A bad break for counsel?Patrick Gaul and Simon Elliot consider the implications of the recent Court of Appeal decision on wasted costsIn the recent case of Medcalf v Mardell & Others (The Times, 2 January 2001), the Court of Appeal made an award of wasted costs against leading counsel Bernard Weatherill QC and junior counsel Josephine Hayes.By a majority of two to one, the court found the barristers had improperly advanced allegations of fraud, even though neither barrister could address the Court of Appeal on what their instructions had been in connection with the allegations.

So what are the implications of this case for both the Bar and solicitors? The claimant, Mr Roger Medcalf, brought proceedings against, among others, Mr Terry Mardell and the Terry Mardell Organisation alleging that he was one of the creators of the BBC television series Big Break.

He claimed an account of profits from the exploitation of the show.

Following a trial in 1998 (in which these barristers took no part), judgment was given for the claimant.

The defendants appealed on issues of liability and quantum.

The barristers became involved in the case in the latter part of 1999.

The appeals were listed for 14 February 2000.

Shortly before the appeals the barristers, on behalf of the defendants, pleaded additional grounds of appeal based on allegations of fraud, deception and perversion of justice.

Some evidence was served and skeleton arguments were lodged to support the new allegations.

The defendants' solicitors came off the record on 7 February 2000 and hence the barristers ceased to be instructed.

But, with the appeal set for the following Monday, the barristers were again engaged shortly after 12.30pm on Friday, 11 February 2000 for the appeal.Before the Court of Appeal the defendants' application to introduce the allegations of fraud failed.

On 2 March 2000, the Court of Appeal gave judgment in favour of the claimant on the substantive appeals.

The claimant then applied to recover the wasted costs incurred in answering the doomed allegations of fraud from the barristers.Wasted costs jurisdictionThe Court of Appeal was concerned with what was or was not improper conduct.

In the leading case of Ridehalgh v Horsefield [1994] Ch 205, the Court of Appeal gave guidance on the meaning of the adjectives 'improper', 'unreasonable' and 'negligent'.

'Improper' conduct was described by the Master of the Rolls as: 'Conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty.

It covers any significant breach of a substantial duty imposed by a relevant code of professional conduct.

But it is not in our judgement limited to that.

Conduct which would be regarded as improper, according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code'.Bar's code of conductThe claimant argued that the barristers had acted in significant breach of para 606 of the Bar Council's code of conduct which says: 'A practising barrister...

must not draft any...

notice of appeal containing...

any allegation of fraud unless he has clear instructions to make such allegation and has before him reasonably credible material which, as it stands, establishes a prima facie case of fraud.'Appeal court's findingsThe Bar Council properly recognised an allegation of fraud endorsed by counsel as a serious matter.

Counsel should have reasonably credible material establishing a prima facie case before such an allegation could be drafted.

The Court of Appeal considered that material must be evidence, which could be put before the court to make good the allegations.

The Court of Appeal sympathised with the pressures the barristers would have faced in the lead up to the appeals but found that no reasonably credible material was before the court in respect of seven of the ten allegations of fraud.

Therefore, the barristers had been in significant breach of a substantial duty imposed by a code of professional conduct (para 606), they had acted improperly and were ordered to pay the claimant's wasted costs estimated at over 30,000.Counsel were prevented by the law of privilege and confidentiality from providing the Court of Appeal with all material relied upon when conducting the case.

The majority of the court could not conceive any circumstances in which the barristers, in putting their names to the particular allegations and supporting them in their skeleton arguments and at the appeal, could have had the relevant privileged material which justified their conduct as complying with para 606 but which had to be withheld from the court.Far reaching implicationsThis decision has potentially far-reaching implications:l It is going to make counsel ultra cautious about making allegations of fraud in pleadings or skeleton arguments.

That, in turn, is going to create difficulties for solicitors when taking instructions from clients along those lines.

Advisers will be wary of making such allegations at the start of litigation and will be nervous of making amendments to plead fraud later.

Will the witness come up to proof and will the witness be prepared to make his allegations in court?l In Ridehalgh, the Court of Appeal emphasised the importance of allowing advocates to present cases fearlessly.

The then Master of the Rolls, Lord Justice Bingham, talked of the general in the fog of war not knowing what is happening on the other side of the hill.

Will this judgment lead advisers to be unduly defensive? l The Court of Appeal made a finding of improper conduct without knowing what was in the barristers' minds when they put their names to these serious allegations.

That seems inherently unfair.

Just say leading counsel had advised: 'I am concerned about these allegations, they have modest prospects of acceptance by the court and I am mindful of my professional obligations but I think there is just enough in them ...' In other words, both counsel directed their minds to the point and exercised their judgement.

Should that not be enough? l Counsel could not give their part of the story because of their duties of confidentiality to the defendants.

This raises implications under the Human Rights Act.

The Court of Appeal mentioned the Act but had no regard to it.

There is a fundamental right for a party to be heard.

The court could only have heard half of the story.

l There is no suggestion in the judgment that the defendants could not meet the costs incurred.

The Court of Appeal could have expressed its concern about the allegations but equally expressed concern about the defendants' failure to waive privilege.

The court surely should have declined the application for wasted costs but invited the defendants themselves - if so advised - to make an application against counsel.

On that application, all the facts would have been before the court.

l Ridehalgh was an excellent decision by the Court of Appeal: it laid down principles which controlled this difficult form of satellite litigation.

In this case, the Court of Appeal has opened the doors again to such litigation.

It has heard an application arising out of complex and acrimonious litigation yet failed to give the benefit of the doubt to the lawyers where privilege was not waived.

Mr Justice Wilson was sufficiently troubled to give a dissenting judgment.There must be considerable sympathy for the advocates in this case and concerns about the wider implications.

It will discourage advisers from the fearless pursuit of allegations of fraudulent or dishonourable conduct and will encourage wasted costs applications when litigation goes wrong for one of the parties.

It is a blow to those who thought the Human Rights Act was going to introduce fundamental principles of fairness in all forms of litigation.

And the result is quite simply a perversion of justice - a windfall for defendants at the expense of senior counsel who could not put their case before the court.

Patrick Gaul is a partner and Simon Elliot an associate at the Liverpool office of Weightmans