Regent Leisuretime Ltd & Ors v Skerrett & Anor

LORD JUSTICE LLOYD: This appeal is against an order made by HHJ Overend on 17 June last year sitting as a judge of the High Court, Queen’s Bench Division. On that day the judge had before him a negligence action brought by Regent Leisuretime Limited and Mr Amos and Mr Barton, who, as I understand it, had been directors and shareholders of the company, all of whom in effect acted by Mr Amos against two defendants, both of them solicitors, the first being Mr Phillip Skerrett and the second Mr Ken Pearson. Mr Pearson was represented at that hearing by Mr Holtem of counsel and, the transcript says, Miss Candy of counsel, instructed by Messrs Reynolds Porter Chamberlain. Mr Skerrett was in person, although that position is slightly complicated, as I will explain.

The claim form had been issued (in the Queen’s Bench Division) by the claimants on 6 November 2003 against Mr Skerrett, trading as Phillip Skerrett and Co, and Mr Pearson, trading as Blight Broad and Skinnard. It was for alleged negligence in the performance of the defendants’ duties as solicitors, the negligence alleged being a failure to advise the company to issue proceedings against National Westminster Bank before they became barred by limitation.

As I understand it, proceedings had been brought by Mr Amos and Mr Barton but the defect was that the proceedings had not been brought by the company. Mr Skerrett had been the solicitor acting in the matter on behalf of Mr Amos and Mr Barton, who was said to have been negligent in failing to advise that the company be joined as an additional claimant, and he was said to have been negligent during the period of his conduct in the proceedings which started, I believe, in September 1993, and which continued until a date in 1998, as to which I have seen a number of different dates put forward, but the last I think would have been late August 1998 or possibly the very beginning of September. The second defendant was said to have been negligent in failing to give the equivalent advice during the period in which he had conduct of the matter from 14 September 1998 onwards.

The particular matter in question arises in this way. The claim form was served by the claimants at the premises of Messrs Blight Broad and Skinnard, that is to say Mr Pearson. As a claim in negligence against a solicitor, it was the subject of insurance cover, and Mr Pearson informed his insurers who instructed Messrs Reynolds Porter Chamberlain to act. On 5 March 2004 that firm wrote to the court and said that the claim form had been served on Mr Pearson:

They sent with the letter an Acknowledgement of Service form on behalf both defendants stating that they intended to defend all of the claim. The firm did have instructions on behalf of Mr Pearson, or at any rate on behalf of his insurers. It did not have instructions from Mr Skerrett and had not made contact with him. On 19 March 2004 the firm served a defence on behalf of the first and second defendants, making limited admissions, denying negligence, taking a Limitation Act defence, and also including this paragraph, as paragraph 1:

The background to the involvement of the two firms of solicitors is that although the first defendant had practised as a solicitor, his practice had been the subject of an intervention by the Law Society in late August or early September 1998, and upon that intervention taking place, Messrs Blight Broad and Skinnard, otherwise Mr Pearson, had been nominated as successor firm and the current files of Mr Skerrett’s practice had been transferred to Mr Pearson as of, I believe, 7 September 1998.

Subsequently on 21 June 2001, Mr Skerrett was the subject of a bankruptcy order and that bankruptcy was discharged in accordance with the general principles under the Insolvency Act, as it then was, three years later on 21 June 2004. Thus, at the time of the issue of the claim form and of the acknowledgement of service, Mr Skerrett was an undischarged bankrupt, although he was discharged a few months later. Of course Mr Skerrett’s files having been transferred to Mr Pearson, Mr Pearson at any rate being insured, the insurers had some concerns, as it were, vicariously in respect of allegations as regards Mr Skerrett’s practice.

After the issue and service of the proceedings on Mr Pearson, and a conversation between Mr Pearson and Mr Skerrett, Mr Pearson wrote to Mr Skerrett and said that he had referred the matter to insurers who had instructed Reynolds Porter Chamberlain and informed Mr Skerrett that they had or may have acknowledged service and asked Mr Skerrett to contact Mr Faulks of Reynolds Porter Chamberlain. That letter was dated 10 March 2004. Mr Skerrett then telephoned Mr Faulks and they had a telephone conversation, which seems to have been somewhat heated, and I dare say did not satisfy either of the parties to the conversation. Mr Faulks wrote to Mr Skerrett on 19 March, the only letter that got through (it seems that there may have been previous attempts to send other letters), and enclosed a copy of the defence that had by then been served on behalf of both defendants. Mr Skerrett ignored and did not respond to that letter and took no further action in the matter. In February 2005, Mr Faulks wrote to Mr Pearson to deal with matters of preparation for the trial which was by then due to take place in early July in London. He made a number of comments about matters of which Mr Skerrett would have been a necessary provider of information. He said in his letter:

But he did ask Mr Pearson to clarify certain matters with Mr Skerrett. That led Mr Pearson to write to Mr Skerrett on 4 March to tell him of the trial date, he sent on the letter of 22 February, and asked for confirmation that Mr Skerrett would be available for the trial and would be available to discuss the matters that Mr Faulks had identified as needing discussion. Mr Skerrett says that until then he had assumed that the matter was not proceeding and that it had gone away through settlement or otherwise in the meantime.

On 14 April, Mr Skerrett wrote to the court asking that the claim against him be struck out, for reasons that he explained, and on 7 June he issued a formal application notice asking for such an order supported by his letter of 14 April and a witness statement of the same date that he had already sent to the court. That application came before HHJ Overend sitting at Torquay, but as a judge of the High Court. As a preliminary, on 17 June Messrs Reynolds Porter Chamberlain applied, having no doubt served an application notice for the purpose, to come off the record as Mr Skerrett’s solicitor. That order was made by agreement.

Then Mr Skerrett applied, by then unquestionably appearing in person and unrepresented, for the claimant’s claim to be struck out as against him. Two points were taken. The first was that no permission had been given by the court to bring the proceedings against an undischarged bankrupt under Section 285(3) of the Insolvency Act 1986, and the second that the proceedings had never been served on Mr Skerrett. Mr Amos, representing the claimants admitted that there had been no service but pointed out that there had been an acknowledgement of service. He also accepted that leave had not been obtained under the Insolvency Act. The judge struck out the claim against Mr Skerrett on the grounds that there had been no permission under the Act and referred to the absence of service on Mr Skerrett, and the acknowledgement of service by Reynolds Porter.

As I say, the claim was struck out against Mr Skerrett and the question of costs then arose. Mr Skerrett made it plain that he did not feel that the claimants had acted other then entirely honourably in the matter and he therefore did not ask for an order for costs against the claimants. As recorded on the transcript, he said:

What he then did was to apply orally to the judge for an order that Reynolds Porter Chamberlain be ordered to pay his costs on an indemnity basis forthwith in respect of all the costs lost, thrown away and incurred by him in the matter, and going on to presume to act for the claimants, suggested that such an application would be made on their behalf. Mr Amos in due course said that he wanted to make a similar application.

Mr Holtem, who of course was instructed by Reynolds Porter Chamberlain but on behalf of Mr Pearson, whether or not taken aback by this application, reminded the judge of the two-stage approach laid down for wasted cost applications (because plainly it was a wasted costs application, if anything) and the need for a clear indication of what costs were claimed and on what basis. He made submissions about whether the first stage test could be said to be satisfied and submitted that there was a substantial risk of disproportion between the costs at stake and the costs that would be incurred in the course of dealing with the application.

Without calling on either Mr Skerrett or Mr Amos the judge then gave judgment, holding that he was satisfied as to the first stage. His judgment was short and I think it is convenient that I read paragraphs 3, 4 and 5 as follows:

He then gave some directions saying to Mr Skerrett that he must apply for a wasted costs order specifying what it is that he seeks, and why, but that there should be a directions hearing after the trial because the trial was then imminent and took place in July.

From the order that he made I should read paragraphs 3 and 4:

The claim, continuing only against Mr Pearson, then came to trial before Simon J and was dismissed. There was a Costs Order on behalf of Mr Pearson against the claimants which the judge directed was not to be enforced against the individual claimants until after resolution of any wasted costs application by the claimants. Mr Amos told us that the Court of Appeal had granted permission to appeal against that order and that the appeal is due for hearing later this month.

The next step, going back to the wasted costs application, was that Mr Amos and Mr Skerrett applied for a case management conference for directions regarding the wasted costs application on 18 August, which came before a District Judge by way of telephone conference on 22 September. In the course of that telephone hearing it became clear that the matter really had to go back to HHJ Overend and eventually it did on 20 October 2005, again by way of a telephone hearing. At that stage Mr Nicol was instructed for Reynolds Porter Chamberlain. He sought to make the point that stage 1 could not have been satisfied because there had been no indication of the costs claimed or the basis on which they were claimed.

HHJ Overend refused to go into that question and also refused to grant permission to appeal against his earlier order. On 2 November, Reynolds Porter Chamberlain filed the appellants notice seeking permission to appeal and an extension of time and asking that the 17 June order so far as it related to wasted costs should be set aside. Permission to appeal and an extension of time were granted by Hooper LJ at a hearing on 1 February.

So it comes before this court with Mr Skerrett and Mr Amos as the active respondents. Mr Barton has been present in court as well, but has relied on what Mr Amos had to say. They have sought to defend the judge’s direction as to the wasted costs applications.

The procedure is governed by Rule 48.7 of the Civil Procedure Rules and Section 53 of the Costs Practice Direction. Paragraph 53.3 allows for wasted costs applications to be made either orally in the course of the hearing or by the issue of a Part 23 application notice. Paragraph 53.4 sets out the circumstances in which an order can be made. I think it is right that I should read this:

Paragraph 53.3 requires the court to give directions about procedure to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit.

Paragraph 53.6 sets out the two stage approach:

Paragraph 53.7 allows for both stages to be dealt with together on a Part 23 application if the legal representative has had the opportunity to give reasons why the court should not make an order.

Paragraph 53.8 also applies to an application made by a Part 23 application notice. It says that the evidence must identify, among other things, the costs which are sought against the solicitor. Of course this application was made orally, not by the issue of an application notice. It was made without any evidence and without any indication of the costs that were sought against the solicitor. The one thing that was reasonably clear was what it was said the solicitor had done that he should not have done, namely to acknowledge service on behalf of Mr Skerrett without instructions and to continue to defend the action on Mr Skerrett’s behalf still without instructions.

The judge expressed himself to be satisfied on 17 June that the court had evidence which, if unanswered, would be likely to lead to a wasted costs order being made, and held that the wasted costs proceedings were justified notwithstanding the likely costs involved. It is striking that he did not receive or require from either Mr Skerrett or Mr Amos any kind of quantification of the costs sought, so as to be able to form a view as to a) whether they or any part of them would be likely to be ordered and b) whether the costs of the application involving a directions hearing and a later substantive hearing would be proportionate to the amount which realistically might be sought to be ordered against the solicitor.

If one considers the position of the claimants, as we have explored to some extent in the course of this afternoon’s hearing, if Reynolds Porter Chamberlain had not acknowledged service, what would or at any rate might have happened is as follows. Knowing that they had not, in fact, taken any steps to serve Mr Skerrett, they might have taken such steps to serve him by any means permitted under the Rules. In March 2004, by which time the claim form would have had to have been served, as it was about to expire, he was an undischarged bankrupt and accordingly proceedings could not be brought against him without permission of the court.

Mr Skerrett said that proceedings could not have been served. I do not think that is right; the proceedings could have been served but if they had been brought without permission, they were liable to be struck out or stayed. If that point had been taken, if for example Mr Skerrett had ignored service of the claim form and some fourteen days later in absence of an acknowledgement of service the claimants had obtained a judgment in default for damages to be assessed, once the point had been taken the claimants might have sought retrospective permission which is, as I understand it, a possibility under the Insolvency Act, or they might have issued a fresh claim form once he was discharged from bankruptcy in June and they might have served that claim form on him at any time up to September 2004. In that way, Mr Amos says they would have been able to bring their claim against Mr Skerrett in an effective way that would not have been liable to be struck out at any rate if they had been able to get over the hurdle of the need for permission under the Insolvency Act and they could have brought their claim to trial.

What is striking about the position in respect of the claimants is that the best indication that they have given of the costs that they would seek is, in effect, all the costs attributable to their claim against the first defendant. As I say, in the course of the hearing before the judge there was no clear indication of what those costs were, other than at some point a reference to the expenditure of £5,000 fees to leading counsel, which was incurred at the preliminary stage of advice about and formulation of the original claim form. Plainly that was cost incurred long before Messrs Reynolds Porter Chamberlain did anything and it is difficult, for my part, to see how that could be said to have been costs incurred by reason of the conduct of the solicitor.

At the invitation of this court, Mr Amos and in turn Mr Skerrett gave an indication of the nature, amount and basis of the costs that they would seek on the eventual wasted costs application if it came to a substantive hearing. Mr Amos put together a helpful document which indicates, indeed, that the costs would run from the initial preparation of the case against the first defendant before the issue of the proceedings and would include costs incurred in the course of the proceedings and in so far as referable to the position of the first defendant, as well of course as including costs incurred in relation to the striking out application and so on, and specifically they include counsel’s fees incurred before the proceedings were commenced.

In the course of the hearing it became clear that the nature of the claim against Reynolds Porter Chamberlain in this respect is that, but for their having acknowledged service, the claimants would or at any rate might have been able to bring their case to trial against Mr Skerrett, and because they were not, because of the striking out, all the costs that they had incurred in relation to Mr Skerrett were wasted, and on that basis Mr Amos said that they were wasted costs which could properly be the subject of recovery under a wasted costs order.

So far as Mr Skerrett is concerned, of course the position is somewhat different. Reynolds Porter Chamberlain did acknowledge service without instructions. Mr Skerrett was told that they had done so within a matter of days. He was sent a copy of the defence that they had served on his behalf. There took place, before that letter, the heated conversation to which I have referred, and after that Mr Skerrett ignored the whole thing. He said nothing to anyone, as I understand it, after that concerned with the matter until the following March when he was told that the matter was coming towards trial.

In his case what he says is that the costs that he incurred as a result of the solicitors conduct in acknowledging service and conducting the proceedings on his behalf is the cost involved from March 2005, when he became aware that the action was still continuing, up till June 2005, when he was able to get the claim struck out. He says that it was, and I can imagine it was, a lot of work finding out what had happened in the course of the previous twelve months, studying the documents, considering his position and then first of all writing to the court and in due course applying to the court for the striking out order. Although his document of yesterday’s date in response to the court’s request is less specific about the nature and amount of the costs that he incurred, it is at any rate clear that what he is talking about is the costs and the time incurred in trying to assess the position that he was in and to extricate himself from it by way of the striking out application, in the course of which he says he spent some 75 working hours.

The judge was clearly troubled by the fact that Messrs Reynolds Porter Chamberlain had acted on behalf of the first defendant without instructions. The fact that in essence the claim was against the practice which had been conducted first by the first defendant and then taken over by the second defendant, and would have been on any basis a claim for which insurance cover existed, Reynolds Porter Chamberlain being instructed for the insurers, does mean that the solicitor acting without instructions in acknowledging service was not simply an officious inter-meddler in things of no concern to him, and it does not seem to me that in those circumstances it was necessarily plain that the solicitor had acted improperly. unreasonably or negligently, in the sense in which those words appear in paragraph 53.4(i) of the practice direction in relation to wasted costs.

Furthermore, it seems to me far from plain that the solicitors’ conduct has caused either the claimants or the first defendant to incur any significant amount of unnecessary costs which they would not have had to have incurred in any event. 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; for example, if an adjournment is necessary because of a solicitor’s or counsel’s conduct, as regards the costs thrown away by the adjournment.

In the present case, given that the scope and nature of the costs claimed was wholly unclear at the time of the hearing before the judge, and that the matter could not be concluded on 17 June in any event, it seems to me that the judge should not have allowed the application to be made orally or to have considered it even at the first stage. He ought to have told Mr Amos and Mr Skerrett that if either of them wanted to apply for costs he should issue a Part 23 application notice supported by evidence as required by Paragraph 53.8. There could have then have been either a first stage hearing or, perhaps if paragraph 53.7 was satisfied, a hearing at which the first stage and if relevant the second stage were both considered.

The judge had formed a clear view that the matter needed to be investigated, those indeed are his very words, but that is not the same as having formed even a prima facie view that the solicitor had acted improperly, unreasonably or negligently. If it was to be investigated there had to be at least one further hearing, so that although the judge may quite properly have wished to adopt a procedure that was as simple in summary as possible -- compare paragraph 53.5 -- his method of proceeding did not in fact save any time or money.

In my judgment, the judge’s approach was wrong and was outside the scope of the admittedly flexible discretion given to him as to how to proceed. He did not have enough material before him to form even a prima facie view, and had not formed such a view, that the solicitor had acted improperly, unnecessarily or negligently, and he had no material on which he could form a view as to whether any significant unnecessary costs had been caused to be incurred by reason of the solicitors’ conduct. Nor could he save any time or money by proceeding to a first-stage assessment on that day even if he had had before him the necessary material.

As it seems to me, the question that arises on this appeal is whether this court can and should allow the appeal on the basis that having regard to what the court now knows with the benefit of the further clarification, both of the nature of the claim for the costs in quantum terms and of the basis of the claim for costs, which has been provided both by the recent documents from Mr Amos and Mr Skerrett and by the elucidation in the course of oral submissions, we should come to the conclusion that on that basis the applications are simply not fit to proceed, or whether we should simply set aside the judge’s first stage conclusion and remit the matter so that Mr Amos and Mr Skerrett could try again with better material and more appropriate procedure to satisfy the court that a wasted costs order should be made.

Having seen and heard what is said on their behalf as to the nature of their assertion that costs have been caused to be incurred by reason of Reynolds Porter Chamberlain’s conduct in acknowledging service and in conducting the defence on behalf of Mr Skerrett, my conclusion is that the right course is to allow the appeal and to dismiss the applications. I need to consider the position separately in relation to Mr Amos for the claimants, and Mr Skerrett.

So far as Mr Amos for the claimants is concerned, it seems to me impossible for him successfully to assert that costs incurred before the issue of the proceedings and before Reynolds Porter Chamberlain came on the scene were, in any meaningful sense, caused to be incurred as a result of Reynolds Porter Chamberlain’s conduct. Their conduct in acknowledging service and continuing with the proceedings could at most have caused the claimants to incur unnecessary costs after the start of that period of conduct. Accordingly, nothing before 5 March 2004 can come into the picture at all.

Thereafter, as it seems to me, while it will have been necessary for the claimants to consider the position as against Mr Skerrett, first of all it is not at all clear to me that any significant cost was incurred in that respect that is distinct from costs that would have been incurred in relation to the claim against Mr Pearson and secondly, the quantum of any such costs would, as it seems to me, be likely to be extremely modest.

Both as regards Mr Amos and Mr Skerrett, as litigants in person they are well aware that the rules as regards recovery of costs are such that unless they can show financial loss at a greater rate, the maximum hourly rate that they are entitled to recover for costs is at a rate of £9.25 per hour. Both of them say that they have run up a largish number of hours in the relevant matters, but even quite a large number of hours at £9.25 per hour does not come necessarily to a very high figure, and it is plain from the rule and from the practice direction and from authorities in relation to wasted costs that it is necessary to preserve a sense and a degree of proportion between the costs likely to be at risk and the costs that will be incurred in relation to the application for wasted costs.

It seems to me plain, first of all, that it is most unlikely that the claimants could show that Reynolds Porter Chamberlain’s conduct caused them to incur unnecessary costs and secondly, that even if they could show that, the costs in question would be of an order that would be totally disproportionate to the costs involved in a second-stage wasted costs hearing.

So far as Mr Skerrett is concerned, the position is in a sense more straightforward because it is plain that what he is talking about is the costs incurred between March and June 2004 assessing his position, preparing to make the application for the proceedings to be struck out, making that application and succeeding in it. Mr Skerrett said to the judge following the success of that application that he did not propose to ask for an order against the claimants, but as it seems to me on the face of it he was plainly entitled to an order for those costs, insofar as he would be allowed them, against the claimants because it was the claimants who had started proceedings without obtaining permission under the Insolvency Act.

Now it may be that in one sense Mr Skerrett was fortunate and the claimants were unfortunate that the point went without being spotted until 2005, by which time it was too late for the claimants to serve fresh proceedings on Mr Skerrett, but as Mr Nicol pointed out in fact the claim against Mr Skerrett was doomed to failure, because on what turns out as I understand it to have been the true view of the limitation period for the negligence claim, Mr Skerrett’s involvement ceased some time before the last moment at which a solicitor acting for the claimants could and, as they say, should have given the advice that is said to have been negligently withheld. On that basis, if anyone was at risk it was Mr Pearson.

That in a sense is rather a side issue but it does seem to me that the parties that ought to have been liable for those costs were the claimants and that Mr Skerrett would not be able to show, or at least there was before the judge and there is before this court no good reason to suppose that Mr Skerrett would be able to show, that Reynolds Porter Chamberlain’s conduct had caused him to incur any unnecessary costs or, at any rate, sufficient unnecessary costs to make it likely to be just and proportionate to proceed with a wasted costs application.

Accordingly, it seems to me that the judge was plainly wrong to make the order that he did because he was unable to be satisfied of either 53.4(i) or (ii) and that, on the further information that is available before this court, I reach the same conclusion.

For those reasons I would allow the appeal and I would set aside paragraphs 3 and 4 of the judge’s order of 17 June.

LORD JUSTICE MUMMERY: I agree.