Wasted costs orders: when lawyers pay costs personally

Most costs orders are made between the parties. A wasted costs order is different: it is made against a party’s legal representative, such as a solicitor or barrister, and requires them to pay costs personally or disallows costs they would otherwise charge their own client. The order can be made in favour of the opponent or, in some situations, the representative’s own client.

Section 51(7) of the Senior Courts Act 1981 defines wasted costs as costs incurred by a party because of any improper, unreasonable or negligent act or omission by a legal representative, or costs that it would be unreasonable to expect the party to pay because of such conduct after it happened. The jurisdiction is compensatory, not a disciplinary penalty.

The leading case is Ridehalgh v Horsefield [1994] Ch 205. The court asks, first, whether the representative acted improperly, unreasonably or negligently; secondly, whether that conduct caused the applicant to incur unnecessary costs; and thirdly, whether in all the circumstances it is just to order the representative to compensate the applicant for all or part of those costs.

Each word has a particular meaning. Improper conduct covers serious breaches of professional duty. Unreasonable conduct is conduct designed to harass rather than advance the case, and does not include a course of action that simply turned out badly. Negligent means a failure to act with the competence reasonably expected of ordinary members of the profession. Pursuing a hopeless case on a client’s instructions is not, by itself, enough.

An application can be made by a party or the court can consider the issue of its own initiative. Practice Direction 46 describes a two-stage approach in most cases. At the first stage the court decides whether there is evidence that, if unanswered, would be likely to lead to an order, and whether the proceedings are justified despite the likely costs. At the second stage the representative is given a reasonable opportunity to make representations before any order is made.

Applications are usually dealt with at the end of the proceedings, so that the dispute itself is not distorted. The court must specify the amount to be disallowed or paid, or direct a costs judge to decide it. Where the conduct in question happened during detailed assessment proceedings, the costs judge may hear the application.

A practical difficulty is legal professional privilege. The representative often cannot explain their conduct without revealing confidential communications, and the client may refuse to waive privilege. In Medcalf v Mardell [2002] UKHL 27 the House of Lords said that where privilege prevents a full answer, the court should make full allowance for that inability and only make an order where it is satisfied nothing could have been said to excuse the conduct.

For that reason, wasted costs applications are often harder to win than applicants expect, and an unsuccessful application can itself lead to an adverse costs order. A careful assessment of the evidence, and of the likely costs of pursuing the application, should come first.

Wasted costs should not be confused with indemnity costs, which are ordered against a party, or with non-party costs orders against funders or controlling individuals. Nor should it be confused with the disallowance of costs on detailed assessment under CPR 44.11, where the court may reduce costs because of misconduct during the proceedings or the assessment.

The right route depends on who caused the loss and why. Our general legal costs guide explains how the main types of costs order fit together, and our article on indemnity costs covers the party-to-party sanctions.