Where a person (who is not a party to the litigation) funds the litigation costs of a family member or friend involved in litigation, in what circumstances might that person (i.e. the person doing the funding) be vulnerable to being made subject to an adverse costs order in favour of the other party to the litigation?
The article will consider this issue, in light of: (1) Section 51 of the Senior Courts Act 1981 ('1981 Act'); (2) CPR r.46.2 entitled 'Costs orders in favour of or against non-parties'; and the general guidance authorities: (3) Aiden Shipping Co. Ltd. v. Interbulk Ltd [1986] AC 965 ('Aiden Shipping'); (4) Symphony Group Plc v Hodgson [1994] QB 179 ('Symphony Group') (5) Metalloy Supplies Ltd v M A (UK) Ltd [1997] 1 WLR 1613 ('Metalloy'); (6) Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs) [2004] UKPC 39 ('Dymocks'); (7) Hamilton v Al-Fayed No. 2: (a) 1st instance (Morland J) [2001] 7 WLUK 355; [2001] C.L.Y. 1817 ('Hamilton - 1st Instance'); (b) Court of Appeal [2002] EWCA Civ 665; [2003] QB 1175 ('Hamilton - COA'); (8) Petromec Inc v Petroleo Brasileiro SA Petrobras (No 4) [2006] EWCA Civ 1038; [2007] 2 Costs LR 212 ('Petromec'); (9) Systemcare (UK) Ltd v Services Design Technology Ltd [2011] 4 Costs LR 666 ('Systemcare'); (10) Clarke v Meadus [2012] EWHC 3729 (Ch) ('Clarke'); (11) Germany v Flatman (also known as Weddall v Barchester Healthcare Ltd) [2013] EWCA Civ 278; [2013] 1 WLR 2676 ('Flatman'); (12) Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23 ('Deutsche Bank'); (13) Turvill v Bird [2016] EWCA Civ 703; [2016] BLR 522 ('Turvill'); (14) Barron v Collins [2018] EWHC 253 (QB); [2018] EMLR 16 ('Barron'). and the family member/friend specific: (15) Jackson v Thakrar [2007] EWHC 626 (TCC) [2008] 1 All ER 601 ('Jackson'); (17) Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); [2010] C.P. Rep. 5 ('Thomson'). There is also brief consideriation of (18) CPR r.25.14 entitled 'Security for costs other than from the claimant'; and (19) Chilab v King's College London [2012] EWCA Civ 1178; [2013] 2 Costs L.R. 191 ('Chilab').
(1) At one end is the 'commercial third party funder' - sometimes called a 'professional funder'[4];
(b) members of the public donating to a 'fighting fund' for the person in litigation '...as an act of charity through sympathy with his predicament and in some instances affinity...' (Hamilton - 1st Instance, paragraph 69)
This article provides some general guidance on non-party costs order applications, including some law in relation to: (a) commercial/professional funders; and (b) donations to 'fighting funds', but the article is focused on family member/friend funders, and so does not specifically cover commercial/professional funders or donations to 'fighting funds'.
(2) On timing, and whether the Court can make a non-party costs order before the end of the trial, Warren J in Clarke said that he '..did not doubt that the jurisdiction to do so in an appropriate case exists' (paragraph 6)(the court did not though in Ociusnet UK Ltd v Altus Digital Media Ltd [2022] Costs L.R. 601)
(3) strictly speaking, it is not a jurisdictional requirement for a non-party costs order, that the non-party has actually provided any money to the person in litigation (as Longmore LJ explained Petromec, at paragraph 10[6], merely seeking '...to derive potential benefit' from the litigation might be enough) - but typically, the non-party will have done (and so the 'Funder' label is used notwithstanding).
(6) causation is an issue; would the non-party cost order applicant's costs have been incurred in any event (Jackson, paragraph 14). In other words, were the costs that are the subject of the Section 51 application, incurred as a result of the funding provided by the non-party? (Jackson, paragraph 16);
Section 51 of the 1981 Act is entitled 'Costs in civil division of Court of Appeal, High Court and county courts' and provides (so far as is relevant):
CPR r.46.2 is the relevant rule for costs orders against non-parties, providing the initial procedure where the Court is considering a costs order against a non-party. CPR r.46.2 provides:
Note this rule does not apply to: (1) proposed non-party costs orders against: (a) the Lord Chancellor; (b) lawyers for wasted costs; or (2) where the proceedings for disclosure against non-parties[8].
Once the non-party is added as a party to the litigation, pursuant to r.46.2(1)(a), r.44.2 is brought into play. R.44.2 is entitled 'Court’s discretion as to costs' and, as the title suggests, sets out the court's discretion as to costs, both in terms of: (a) whether to impose an adverse costs order on a party (including a party added for the purposes of costs); and (b) as to the quantum of that adverse costs order:
Aside from power to make costs orders against non-parties, the court is separately empowered to make orders for security for costs against non-parties. CPR r.25.14 is the relevant rule for security for costs orders against persons other than the claimant. CPR r.25.14 provides:
While substantial in quantity, it will be illuminating (it is hoped) to start with surveying the general guidance (so wider that just family/friends) on making costs order against non-parties.
The Privy Council (the Board) heard an appeal from New Zealand. On the issue of when the court will exercise its discretion and make a non-party costs order, the Privy Council:
(2) summarised the authorities, at paragraph 25, as follows (a separate paragraph bullet points):
On whether the wife was a 'pure' funder, and whether or not the general presumption against making non-party costs order against pure funders, was displaced, the Judge in Jackson consider the authorities/facts[17] and concluded that: (1) the wife's status was '...at least akin to that of a pure funder'; and (2) 'The presumption against such an order has not been displaced.' (paragraph 36) as application for a declaration was not oppressive or pursued for some other ulterior motive, or make not bona fide (paragraph 35); and (3) he '...should decline to make a Section 51 order against her in any event.' (paragraph 36). As to what might displace the general presumption, the Judge in Jackson said, at paragraph 28 (referring to Hale LJ in Hamilton - COA):
Can a person's categorisation as a 'Pure Funder' be affected by the fact that the person holds a separate role(s), namely, that of a director/shareholder of another party to the same litigation? On this, the Judge in Jackson held that '...the fact that [the wife] is a company director and shareholder in Party 16 was irrelevant both to the compromise proceedings and this Section 51 application.' (paragraph 37)[18]
Firstly, Blake J considered whether the Court had jurisdiction to order disclosure ancillary to the non-party costs order application. After noting that the CPR intended a summary procedure for determination of non-party costs order application (paragraph 13)[23], Blake J in Thomson said, at paragraph 14:
Secondly, as to the test to apply when determining whether to make the ancilary order for disclosure, Blake J in Thomson said:
As part of determining whether to make an ancillary order for disclosure (based in part on whether disclosure was necessary for the fair determination of the application (paragraph 19)), Blake J considering (as outlined above) the underlying strength (merits) of the main non-party costs order application, and that on this, he said that the School had '...a good arguable case for a third party costs order' (Thomson, paragraph 50). Further, he said that 'Although this is a case of family funding I consider that there is strength in the [School's] contention that this is not a case of a pure and disinterested funder who ought not to be at risk of a third party costs order merely because he has made funds available to improve access to justice without seeking to benefit from the proceedings or having an agenda of his own in respect of them.' (Thomson, paragraph 20);
This is governed by CPR r.25.14 entitled 'Security for costs other than from the claimant. See Chilab[27].
[1] Strictly speaking, it is not a jurisdictional requirement for a non-party costs order, that the non-party has actually provided any money to the person in litigation. Merely seeking '...to derive potential benefit' from the litigation might be enough (Longmore LJ in Petromec, at paragraph 10).
A related issue is where: (1) a person is made a party ('Person A') on some but not all causes of action/issues, as a defendant (amongst other defendants); (2) there is a preliminary issue on the causes of action/issues not relevant to Person A, at which the other defendants lose; (3) the claimant seeks a costs order against all of the defendant(s) on the preliminary issue, including Person A. This situation arose in Saxton v Bayliss [2013] EWHC 3136 (Ch); [2014] 2 Costs L.O. 111 (2013) ('Saxton'). In Saxton, the initial causes of action/issues were between two neighbours, with the claimant alleging the two defendants (to simply for a moment; a son/husband (first defendant) and mother (second defendant)) were obstructing the claimant's use or her right of way, 'either by physical means or by threatening or harassing her or her guests, either physically or verbally.' (paragraph 2).
'Subsequently the dispute between the parties was broadened to include allegations of harassment, trespass and nuisance and an amended particulars of claim ... and that amended claim added the third defendant as party to the action and numerous particulars of the conduct amounting to harassment which were designed to cause the claimant anxiety and distress were added.' (paragraph 5). The third defendant was the wife of the first defendant; daughter in law of the second defendant.
There was a preliminary issue hearing on just 'the determination of the right of way and where the boundaries were.' (paragraph 9); the '...many other allegations of nuisance, trespass, harassment, and such like...' where to be 'determined at a later date' (paragraph 8, quoting the first instance judge). However, the third defendant misunderstood: 'third defendant at least thought the trial was also going to be about matters of trespass and nuisance' (paragrph 9) and attended with a skeleton argument arguing the 'trespass and nusiance' points (paragraph 9) and participated (as a litigant in person) in the preliminary hearing (paragraph 16)
On appeal against the costs order against Person A (the third defendant), HHJ John Baldwin QC (sitting as a Deputy Judge of the High Court) recorded, at paragraph 13:
'The claimant submits that, not only did the judge not err in principle, that he was right and plainly so. He submitted, and I quote from his submissions made orally, the first quote was: “As matters stand it would be perfectly proper to order costs against the third defendant, even if she had not taken part in the trial.” That is a more extreme position than that taken by the judge, which was that he appears to have made the order for costs because she turned up and did battle. Further, counsel for the claimant submitted that “the third defendant participated in the background and is liable as a party”, and she also submitted that she “joined the battle from the outset”, furthermore that “she initiated the dispute”.'
On this, the Deputy Judge held that was 'plain' (paragraph 16) that the first instance judge had decided the third defendant 'ought to pay the costs merely because she turned up and did battle' (paragraph 16) (not, as was also argued, because the third defendant was found to be an untruthful witness). The Deputy Judge siad, at paragraph 16:
'Looking at it without considering the authorities, that would seem to me to be a touch unfair against a litigant in person who believes, wrong as it turns out, that the trial is going to be about nuisance and trespass issues, and turns up for that reason, and who contributes to submissions and cross-examinations in the belief, no doubt, that she was contributing to part of the case, but I cannot imagine that she thought that she was putting herself at risk as to the whole costs of the dispute. Indeed that cannot be the position because she had previously said in answer to questions from the judge that she thought she was only there, that is to say only there at the trial, for the harassment issues.'
At paragraph 17, the Deputy Judge held that:
'...the judge did make an error of principle in that he should have taken into account the fact that the third defendant was not actually a party to the dispute as to the existence or otherwise of the right of way or to the location of the boundary, was not in a position to compromise that dispute, was not in a position to have an effect one way or another as to whether or not and when that boundary had been laid down. True she was a party to the action, but she was party to an action which had many parts and the judge had decided that a preliminary issue should be restricted to one part.'
He added 'It may be that the judge should have been firmer in not permitting ...the third defendant, to have her say, but in my experience it is quite common with litigants in person that if it is the husband and wife then both parties want to chip in, and it is also my experience that quite often the judge allows that to happen because sometimes it is the most expedient way of managing the process, although strictly only one of the parties perhaps has the absolute right to speak.' (paragraph 17)
For completeness, the Deputy Judge dealt with the argument that there should, in effect, by a non-party costs order made against the third defendant (in a sense, a non-party to the issues at the preliminary hearing). From paragraphs 18 to X, the Deputy Judge said:
'18. That, however, is not the end of the matter because the third defendant did come along and was involved and my attention was drawn to some of the cases on third party costs orders because it was submitted they shed some light on the approach I should take. My attention was drawn to Thomson v Berkhamsted Collegiate School [2009] 6 Costs LR 859, the decision of Blake J, where at paras 17 and 18 he set out some of the principles, and incorporated into this judgment are pages 864 starting from: “From this learning I deduce the following principles are of potential relevance to the present case”, incorporating all the principles over to 865 and the first three lines at the top.
19. My attention was also drawn to Symphony Group v Hodgson [1994] QB 179 at para 192H, where again it is said that an order for the payment of costs by a non-party will always be exceptional and the judge should treat any application for such an order with caution. Then the point is made that in the context of warning a non-party Balcombe LJ makes the point that even if there is a good reason for not joining a non-party against whom there is a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he might seek to apply for costs against him. That was a warning in the context of a non-party who had not been joined. Here of course the party has been joined, but [the third defendant] has not been joined for the purpose of a costs order being made against her. She was joined because of the harassment case which was set against her.
20. ...counsel for the third defendant, submitted that the fair role would have been for the judge to warn [the third defendant] that she risked having a costs order made against her if she uttered a murmur at the proceedings in terms of crossexamination and submissions. Certainly, in my judgment, that would have been fair had it been in the judge's contemplation that a costs order might be visited upon the third defendant because, although she was very keen for the second defendant to win, nevertheless she was not a party to the dispute and, as I have said, could not have settled the dispute or could not have, for that matter, brought the dispute and, irrespective of whether or not her evidence was in favour of the dispute, she was not in a position to influence it other than as a witness. It is in the context of witnesses that my attention was drawn to another passage from Balcombe LJ at page 193H, which says that:
“The normal rule is that a witness in either civil or criminal proceedings enjoys immunity from any form of civil action in respect of evidence given in those proceedings.” (Quotation unchecked.)
21. [Counsel for the claimant] made much of the fact that [the third defendant] was involved in the dispute. He said she was involved in that she was the initiator of the dispute with the claimant, but it seems to me that in reality the third defendant was in fact no more than a witness. True it is that the judge preferred the evidence of the claimant[']s on various matters, but I have already dealt with whether or not it would be safe for me to reach a conclusion that the judge thought the third defendant was lying.
22. My attention was also drawn to Jackson v Thakrar, which was another case about third party costs orders, in particular to para 15. In fact this was a case where the wife of a bankrupt had raised £10,000 finance representation and in para 15, dealing with the issue of causation, Judge Peter Coulson QC said this:
“Plainly in a s 51 application what matters is whether the funding provided by the non-party caused the applicant to incur costs which he would not otherwise have incurred. That must be the relevant test on causation.” (Quotation unchecked.)
23. Insofar as that is a relevant test here, it seems to me that the extra costs caused by what the judge regarded as not saying very much in submissions and just adding to what her husband had said in crossexamination, in terms of causation the costs incurred by that must be fairly trivial in relation to the whole of the costs.
In conclusion, the Deputy Judge said, at paragraphs 26 and 27:
'26. In my judgment, [the first instance judge] was in error when he made an order for costs against the third defendant on the basis that he set out, that is to say it is merely a question of who turns up and does battle. It seems to me that the right approach is to consider whether or not the party against whom a costs order is sought is in fact a party to the issue and a party properly so called, and if the answer to that question is no, then of course there are provisions for making third party costs orders, but those provisions and the jurisprudence around them should be considered.
27. Taking into account the matters which I should take into account, as set out in the authorities to which my attention has beendrawn, I am not satisfied that this is a case in which a costs order should be made against the third defendant, the reasons being that, yes, it is true she had an involvement in the trial, but she was not warned that she was going to incur a costs liability. She probably thought she was being helpful. Certainly she wanted to win, but when she wanted to win, what she really wanted was for the second defendant to win and the first defendant as her attorney. She gave evidence and, as I have already said, I do not for the moment come close to suggesting that her evidence was deliberately untruthful. In my judgment, there is no sufficient material here and it would not be fair or proper to inflict a costs order against the third defendant. Accordingly, in respect of the first matter I have to deal with, the appeal is allowed.'
[2] In Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); [2010] C.P. Rep. 5, Blake J labels the non-party respondents to the third party costs order, as interested parties (paragraph 1).
[3] In the White Book 2023, the commentary to CPR r.46.2 is splits the categories (paragraphs 46.2.3 to 46.2.8):
(1) Litigation controllers;
(2) Commercial funders;
(3) Pure funders;
(4) Insurers; and
(5) Legal representatives (as to solicitors funding litigation, see Germany v Flatman (also known as Weddall v Barchester Healthcare Ltd) [2013] EWCA Civ 278 [2013] 1 WLR 2676 and Burnden Holdings (UK) Ltd v Fielding [2019] EWHC 2995 (Ch))
But, as noted in the main body of the article, Balcombe LJ in Symphony Group plc v Hodgson [1994] QB 179, at 192E, said that the categories which cover the situation in which a non-party may be liable for costs are neither “rigid nor limited” ('I accept that these categories are neither rigid nor closed. They indicate the sorts of connection which have so far led the courts to entertain a claim for costs against a non-party.')
Note, there is also commentary on vexatious litigants using another party as a vehicle for accessing the courts. The vexatious litigant might be the 'real party' to the litigation. See R. (Ewing) v Office of the Deputy Prime Minister [2005] EWCA Civ 1583; [2006] 1 WLR 1260.
[4] Cases on commercial funders include:
(1) R. (on the application of PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 (Supreme Court)
(2) Arkin v Borchard Lines Ltd (Nos. 2 and 3) [2005] EWCA Civ 655; [2005] 1 WLR 3055;
(3) Merricks v MasterCard Inc. [2017] CAT 16; [2017] 5 CMLR 16;
(4) UK Trucks Claim Ltd v Fiat Chrysler Automobiles NV [2019] CAT 26; [2019] 10 WLUK 722;
(5) Stone and Rolls Ltd v Moore Stephens [2009] UKHL 39; [2009] 1 AC 1391;
(6) Excalibur Ventures LLC v Texas Keystone Inc. (No.2) [2016] EWCA Civ 1144; [2017] 1 WLR 2221
For a case on when/where a solicitor representing a client on a CFA might be vulnerable/exposed to a potential non-party costs order, see the recent case of Scout Association v Bolt Burdon Kemp [2023] EWHC 2575 (KB).
For a recent case on when disclosure of a losing party's funding will be made, see Topalsson GmbH v Rolls Royce Motor Cars Ltd [2024] EWHC 297 (TCC), Constable J, following Automotive Latch Systems Ltd v Honeywell International Inc [2008] EWHC 3442 (Comm).
[5] A 'Pure Funder' may move away from that position part way through the litigation. In Barron v Collins [2018] EWHC 253 (QB); [2018] EMLR 16 ('Barron'), a political party (UKIP) was a 'pure funder' while funding the defence of a defamation claim (for moral reasons - the political party felt that it, to a degree, was responsible for the fact that the first defendant's speech had attracted legal action). But then, the political party/funder caused the defendant to delay the settlement of the claim (until after the 2015 general election) for political reasons. Held, it was just and reasonable to require the political party/funder to pay the costs of the claimant (the other side) incurred as a result of the delay.
[6] In Petromec Inc v Petroleo Brasileiro SA Petrobras (No 4) [2006] EWCA Civ 1038; [2007] 2 Costs LR 212 ('Petromec'), Longmore LJ said, at paragraph 10:
'I would ... observe that, although funding took place in most of the reported cases, it is not, in my view, essential, in the sense of being a jurisdictional prerequisite to the exercise of the court's discretion. If the evidence is that a respondent (whether director or shareholder or controller of a relevant company) has effectively controlled the proceedings and has sought to derive potential benefit from them, that will be enough to establish the jurisdiction.' [bold added]
Longmore LJ in Petromec was just dealing with jurisdiction, not whether the discretion ought to be exercise in favour of making the non-party costs order. As he explained, at paragraph 10:
'Whether such jurisdiction should be exercised is, of course, another matter entirely and the extent to which a respondent has, in fact, funded any proceedings may be very relevant to the exercise of discretion.'
See also Saxton v Bayliss [2013] EWHC 3136 (Ch); [2014] 2 Costs L.O. 111 (2013), discussed in an earlier footnote in this article, where an existing party to litigation, turned up and participated in a preliminary issue hearing on issues which did not relate to them. The 'side' they are supporting lost, but this was not enough to justify making them liable for costs (strictly speaking, not a on a non-party costs order application, but similar)
[7] In Aiden Shipping Co Ltd v Interbulk Ltd (The Vimeira) (No.2) Vimeira, The (No.2) [1986] A.C. 965, the House of Lords determined that section 51 of the Senior Court Act 1981 (then called the Supreme Court Act 1981) gave a wide discretionary power to the courts, including to order that non-parties to proceedings, do pay costs. Given that CPR r.46(1)(a) requires that, where the court is considering making a non-party subject to an adverse costs order, that non-party must be added as a party to the proceedings, this decision now seems of limited significance. Lord Goff (with whom the Lord Bridge, Lord Brightman, Lord Mackay and Lord Ackner agreed) restored a costs order against a non-party, after concluding the Court of Appeal were wrong to reach the conclusion that section 51 did not permit costs orders against non-parties. (981H). Lord Goff said:
'...there is no basis for the proposed implied limitation upon the express words of the statute...' (980);
and
'I do not, for my part, foresee any injustice flowing from the abandonment of that implied limitation. Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice. I cannot imagine any case arising in which some order for costs is made, in the exercise of the court's discretion, against some person who has no connection with the proceedings in question. If any problem arises, the Court of Appeal can lay down principles for the guidance of judges of first instance; or the Supreme Court Rule Committee can propose amendments to the Rules of the Supreme Court for the purpose of controlling the exercise of the statutory power vested in judges subject to rules of court.' (981)
[8] CPR r.46.2(2) sets out the circumstances where CPR r.46.2(1) does not apply. R.46(2)(2) reads:
'This rule does not apply-
(a) where the court is considering whether to-
(i) make an order against the Lord Chancellor in proceedings in which the Lord Chancellor has provided legal aid to a party to the proceedings;
(ii) make a wasted costs order (as defined in rule 46.8); and
(b) in proceedings to which rule 46.1 applies (pre-commencement disclosure and orders for disclosure against a person who is not a party).'
[9] In Metalloy Supplies Ltd v M A (UK) Ltd [1997] 1 WLR 1613, Millet LJ made further observations, at 1620, as to 2 specific relationships: (1) director vis a vis a company; and (2) liquidators vis a vis a company:
'It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are bought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified.
The position of a liquidator is a fortiori. Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings. If he does so in his own name, he is personally liable for the costs in the ordinary way, though he may be entitled to an indemnity out of the assets of the company. If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not. He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay their costs as well as his own if the proceedings fail. It may be commercially unwise to institute proceedings without the means to provide any security for costs which may be ordered, since this will only lead to the dismissal of the proceedings; but it is not improper to do so. Nor (if he considers only the interests of the company, as he is entitled to do) is it necessarily unreasonable. The defendant may offer to settle; he may not apply for security; and if he does the court may not order it to be given, particularly if such an order would stifle a meritorious claim.'
[10] For completeness, in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs) [2004] UKPC 39 ('Dymocks'), the Privy Council Board went on to say, at paragraphs 25-29:
'25...Since this particular difficulty may be thought to lie at the heart of the present case, it would be helpful to examine it in the light of a number of statements taken from the authorities. First, Tompkins J's judgment in the Carborundum case [1992] 3 NZLR 757, 765:
“Where proceedings are initiated by and controlled by a person who, although not a party to the proceedings, has a direct personal financial interest in their result, such as a receiver or manager appointed by a secured creditor, a substantial unsecured creditor or a substantial shareholder, it would rarely be just for such a person pursuing his own interests, to be able to do so with no risk to himself should the proceedings fail or be discontinued. That will be so whether or not the person is acting improperly or fraudulently. In many cases a major consideration will be the reason for the non-party causing a party, normally but not always an insolvent company, to bring or defend the proceedings. If a non-party does so for his own financial benefit, either to gain the fruits of the litigation or to preserve assets in which the person has an interest, it may, depending upon the circumstances, be appropriate to make an order for costs against that person. Relevant factors will include the financial position of the party through whom the proceedings are brought or defended and the likelihood of it being able to meet any order for costs, the degree of possible benefit to the non-party and whether, in all the circumstances, the bringing or defending of the claim - although in the end unsuccessful - was a reasonable course to adopt. The directors of a company may frequently be in a position different from other non-parties with a direct financial interest in promoting or defending proceedings. Even where a company is in receivership, directors may have a duty to prosecute or defend a claim through the company in the interests of creditors other than the creditor that had appointed the receiver, or in the interests of the shareholders. Other creditors and shareholders are entitled to expect that those responsible for the management of the company will use all proper endeavours to ensure that their financial interests are protected or that there is a fund out of which such creditors can be paid …”
26. In a more recent case in the High Court of New Zealand, Arklow Investments Ltd v MacLean (unreported) 19 May 2000, Fisher J said:
“19. The guiding principle here is that costs orders against third parties are exceptional but that they are warranted in cases where there would otherwise be a situation in which a person could fund litigation in order to pursue his or her own interests and without risk to himself or herself should the proceedings fail or be discontinued.
“20. … where a person is a major shareholder and dominant director in a company which brings proceedings, that alone will not justify a third party costs order. Something additional is normally warranted as a matter of discretion. The critical element will often be a fresh injection of capital for the known purpose of funding litigation.
“21. … the overall rationale [is] that it is wrong to allow someone to fund litigation in the hope of gaining a benefit without a corresponding risk that that person will share in the costs of the proceedings if they ultimately fail.”
27. In the High Court of Australia in the Knight case 174 CLR 178 , 192–193 Mason CJ and Deane J said:
“For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. The category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.”
28. The final judgment from which their Lordships would cite in this connection is that of Millett LJ in the Metalloy Supplies case [1997] 1 WLR 1613 already referred to, at p 1620:
“[An order] may be made in a wide variety of circumstances where the third party is considered to be the real party interested in the outcome of the suit … It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified. The position of a liquidator is a fortiori. Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings … If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not. He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay their costs as well as his own if the proceedings fail.”
29. In the light of these authorities their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.'
[11] In Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23 ('Deutsche Bank'), under the heading 'The nature of the proceedings'. Moore-Bick LJ said, at paragraphs 13 to 16:
13. It is convenient to begin by considering the nature of the present proceedings, since that question lies at the heart of the appeal. Section 51 of the Senior Courts Act 1981 provides as follows:
“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) … (b) the High Court … shall be in the discretion of the court.”
“(3) The court shall have full power to determine by whom and to what extent the costs are to be paid.”
14. In [Aiden Shipping] the House of Lords held that section 51 gives the court jurisdiction to make orders for costs against persons other than parties to the proceedings, subject to any restrictions that might be imposed by rules of court. The decision thus opened the way for orders for costs to be made against third parties when their connection with the proceedings makes it just and equitable to do so. In [Symphony Group] the plaintiff, a manufacturer of kitchen units, employed the defendant on terms under which he agreed not to engage in the manufacture or supply of kitchen furniture for a year after leaving its employment. Having left the plaintiff's employment, the defendant immediately took a job with a competitor, Halvanto Kitchens Ltd. The plaintiff commenced proceedings seeking damages and an injunction. The defendant obtained legal aid and was represented under his legal aid certificate by the solicitors who acted for Halvanto. The trial judge found in favour of the plaintiff and made an order for costs against Halvanto, but this court set aside the order on the grounds that it was unfair to Halvanto, which had taken no part in the proceedings. It held that Halvanto could have been made a party to the proceedings, that it had been disadvantaged by the failure to warn it that an application for costs might be made against it and that its connection with the original proceedings was not close enough to justify admitting the judge's findings of fact as evidence on the application for costs.
15. The case was cited to us principally for the guidance given in the judgment of Balcombe LJ, with whom Staughton and Waite LJJ agreed and in view of the importance which [counsel for the Costs Defendant] attached to it at various points in his argument, we think it appropriate to set it out in full. It runs as follows, at pp 192H-194D:
“(1) An order for the payment of costs by a non-party will always be exceptional: see per Lord Goff in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 , 980F. The judge should treat any application for such an order with considerable caution.
“(2) It will be even more exceptional for an order for the payment of costs to be made against a nonparty, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to eg the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer ( Calderbank v Calderbank [1976] Fam 93 ); and the knowledge of what the issues are before giving evidence.
(3) Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord 15, r 6(2)(b)(i) or (ii). Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice.
“(4) An application for payment of costs by a non-party should normally be determined by the trial judge: see Bahai v Rashidian [1985] 1 WLR 1337.
“(5) The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party constitutes neither bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v Rashidian [1985] 1 WLR 1337, 1342H, 1346F.
“(6) The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F Hewthorne & Co Ltd [1943] KB 587; Cross on Evidence , 7th ed (1990), pp 100–101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v Spiro [1938] 1 KB 176, 192, cited with approval by this court in Bahai v Rashidian [1985] 1 WLR 1337, 1343D, 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule.
“(7) Again, the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v Durnford Ford [1992] QB 483 , 487. In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle.
“(8) The fact that an employee, or even a director or the managing director, of a company gives evidence in an action does not normally mean that the company is taking part in that action, in so far as that is an allegation relied upon by the party who applies for an order for costs against a non-party company: see Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510 , 513.
“(9) The judge should be alert to the possibility that an application against a non-party is motivated by resentment of an inability to obtain an effective order for costs *6 against a legally aided litigant. The courts are well aware of the financial difficulties faced by parties who are facing legally aided litigants at first instance, where the opportunity of a claim against the Legal Aid Board under section 18 of the Legal Aid Act 1988 is very limited. Nevertheless the Civil Legal Aid (General) Regulations 1989 (SI 1989 No 339/89, and in particular regulations 67, 69, and 70 , lay down conditions designed to ensure that there is no abuse of legal aid by a legally assisted person and these are designed to protect the other party to the litigation as well as the Legal Aid Fund. The court will be very reluctant to infer that solicitors to a legally aided party have failed to discharge their duties under the regulations-see Orchard v South Eastern Electricity Board [1987] QB 565 -and in my judgment this principle extends to a reluctance to infer that any maintenance by a non-party has occurred.”
Staughton LJ said, at p 196:
“Neither Mr Bramley nor Halvanto had any warning that questions which would tend to make out such a case would be asked. Neither had reason to obtain professional advice on the topic before Mr Bramley gave evidence. Neither was represented by counsel at the trial, who might, for example, have asked further questions in re-examination. The main purpose of pleadings is to inform one party of the case which the other will seek to make against him. That is an essential feature of justice, and was entirely absent here.
“Nevertheless, there are cases, as Balcombe LJ has shown, where a person may be ordered to pay costs on the basis of evidence given and facts found at a trial to which he was not a party. Before such an order is made, it must be just and fair that the stranger should be bound by that evidence and those findings. In my judgment that is not the case here.
“My second reason is that the deputy judge's findings were reached without the assistance of submissions from counsel representing Halvanto, or of any further evidence that Halvanto might have called.”
Speaking of Symphony Group, Moore-Bick LJ then said, at paragraphs 17 and 18, that 'A number of points emerge from that case' (set out as separate paragraphs
'First, we think it is clear that all three members of the court assumed that the procedure to be adopted for deciding whether a third party should bear all or part of the costs of the litigation should be summary in nature, in the sense that the judge would make an order based on the evidence given and the facts found at trial, together with his assessment of the behaviour of those involved in the proceedings.
Second, in order to justify the adoption of a summary procedure the third party must have had a close connection of some kind with the proceedings. Staughton and Balcombe LJJ both emphasised that the court should not make an order for costs against a third party unless it is just and fair that he should be bound by the evidence given at trial and the judge's findings of fact. Whether that is so in any given case will depend on the nature and degree of his connection with the proceedings.
Third, we do not think that the court was seeking to do more than provide an indication of the kind of factors that judges should take into account, as appropriate in the particular cases before them, when asked to make an order of this kind. Factors such as failing to join the person concerned as a party to the proceedings or failing to warn him that an application for costs may be made against him may in some cases weigh heavily against adopting a summary procedure, but each case has to be considered on its own merits in order to ascertain whether the third party will suffer an injustice if he is held bound by the evidence and findings at the trial. Decisions made on applications of this kind since [Symphony Group], to many of which we were referred, only serve to illustrate the wide range of circumstances in which orders for costs have been sought and made against third parties.'
Moore-Bick LJ in Deutsche Bank then turned to Dymocks. Moore-Bick LJ in Deutsche Bank said, at paragraphs 19 and 20:
In [Dymocks] the Privy Council awarded the successful petitioner its costs, but since the respondents were unable to pay them, the petitioner applied for an order that they be paid by a third party, a company associated with one of the respondents which had promoted and funded the appeal substantially for its own benefit. Giving the judgment of their Lordships, Lord Brown of Eatonunder-Heywood said at para 25:
“A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows. (1) Although costs orders against non-parties are to be regarded as ‘exceptional’, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such ‘exceptional’ case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. (2) Generally speaking the discretion will not be exercised against ‘pure funders’, described in para 40 of [Hamilton - COA], 1194 as ‘those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course’. In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. (3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is ‘the real party’ to the litigation, a concept repeatedly invoked throughout the jurisprudence-see, for example, the judgments of the High Court of Australia in the Knight case 174 CLR 178 and Millett LJ's judgment in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613. Consistently with this approach, Phillips LJ described the non-party underwriters in TGA Chapman Ltd v Christopher [1998] 1 WLR 12, 22 as ‘the defendants in all but name’.”
A little later, summarising the principles to be derived from those and other authorities, he said, at para 29:
“In the light of these authorities their Lordships would hold that, generally speaking, where a nonparty promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.”'
[12] On the point about avoiding the power to order non-party costs orders, becoming overcomplicated with authorities, see also Turvill v Bird [2016] EWCA Civ 703, [2016] BLR 522.
In Barron v Collins [2018] EMLR 16, Warby J said, at paragraphs 79 to 81:
'The true state of the modern jurisprudence is in my judgment reflected in Turvill v Bird [2016] EWCA Civ 703, where Hamblen LJ (with whom Gross LJ agreed) said at [24] that:-
"A number of recent authorities have stressed that this is a jurisdiction which must be exercised in the interests of justice and that its exercise should not be overcomplicated by authority."
Hamblen LJ went on to cite the observations of Laws LJ in Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038; [2007] 2 Costs L.R. 212 and Moore Bick LJ in Deutsche Bank (above) at [62].
Laws LJ said this:-
"11. There is a danger that the exercise of the jurisdiction to order a non-party to proceedings to pay the cost of those proceedings becomes over-complicated by reference to authority." (Longmore LJ)
….
19. I would wish to emphasise my agreement with his statement at para 11 that the exercise of this jurisdiction becomes over-complicated by reference to authority. Indeed I think it has become overburdened. Section 51 confers a discretion not confined by specific limitations. While the learning is, with respect, important in indicating the kind of considerations upon which the court will focus, it must not be treated as a rule-book."
81. Moore Bick LJ said this:-
"As all three members of the court observed in Petromec, the exercise of the discretion is in danger of becoming over-complicated by authority. The decision of the Privy Council in Dymocks, which contains an authoritative statement of the modern law, explains and interprets the Symphony guidelines in a way which reflects the variety of circumstances in which the court is likely to be called upon to exercise the discretion. Thus, the Privy Council has explained that an order of this kind is "exceptional" only in the sense that it is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. Similarly, it has made it clear that the absence of a warning is simply one factor which the court will take into account in an appropriate case when deciding whether, viewed overall, it would be unjust to exercise the discretion in favour of making an order for costs against the third party. We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind."
[13] In Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546; [2012] 1 BCLC 14, the Court of Appeal (Ward LJ, Lloyd LJ and Lewison J) upheld a first instance's judge's decision to impose a non-party costs order upon Mr Sharif, the managing director and 90% shareholder of a company ('SDT'; paragraph 1) which pursued a (without merit and without justification) counterclaim in litigation. Lewison J, with whom the other members agreed (on this point), said that the first instance judge had correctly based his decision by concentrating on the questions (he had asked himself (paragraph 38)):
'i) Whether Mr Sharif was the real party interested in the outcome of the litigation;
ii) Whether Mr Sharif was responsible for bringing the proceedings;
iii) Whether the proceedings had been brought in bad faith; and
iv) Whether there was some other conduct that made it just and reasonable to make an order.'
Later, at paragraph 28, Lewison J said:
'Looking at the case in the round, it had the following features. SDT was controlled by Mr Sharif. He was the owner of 90% of its share capital. He and WEPS were its largest creditors. They left their money in SDT until its eventual collapse. The dispute was triggered by Mr Sharif's actions and his dishonest explanation for his actions. He personally drafted SDT's defence and counterclaim. The counterclaim claimed a loss that the judge described as “at best fanciful”. At best it was speculative litigation; at worst it was a trumped up counterclaim. The sole witness of fact on the question of liability was Mr Sharif himself. His evidence was entirely disbelieved. He supported SDT's case with bogus documents. The judge characterised the counterclaim as “without merit and without justification”. In my judgment these factors, taken cumulatively, justified the judge's decision to make a non-party costs order against Mr Sharif...'
[14a] On point (2) 'Whether the non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit', reference can be made to Lester Corp Ltd v Rahim [2023] EWHC 1805 (KB), where Ritchie J said, at paragraph 47 (Note: NPCO means non-party costs orders)
'The principles are ... clear. The law encourages access to justice and funding impecunious claimants is therefore not discouraged by NPCOs in general. However, the law discourages any "real" litigants from making or defending claims, risk free of costs, by hiding behind an insolvent or impecunious company, when the real litigant controls, funds and has an interest in the outcome of the litigation; or pursues conduct which runs up the other party's costs and is mala fides or dishonest or behaves improperly. All such situations are fact specific.'
He said this, after summarising the law in this area, from paragraphs 39 to 44. Rather than quote the whole of paragraphs 39 to 44 (which are substantial), it is convenient to just quote paragraph 44 of Ritchie J's judgment in Lester Corp:
'The authoritative guidance on NPCOs is neatly rounded off in the judgment of Coulson LJ in Goknur v Aytacli [2021] EWCA Civ. 1037. The Claimant sued Organic Village, for unpaid invoices after delivery of produce. Organic Village counter claimed. The claim was struck out, the counterclaim proceeded to trial and the Defendant obtained judgment for a nominal sum (£2). The Defendant was ordered to pay 25% of the Claimant's costs. Nine months later the Claimant applied for a NPCO against the previous managing director of Organic Village. The application was not heard by the trial judge and was dismissed. The appeal was dismissed because there was no personal benefit for the director and mala fides or impropriety were absent. Coulson LJ summarised the guidance on the principles when considering NCPOs against directors or shareholders thus:
"Summary as to Directors and Shareholders
40 Without in any way suggesting that these authorities give rise to a sort of mandatory checklist applicable to a company director or shareholder against whom a section 51 order is sought, I consider that the relevant guidance can usefully be summarised in this way:
(a) An order against a non-party is exceptional and it will only be made if it is just to do so in all the circumstances of the case (Gardiner, Dymocks, Threlfall).
(b) The touchstone is whether, despite not being a party to the litigation, the director can fairly be described as "the real party to the litigation" (Dymocks, Goodwood, Threlfall).
(c) In the case of an insolvent company involved in litigation which has resulted in a costs liability that the company cannot pay, a director of that company may be made the subject of such an order. Although such instances will necessarily be rare ( Taylor v Pace ), section 51 orders may be made to avoid the injustice of an individual director hiding behind a corporate identity, so as to engage in risk-free litigation for his own purposes ( North West Holdings ). Such an order does not impinge on the principle of limited liability (Dymocks, Goodwood, Threlfall).
(d) In order to assess whether the director was the real party to the litigation, the court may look to see if the director controlled or funded the company's pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party (Metalloy). But if the company's stance was dictated by the real or perceived benefit to the individual director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the "real party", and could justly be made the subject of a section 51 order (North West Holdings, Dymocks, Goodwood).
(e) In this way, matters such as the control and/or funding of the litigation, and particularly the alleged personal benefit to the director of so doing, are helpful indicia as to whether or not a section 51 order would be just. But they remain merely elements of the guidance given by the authorities, not a checklist that needs to be completed in every case (SystemCare).
(f) If the litigation was pursued or maintained for the benefit of the company, then common sense dictates that a party seeking a non-party costs order against the director will need to show some other reason why it is just to make such an order. That will commonly be some form of impropriety or bad faith on the part of the director in connection with the litigation (Symphony, Gardiner, Goodwood, Threlfall).
(g) Such impropriety or bad faith will need to be of a serious nature (Gardiner, Threlfall) and, I would suggest, would ordinarily have to be causatively linked to the applicant unnecessarily incurring costs in the litigation.
41 Therefore, without being in any way prescriptive, the reality in practice is that, in order to persuade a court to make a non-party costs order against a controlling/funding director, the applicant will usually need to establish, either that the director was seeking to benefit personally from the company's pursuit of or stance in the litigation, or that he or she was guilty of impropriety or bad faith. Without one or the other in a case involving a director, it will be very difficult to persuade the court that a section 51 order is just. Mr Benson identified no authority in which a section 51 order was made against the director of a company in the absence of either personal benefit or bad faith/impropriety. Conversely, there is no practice or principle that requires both individual benefit and bad faith/impropriety on the part of the director in order to justify a non-party costs order. Depending on the facts, as the authorities show, one or the other will often suffice." (My emboldening)'
[14b] Other authorities which summarize the propositions in this area, include:
(1) In Systemcare (UK) Ltd v Services Design Technology Ltd [2011] EWCA Civ 546; [2012] 1 BCLC 14 ('Systemcare'), the Court of Appeal (Ward LJ, Lloyd LJ and Lewison J), Lewison J quoted section 51 of the Senior Courts Act 1981, and said, at paragraph 21 and 22:
'The width of this discretion has been stressed more than once. Appeals should be rare; and this court should not interfere with the discretion of the trial judge unless he plainly erred: Alan Phillips Associates Ltd v Dowling [2007] EWCA Civ 64, [2007] BLR 151 para 31 (Moses LJ).
This court has also said that an application for costs against a non-party should not be over-complicated by reference to authority: Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038, [2007] 2 Costs LR 212 para 11 (Longmore LJ); para 19 (Laws LJ). However, there is now a considerable body of learning on the topic; and I fear that, despite those warnings, it is necessary to refer to some of it. The first general guidance on the principles to be applied was given by this court in Symphony Group plc v Hodgson [1994] QB 179; (1993) Costs LR (Core) 319, where Balcombe LJ grouped the then decided cases into a number of categories. These included:
i) Where a person has some management of the action, e.g. a director of an insolvent company who causes the company improperly to prosecute or defend proceedings;
ii) Where a person has maintained or financed the action;
iii) Where the person has caused the action;
iv) Where the person is a party to a closely related action which has been heard at the same time but not consolidated;
v) Group litigation where one or two actions are selected as test actions.
He added that these categories were “neither rigid nor closed”.
A non-party costs order should not be made where the relevant costs would have been incurred anyway without the involvement of the non-party: Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 19, [2004] 1 WLR 2807, [2005] 1 Costs LR 52 paras 18–20; Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723, [2007] 2 Costs LR 147 , para 74; Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358 para 61.
Further general guidance was given by the Privy Council in Dymocks. The three most important principles articulated by Lord Brown in Dymocks are that:
i) Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order (para 25(1)).
ii) Where the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs (para 25(3)).
iii) Generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. However, that is not to say that orders will invariably be made in such cases; particularly where the nonparty is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests (para 29).
Lord Brown also said (para 33):
“The authorities establish that, whilst any impropriety or the pursuit of speculative litigation may of itself support the making of an order against a non-party, its absence does not preclude the making of such an order.”
As with Balcombe LJ's classification, these principles are guidance not rules. As Longmore LJ said in Petromec (para 12) Lord Brown's words are emphatically not a statute. The ultimate question is whether it is just to make the order. It is wrong to treat the reported cases as providing a comprehensive check list of factors which must be present in every case before the discretion can be exercised in a particular case. What may be sufficient to justify the exercise of the discretion in one case should not be treated as a necessary factor for the exercise of the discretion in a different case: Secretary of State for Trade and Industry v Aurum Marketing Ltd [2000] EWCA Civ 224, [2002] BCC 31 (Mummery LJ).
Lord Brown's third principle refers to the case of a non-party who funds the proceedings. However, this is not a precondition to the jurisdiction to make a non-party costs order. Again Longmore LJ explained the position in Petromec (para 10):
“I would only observe that, although funding took place in most of the reported cases, it is not, in my view, essential, in the sense of being a jurisdictional pre-requisite to the exercise of the court's discretion. If the evidence is that a respondent (whether director or shareholder or controller of a relevant company) has effectively controlled the proceedings and has sought to derive potential benefit from them, that will be enough to establish the jurisdiction. Whether such jurisdiction should be exercised is, of course, another matter entirely and the extent to which a respondent has, in fact, funded any proceedings may be very relevant to the exercise of discretion.”
...
In Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613; [1998] 1 Costs LR 85 Millett LJ said:
“The court has a discretion to make a costs order against a non-party. Such an order is, however, exceptional, since it is rarely appropriate. It may be made in a wide variety of circumstances where the third party is considered to be the real party interested in the outcome of the suit. It may also be made where the third party has been responsible forbringing the proceedings and they have been brought in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him. It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are bought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified.” (Emphasis added)
(2) in Clarke v Meadus [2012] EWHC 3729 (Ch), Warren J said, at paragraph 2 that 'I do not think that the applicable law in relation to either application is in any serious contention.' before setting out the law in relation to non-party costs order (called 'third party costs orders'), from paragraph 4:
'The jurisdiction to make a third party costs order is found in Section 51 of the Senior Courts Act 1981. The Rules of Court in CPR 48 deal with how an application is to be made. There is, in essence, a two-stage approach. The first stage is to determine whether a party should be added, and the second stage, designed to give a reasonable opportunity to attend, is that there is a hearing at which the court will consider the matter further.
There has built up a significant body of case law. One of the important cases is Systemcare UK Ltd v Services Design Technology Ltd [2011] EWCA Civ 546, a decision of the Court of Appeal. At paragraph 21 Lewison J (as he then was), sitting in the Court of Appeal, said this:
“This court has also said that an application for costs against a non-party should not be overcomplicated by reference to authority: Petromec Inc v Petroleo Brasileiro SA Petrobras …However, there is now a considerable body of learning on the topic; and I fear that, despite those warnings, it is necessary to refer to some of it.”
He goes on to give some general guidance in the light of a number of cases which he refers to. In the light of that, I do not propose to rehearse at length the authorities in this judgment, at risk perhaps of criticism by a higher court in this case or another at a later stage. I should say, however, that I have taken into account and read the following cases, as well as the entirety of Systemcare itself and what was said there about those other cases: Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807; PR Records Ltd v Vinyl 2000 Ltd [2007] EWHC 1721; Merchantbridge & Co Ltd v Safron General Partner 1 Ltd [2006] EWHC 1332 (Comm); Thompson [sic] v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); Nelson v Greening & Sykes (Builders) Ltd [2007] EWCA Civ 1358; and Dranez Anstalt v Hayek [2008] EWHC 90107. That is plenty to be getting on with.
None of these cases concerned the making of a third party costs order before the end of the trial, but I do not doubt that the jurisdiction to do so in an appropriate case exists. It is worth emphasising that each case is heavily fact-dependent, as is emphasised at paragraph 6 of the judgment in Systemcare. The funding of a mother by her daughter does not necessarily fall to be dealt with in the same way as the funding of a company by its 100 percent shareholder and sole director.'
(3) In Ahmed v Mukith [2023] 7 WLUK 492, Her Honour Judge Claire Jackson sitting as a Judge of the High Court, gave an ex temporare judgment, wherein consider an application for a non-party costs order against the (after he was added) Sixth Defendant. The Judge said said, at paragraphs 1 to 9:
'1. I have before me an application brought pursuant to Civil Procedure Rule 46.2(1) for an order that the Sixth Defendant, who was a non-party in the proceedings at the point of trial, be liable for the costs of the claim as a non-party. The jurisdiction to make such orders arises from section 51 of the Senior Courts Act 1981 but is enshrined in CPR 46.2(1). I am satisfied that the jurisdiction exists.
2. This is the second step in the process of hearing the application. The first step was to determine whether the Sixth Defendant should be joined as a party to the proceedings prior to consideration being given to whether he should be liable for costs. He was joined in the proceedings by myself ... at a hearing attended by both Counsel for the Claimants and Counsel for the, now, Sixth Defendant.
3. At that hearing I gave directions for a sequential exchange of evidence with the Sixth Defendant to serve any further evidence on which he wished to rely .. and then the Claimants to serve any evidence in reply ... I then gave directions for this hearing.
...
6. The parties are broadly in agreement as to the legal position. The test to apply for such an application is not specified in either section 51 or in Civil Procedure Rule 46.2. Rather the test has been derived from case law and according to the most up to date cases, Counsel are agreed that the test is one of exceptionality and justness with the procedure being that the application should be heard by the trial judge, if possible.
7. It can be heard after the trial and if it is, it is to be a summary process in which the court does not make disclosure orders, have cross-examinations of witnesses, but the judge can take into account in an exception to the usual rule the findings made at the trial in which the non-party was a non-party.
8. By way of clarification for this case, I was the trial judge and the trial took place ... A judgment was handed down... and this application was made later.... It is accepted by the Claimants that no notice was given to the Sixth Defendant of a proposal to make such an application either before or at trial. The parties also agree that according to the case law there must be a cardinal link between the role of the Sixth Defendant on which basis costs are sought and the incurring of costs by the Claimants.
9. As this is an ex temporare judgment in a case which will turn on its facts I do not set out herein the authorities relied on by the parties but it is safe to say that having read their skeleton arguments there is an agreement that essentially the Court must look at three things: exceptionality, justness and causality. If the Court decides to make an order then the Court also needs to consider what the appropriate order is in relation to costs: The Court can follow its order from the trial but is not obliged to do so that would result in an unjust outcome.' [bold added]
(4) in Re Coplexia Collaborative LLP (also known as Arnstein v Coplexia Collaborative LLP) [2023] EWHC 714 (Ch) (a case involving a non-party costs order being sought against a sole director/sole shareholder of a company which was a member of an LLP which was involved in litigation) ICC Judge Barber said, under the heading 'Non-Party Costs Orders: Principles', the following, at paragraphs 100 to 102:
'Under s.51(1) and (3) of the Senior Courts Act, the court has a discretionary power to order a non-party to pay the costs of proceedings. The procedure for that process is governed by CPR 46.2.
As helpfully observed by Zacaroli J in Turner v Thomas & Ors [2022] EWHC 1944 (Ch), the principles relevant to costs orders against third parties were summarised by the Court of Appeal in Grizzly Business Ltd v Stena Drilling Ltd [2017] EWCA Civ 94 at [51], as follows:
'51. The power to make a non-party costs order under section 51 of the Senior Courts Act 1981 has been considered in a number of recent decisions of this Court. Furthermore, it has been extended by analogy in Threlfall to cases of a co-defendant. We derive the following propositions from these recent cases:
1) "Where a non-party Director can be described as the "real party", seeking his own benefit, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances." ( Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414; [2006] 1 WLR 2723 per Rix LJ at [59])
2) It is not the case that both control and funding of the litigation must be present. (Systemcare UK Ltd v Services Designed Technology Ltd [2011] EWCA Civ 546 …
3) "The very fact that the making of such an order is discretionary demonstrates that the question is not one of rights and obligations of a non-party, for no obligations exist unless and until the court exercises its discretion. Moreover the fact that the discretion, if exercised, is exercised against a non-party underlines the proposition that the non-party has no substantive liability in respect of the cause of action in question.. [T]he court is not fettered by the legal realities. It is entitled to look to the economic realities. It is in this sense that many of the cases pose the question whether the nonparty is "the real party" in the case." (Threlfall v ECD Insight Ltd per Lewison LJ at [13])
4) Each case turns on its own facts. Since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind. (Deutsche Bank v Sebastian Holdings Inc [2016] EWCA Civ 23 per Moore-Bick LJ at [61], [62])
5) An order of this kind is "exceptional" only in the sense that it is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. (Deutsche Bank per Moore-Bick LJ at [62].
6) "… The only immutable principle is that the discretion must be exercised justly." (Deutsche Bank per Moore-Bick LJ at [62])
7) "By funding, the funder takes a risk, a risk as to the nature of which he has the opportunity to inform himself both before offering funding and during the course of the litigation which he funds." (Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144 per Tomlinson LJ at [29])
8) "The single question is whether in the circumstances it is just to make a discretionary order requiring the non-party to pay costs because of the nature of its involvement in the litigation." (Excalibur Ventures LLC per Tomlinson LJ at [51])".
The position as regards company directors was summarised by Coulson LJ (Lewison and Dingemans LJJ concurring) in Goknur v Aytacli [2021] EWCA Civ 1037 at [40]-[41] :
'(a) An order against a non-party is exceptional and it will only be made if it is just to do so in all the circumstances of the case (Gardiner, Dymocks, Threlfall).
(b) The touchstone is whether, despite not being a party to the litigation, the director can fairly be described as "the real party to the litigation" (Dymocks, Goodwood, Threlfall).
(c) In the case of an insolvent company involved in litigation which has resulted in a costs liability that the company cannot pay, a director of that company may be made the subject of such an order. Although such instances will necessarily be rare (Taylor v Pace), section 51 orders may be made to avoid the injustice of an individual director hiding behind a corporate identity, so as to engage in risk-free litigation for his own purposes (North West Holdings). Such an order does not impinge on the principle of limited liability (Dymocks, Goodwood, Threlfall).
(d) In order to assess whether the director was the real party to the litigation, the court may look to see if the director controlled or funded the company's pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party (Metalloy). But if the company's stance was dictated by the real or perceived benefit to the individual director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the "real party" and could justly be made the subject of a section 51 order (North West Holdings, Dymocks, Goodwood).
(e) In this way, matters such as the control and/or funding of the litigation, and particularly the alleged personal benefit to the director of so doing, are helpful indicia as to whether or not a section 51 order would be just. But they remain merely elements of the guidance given by the authorities, not a checklist that needs to be completed in every case (SystemCare).
(f) If the litigation was pursued or maintained for the benefit of the company, then commonsense dictates that a party seeking a non-party costs order against the director will need to show some other reason why it is just to make such an order. That will commonly be some form of impropriety or bad faith on the part of the director in connection with the litigation (Symphony, Gardiner, Goodwood, Threlfall).
(g) Such impropriety or bad faith will need to be of a serious nature (Gardiner, Threlfall) and, I would suggest, would ordinarily have to be causatively linked to the applicant unnecessarily incurring costs in the litigation.
41. Therefore, without being in anyway prescriptive, the reality in practice is that, in order to persuade a court to make a non-party costs order against a controlling/funding director, the applicant will usually need to establish, either that the director was seeking to benefit personally from the company's pursuit of or stance in litigation, or that he or she was guilty of impropriety or bad faith. Without one or the other in a case involving a director, it will be very difficult to persuade the court that a section 51 order is just.'
[15] In Jackson v Thakrar [2007] EWHC 626 (TCC) [2008] 1 All ER 601, the Judge said, at paragraph 2:
'Section 51(1) provides that "the costs of and incidental to all proceedings in … the High Court … shall be in the discretion of the court." Section 51(3) makes plain that the court "shall have full power to determine by whom and to what extent the costs are to be paid". Ever since the House of Lords decision in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 , it has been clear that Section 51 permits a court to award costs against a person who was not a party to the proceedings. There have been numerous cases on the extent and limits of this jurisdiction, some of which are analysed below.'
[16] In Jackson v Thakrar [2007] EWHC 626 (TCC) [2008] 1 All ER 601, the Judge said, at paragraphs 15 to 19:
'It is right that the majority of the cases under Section 51 are concerned with the relationship between the funder and the funded party: see, for example, the decision in [Fulton Motors Ltd v Toyota (GB) Ltd (CA, 23.7.99)]. But that seems to me to be entirely a function of the fact that, in those cases, if the funder had not provided the funded party with the wherewithal to pursue or defend the litigation, there would have been no litigation at all, and therefore the other party's costs, which were the subject of the subsequent Section 51 application, would never have been incurred. Plainly, in a Section 51 application, what matters is whether the funding provided by the non-party caused the applicant to incur costs which he would not otherwise have incurred. That must be the relevant test on causation.
Support for the proposition that what matters is whether the costs that are the subject of the Section 51 application have been incurred as a result of the funding provided by the non-party can be found in [Hamilton - COA], where Simon Brown LJ decided the issue of causation on the basis that [Funder's] contribution to [the Funded Party] "plainly did not cause [non-party costs order applicant] to incur any costs which he would not otherwise have incurred". Similarly, in Dymocks, Lord Brown stated that a non-party "could not ordinarily be made liable for costs if those costs would in any event have been incurred even without such nonparty's involvement in the proceedings". It seems to me that those two statements of principle are clear and I am bound by them. Moreover, I respectfully agree with the simple logic that they convey. If the Section 51 applicant would have incurred the relevant costs in any event, whether the funded party was funded by the non-party or not, then it would be wrong in principle to make a Section 51 order.
I should also add that, notwithstanding Pumfrey J's general comment in [Koninklijke Philips Electronics N.V. v Aventi Limited and Ors [2003] EWHC 2589 (Pat)] about the relationship between the activities of the funded party and his receipt of funding, upon which [counsel for the non-party costs order applicant] relied so heavily, the learned judge's decision in that case followed precisely the principle which I have outlined in paragraphs 15 and 16 above: he was satisfied that Aventi would not have defended the action if it had not been for the funding from Princo, and that therefore Philips incurred costs pursuing Aventi which, but for the funding, they would not have incurred.
In the present case, I find that, if [the wife] had chosen not to withdraw the £10,000 from her building society, two things would have happened. First, [the Husband's barrister] would not have attended the hearing on 22-24 January 2007 and [the Husband] would not have been represented before me at the hearing of the compromise issue. Secondly, the compromise hearing would then have unfolded precisely as it did, with the only difference being that I would have been deprived of the benefit of [the Husband's barrister's] brief cross-examination of Mr Patel and the 20 minutes of his oral submissions.
I am in no doubt at all that, if [the Husband] had not been represented at the compromise hearing, the [TIB] would have incurred precisely the same costs as she in fact incurred. All of the [TIB's] costs would have been incurred in any event in order to defeat, as she did, the application made and pursued by [one of the other Defending/Applicant Parties]. As I am sure he would agree, [the Husband's barrister's] role at the hearing, as a representative of [the Husband], amounted to that of a bit-part player, and I find that it was ultimately irrelevant to the costs incurred by the [TIB].
Accordingly, I accept [counsel for the Husband's] first proposition. [The wife's] funding of [the Husband's] legal team for the January hearing did not cause the [TIB] to incur costs which she would not otherwise have done. In those circumstances, in accordance with the principle outlined by the Court of Appeal in [Hamilton - COA], and by the Privy Council in Dymocks, I reject the Section 51 application.' [Bold added]
[17] In Jackson v Thakrar [2007] EWHC 626 (TCC) [2008] 1 All ER 601, the Judge said, at paragraph 21:
'The authorities ... establish that the court will be much less likely to make a Section 51 order against a 'pure' funder, and much more likely to make such an order against a professional funder (like an insurer), or one with a financial interest in the outcome of the litigation.'
And, at paragraphs 22 to 29 of Jackson:
'22. The authorities concerned with the status of a private, non-party funder start with Cooper & Anor v Maxwell (CA 20.3.92). In that case Kevin Maxwell pursued and lost an appeal against a decision at first instance which rejected his contention that he was entitled to rely on the privilege against self-incrimination as a ground for refusing to answer questions put to him by liquidators. Mr Maxwell's costs of his unsuccessful appeal were funded by his mother, Mrs Elizabeth Maxwell, the widow of Robert Maxwell. The liquidators sought a Section 51 order against Mrs Maxwell. The Court of Appeal refused to make such an order. Dillon LJ said that the appeal had been brought bona fide, and concluded that justice did not require Mrs Maxwell, having elected to provide money for her son's costs and legal expenses, to pay the costs of the other side which had been successful in the litigation for which the funds were used.
23. Although Murphy v Young & Co's Brewery Plc [1997] 1 All ER 518 was not a case about a private funder, Philips LJ (as he then was) commented on the decision in Cooper v Maxwell:
"This decision demonstrates a proposition that [counsel] has not sought to challenge. Funding alone will not justify an order against the funder under s.51. I do not consider that an order under s.51 will normally be appropriate where a disinterested relative has, out of natural affection, funded costs of a claim or a defence that is reasonably advanced."
24. A similar situation, although a different result, arose in Thistleton v Hendrick [1992] 32 Con LR 123. That was a building case in which the plaintiff builder sued the employer for the balance due, and the defendant successfully obtained judgment on his counterclaim. It then transpired that the plaintiff's mother had funded her son's case. His Honour Judge John Hicks QC concluded that it was appropriate to make a Section 51 order against Mrs Thistleton, particularly as she had funded a positive claim, as opposed to a defence to a claim that had been brought by somebody else. The Judge distinguished the Maxwell case on the ground that Kevin Maxwell's appeal had concerned an important point of law on which there had been a difference of opinion between Judges at first instance. He also concluded that it was reasonable to make the order because Mrs Thistleton had known, when funding her son's litigation, that he was unlikely to be able to pay Mr Hendrix's costs if ordered to do so. For the reasons noted below, it is now doubtful as to whether the decision in Thistleton remains good law.
25. The other relevant private funded case is Locabail (UK) Ltd v Bayfield Properties Ltd (Lawrence Collins QC, 20 March 1999). In that case, Mrs Barbara Emmanuel failed to set aside a possession order arising out of various steps taken by her estranged husband, Mr Ares Emmanuel. Mrs Emmanuel's application was funded by Mr Peter Tavoulareas, who was Mrs Emmanuel's first husband. He had given evidence in support of her position and had recommended to her the firm of solicitors who went on to act for her in the litigation. Although he had no financial obligation towards Barbara, he accepted in cross-examination that "it really wouldn't do me well to see the mother of my two children without a home". The Judge referred to both Maxwell and Thistleton and paid particular attention to that latter decision. He made the Section 51 order that was sought.
26. Although all of these cases were cited to the Court of Appeal in Hamilton, Locabail was not dealt with in any of the judgments. The other two cases were analysed by Simon Brown LJ as part of his review of the various authorities on Section 51. He concluded at paragraph 48 that, whilst the courts had not clearly laid down a rule that pure funders were generally to be regarded as exempt from s.51 orders, he did not consider that they should ordinarily be held liable. He referred at paragraph 57 of his judgment to "a general presumption against s51 liability in any event" in cases involving pure funders. This was a view with which Lady Justice Hale (as she then was) was "reluctantly persuaded to agree".
27. I note that Simon Brown LJ considered that it was difficult to reconcile Maxwell with Thistleton and regarded the former as clearly prevailing over the latter. He pointed out that Thistleton was a decision about which Phillips LJ had reservations in Murphy "if, indeed, he did not implicitly overrule it – see in particular his reference to a disinterested relative funding 'costs of a claim or a defence that is reasonably advanced' (my emphasis)". In those circumstances, it would not be appropriate for me to reach any conclusion on the basis of the decision of HHJ Hicks QC in Thistleton.
28. If pure funders will not ordinarily be held liable under Section 51, then in what circumstances might that general presumption be displaced? The clearest guidance on that topic comes at paragraph 86 of the judgment of Lady Justice Hale. There she says:
"There must, however, be exceptional cases where it would be quite unjust not to make an order: principally where the litigation was oppressive or malicious or pursued for some other ulterior motive. The fact that it was quite unmeritorious would be powerful evidence of ulterior motive but neither a necessary nor a sufficient criterion in itself."
29. Of course, the position in respect of funders who have a financial interest in the outcome of the litigation is very different. As Lord Brown put it at paragraph 25(3) of his speech in Dymocks:
"Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs."
This principle, of course, explains why the funders were made the subject of Section 51 orders in [Fulton Motors Ltd v Toyota (GB) Ltd (CA, 23.7.99) ('Fulton')] and [Koninklijke Philips Electronics N.V. v Aventi Limited and Ors [2003] EWHC 2589 (Pat) ('Philips')].'
Applying this to the facts in Jackson, the judge said, at paragraphs 30 to 35:
'30. Turning now to the facts of the present case, I consider that, on the evidence, the proper starting point is to regard [the wife] as a private funder motivated by natural affection for her husband. The [TIB], however, relied on two particular matters in support of her contention that that is not, in fact, the true position, and that she had a financial interest in the outcome of the compromise issue. First, it was said that [the wife] is a director of SK Thakrar & Co Ltd (Party 16), and [counsel for the Husband] accepted that she was also a shareholder in that same company. Party 16, represented by Mr Sen, argued that there had been a binding compromise. In addition, the [TIB] relied on the fact that [the wife], and her children, are the subject of applications in the bankruptcy proceedings in respect of monies and shares which the [TIB] claims belong to her, and that therefore [the wife] had a direct interest in the argument that a binding compromise had been achieved.
31. As to [the wife's] role as a director (and shareholder) in Party 16, it seems to me that that is irrelevant to the private funding that she provided to her husband. I have already made a costs order against Party 16 so, to the extent that [the wife] is either a director or a shareholder of that company, she is directly affected by that existing order. I do not consider that it would be appropriate to regard her as having a different status as a funder merely because of her separate role in the running of the limited company. That is a point to which I revert at paragraphs 37-39 below.
32. As to the position in the bankruptcy, it is clear that [the wife] is directly affected by the bankruptcy proceedings. However, even taking full account of the recent information that she has provided as to her assets, I accept that she could not fairly be described as wealthy in her own right. Furthermore, it is apparently common ground that the alleged compromise of the Thakrar litigation at £20.1 million would not automatically have resulted in a surplus in the bankruptcy. Thus, whether [the wife] had any personal or financial interest in the outcome of the compromise issue is unclear: if the alleged compromise would not necessarily have brought about an end to the difficulties created for [the wife] by the bankruptcy (because the bankrupt estate would still have been in deficit), then it is difficult to see how or why the result of the compromise hearing would have made any real difference to her.
33. It would plainly be idle to suggest that [the wife] is in precisely the same position as the pure/private funders referred to in Maxwell and [Hamilton - COA]. She is, after all, directly affected by the bankruptcy proceedings. On the other hand, it seems to me that, in relation specifically to the compromise issue, she is much closer to the position of these pure funders than the interested funders who were the subject of the successful Section 51 applications in Fulton and Philips. It has not been demonstrated that there was a direct financial benefit to her personally if I had concluded that the litigation had been compromised for £20.1 million, which was the particular issue in respect of which the relevant costs were incurred. Even if there was a possible financial benefit to her of a successful compromise, I consider that it might well have been modest.
34. Thus, in relation to the compromise dispute, and the costs that it generated, I consider that it is appropriate to treat [the wife] as being in a position at least akin to that of a pure funder. In those circumstances, the usual order would be that the Section 51 application against her would fail. Is there any reason to upset that general presumption?
35. [Counsel for the non-party costs order applicant] argued that this case was an exception to the usual rule, because the compromise claim was hopeless, and was thus used oppressively and/or pursued for some other ulterior motive. I do not accept that. I have made the point that the compromise application was opportunistic and, if a full legal analysis had been brought to bear on the correspondence at an earlier stage, the Defending Parties would or should have realised that the application was going to fail. But Lady Justice Hale was quick to point out in [Hamilton - COA] that the fact that the litigation is unmeritorious is not a necessary or sufficient criterion in itself to justify a Section 51 order. Something else is necessary. On the evidence before me I am quite unable to find that the application for a declaration was oppressive or pursued for some other ulterior motive. I also decline to find that in some way the compromise issue demonstrated a lack of bona fides on the part of the Defending Parties or, indeed, [the wife] herself. When I ordered that the costs of the compromise issue should be paid by the Defending Parties on an indemnity basis, I made no finding of bad faith, and I expressly referred to the post- CPR authorities which make clear that such a finding is not necessary in order to justify an order for indemnity costs.'
[18] In Jackson v Thakrar [2007] EWHC 626 (TCC) [2008] 1 All ER 601, the Judge said, at paragraphs 37 to 39 (note: the wife was the director/shareholder of SK Thakrar & Co Ltd, Party 16 in the litigation):
'...She provided the money to fund her husband as a private individual: as the wife of [the Husband], whose conduct lies at the heart of the labyrinthine litigation being dealt with by His Honour Judge Thornton QC. That funding was nothing whatsoever to do with the company, or her position in it. Indeed, it is right to note that the company was separately represented by Mr Sen at the compromise hearing before me. Furthermore, as I have already pointed out, the company is already liable for the costs order that I made against the Defending Parties. In those circumstances I do not consider that [the wife's] role in the company has any relevance to the Section 51 application.
Support for that proposition, if it were needed, can be found in Metalloy Supplies Ltd (in liq) v MA (UK) Ltd [1997] 1 All ER 418 in which Millett LJ said:
"It is not, however, sufficient to render a director liable for costs that he was a director of a company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified."
Accordingly, I consider that [the wife's] interest in and obligations owed to Party 16 are irrelevant to the Section 51 application against her, and do not lead me to alter my view that no such order should be made.'
[19] In Jackson v Thakrar [2007] EWHC 626 (TCC) [2008] 1 All ER 601, the Judge set out, at paragaphs 40 to 44, his reasons for refusing to exercise his discretion in favour of making a non-party costs order against the wife. He said (note: Glen is a different Defending Party/declaration applicant):
'40. I have referred above to my decision to refuse the Section 51 application on the ground that [the wife's] funding of her husband did not cause the [TIB] to incur any costs that the [TIB] would not otherwise have incurred but for the funding. In addition I have found that, even if I am wrong as to the causation question, [the wife's] position was at least akin to that of a pure funder and that, on the basis of the authorities, the presumption must be that a Section 51 order is not appropriate in her case. On the evidence, there is nothing which would discharge that presumption or lead to the making of a Section 51 order.
41. For completeness, I should say that I would not, in any event, have been minded to exercise my discretion in favour of making the order. Such orders are exceptional: see Symphony Group Plc v Hodgson [1993] 4 All ER 143. Of course, that means 'exceptional by comparison with the ordinary run of cases': see Millett LJ in Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232. As he himself put it in Metalloy, the making of a Section 51 order can properly be described as exceptional "since it is rarely appropriate".
42. I do not consider that the present case is one of those rare cases in which it is appropriate to make such an order. As I pointed out in my Judgment on the compromise issue, Glen is a substantial company worth in excess of £30 million. The [TIB] has to ensure that the maximum is recovered in the bankruptcy and has obtained freezing orders against Glen in order to advance that process. It was common ground at the compromise hearing that, if there had been a settlement, the £20.1 million would have been paid by Glen. Accordingly, Glen is the most important of the Defending Parties; without Glen's express agreement, this action cannot be compromised on their behalf.
43. In those circumstances, it seems to me that it would be wrong to place into the costs spotlight other Defending Parties who, in all the circumstances of the case, were of considerably lesser importance, particularly in respect of the alleged compromise. [The Husband] is in that category. Although he commenced one of the two principal elements of this litigation in the first place, and his conduct is at the heart of the fact-finding exercise, he is now bankrupt and is the subject of a number of court orders which he either cannot or will not pay. His wife's decision to fund representation on his behalf in the compromise issue was quite understandable, but it was something of a sideshow, and I am in no doubt that it would be quite unjust to use that funding against [the wife] now to justify an order in favour of the [TIB] under Section 51 .
44. There is one final point that I should like to make which is relevant to the exercise of my discretion. In [Hamilton -COA], Maxwell and Thistleton, the funders had each provided funds to allow the funded party to go onto the offensive and mount, respectively, a libel case, a potentially important issue about self-incrimination, and a claim for monies due under a building contract. In other words, in each case, what was being funded was a positive claim that was in the particular interest of the funded party himself. Here, in contrast, it could be said that the compromise issue for which [the wife] provided funds on behalf of her husband was a bona fide (albeit misguided) attempt to bring to an end difficult and expensive litigation aimed directly at [the Husband] and the other Defending Parties, the continuation of which could not, by any stretch of the imagination, be described as being in the interests of [the Husband], or any of the others. Even though this attempt involved an application to the court by Glen, in which they were supported by other Defending Parties, I consider that, in the context of the Thackrah litigation as a whole, the application was essentially defensive in nature, not offensive; reactive, not proactive. That is a further factor that leads me to conclude that justice does not require the order sought.'
[20] In Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); [2010] C.P. Rep. 5, Blake J said, at paragraph 18:
'For present purposes I consider that the law as to third party costs is sufficiently stated at page 1334 of Civil Procedure 2009 and the judgment of Lord Browne in Dymocks Francise Systems (NSW) PTY Ltd v Todd [2004] UK PC 39; [2004] 1 WLR 2807. I have been assisted by other references to decided cases cited by both counsel in their helpful skeleton arguments on the substantive issues. From this learning I deduce the following general principles of potential relevance to the present case'
[21] In Hamilton v Al-Fayed No. 2 [2001] 7 WLUK 355; [2001] C.L.Y. 1817, at 1st instance, Morland J contrasted 'pure funder' with 'professional funder', at paragraphs 69 to 72. Under the heading 'Funding', Morland J said (Mr Al Fayed was the defendant in the main claim and was the non-party costs applicant; Mr Hamilton had been the unsuccesful claimant against Mr Al Fayed; Mr Hamilton had been funded by donations - pure funders):
'69. The respondents to Mr Al Fayed's application are pure funders. Their donations towards Mr Hamilton's costs were not made as the result of any obligation owed to him but as an act of charity through sympathy with his predicament and in some instances affinity to the Conservative Party. They have no control over how their donation is spent. They have no part in the management of the litigation up to and including the trial . . . Their only hope was that Mr Hamilton would achieve ssuffiient success in trial to enable their donations to be repaid to them. Why would a pure donor be in any more vulnerable position than a solicitor or counsel acting on a contingency fee? (See the observations of Rose LJ in Tolstoy-Miloslavsky v Aldington [1996] 1 WLR 736, 746.)
70. The position of the professional funder is very different. Almost always the funding arises out of a contractual obligation for example where the funder is a trade union, an insurer or professional or trade association. Normally such a funder exercises considerable control management and supervision of the litigation . . .
71. . . . It would be very exceptional that a situation would arise where it would not be just and reasonable to make a section 51 order against a professional funder.
72. The reverse is the position in the case of a pure funder. It will be rare or very rare that it will be just and reasonable to make an order against him.'
Simon Brown LJ quoted the above at paragraph 6 of his judgment in Hamilton - COA.
[22] In Chilab v King's College London [2012] EWCA Civ 1178; [2013] 2 Costs LR 191, Hughes LJ (with whom Tomlinson LJ agreed) in the Court of Appeal, but considering an application at first instance, said, paragraph 14:
'We were taken additionally to the decision in Thomson v Berkhamsted Collegiate School [2009] 6 Costs LR 859; [2009] EWHC 2376 (QB). That was a post-trial claim for costs pursuant to s 51 of the Senior Courts Act 1981. The statutory precondition which applies to security for costs in anticipation does not and did not apply. For my part, I am grateful for the reminder of the general principles as to the recovery of costs from third parties, which are set out in the judgment of Blake J, but it does not help on the issue which we have to decide.'
[23] In Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); [2010] C.P. Rep. 5, Blake J said, under the heading 'The jurisdiction to make ancillary orders in cost proceedings', at paragraph 13:
'The substantive costs application is governed by CPR 48.2 that requires little by way of procedural formality for the determination for such applications other than the service of the funding party as parties to the application. It is reasonably plain from the case law summarised in the notes in the Civil Practice 2009 to this part of the CPR that what is intended is a summary procedure for the determination for such an application.'
[Note CPR 48.2 then read:
'48.2— Costs orders in favour of or against non-parties
(1) Where the court is considering whether to exercise its power under section 51 of the Supreme Court Act 19811 (costs are in the discretion of the court) to make a costs order in favour of or against a person who is not a party to proceedings–
(a) that person must be added as a party to the proceedings for the purposes of costs only; and
(b) he must be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.
(2) This rule does not apply–(a) where the court is considering whether to–
(i) make an order against the Legal Aid Board;
(ii) make a wasted costs order (as defined in 48.7); and
(b) in proceedings to which rule 48.1 applies (pre-commencement disclosure and orders for disclosure against a person who is not a party).']
[24] For completeness, Blake J in Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); [2010] C.P. Rep. 5 also held that it was 'plain' (paragraph 15) that a 2 hearing (with cross examination) was not inconsistent with 'such proceedings' (meaning, summary procedure)
[25] In Germany v Flatman (also known as Weddall v Barchester Healthcare Ltd) [2013] EWCA Civ 278; [2013] 1 WLR 2676 ('Flatman'), Leveson LJ summarised Thomson, under the heading 'Disclosure', from paragraphs 48 and 49:
'The starting point is the test set out by Blake J in Thomson v Berkhamsted Collegiate School [2009] 6 Costs LR 859 based on the observations of Lord Brown in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807. Having observed [2009] 6 Costs LR 859, para 17 that if the case was inherently weak, it was inherently improbable that an order would be made and that if overwhelming, it was unlikely that ancillary orders for disclosure, inspection or cross-examination would be necessary, he summarised in the following principles at para 18:
“(i) The order for payment of costs by a non-party would always be exceptional and any application should be treated with considerable caution.
“(ii) The application should normally be determined by the trial judge who could give effect to any views he had expressed as to the conduct of the non-party without constituting bias or the appearance of bias.
“(iii) The mere fact that someone has funded proceedings would generally be insufficient to support an application that they pay the costs of the successful party. Pure funders, as described at the case of [Hamilton - COA], para 40, will not normally have the discretion exercised against them. That definition of ‘pure funders’ means those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course.
“(iv) It is relevant but not decisive that the defendant has warned the non-party of the intention to seek costs or that the non-party's funding has caused the defendant to incur the costs it would not otherwise have had to incur.
“(v) The conduct of the non-party in the course of the litigation and other than as a pure witness of material fact is of relevance and potential weight.
“(vi) Most of the decided cases on the exercise of the court's discretion under section 51 concerned commercial funders or corporate bodies closely associated with the party who incurred the costs liability which they were unable to satisfy. In the family context, the courts have been reluctant to impose third party costs orders against those family or friends who in the interests of access to justice assist a party to come to court for philanthropic and disinterested reasons.
“(vii) In determining these applications the court must exercise its case management powers to ensure that the application does not turn into satellite litigation that results in prolonged, complex and overextended arguments about costs about costs. For that reason the inherent strength of the application is always a relevant factor.”
Blake J then at para 19 commendably summarised the factors to be considered when considering whether disclosure was necessary for the fair determination of the application in these terms:
“(i) the strength of the application as it now appears unassisted by disclosure; (ii) the potential value to the fair determination of the application of the documents of which the claimant seeks disclosure and whether they are likely to elucidate considerations highly probative of the *2692 exercise of the court's discretion, or threaten to drag the application into a side alley of satellite litigation with diminishing returns for the overall issue; (iii) whether on a summary assessment it is obvious that the documents for which disclosure is sought will be the subject of proper legal professional privilege; (iv) whether the likely effect of any order the court might be minded to make will be proportionate and just in all the circumstances.”'
[26] In Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB); [2010] C.P. Rep. 5, Blake J went through the following:
(1) strength (paragraphs 20-30);
(2) Relevance of the disclosure to the issues in the application (paragraphs 31 to 34);
(3) Likelihood of privilege existing in respect of this material (paragraphs 35 to 40);
(4) Justice and proportionality (paragraphs 41 to 49),
before reaching his conclusion (paragraphs 50 to 56)
[27] Chilab is a non-party security for costs case under CPR r.25.14, where a defendant/respondent to an appeal, sought a security for costs order against a non-party.
CPR r.25.14(2) contains statutory pre-conditions to making such an order. The issue in Chilab was whether the statutory pre-condition r.25.14(2)(b) was satified - i.e. whether 'the person...has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings') was satisfied/met (paragraph 3).
By way of background, a claimant/husband/former pupil ('Husband') sued his college/defendant ('College') for 'damages arising out of his failure to obtain, or to be awarded, a Master of Science degree' (paragraph 1). The Husband's claim was dismissed at first instance. The Husband appealed to the Court of Appeal. Permission to appeal was granted with a warning as it prospects of success and risk it would be an pyrrihic victory (paragraph 1). The Husband's wife 'contributed substantially' (paragraph 1) to the Husband's legal costs (after his legal aid was withdrawn). The College sought from the Court of Appeal a non-party security for costs order against the Wife in respect to the appeal. That application was considered by Hughes LJ and Tomlinson LJ (at first instance). Focusing on the '...in return for a share of any money...' of r.25.14(2)(b) aspect, Hughes LJ agreed with certain concessions/formulations put forward by the College, namely, that:
(1) the CPR r.25.14(2)(b) statutory pre-condition was '...not met simply because the contributing spouse may expect or hope that if a substantial sum of damages is recovered by her husband, the family as a whole will enjoy a better lifestyle' (paragraph 4). Confirming the position, Hughes LJ agreed that 'that would not amount to a contribution in return for a share of any money recovered.' (paragraph 4)
(2) '...what must be shown is that the contributor must expect some payment out of the money recovered.' (paragraph 4)
(3) '...there need not necessarily be a legally binding agreement; ... particularly as between spouses, such an agreement might in some circumstances exist without any intention on their part to create legal relations, and thus that there may not necessarily have to be a legally binding contract.' (paragraph 4)
Hughes LJ then:
(1) rejected the submission that 'a contribution made by a funder without any agreement to receive in return a share of money recovered might meet the statutory condition if subsequently there were a promise by the recipient claimant to make such a payment.' Hughes LJ said that: (a) that would do 'violence to the language of the statutory condition' (paragraph 5); and (b) 'The statutory condition requires a contribution, or agreement to contribute, as the case may be, to be made or agreed in return for a share.' (paragraph 5)
(2) stated that 'The natural inference is that the contribution has been made by the wife because she is devoted to her husband and wishes to support him in something which rightly or wrongly he thinks is very important to him. In other words, the contributions have been made out of what the law rather pompously calls “natural love and affection' (paragraph 7). He rejected the College's submission that the natural inference in such circumstances, were the exact opposite, namely that the wife's contributions would be in exchange for a promise to share the proceeds of the litigation (see paragraphs 6 and 7);
(3) tested his conclusion as to natural inference (paragraph 8), by stating that the Husband sought: (a) a declaration that he was entitled to the degree not awarded; and (b) damages, but that the Husband would continue with the claim even just for (a), he took the view that the '...wife would support him by contributing to his costs if the claim were only a claim for a declaration.' (so it cannot be she is contributing in return for some of the money).
(4) said, at paragraphs 9 and 10 of Chilab:
'The statutory condition makes it absolutely clear that for an order for security for costs against a third party to be justified there must be something quite different from the natural love and affection which appears to be motivator in the present case. Here there is literally nothing. The references to the spouses treating their several assets as family assets do not come within a country mile of establishing an expectation of payment of part of any damages. It is really just the same thing as saying that the wife makes such resources as she has available to her husband precisely because he is her husband; in other words, out of natural love and affection.
This litigation – good, bad or indifferent as it may turn out to be – is the husband's fight. He may have become unduly wedded to it, but it is his fight, not hers, and she is supporting him because she is his wife. That is not a basis for an order for security for costs. That is enough to dispose of the present application.'