COURT REFUSES TO MAKE ORDER THAT A DEFENDANT DISCLOSES FUNDING ARRANGEMENTS

In Rudd v Bridle & Anor [2019] EWHC 1986 (QB) Mr Justice Warby refused a claimant’s application for disclosure of the defendants’ funding arrangements.

 

Beyond this is the common-sense point, that the Court will not be keen to allow its own scarce resources and those of the parties to be consumed in pursuit of remedies that could not be real and effective.”

THE CASE

The claimant had been partially successful in a claim against the first defendant (an individual) and failed against the second defendant (a company). The individual (Mr Bridle) had been ordered to pay half the claimant’s costs but to provide an indemnity in relation to the company’s costs that the claimant had to pay and pay the claimant’s costs against the company on an indemnity basis.

THE APPLICATION FOR FUNDING DISCLOSURE

The claimant made an application for funding disclosure.  Seeking information “”the identity of the individuals, companies or entities who have financed or provided financial support to the defendants or either of them during and in relation to the present litigation and related documents” (“the Funding Disclosure Application”).”

THE LEGAL PRINCIPLES

The judgment contains a helpful summary of the legal principles.
Legal framework
    1. The basic legal framework is not in dispute. The court has power to make orders for costs against non-parties. This is part of the general power to make orders as to the costs of proceedings which is conferred by s 51(3) of the Senior Courts Act 1981: see Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965. There are many circumstances that could in principle justify a third-party costs order, but commonly, third parties are targeted on the basis that they have funded an unmeritorious claim or defence.
    2. The factors to be considered, and the relevant principles, have been the subject of consideration in a substantial number of reported and unreported cases, including Symphony Group Plc v Hodgson [1994] QB 179 (CA), Hamilton v Al Fayed (No 2) [2002] EWCA Civ 665 [2003] QB 1175Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Others [2004] UK PC 39 [2004] 1 WLR 2807, Petroleo Brasileiro SA v Petromec Inc [2005] EWHC 2430 (Comm) [2005] All ER (D) 48, and Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23. The general principles that can be extracted from these authorities include the following:
(1) The power to make a costs order against a non-party is exceptional in the sense that such orders are not usually made. Such an order may only be made where there has been conduct by the non-party such as to render the order just and reasonable: see Symphony Group at 192H (Balcombe LJ);

(2) The power will not generally be used against “pure funders”, that is to say persons who provide financial support to a litigant but who have no personal interest in the litigation, who do not stand to benefit from it, who do not fund the litigation as a matter of business, and who do not seek to control its course: Dymocks [25(1) – (3)] (Lord Brown).

    1. The modern jurisprudence is well summarised in Turvill v Bird [2016] EWCA Civ 703 [2016] BLR 522, where Hamblen LJ (with whom Gross LJ agreed) said this:
“24. 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.”
He was referring, among others, to these observations of Moore-Bick LJ in the Deutsche Bank case at [62]:
“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.”
    1. Hamblen LJ went on to say this:
“27. The authorities illustrate “the variety of circumstances in which the court is likely to be called upon to exercise the discretion” and “the kind of considerations upon which the court will focus”, but are not to be treated as providing “a rulebook”. The kind of considerations illustrated by the authorities include the following:
(1) Whether the non-party funds the proceedings and substantially also controls or is to benefit from them and is the “real party” to them;
(2) Whether the non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit;
(3) Whether there is impropriety by the non-party in the pursuit of the litigation.
(4) Whether the non-party causes costs to be incurred….
28. (1) (2) and (3) are all examples of circumstances in which non-party costs orders have been made. Generally (4), causation, is also required “to some extent” (per Morritt LJ in Global Equities Ltd v Globe Legal Services Ltd [1999] BLR 232) although it is not a necessary pre-condition, as held in Total Spares & Supplies Ltd v Antares SRL [2006] EWHC 1537 (Ch). In that case, however, there was still a causal link between the non-party’s actions and the claimant’s costs recovery in that he had deprived the claimant of any realistic opportunity of recovering its costs. The link was with the recovery of costs rather than the incurring of costs, but in both cases the claimant has to bear costs in circumstances where he otherwise would not have done.”
    1. Procedurally, a court considering whether to exercise the power to make a third-party costs order must add the third party to the proceedings for the purposes of costs only, and give the person a reasonable opportunity to attend a hearing at which the court will consider the matter further: CPR 46.2(1). There may of course be a need to identify third parties, as a preliminary step towards engaging them in this process. Funders may be covert, or anonymous. It is clear that the court has a discretionary power, ancillary to its costs jurisdiction, to require a party to disclose to the other party the names of those who have financed the litigation: Abraham v Thompson [1997] 4 All ER 362, 368 (CA), Raiffeisen Zentralbank Osterreich AG v Crossseas Shipping Ltd [2003] EWHC 1381 (Comm) [7] (Morison J). This is the power relied on by the claimant on this application.
    2. There is authority that this power extends to directing the disclosure of information going beyond the mere identity of the third-party funder. The court can make whatever ancillary orders will make the section 51 remedy effective, so that in an appropriate case the court may exercise a discretion to order more against the party who has been funded than simply the disclosure of the names of those individuals who have funded the litigation: see Automotive Latch Systems Ltd v Honeywell International Inc [2008] EWHC 3442 (Comm) [13], [16] (Flaux J).
    3. The disclosure sought and ordered in the Automotive Latch case extended to the identities of any funders; the amount of such funding; the terms on which it was provided; the extent of each such party’s involvement in the conduct of the action; and the nature and extent of the third party’s interest (financial or otherwise) in the outcome of the action: see ibid [3] and [17]. The order sought on this application tracks the form of order granted in that case.
Issues
  1. The first main issue between the parties in relation to the Funding Disclosure Application is whether the claimant has made out any or any sufficient case that the defence of the claim was to any material extent funded by any third party.
  2. The second main issue is whether, in any event, the claimant would have a real prospect of securing a third-party costs order. The claimant’s case is that there is a real prospect that this might be sought, and granted, and the court should grant the disclosure sought, to allow the claimant to consider his position. The case for Mr Bridle is that there is no real prospect that any such order would be made. It is said that (a) the costs claimed are clearly grossly inflated, but whatever the liability turns out to be, there is no reason to suppose that Mr Bridle cannot satisfy the liability from his own resources; (b) there is in any event no basis for believing that, applying the principles I have cited, the court would exercise its discretion to make a third-party costs order.
  3. The third main issue relates to the Company. It has no costs liability to the claimant; on the contrary, it is a creditor of the claimant. Clearly, no third-party costs order could be made in relation to the Company’s costs. The defendants’ position is that for this reason any funding of the Company is irrelevant. The claimant’s case is that the Company’s financial affairs are so interlinked with those of Mr Bridle that an order that forces the Company to explain its ability to pay its own costs is essential, for the claimant and the court to gain an accurate picture as to the finances of the defendants and the sources of the funds that have been made available to them.
  4. The onus of proof and of persuasion must of course lie on the applicant for such an order.

THE EXERCISE OF THE DISCRETION IN THIS CASE

The judge refused the claimant’s application.  There was no evidence of any third party funder seeking financial gain from the litigation.  The application was being made against the defendants.

  1. All of this being said, I remind myself that the onus lies on the claimant to demonstrate a basis for exercising the discretion to order disclosure. It is not sufficient to point to things that could have been said, or explanations that could have been given. That would be to reverse the burden of proof. The receiving party has a right to be paid but that does not come with a right to interrogate the paying party. As Mr Fairbairn submits, the mere fact that a costs order has been made does not entitle the receiving party to full disclosure of the paying party’s assets, or a full explanation of how that party proposes to meet his obligation. And there are other important points about the defendants’ role, the funding of their defence, and the asset position that seem clear, or sufficiently clear for present purposes, and are unhelpful to the claimant.
  2. The first, and rather obvious point is that Mr Bridle and the Company were the defendants to the claim. Neither they nor anybody funding them could have had any expectation of financial gain from the litigation. The best outcome that could have been achieved was to ward off the claim, and secure a costs order in the defendants’ favour. That would, in practice, only partly recoup their outlay. I am unable to identify any other form of gain that any third party could have achieved as a result of funding the defence of the claim. This serves to distinguish the present case very sharply from a case such as Automotive Latchwhere the disclosure application was made by the successful defendant, which had incurred costs of $17 million defending a claim for up to $3 billion which clearly had been funded by non-parties, apparently having a vested interest in the outcome.
  3. Next, I have not detected any evidence, nor any proper basis for an inference, that any third party was or may have been controlling or managing or directing the conduct of the defence. It is no longer suggested, as it was at one stage, that the defence was being controlled, directed, and funded by asbestos industry interests.
  4. Thirdly, it is no longer suggested that the evidence shows or suggests that the defence of the claim was or may have been funded by asbestos industry interests. The defendants have consistently maintained that there were no third- party asbestos industry funders. Although it is now clear that the defence of the claim was funded to some extent by third parties, none of them were in that category. In fact, by the end of the hearing it had become clear that only three non-parties played a part in funding the defendants: (1) insurers, (2) the Company, and (3) J&S Bridle Associates, a partnership comprising Mr Bridle and his wife Susan (“the Partnership”). Mr Vassall-Adams made clear that the claimant did not seek to suggest any other third parties had been or may have been involved. It follows that if there was ever a justification for requiring disclosure of third-party identities, there is no longer any need to do so.
  5. Fourth, the evidence about third-party funding is tolerably clear, and does not reveal any impropriety, or grounds for suspecting impropriety, or any other circumstances that in my judgment could arguably justify a third-party costs order.

COURT RESOURCES

One aspect of the judgment was the fact that the claimant’s application could not read to a real or effective remedy.

  1. Beyond this is the common-sense point, that the Court will not be keen to allow its own scarce resources and those of the parties to be consumed in pursuit of remedies that could not be real and effective. The claimant is not interested in going after the Company, for the obvious reason that it is balance-sheet insolvent. That leaves him with a potential claim against the Partnership, which is what Mr Vassall-Adams was forced to fall back on. But the evidence is that the Partnership’s resources have been entirely exhausted already. The claimant’s team can, and do, say that the evidence does not expressly say that the Partnership never received any funds from any source other than the trading activities it undertook up to 2004. But I have been given no reason to suppose that it did. I see no evidence to suggest that there is some hidden resource available to the Partnership, or Mrs Bridle. Rather the contrary.