“Where an applicant seeks a wasted costs order against the lawyers on the other side, legal professional privilege may be relevant both as between the applicant and his lawyers and as between the respondent lawyers and their client. In either case it is the client’s privilege, which he alone can waive. The first of these situations can cause little difficulty. If the applicant’s privileged communications are germane to an issue in the application, to show what he would or would not have done had the other side not acted in the manner complained of, he can waive his privilege; if he declines to do so adverse inferences can be drawn. The respondent lawyers are in a different position. The privilege is not theirs to waive. In the usual case where a waiver would not benefit their client they will be slow to advise the client to waive his privilege, and they may well feel bound to advise that the client should take independent advice before doing so. The client may be unwilling to do that, and may be unwilling to waive if he does. So the respondent lawyers may find themselves at a grave disadvantage in defending their conduct of proceedings, unable to reveal what advice and warnings they gave, what instructions they received. In some cases this potential source of injustice may be mitigated by reference to the taxing master, where different rules apply, but only in a small minority of cases can this procedure be appropriate. Judges who are invited to make or contemplate making a wasted costs order must make full allowance for the inability of respondent lawyers to tell the whole story. Where there is room for doubt, the respondent lawyers are entitled to the benefit of it. It is again only when, with all allowances made, a lawyer’s conduct of proceedings is quite plainly unjustifiable that it can be appropriate to make a wasted costs order.” 19. Ridehalgh was not the last word. In Medcalf v Weatherill & Anr[2002] UKHL 27 , the Court of Appeal had decided by a majority that a wasted costs order should be made against two barristers. On further appeal to the House of Lords that decision was overturned. In the course of his speech Lord Bingham of Cornhill at paragraph 23 quoted the passage I have just cited above from Ridehalgh and said this: “… Read literally and applied with extreme care, it ought to offer appropriate protection to a practitioner against whom a wasted costs order is sought in these circumstances. But with the benefit of experience over the intervening years it seems clear that the passage should be strengthened by emphasising two matters in particular. First, in a situation in which the practitioner is of necessity precluded (in the absence of a waiver by the client) from giving his account of the instructions he received and the material before him at the time of settling the impugned document, the court must be very slow to conclude that a practitioner could have had no sufficient material. Speculation is one thing, the drawing of inferences sufficiently strong to support orders potentially very damaging to the practitioner concerned is another. …”
“Only rarely will the court be able to make “full allowance” for the inability of the practitioner to tell the whole story or to conclude that there is no room for doubt in a situation in which, of necessity, the court is deprived of access to the full facts on which, in the ordinary way, any sound judicial decision must be based. The second qualification is no less important. The court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so. This reflects the old rule, applicable in civil and criminal proceedings alike, that a party should not be condemned without an adequate opportunity to be heard. Even if the court were able properly to be sure that the practitioner could have no answer to the substantive complaint, it could not fairly make an order unless satisfied that nothing could be said to influence the exercise of its discretion. Only exceptionally could these exacting conditions be satisfied. Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is (a) satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order and (b) that it is in all the circumstances fair to make the order.” 20. Accordingly, in my view, the law relevant to the case which Employment Judge Goodman heard is this: first, she had to be satisfied that there was conduct which came within the description of improper, unreasonable or negligent act or omission. Secondly, that the costs said to be wasted were incurred as a result of that conduct. Thirdly, in this case, that it was one of those cases, in practice rare, in which it could be said with confidence that there was no room for doubt. A court must be slow, indeed very slow, to conclude a practitioner could have had no sufficient material where that practitioner is precluded by privilege from setting the material out. Finally, the court should separately consider whether, in the circumstances, it is fair to make the order asked. The Judgment 21. The Judge acquitted the solicitors of the relevant conduct insofar as the race claim was concerned. Though the Tribunal had found it to be misconceived, and there is no appeal against that decision by the Claimant, it said: “13. … with no more than inference that the solicitors encouraged the claimant, and knowing that claimants, who may well have suffered real discrimination in other areas of life, do sometimes genuinely believe discrimination has occurred, without much evidence, the solicitors are probably entitled to the benefit of doubt and it is no grounds of itself for an order. In any case it is unlikely significantly to have increased costs.” 22. When turning to the Schedule of Loss, the Judge summarised the errors. There was a mistake in her stating that the claim was for£33,000 aggravated damages when it was for£3,000 . That is, I think, an error of transcription. The solicitors had said to her that they could not reveal the instructions which led it to prepare such a Schedule, but they did go so far as to say that they had mistakenly and wrongly used a template from an earlier case, which had the result of overvaluing the race discrimination claim. That was by mistake. 23. In this appeal Mr Cannon accepts that the Schedule of Loss was negligently prepared. The conduct criterion, therefore, was satisfied so far as that was concerned. 24. In dealing with the effect of the Schedule, the Judge focussed, as it seems to me, upon what led the Claimant not to settle the case once what it considered to be advantageous terms had been offered. Thus, from paragraph 17 through to paragraph 24, it analysed as best it could, in the absence of any clear and direct evidence, covered as it was by privilege, what the Claimant thought. This passage began, paragraph 17, by asking: “The question is not so much whether the respondent was or was not misled, but whether the claimant was. …”
“… the claimant had been led to believe his claim had a far higher value, and was now reluctant to accept that it did not. …” 25. At paragraph 19 the Judge began by observing that another point arose from the erroneous Schedule. Then there followed a series of “ifs”
“… if any unreasonable instructions or settlement offers were unreasonable because the claimant’s solicitors had not recognized their error and advised him of it. …” 26. At paragraph 20 she then returned to the theme that the Claimant had been led to believe that his claim was worth more by the way in which it was set out by the solicitors to begin with. This was to suggest that the Schedule reflected the solicitors’ view of the case independent of the Claimant and not the Claimant’s view of the case as communicated to and expressed by the solicitors. She said, for instance: “… It is hard to see how he can have believed his claim was worth£48,000 [this was by reference to a reduced offer of settlement. It was the second reduced offer of settlement to which reference has been made in correspondence] unless he had been advised by solicitors who had negligently not recognized the errors in the schedule, or had been so instructed by the claimant, who had been led to believe his claim was worth more by the way it was set out to begin with.” 27. The concept that the Claimant had been led to believe that he had an entitlement greater than it was, was expressed again at paragraph 21. Then at paragraph 23 the Judge turned to the causation question. She said: “Did the conduct cause costs to be incurred unnecessarily? Had the claimant had a proper schedule of loss he would have had a different expectation of settlement. The respondents were very keen to settle, recognising the amount of costs to be incurred, likely to be unrecovered. They made a number of offers. They wrote detailed letters to explain the calculation of value. They offered more than on their valuation it was worth, all to no avail. Had the claimant not been misled as to its value (assuming of course that he was told at some stage that the schedule was inflated and unlikely to be recovered) he would have settled and the hearing costs been avoided.”
“… An offer of£9700 was very attractive. It is not known whether the claimants’ solicitors recommended this offer. If they did not, it is hard to see how that was good advice. If they did, and the claimant still rejected it, that it [sic - probably ‘is’] likely to be because he had been misled into thinking his claim was worth much more.” 28. Thus the reasoning that the Judge was adopting was that the negligent or unreasonable or improper conduct was the raising of expectations to the extent that they misled the Claimant so that he did not settle when any reasonable Claimant would have done so. 29. In turning to the award, the Judge separately addressed the question of justice. She chose a date of20 June 2013 . That is because there was an offer of£9,500 made on 18 June, communicated by email on the 19 th to the Claimant, and an email was sent in response on the 19 th , declining the offer and confirming a counter-offer of£20,000 . That being the gap between the parties, the case did not then settle. I have little doubt that that is why the Judge chose the date of 20 June. But the terms on which she did so are of importance to the argument which Mr Cannon makes. She said this: “Is it just to award costs from 20 June? Arguably it would be just to award costs from an earlier date, but making allowance for the solicitors’ difficulties when privilege is not waived, from that date it is hard to see why the effects of errors on the schedule (if they were errors, and it was not deliberate overstatement) could have gone unrecognized. From this date there can be no room for doubt.” (paragraph 26) The Appeal 30. There are three grounds of appeal which HHJ Clark permitted to be advanced following an oral renewal application under Rule 3(10). The first is that the proper test arising out of the Medcalf v Weatherill ’s further elaboration of the test set out in Ridehalgh was not applied. The Tribunal did not mention Medcalf , nor did it set out sufficient of its effect for a court on appeal to be satisfied that it had the principles in mind. In particular there was no reference to the two-limb test set out at paragraph 23 of the Judgment in that case, asking whether the Tribunal could be satisfied that there was nothing the practitioner , if unconstrained, could say to resist the order and whether, secondly, it was fair then to make it. 31. The second ground was that the Tribunal had impermissibly speculated as to the possible explanations for the conduct which it saw. Mr Cannon argues that it is only where such speculation results in a finding there is no possible explanation which could exonerate the representatives that the Tribunal could accede to an application for wasted costs and, in the circumstances of the present case, at least having regard to the period of time after20 June 2013 , the facts did permit an explanation which would exonerate Hafiz & Haque. Thirdly, that there was here unfairness. Hafiz & Haque had not had a proper opportunity of meeting the case against them, one which was equivalent to professional misconduct or negligence. 32. Mr Cohen, in a highly skilful argument, urged that I was being asked to sanction misconduct before a Tribunal. What had happened here was something which he described as toxic to the system. The vice upon which he centrally focussed was the fact that the Claimant had begun a new job on what was probably 4 March, a matter of ten days before the Schedule was submitted by Hafiz & Haque to the solicitors acting for Paul’s, yet the Schedule made no mention at all of the fact of this employment. That was misleading. It had the potential ultimately to mislead the Tribunal. It is important as a principle that parties should conduct themselves honestly and frankly, if that process is to have any value at all. No less is to be expected of professional representatives. 33. There were in reality only two possibilities: first that, as the Judge said, either the solicitors never realised that the Schedule was erroneous or that they did but had either drafted it with the intention of misleading their opponents or continued with it with that intention. There was no third possibility. That being so, he argued that this behaviour was properly and rightly condemned by the Employment Judge. The Judge had not simply limited her decision to the question of whether the solicitors had been negligent. Throughout her Judgment she had referred on occasions to possible impropriety. Thus, in paragraph 21, she used the phrase “negligently, if not abusively”. (I accept, so far as it goes, that the Judge did not limit her description of the conduct to negligence but envisaged that it might well be worse than that.) He argued that there had been no ground of appeal which challenged the causation of the wasted costs since he characterised the argument, advanced may I say with equal skill and elegance by Mr Cannon as his own had been, as focussing upon the causation of the loss complained of. He argued, as I have noted, that the effect of Salinas was that the causative link, in any event, should be viewed broadly and not in the terms apparently indicated by Rule 80 and as I have held it to be. 34. He argued that the Judge had applied the approach set out in Ridehalgh to which she referred and had sufficiently dealt with the principles which derived from Medcalf . Thus, in paragraph 13, she had used the expression “the solicitors are probably entitled to the benefit of the doubt”, showing that she had that phrase well in mind. It has a resonance with Ridehalgh . The Judge had asked whether it was just to award the costs from 20 June, thereby showing that she applied a test of justice. Given that the solicitors here had taken no steps to show that they were aware at any stage of the errors in the Schedule, the Judge’s findings were entirely appropriate. Discussion 35. The argument of Mr Cannon begins by recognising, as in my view is appropriate, that the decision actually made in respect of costs related to the period from 20 June onward. She did not award the costs for any prior period. The loss to be compensated was thus the expenditure of legal costs after that date. The conduct which caused this loss was thus the unbridgeable disparity between the offer made by the Respondents of just under£10,000 on 19 June and the counter-offer of£20,000 made by the Claimant. 36. In giving Reasons, the Tribunal Judge is obliged to set out the law which is to be applied. Here, the only authority to which reference was specifically made was that of Ridehalgh v Horsefield . There was no separate reference to Medcalf . I have looked carefully at the Judgment to see whether there is a sign within the Judgment that the principles in Medcalf were applied, bearing in mind that the House of Lords plainly thought it of importance that the further qualifications to the Ridehalgh principles should be made in a case such as this where legal professional privilege is involved. 37. Though there is reference to the benefit of doubt in paragraph 13, that is more likely to derive from the expression to that effect in Ridehalgh , and in any event the way in which the Judge there applied it, balancing no more than inference against other matters, and deciding that the solicitor was probably entitled to the benefit of the doubt, suggests to me that the Judge was not applying a sufficiently rigorous test. The test is more analagous to that of the balance of probabilities than the “no room for doubt approach”, which both counsel adopted in their skeleton arguments. I can see no clear trace that the Tribunal asked whether there was nothing that the practitioner could say if unconstrained to resist the order, at least so far as the period after 20 June is concerned. In his reply, Mr Cannon emphasised that his case was not that there had been no negligence; there had been, in the initial preparation of the Schedule. His case, however, was that there were explanations which might very well have been advanced had it not been for professional privilege which would cover the case, at least around and after 20 June. 38. By that stage it must be remembered that these matters had happened. First, the Schedule, with its gross exaggerations, had been served on 14 March. But on 25 April the Respondents, in a three-page letter, said: “In terms of the remaining compensation that has been claimed under the Schedule of Loss, we note that your client has now commenced alternative full time employment with Dyno-Plumbing as a Payroll/HR Administrator/Fleet Administrator with effect from4 March 2013 at a salary of£20,000 per annum. In light of this, our comments are as follows: …”
“The thrust of the application [that is the application by the solicitors for a reconsideration of her order] is that in the absence of information, where privilege is not waived, the tribunal must never speculate as to that advice. This is a matter of law for which an appeal, rather than reconsideration, is apt.”