE A WASTED COSTS ORDER
26.	The power of the Court to order a wasted costs order against solicitors is contained in section 51 (6) – (7) of the Senior Courts Act 1981 which states:-
“Costs in civil division of Court of Appeal, High Court and county courts.
(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in—
(a) the civil division of the Court of Appeal;
(b) the High Court; and
(c) any county court,
shall be in the discretion of the court.
(2) Without prejudice to any general power to make rules of court, such rules may make provision for regulating matters relating to the costs of those proceedings including, in particular, prescribing scales of costs to be paid to legal or other representatives [or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs].
(3) The court shall have full power to determine by whom and to what extent the costs are to be paid.
(4) In subsections (1) and (2) "proceedings" includes the administration of estates and trusts.
(5) Nothing in subsection (1) shall alter the practice in any criminal cause, or in bankruptcy.
(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.
(7) In subsection (6), "wasted costs" means any costs incurred by a party—
(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or
(b) which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay.”
27.	The consideration of that statutory provision is set out in CPR 48.7.
28.	The parties agreed what are the correct principles and the correct procedure.  A number of cases (see Ridehalgh v Horsefield [1994] Ch 205, Persaud v Persaud [2003] PMLR 26 and the House of Lords in Metcalf v Mardell [2003] 1AC 120) set out the principles.
29.	For a wasted costs order to be made (a) the Applicant must be able to demonstrate that the Respondents have been guilty of conduct which is (i) negligent (ii) unreasonable, or (iii) improper and (b) the Applicant is able to demonstrate such conduct has resulted in costs being incurred by the Applicant which would otherwise have been avoided; and (c) it is fair just and equitable for the court to exercise its discretion so as to make an order against the Respondent in favour of the Applicant (White Book 48.7.3).
30.	It is accepted that the summary procedure for wasted costs is a blunt instrument.  It is not suitable for use in every situation where a party to proceedings seeks to criticise the manner in which those proceedings have been conducted by the other side.  It requires a certain amount of robustness and it has to be borne in mind that it must be determined without the need for formal pleading, disclosure or witness evidence, on a summary basis without cross examination, in hours not days and at a cost that is proportionate to the sums at stake.  Finally it must be fair, just and reasonable for the jurisdiction to be exercised.   
THE PROCEDURE
31.	There are two stages.  At the stage one hearing (which is this judgment) the Respondent to the Application will be given an opportunity to show cause why an order should not be made and the Court will consider (1) whether a strong prima facie case has been made out and (2) whether in its discretion it should require the legal representative to reply to the allegations and direct the application to proceed to a full hearing.
32.	If at that stage the Court concludes that all of the relevant criteria are met it will direct a further hearing (the stage two hearing) and give directions as to the steps to be taken for the disposal of stage two.  I have already determined that, in my view, the stage one criteria is satisfied and given directions for the stage two hearing.
33.	It should be noted that the burden is on the Defendants in this case at all times to establish their contentions and merely because the Respondent is given an opportunity to show cause why an order should not be made it does not change that.  This has happened in the present case.  I have not heard anything from Rylatt Chubb on the merits and I am not required to do so at this stage.  I have listened very carefully to Mr McPherson QC’s submissions as to why a show cause order should not be made but I reject them.
DEFENDANTS’ CASE
34.	Considering the above criteria and threshold I will now look at what the Defendants say about their claim against Rylatt Chubb.  The Defendants set the case out in their letter to Rylatt Chubb on 18th March 2013 and detailed it in a witness statement of 22nd March from Mr Getachew.  The basic premise is as I have said above relying on paragraph 229 of my judgment namely that Mr Jones’ evidence both written and oral was such that Rylatt Chubb should have disassociated themselves from the litigation if it was to be relied upon.  
35.	It is a bold submission as regards experts but it must be appreciated that the Claimants accepted from the outset that their case in reality stood or fell on Mr Jones’ evidence.  There was nothing else.  His evidence was vital to support the Claimants’ case that the procedures in Ethiopia were flawed and biased against them and they could not obtain a fair hearing in Ethiopia.  
36.	The Defendants identified a large number of failings the majority of which I upheld in my judgment.  In their skeleton argument they set them out fully.  I summarise them in this judgment:-
a.	The content of Mr Jones’ reports was inappropriate and tendentious.
b.	His reports demonstrated he did not understand his duty to the Court (examples referred to above namely paragraphs 85, 86, 87, 91 & 92 of the judgment).
c.	The contents of the reports were such that in their main skeleton argument dated 6th February 2012 for the first day of the hearing the Defendants contended that Mr Jones’ views amounted to cogent evidence of a risk of bias on his part, in the absence of his expertise and independence being established and his reports were riddled with inaccuracies, mischaracterisations, exaggerations and inappropriate assertions of fact.  
37.	It must be understood that that paragraph was in the context of the Defendants seeking to reconsider the order of Deputy Master Mark when he permitted the Claimants to rely upon the evidence of Mr Jones without his identity and professional qualifications being revealed to the Defendants.
38.	The Defendants contend that the above should all have been clear to Rylatt Chubb at the outset and prior to the serving of the Particulars of Claim which the Defendants contend were entirely founded on Mr Jones’ report.
39.	As the trial of the issues progressed the Defendants contend that it should have been clear from Mr Jones’ personal examination on 30th April 2012 that he was totally unable to grasp the requirements imposed on him by CPR 35 and finally his evidence was destroyed completely on 8th May 2012 as a result of the evidence of the First Claimant on the main factual premise underlying Mr Jones’ evidence.  That was the contention that the Inventory provided conclusive evidence of the delivery to the Second Defendants’ factory by the Second Claimant of items of equipment which the Second Defendants claimed during the Ethiopian proceedings were supplied by someone else.  That finding led to me concluding that the action was doomed to failure thereafter and it was on that basis that I ordered the Claimants to pay the Defendants’ costs from that date on an indemnity basis.
40.	Further on 10th August 2012 Mr Jones purported to clarify his first and second reports on the grounds that he had inadvertently gone beyond his role as an independent expert.  In fact this was an attempt to rewrite those reports to remove the parts which had been heavily criticised in the earlier cross examination.  Despite that withdrawal during cross examination he sought to reinstate paragraph 29 which had comments of a political nature and that found itself into the Claimants’ closing.
41.	They also relied upon the fact that Rylatt Chubb instructed the expert, signed the Particulars of Claim quoting the expert’s report extensively and founded their entire case on the expert who was plainly not suitable (the Defendants say) by reason of the matters set out above.
42.	Finally they referred to extensive parts of their closing submissions and their supplemental submissions containing detailed observations that they were required to make to deal with the plain deficiencies of Mr Jones’ evidence.  I refer in that context to paragraph 45 of their skeleton argument and the 14 examples they gave by way of sample.  There are a lot more.
43.	The Defendants’ case therefore is that the entirety of the costs of the action were caused because they had to deal with a thoroughly inadequate expert report which was the platform for the Claimants’ case.  The Defendants contend, as set out above, that Rylatt Chubb should not have participated in the proceedings and relied upon Mr Jones either from the start or after 8th May 2012 alternatively 10th August 2012.  
CONSIDERATION OF DEFENDANTS’ CONTENTIONS
44.	Rylatt Chubb have not replied to the Defendants’ complaints on the merits.  It was open to them to do so but they are not to be criticised for that as that arises at stage 2.  That fact however does not mean that they cannot refer to any of the matters on the merits.
45.	Nevertheless the evidence put forward by the Defendants which is derived from a consideration of Mr Jones’ performance clearly in my view satisfies the requisite threshold at this stage namely that there is a strong prima facie case that Mr Jones’ evidence was so extraordinarily poor that the Defendants are entitled to contend that Rylatt Chubb should not have associated themselves with this litigation at all or in the way that they did.  
PRIVILEGE
46.	I have already dealt with it but reinforce once again if at stage 2 issues of privilege are required to be considered then any doubts have to be resolved in favour of Rylatt Chubb.  I fully understand that but at the moment I cannot see any issues of privilege arising from the way in which the Defendants put their case against Rylatt Chubb.  If that changes at stage 2 then of course based on the authorities above the inability of Rylatt Chubb to reveal matters of privilege must weigh heavily in their favour.  
47.	Of course I have a discretion and I must ensure that the procedure does not become oppressive.  As I set out in the recusal application I do not think that is likely to be a difficult exercise for me as I have seen and heard Mr Jones and seen his evidence extensively in discharge of my duty as a Judge hearing the issue that was for determination.  It is doubtful for the reasons that I have already set out in that recusal judgment that a new Judge would be able to reach that stage of knowledge without a considerable amount of reading.  Nevertheless the exercise based on the way in which the Defendants put their case is not in my view a difficult one for me as trial Judge.
48.	For all of those reasons I determine that the Defendants have established at this stage that they have a strong prima facie case to seek an order that Rylatt Chubb pay some or all of the Defendants’ costs in this action.