COSTS ORDERS AGAINST NON-PARTIES: THE RELEVANT PRINCIPLES CONSIDERED AND APPLIED

September 14, 2017 · by · in Costs

In Montpelier Business Reorganisation Ltd v Jones & Ors [2017] EWHC 2273 (QB) His Honour Judge Saffman (sitting as a judge of the High Court) considered the issue of costs against non-parties.  The principles relating to non-party order were considered and applied.

 

THE CASE

The judge had earlier delivered a judgment in favour of the defendants. The claimant was ordered to pay damages and costs on account.  The claimant company did not pay, it was insolvent.  Several of the defendants made an application for third parties, who it was said had been funding the action, pay the costs.

THE LEGAL PRINCIPLES

The judgment contains a detailed outline of the relevant legal principles.
The Law
    1. The jurisdiction of the court to make an order that the costs of any litigation be borne by someone who was not a party to that litigation is derived from section 51 Senior Courts Act 1981 which provides so far as it is relevant as follows:
Subject to the provisions of this or any other enactment and to rules of court the costs of and incidental to all proceedings in –
…. (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.
    1. It is common ground that, although the section does not say so in terms, it bestows upon the court the jurisdiction to make, in appropriate cases, an order that the costs of litigation be borne by a person who was not a party to the litigation.
    2. The procedure to be adopted in an application for a non-party costs order should be summary in nature with the judge making 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. The authority of that proposition is Deutsche Bank v Sebastian Holdings [2016] EWCA Civ 23 at paragraph 17.
    3. The principles by which a court must be guided when considering whether to make a non-party costs order have been considered by the courts on a number of occasions but a codification of the principles is perhaps best set out by Lord Browne in the Privy Council case of Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UK PC 39 paragraphs 25 to 29:
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 paragraph 40 of Hamilton v Al Fayed 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 174 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 as “the defendants in all but name”. Nor, indeed, is it necessary that the non-party be “the only real party” to the litigation in the sense explained in the Knight case, provided that he is “a real party in … very important and critical respects” : see Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406, 414 referred to in the Kebaro case [2003] FCAFC 5 at [96], [103] and [111]. Some reflection of this concept of “the real party” is to be found in CPR 25.13 (2) (f) which allows a security for costs order to be made where “the claimant is acting as a nominal claimant”.

4 ) Perhaps the most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed, financially insecure companies generally) in litigation designed to advance the funder’s own financial interests. 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 these 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. … [W]here 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. … [T]he 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 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.
    1. At paragraph 31 of Dymocks Lord Browne makes clear that the authorities establish that a failure to warn the non-party during the litigation of an intention to make an application for a non-party costs order is “no more than material consideration in the case” and is thus not determinative in any way. At paragraph 33 Lord Browne makes clear 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“.
    2. In paragraph 25(3) of his judgement in Dymocks it will be recalled that Lord Browne was considering the issue of control and who is the “real party” to the litigation. He concluded that it is not necessary that the non-party be the only real party to the litigation provided that he is “a real party in very important critical respects”. In paragraph 35 Lord Browne continues the theme of considering that question.
    3. The theme of establishing who was the real party to the litigation was taken up in the Deutsche Bank case above referred to. At paragraph 59 the Court of Appeal recognised that the basis for the judge’s non-party costs order made at first instance was that the non-party was the real party to the litigation. The court went on to say that “there is no reason in principle, therefore, why he …the non-party) should not be required to pay the whole of the costs for which Sebastian is liable.” As the 2017 White Book puts it at paragraph 46.2.2, the crucial factor is the nature and degree of the non-party’s connection with proceedings.
    4. In Weatherford Global Products Ltd v Hydropath Holdings Limited [2014] EWHC 3243 (TCC) Akenhead J had also had occasion to review the authorities. He too cited in full the extract from Dymocks that I set out in paragraph 13 above. He observed that the guidance given is merely guidance and not rules and that the issue of whether to make a non-party costs order is one of discretion to be exercised only to the extent that it is just to do so. The categories of case in which it is appropriate to make a non-party costs order are not rigid or closed and are very much fact sensitive. That indeed was a point made by the Court of Appeal in Symphony Group Plc v Hodgson [1994] QB 179 in which Balcombe LJ undertook a very comprehensive review of the law as at 1994 as established by the authorities to that date. He identified various factors to be considered in the exercise of the discretion including whether a person has some management of the action, whether a person has maintained or financed the action and whether he has caused the action.
    5. In Weatherford one of the factors that the learned judge regarded as being relevant to take into account in considering whether to make a non-party costs order was that the respondent to the application with which he had to deal was at all times the major shareholder in the company against whom costs orders had been made (see paragraph 24 (a) of the judgment).
    6. In PR Records Ltd v Vinyl 2000 [2008] EWHC 192 (Ch) it was recognised that a relevant consideration in whether to make a non-party costs order may be whether the party being funded was bringing the claim or defending it. It is clear from that case however that that particular issue cannot be determinative particularly in a jurisdiction like this which is clearly fact sensitive.
    7. Miss Toman, counsel for Mr Armitage also cites PR Records to support the contention that merely because one non-party may have a prominent role in either funding or control that does not necessarily exclude another non-party from a non-party costs order if he has some role to play in funding or control. In that connection she refers me to paragraph 35 of that judgment. It has to be said however that in that case the court was considering the dominance of a non-party over his wife who was actually a party to the action and against whom a costs order had been made as a party. The court was not considering the dominance of one non-party over another non-party both of whom were respondents to an application for a non-party costs order.
    8. The position of a company director in the context of this particular jurisdiction is a special one. This is because it is vital not to lose sight of the fundamental principle of English law that a company is a separate legal entity independent of its members and officers. The fact that the position of the director in the context of this jurisdiction is special derives from cases such as Taylor v Pace [1991] BCC 406 at page 409 in which Lloyd LJ had this to say:
“The controlling director of a one-man company is inevitably the person who causes the costs to be incurred, in one sense, by causing the company to defend the proceedings. But it could not be right that in every such case he should be made personally liable for the costs even if he knows that the company will not be able to meet the plaintiff’s costs, should the company prove unsuccessful. That would be too great an inroad on the principle of limited liability ………….. In the great majority of cases the directors of an insolvent company which defends proceedings brought against it should not be at personal risk of costs.”
    1. The special position of a company director has most recently been emphasised in the case of Housemaker Services Ltd v Cole [2017] EWHC 924 (Ch) in particular paragraph 11 to 15:
“11. However, the director of a limited company is in a special position. It is not an abuse of the process for a limited company with no assets to bring a claim in good faith. It is always open to a defendant to such a claim to apply for security of the costs. The mere fact that a director who controls the company’s litigation also funds the claim is not enough in the ordinary course to justify a non-party costs order against him if the company’s case fails.
12. A company is indeed owned by its members. But this does not mean that the shareholder is the “real” party to the claim. In law, the assets of the company (including any claim) belong to the company, and not to the members. Where the proceedings are brought in good faith and for the benefit of the company (rather than for some collateral purpose), the company is indeed the real claimant. If it were otherwise, the principle of the separate liability of the company from its members would be eroded.
13. Moreover, it is not an unusual thing let alone wrong, that a director who is a shareholder of a company and who funds the company’s claim will ultimately benefit from it if it is successful. It is simply a consequence of the policies adopted by our company law, allowing businessmen to take some risks in seeking profit without incurring unlimited liability. Subject to certain exceptions, such as the rules on wrongful trading, a director and shareholder can simply walk away from an insolvent company.
14. A person choosing to deal voluntarily with (or to sue) a limited company does so against that legal background. Any potential unfairness caused to a party who is (involuntarily) pursued by such a company is remedied by the security of the costs jurisdiction.
15. Accordingly, in order to make it just to order a director to pay the costs of unsuccessful company litigation, it is necessary to show something more. This might be for example that the claim is not made in good faith, or for the benefit of the company, or it might be that the claim has been improperly conducted by the director. So, for example, in both Gardiner v FX Music Ltd and Deutsche Bank v Sebastian Holdings Inc, a director of the unsuccessful corporate party was ordered to pay the costs to the successful party. But in each case the director had given false evidence and fabricated documents.”
    1. Mr Fennell draws particular attention to the observation in paragraph 15 of the report of that case that there is a need to show something more than simply that the funder is a director. The examples given by the court in that case are based upon improper conduct of some description by the funding director.
    2. In Gardiner v FX Music 2000 WL 3311 6500 the court considered issues of impropriety in the context of whether it was just to exercise the power to make a non-party costs order and said the following:
“Whatever the limits of the court’s jurisdiction to order a sole or guiding director of an insolvent company to pay the costs of an action brought by or against that company, it is clear that such discretion may be exercised in circumstances in which:-
1. The director had the management of the litigation on behalf of the company; and
2. The director acted improperly in conducting the litigation
There may be many categories of relevant impropriety. But such impropriety must be of a serious nature. I have no doubt however that sufficient impropriety might be shown if a director (a) deliberately pursues a concocted claim or defence, knowing it to be false; or (b) swears false evidence in support of such a claim or defence with the intention of misleading the court“
In this case of course MP Leeds is not a director of the claimant and nor is MPL.
    1. In Housemaker it will be seen that the learned Deputy High Court judge makes specific reference to the ability of a defendant to protect itself against an insolvent corporate claimant by making an application for security of the costs. A point made by Mr Fennell in this case is that no such application was made. Paragraph 17 of Housemaker makes it clear that the failure to apply for security for costs does not preclude a successful application under section 51 of the 1981 Act. It is merely a factor to take into account in deciding the manner in which the discretion to make a non-party costs order is exercised. There is indeed higher authority for that proposition since precisely the same point is made by Moore Bick LJ in the Deutsche Bank case at paragraph 49.
    2. In Metalloy Supplies Ltd v M. A. (UK) Ltd [1997] 1 WLR 1613 Millet LJ observed at page 1619

“it is not an abuse of the process of the court or in any way improper or unreasonable for an impecunious plaintiff to bring proceedings which are otherwise proper and bona fide while lacking the means to pay the defendant’s costs if they should fail. Litigants do it every day with or without legal aid. If the plaintiff is an individual the defendant’s only recourse is to threaten the plaintiff with bankruptcy. If the plaintiff is a limited company the defendant may apply for security for costs and have the proceedings dismissed if the plaintiff fails to provide whatever security is ordered“

    1. Deutsche Bank provides some guidance on what is meant by “funding”. It will be recalled that this is the issue which Lord Browne raises in Dymocks at paragraph 25.2). Funding is given a broad definition. It not only includes furnishing funds by which the litigation can be conducted but it also includes waiving entitlement to those funds. In short allowing the company to retain funds sufficient to enable it to conduct litigation was tantamount to funding. In Vaughan v Jones [2006] EWHC 2123 (Ch) David Richards J (as he then was) had to consider whether to make a non-party costs order and in that context he too considered the question of funding. At paragraphs 23 to 25 he observed that:
“23 …… If funds are provided to a litigant by way of loan with no further involvement by the lender and no interest in the litigation conferred on the lender, a costs order against the lender would not ordinarily be appropriate…… In my judgment, this is the correct approach as regards ordinary commercial lenders. Loans made on non-commercial terms for ulterior purposes are in a different category and may, depending on the circumstances, constitute funding which can justify an order for costs against the lender.
24. Those who not only fund litigation but benefit from it will ordinarily find that the discretion to make an order for costs against them is exercised……….
25. The relevant benefits have in all the authorities to which I was referred been a financial benefit which would have resulted directly from success by the funded party in the litigation…”
    1. There is a further principle to be derived from Vaughan to which Mr Fennell referred me and which can be found at paragraph 41 of the report of that case:
“41. An unsatisfactory feature of the case was that the grounds relied on by Mr Vaughan were not clearly set out in one document. Mr and Mrs Fowler were faced with something of a moving target and it was a matter about which their counsel protested at an earlier directions hearing as well as at the hearing before me. I consider it desirable, both for the respondents and for the court, that there should in these cases be a concise statement of the grounds and essential allegations of fact relied on by the applicant. This could be amended or supplemented, if the need arose“.
  1. A complaint made by Mr Fennell is that the case before me has been put on the basis that not only did MP Leeds and MPL fund the claimant but they also controlled the litigation whereas hitherto the application had been put on the basis that MPL and/or MP Leeds merely funded the litigation.
  2. Finally, since this is an exercise in discretion, it is acknowledged that there is jurisdiction appropriate to make an order that a non-party pay a percentage of the costs or the costs incurred over a specific period. The power to do so is not gained from the court’s general costs jurisdiction provided by Part 44 but rather simply part of the exercise of its discretion to reach a just result. The authority of that proposition is Myatt -v- National Coal Board [2007] EWCA Civ 207.

 

THE ORDER IN THIS CASE

The defendants’ application was made in respect of two limited companies – MPL and MP Leeds.
    1. I have concluded that it is appropriate to make a non-party costs order against MPL but not against MP Leeds.
    2. As regards MPL, I come to that conclusion for the following reasons and based upon the matters that I set out above:
a. I am satisfied that MPL was the vehicle through which Mr Gittins funded this litigation. Since, even on Mr Gittins’ evidence, this litigation was funded by means of an interest-free unsecured loan it clearly cannot be said that it was funded on commercial terms.
b. It is clear that MPL had much to gain from the successful outcome to this litigation both in terms of its ceasing to be vulnerable for the payment of £250,000 under its guarantee but also on the basis that a successful outcome would give rise to the prospect of the significant additional payments to which I have already referred. It is for this reason that I take the view that the distinction that Mr Fennell draws between Mr Gittins on the one hand and MPL on the other and which I refer to in paragraph 48g above does not really assist him. I am satisfied that MPL was the real party in this litigation even if the fact they became so was decision of Mr Gittins. It may be that Mr Gittins is susceptible to a non-party costs order, on the other hand he may not be. That is not a matter that I have to decide but whether he is or not does not mean that MPL is not on the basis that it was the vehicle through which this funding was provided and which would directly benefit from the successful outcome to the litigation.
c. There is clear evidence that MPL was exercising control. That was the evidence of Mr Nuttall at trial and it was not in any real sense disputed by Mr Gittins at trial. Even however if MPL was not exercising control that is not a bar to an order on the basis of paragraph 29 of Dymocks which indicates that an order should generally be made simply where it is established that the non-party has promoted or funded proceedings by an insolvent company solely or substantially for his own benefit.
d. I acknowledge the fact that MPL owns 50% of the shares in the claimant. I do not accept that that shareholding gives rise to the same special rules that apply to directors funding litigation. I acknowledge that the interests of directors and shareholders may well often elide but the status of directors and shareholders is completely different. The former are officers of the company in respect of whom various responsibilities to act in the best interests of the company repose by statute. I accept that there has been no impropriety but I do not accept that that gives rise to the same problems for an applicant for a non-party costs order against a shareholder as it would if such an application were made against a director. I remind myself that in Weatherford the very fact that the non-party was a major shareholder went into the scales in favour of making a non-party costs order.
e. As I have already said, I am satisfied that in effect MPL was the real party in this litigation and essentially had a great deal to gain from it, particularly bearing in mind that the claimant was a dormant company. I do not see how in those circumstances, once again quoting from paragraph 29 of Dymocks, that it can realistically be said that MPL was acting in the interests of the claimant rather than in its own interests when it funded (or predominantly funded) this litigation.
f. I recognise that non-party costs orders are exceptional but it is also appropriate to recognise the specific meaning that that word is given in the context of these applications namely that it means simply that they are outside the usual run of orders made in cases.
g. I accept that this application was based predominantly on funding rather than control and that issues of control were raised for the first time only in Miss Toman’s skeleton argument. I agree with her that it must have been very clear that control was also being asserted in the light of the evidence given at trial by Mr Nuttall and Mr Gittins and which was set out verbatim in the witness statement in support of the application. However even if I am wrong in taking account of control for the purposes of this application my conclusion would have been the same. It is clear that control is not a prerequisite. Control is important and, on the basis of paragraph 25.3 of Dymocks, if both funding and control are established, justice will normally require a non-party costs order, but absence of control of the litigation is not a bar to an order where otherwise it would be just to make it.
h. I accept that there has been no impropriety and while that is a factor where, as here, the respondent to the application is not the director of the unsuccessful party the absence of impropriety does not preclude the making of a non-party costs order. That much is clear from paragraph 33 of Dymocks.
i. I do not overlook that no application for security of the costs was made. That of course is not fatal to an application for a non-party costs order but it is a factor to be considered. The decision not to apply for security was in my view one which the defendants could reasonably reach in the circumstances in the light of the response that they got from the claimant’s solicitors when they raise the issue of security. In my view, it would be wrong to make an application for security of the costs a prerequisite to a successful application for a non-party costs order. It would essentially mean that generally a non-party costs order could only be made where the claimant was a company where there had been an unsuccessful application for security of costs.
j. I do not consider a non-party costs order to be disproportionate. This was a significant claim for over £1million and the costs are clearly substantial.
k. In the end, it seems to me that it is just that MPL, as the predominant if not the only funder and who had much to gain by the successful litigation should be responsible for the costs incurred by the defendants in successfully defending it. To borrow the words of Fisher J in the New Zealand case of Arklow which I refer to in paragraph 26 above, it would be wrong “to allow someone to fund litigation in the hope of gaining a benefit without the corresponding risk that that person will share in the costs of the proceedings if they ultimately fail.” In addition, it must be regarded as highly unlikely that this litigation would have seen the light of day in the form that it did had MPL not been prepared to fund it bearing in mind the fact that the claimant was a dormant and insolvent company. Even if that were not so however, there is simply ample evidence that MPL was the real party to this litigation because it held the purse strings and it would have predominantly benefited from a successful outcome.
    1. I have concluded that MP Leeds should not be subject to an order for the following reasons:
a. I am not satisfied that they were a real party to this litigation. I accept that there can be more than one real party to the litigation but there is no evidence that MP Leeds’s contribution to funding was so meaningful that this litigation depended upon it. There is equally no significant evidence of MP Leeds exerting any control.
b. I accept that it had something to gain from a successful outcome in that MPL would then be in funds which could be used to discharge debts it owed to MP Leeds. But it had no control over how MPL spent its money. MPL may have used any monies received by way of dividend or otherwise to reduce its indebtedness to MP Leeds, on the other hand it may not have done. The benefit to MP Leeds therefore of a successful outcome to this litigation was not in that sense a direct benefit but really no more than a contingent benefit. At any rate, it is hard to see it as the sort of benefit that derives directly from success by the funded party to which David Richards J referred in paragraph 25 of Vaughan.
c. I do not accept the argument put by Miss Toman to which I refer in paragraph 48e above, namely that it is appropriate to make an order against MP Leeds on the basis that it funded one group company for the benefit of another group company. As I have made clear, I do not accept that it has been established that MP Leeds funded the litigation to a sufficient extent to justify the making of a non-party costs order against it, nor that it had any material control over the litigation or that it was the real party or even one of two real parties.
d. I acknowledge that the position may conceivably arise where the group as a whole might endeavour to avoid liability of the costs by ensuring that neither the claimant nor MPL is in funds. I observe that it is not normally the position that the court will make an order against an entity just because there is a possibility that another party against whom an order is made may take steps to avoid satisfaction of a judgment. I do observe however that if that were to occur with the result that MPL was unable to pay the costs to the 4th defendant then he has the option of petitioning for the winding up of MPL and, as the 4th defendant well knows, if a winding up order is made and a liquidator appointed, the liquidator could then investigate the circumstances in which MPL may have divested itself of assets or otherwise put them beyond reach of its creditors and, if that was done in contemplation of avoiding liability, the appropriate proceedings to set aside that transaction or those transactions could be taken. In any event, it strikes me that the position of the 4thdefendant is far stronger in this case where it will have a right of recovery against the holding company which owns 80% of the shares in MP Leeds.
e. In addition, in the event that it is being asserted, I do not accept that it is right in principle to make an order against MP Leeds simply because it is a group company. Nowhere in the jurisprudence is it suggested that that is a basis for a non-party costs order where the other criteria to which I have extensively referred have not been established.
f. I have considered whether it is appropriate to make a partial order for costs against MP Leeds on the authority of Myatt to which I refer in paragraph 30 above. I do not think that such an order against MP Leeds is appropriate. Such an order would only be appropriate if I had concluded that at least to some extent MP Leeds was a real party to the litigation and that it was just to make such an order. I am not satisfied that MP Leeds was a real party to this litigation in any material degree at all because all the evidence points to the guiding hand or what can colloquially be termed the “organ grinder” here being Mr Gittins through the vehicle of his company, MPL.
Proposed order
  1. In the circumstances, I propose to order that MPL do pay the costs of Mr Armitage of the litigation on the same terms as such order was made against the claimant but to refuse Mr Armitage’s application for a non-party costs order against MP Leeds.
  2. I should add for the sake of completeness that the conclusions that I have reached would be the same even if the evidence of Mr Nuttall and Mr Gittins contained in their witness statements was accepted in its entirety. Having said that I do agree with Miss Toman that the authorities clearly suggest that applications of this nature require to be considered on the basis of any evidence relating to funding/control that was given at trial rather than that contained in subsequent witness statements.

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