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Non Party Costs Orders

Introduction

1. A person on the street would be surprised to hear that costs orders may be made against

those who have never been parties to litigation.

2. There have been interesting recent attempts to extend the ambit of such orders, but the

higher courts continue to favour the right of access to the courts over the winning

party’s right to recover costs, as with the narrow construction of the law of security for

costs.

Jurisdiction

3. Sections 51(1) and (3) Senior Courts Act 1981 state as follows:

“51.— 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) the civil division of the Court of Appeal;

(b) the High Court; and

(c) any county 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.”

Recognised Categories of NPCO

4. In Aiden Shipping Co. Ltd v Interbulk Ltd [1986] AC 965 the vessel Vimeira was

chartered by Aiden to Interbulk under a time charter. Interbulk then sub-chartered the

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vessel to ICCO under a voyage charter, under which the vessel discharged a cargo of

grain in Holland, but in doing so suffered rudder damage.

5. It was alleged that there had been a breach of the safe port clause in both charters. The

owners commenced arbitration proceedings in London against the charterers, and the

charterers commenced similar proceedings against the sub-charterers. The charterers

sought an indemnity from the sub-charterers. Both arbitrations were determined on

points which were not in issue, and they were remitted to the arbitrators.

6. The owners then applied to introduce a new point demonstrating the lack of safety of

the port. Charterers added the same point against the sub-charterers.

7. The judge dismissed the owners' application against the charterers, and in consequence,

the charterers' application against the sub-charterers was also dismissed.

8. A question then arose as to the order for costs. It was plain that the charterers were

entitled to an order against the owners that they should pay the charterers' costs of the

owners' application, and that the sub-charterers were entitled to a similar order against

the charterers. But the question arose whether the judge had jurisdiction to order that

there should be included, in the charterers' costs which the owners were liable to pay,

the costs which the charterers were ordered to pay to the sub-charterers.

9. The judge held that, having regard to the wide terms of section 51(1) of the Act of 1981,

he had jurisdiction to make such an order which, in the exercise of his discretion, he

then made. He therefore ordered that the owners pay the charterers' costs of the

application (such costs to include any costs paid by the charterers to the sub-charterers

in the sub-arbitration proceedings).

10. The owners then appealed to the Court of Appeal against the judge's order as to costs,

who allowed the appeal, holding that they were bound by previous decisions of the

court to hold that an order for costs could only be made against a party to the

proceedings in question.

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11. The House of Lords held that what was then s51(1) Supreme Courts Act 19811 did not

contain an implied limitation to those who were parties to the litigation.

12. In Symphony Group Plc v Hodgson [1994] 1 QB 179 the Claimant, a manufacturer of

kitchen units, employed the defendant under a contract which included a term

restricting him from engaging in the manufacture or supply of kitchen furniture for one

year after termination of his employment with the plaintiff.

13. The employee accepted an offer from a competitor, and alleged that the employer had

repudiated the contract, having taken advice from his new employer’s solicitors. The

previous employer successfully obtained an order injuncting the employee from

working for the new employer.

14. The previous employer also sought the costs of the application from the new employer

under section 51(1) of the Supreme Court Act 1981 1, and was granted them. However

the new employer was granted leave to appeal.

15. The Court of Appeal held as follows:

(1) Since issues on which the Claimant had relied in the action formed the basis of

a cause of action against the new employer, it would be unjust to allow them to

be raised in the summary application for costs where the new employer was

deprived of the procedural protection to which it would have been entitled if it

had been a defendant to the action;

(2) The new employer had been disadvantaged by the failure of the Claimant to

inform it of its intention to make the application;

(3) The new employer’s connection with the original proceedings was not close

enough to justify admission of the judge's findings of fact in the action as

evidence in the costs application; and

(4) Accordingly, the circumstances were not such as to justify the exercise of the

court's discretion to make an order for costs against the new employer.

1 “Subject to the provisions of this or any other Act and to rules of court, the costs of and incidental to all

proceedings in the civil division of the Court of Appeal and in the High Court, including the administration of

estates and trusts, shall be in the discretion of the court, and the court shall have full power to determine by whom

and to what extent the costs are to be paid.”

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16. Significantly, NPCOs were divided into the following categories by Balcombe LJ (at

[191G – 192E]):

(1) Where a person has some management of the action (ie controllers) eg the

director of an insolvent company who causes the company improperly to

prosecute or defend proceedings. It was noted that, while it was not suggested

in any of the cases cited that it would never be appropriate to order the director

to pay costs, in none of them was the director so ordered.

(2) Where a person has maintained or financed the action (funders).

(3) Solicitors (legal representatives).

(4) Where the person has caused the action (causative persons) eg where D’s

negligence had caused P to suffer brain damage, causing a personality change

which precipitated a divorce. The CA held that D’s agreement to pay the costs

of the divorce proceedings could be justified.

(5) Where the person is a party to a closely related action which has been heard at

the same time but not consolidated (related persons).

(6) Group litigation, where one or two actions are selected as test actions.

17. Balcombe LJ accepted that these categories were neither rigid nor closed, but indicated

the sorts of connection which had so far led the courts to entertain a claim for costs

against a non party (at 192E).

18. He went on to give guidance for first instance judges as follows (at 192H – 194D):

(1) An order for the payment of costs by a non-party will always be exceptional.

The judge should treat any application for such an order with considerable

caution.

(2) It will be even more exceptional for a NPCO where the applicant has a cause of

action against the non party and could have joined him as a party to the original

proceedings.

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(3) The applicant should warn the non-party at the earliest opportunity of the

possibility that he may seek to apply for costs against him. The last two

principles 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.

(5) The fact that the trial judge may in the course of his judgment have expressed

views on the conduct of the non party constitutes neither bias nor the appearance

of bias.

(6) The procedure for the determination of costs is a summary procedure2, not

necessarily subject to all the rules that would apply in an action. For instance it

may well be appropriate for judicial findings being admissible as evidence of

the facts upon which they were based in proceedings between one of the parties

to proceedings and a stranger (the non party).

(7) The judge should be alert to the possibility that an application against a non-

party is motivated by a resentment of an inability to obtain an effective costs

order against a legally aided litigant.3 The courts are well aware of the financial

difficulties faced by parties who are facing legally aided litigants at first

instance, but the Regulations lay down conditions designed to ensure that there

is no abuse of legal aid, and the court will be very reluctant to infer that solicitors

to a legally aided party have failed to discharge their duties under the

Regulations. This principle extends to a reluctance to infer that any maintenance

by a non party has occurred.

Pure Funders/Controlling Litigation

19. In Tolstoy – Miloslavsky v Aldington [1996] 1 WLR 736 the Claimant sought to set

aside a substantial libel judgment on the basis that it had been induced by fraud. The

application was struck out as an abuse of process.

20. An application was made for a NPCO against the solicitors and Counsel, who had acted

pro bono.

2 See also Hedrich v Standard Bank London Ltd [2008] EWCA Civ 905 [2009] PNLR 3 at [6]; [10] – [13], and

[78], making a similar point in the context of wasted costs orders. 3 Or, it might be added, against any other litigant who cannot satisfy a costs order.

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21. The judge ordered the solicitors to pay 60 per cent of the defendant's costs on the ground

that they had put themselves in the position of “third party funders” of the litigation.

22. The Court of Appeal held that there was no jurisdiction, under section 51(1) and (3) of

the Act of 1981, to make an order for costs against legal representatives acting as such;

but that, on the facts, the solicitors' conduct was so unreasonable as to found a wasted

costs order under section 51(6) of the Act, and the judge's order was correct.

23. At 745H – 746A Rose LJ stated that there were only three categories of conduct which

can give rise to an order for costs against a solicitor: (1) if it is within the wasted costs

jurisdiction; (2) if it is otherwise a breach of duty to the court eg acting without authority

or in breach of an undertaking, and (3) if he acts outside the role of solicitor, eg in a

private capacity or as a true third party funder for someone else. Nor is it relevant that

a legal representative is on a contingent fee, as opposed to a normal retainer, or no fee

at all: 746B – D.

24. He went on to comment as follows (at 746B – D):

“There is, in my judgment, no jurisdiction to make an order for costs against a

solicitor solely on the ground that he acted without fee. It is in the public interest,

and it has always been recognised that it is proper, for counsel and solicitors to

act without fee. The access to justice which this can provide, for example in

cases outwith the scope of legal aid, confers a benefit on the public. Section 58

of the Act of 1990, which legitimises conditional fees, inferentially

demonstrates Parliament's recognition of this principle. For it would be very

curious if a legal representative on a contingent fee and, therefore, with a

financial interest in the outcome of litigation, could resist an order for costs

against himself but one acting for no fee could not. Whether a solicitor is acting

for remuneration or not does not alter the existence or nature of his duty to his

client and the court, or affect the absence of any duty to protect the opposing

party in the litigation from exposure to the expense of a hopeless claim. In

neither case does he have to “impose a pre-trial screen through which a litigant

must pass:” see per Sir John Donaldson M.R. in Orchard v. South Eastern

Electricity Board [1987] Q.B. 565, 572–574.”

25. The mere fact of acting under a CFA is not a factor which points in favour of imposing

a NPCO, even though there is a financial interest in winning which is not present under

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a normal retainer: Hodgson v Imperial Tobacco [1998] 1 WLR 1056, 1065G, 1067F –

G.

26. In that case a large number of plaintiffs brought actions against the defendants, three

tobacco companies, claiming damages for personal injuries by reason of cancer which

they claimed was caused by smoking cigarettes manufactured by the defendants. The

plaintiffs entered into conditional fee agreements with their legal representatives

pursuant to section 58 of the Courts and Legal Services Act 1990. Under the agreements

the lawyers were to recover the costs of representing the plaintiffs only if the action was

successful.

27. The defendants requested the disclosure of the agreements, indicating that in due course

they might, if so advised, wish to seek an order for costs against the plaintiffs' legal

advisers personally. The plaintiffs refused to disclose the agreements and applied for

an order debarring the defendants from seeking costs against the plaintiffs' legal

representatives other than by way of a wasted costs order. At a hearing for directions in

chambers the judge refused to make a pre-emptive order relating to costs and, further,

ordered that the parties and their legal advisers should not make any comment to the

media about the litigation without leave of the court.

28. The Court of Appeal dismissed the appeal against the refusal to make the pre-emptive

order relating to costs. It held as follows:

(1) The existence of a conditional fee agreement did not entitle a legal adviser to

come to any additional or collateral arrangement with his client which would

not be permissible without such an agreement.

(2) Therefore, a legal adviser acting under a conditional fee agreement which

complied with section 58 of the Act of 1990 was no more at risk of being made

personally liable for the costs of a party other than his client than one who was

not acting under such an agreement.

(3) In any event, any pre-emptive order would have to be so qualified that in practice

it would not provide the plaintiffs' lawyers with any protection.

(4) Accordingly, in the circumstances it would not be appropriate to make such an

order.

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29. The essential policy underlying the cases is that the unfunded party’s ability to recover

his costs must yield to the funded party’s right of access to the courts to litigate the

dispute in the first place. This is so most conspicuously in the CFA cases and those

concerning security for costs. The argument that pure funders should not be liable to a

NPCO is given powerful support by the policy on CFA cases. Although the client may

obtain insurance (and therefore secure the other side’s costs) this will not always be so

and is certainly not a condition of acting under a CFA: per Simon Brown LJ in Hamilton

v Al Fayed (No. 2) [2002] EWCA Civ 665 [2003] QB 1175 at [45].

30. Lord Justice Simon Brown (as the then was) described the facts as follows:

“1 On 21 December 1999, following a five-week trial before Morland J and a

jury, Mr Neil Hamilton famously lost his libel action against Mr Al Fayed

arising out of the "cash for questions" scandal. To the question "Are you

satisfied on the balance of probabilities that Mr Al Fayed has established on

highly convincing evidence that Mr Hamilton was corrupt in his capacity as a

Member of Parliament?", the jury returned the answer "Yes". Mr Hamilton was

ordered to pay Mr Al Fayed's costs.

2 On 15 January 2001, following Mr Hamilton's failed application to the Court

of Appeal (Lord Phillips of Worth Matravers MR, Sedley and Hale LJJ) [2001]

EMLR 394 for permission to appeal against the jury's verdict in the light of Mr

Al Fayed's subsequently revealed purchase of documents stolen during the trial

from Mr Hamilton's counsel's dustbin, those costs were assessed in default in

the sum of £1,467,576. Some £1.19m of that sum remains unpaid, Mr Hamilton

personally having paid nothing towards it and having now been bankrupted.

3 The present proceedings relate to Mr Al Fayed's efforts to recover his unpaid

costs from a number of individuals who backed Mr Hamilton's unsuccessful

action…”

31. Following the claimant's failed application to the Court of Appeal for permission to

appeal against the jury's verdict, those costs were assessed in the sum of £1,467,576.

Some £1.19m of that sum remained unpaid, the claimant personally having paid nothing

towards it and having subsequently been made bankrupt. The defendant applied for an

order for costs under section 51 of the Supreme Court Act 1981 against the 18 largest

contributors to the fund. Several of the contributors settled with the defendant, except

for nine who contested their liability.

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32. The judge rejected the defendant's application, holding that the contributors were pure

funders and not liable.

33. The Court of Appeal dismissed Mr. Al-Fayed’s appeal:

(1) Pure funders were generally exempt from liability under section 51(3) of the

1981 Act for the costs of the successful unfunded party.

(2) The unfunded party's ability to recover his costs had to yield to the funded party's

right of access to the courts.

(3) The pure funding of litigation was in the public interest provided that its

essential motivation was to enable the funded party to litigate what the funders

perceived to be a genuine case.

(4) Such an approach ought not to be confined merely to relatives moved by natural

affection but should extend to anyone who wished to ensure that a genuine

dispute was not lost by default or inadequately contested.

(5) If the law allowed impoverished parties to litigate without having to provide

security for their opponent's costs, those sympathetic to their plight should not

be discouraged from assisting them to secure representation.

(6) Accordingly, the judge was right to conclude that the nine contributors were

pure funders who were not liable for the successful defendant's costs.

34. The leading judgment was given by Simon Brown LJ:

“44 It is time to state my conclusions on the appeal. As I observed earlier (see

paragraph 16 above) conflicting principles are here in play and only one can

prevail. Should the law accord priority to the funded party gaining access

to justice or to the unfunded party recovering his costs if he wins?

45 Although none of the authorities to my mind precisely dictates the result of

this appeal, I conclude that on balance they clearly favour the respondents'

argument and that the unfunded party's ability to recover his costs must

yield to the funded party's right of access to the courts to litigate the dispute

in the first place. That seems to me to be the essential policy underlying the

cases. Perhaps most conspicuously this is so in two of the categories of case

discussed above: the CFA cases and those concerning security for costs. The

respondents' argument arising out of the CFA ruling is really a very powerful

one: if in these cases solicitors (or, indeed, barristers) are not to be liable for the

other side's costs if their client's claim fails, why should the pure funder be?

True, the client may obtain insurance and secure the other side's costs in that

way, but this will not always be so and is certainly not a condition of acting

under a CFA. True too, the lawyers will generally not be prepared to act under

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a CFA unless the claim has reasonable prospects of success thus arguably

securing in a different way the public interest referred to by Sir Thomas

Bingham MR in Roache v News Group Newspapers Ltd [1998] EMLR 161 (of

deterring actions likely to be lost), deterrence perhaps less likely to be achieved

in funding cases where the backers will probably not be exercising the same

careful judgment as the CFA lawyers. As against that, however, it must be

remembered that in CFA cases the lawyers are entitled to a substantial uplift in

costs if the claim succeeds, and for this the defendant will be liable. The

defendant's potential liability for costs in a CFA case is therefore greater than

in an ordinary case and, of course, greater still than if the claimant is either

unrepresented or represented pro bono. It could, indeed, be argued that unless

both sides' costs are (a) the same and (b) actually able to be recovered in

the event of success, the playing field of justice is uneven. That, however, is

very plainly not the approach taken by the law. Rather, the law's policy

with regard to CFAs is plainly to favour access to justice.

46 The court's approach to security for costs is similar: see in particular

Millett LJ's judgment in Abraham v Thompson [1997] 4 All ER 362, 377 cited

in paragraph 34 above. The law allows a claimant to litigate, at any rate at first

instance, however clear it is that the defendant's costs could not be met—even,

indeed, if the claimant can be shown to be expending all his assets in meeting

his own costs. This same policy, moreover, underlies the legal aid scheme as

it applies at first instance: the only circumstances in which the successful

unfunded party can recover his costs from the fund are (a) if he is the

defendant and (b) if he would otherwise suffer hardship. True it is that in a

legal aid case—as Macpherson J pointed out in the Singh case [1989] 2 All ER

751, 757 (see paragraph 20 above)—counsel are required "to give fearless

opinions as to the merits of a case as a condition of continuing legal aid".

Against that, however, it should be borne in mind that in legal aid cases the

sanction of bankrupting the unsuccessful funded party—which Millett LJ in the

Abraham case, at p 377, said "has always been regarded as a sufficient deterrent

to the bringing of proceedings which are likely to fail"—is unavailable.

47 By the same token that Phillips LJ in the Murphy case [1997] 1 WLR

1591 found legal expenses insurance to be in the public interest (see

paragraph 26 above) so too in my judgment the pure funding of litigation

(whether of claims or defences) ought generally to be regarded as being in

the public interest providing only and always that its essential motivation

is to enable the party funded to litigate what the funders perceive to be a

genuine case. This approach ought not to be confined merely to relatives

moved by natural affection but rather should extend to anyone—not least

those responding to a fund-raising campaign—whose contribution

(whether described as charitable, philanthropic, altruistic or merely

sympathetic) is animated by a wish to ensure that a genuine dispute is not

lost by default (or, as concerned Lord Portsmouth here, inadequately

contested). I recognise, of course, the very real differences between the Murphy

case and the present, not least in that the two specific benefits identified by

Phillips LJ as likely to accrue to the other party from legal expenses insurance—

the early consideration of the claim's merits and the provision of funds which

may cover an adverse costs order—are substantially less likely to accrue in the

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case of pure funding (although it is by no means impossible that the funds

provided may enable the funded party to meet at least part of his costs liability

if he loses). Whereas in the Murphy case, however, the court expressed itself

unconcerned as to whether or not the making of section 51 orders against

insurers would reduce the availability of such cover, here it seems to me plain

beyond question that if pure funders are regularly exposed to liability under

section 51, such funds will dry up and access to justice will thereby on occasions

be lost.

48 In expressing my conclusions thus far I have intentionally spoken in very

general terms and sought to deal with pure funding cases as a broad category. It

seems to me that nothing could be more inconvenient and productive of satellite

litigation than to hold that some pure funding cases are likely to attract section

51 orders, others not, depending merely on the sort of considerations which

moved Judge John Hicks QC to decide against the funder in the Thistleton case

32 Con LR 123. For my part, therefore, whilst I am disposed to accept Miss

Gloster's argument that hitherto the courts have not clearly laid down a

rule that pure funders are generally to be regarded as exempt from section

51 orders, I am against her submission that they should ordinarily be held

liable. So long as the law continues to allow impoverished parties to litigate

without their having to provide security for their opponent's costs, those

sympathetic to their plight should not be discouraged from assisting them

to secure representation. Thus is access to justice promoted, and another

benefit too—fewer litigants in person.” (emphasis added)

35. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39 [2004] 1 WLR

2807 Lord Brown summarised the principles governing the exercise of discretion as

follows (at [25]):

(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 for 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”

i.e. 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

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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 the non-party not merely funds the proceedings but substantially 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”,

or… “a real party…” to the litigation.

36. A NPCO should not be made when the relevant costs would have been incurred anyway

without the involvement of the non-party: Dymocks at [18] – [20]; Systemcare at [23].

37. In Flatman v Germany [2013] EWCA Civ 278 the Court of Appeal described the

position post-Dymocks as follows (at [26] – [28]):

“26. In the Knight case, the High Court of Australia dealt with the issue in this

way (per Mason CJ and Deane J at page 192):

"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."

27. Applying these observations to the position of a solicitor, in Myatt v

National Coal Board (No 2) [2007] 1 WLR 1559, Dyson LJ explained the

current position at [8]-[9]:

"In my judgment, the third category described by Rose LJ in the Tolstoy-

Miloslavsky case should be understood as including a solicitor who, to use the

words of Lord Brown in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, is

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'a real party … in very important and critical respects' and who 'not merely funds

the proceedings but substantially also controls or at any rate is to benefit from

them'. I do not accept that the mere fact that a solicitor is on the record

prosecuting proceedings for his or her client is fatal to an application by the

successful opposing party, under s.51(1) and (3) of [the Senior Courts Act

1981], that the solicitor should pay some or all of the costs. Suppose that the

claimants had no financial interest in the outcome of the appeal at all because

the solicitors had assumed liability for all the disbursements with no right of

recourse against the clients. In that event, the only party with an interest in the

appeal would be the solicitors. In my judgment, they would undoubtedly be

acting outside the role of solicitor, to use the language of Rose LJ."

28. Thus, as Eady J put it, if a funder is "a real party" in the sense that he has an

interest in the outcome of the litigation it may not matter that it would be

inappropriate to describe that funder as "the real party". Eady J went on:

"It may suffice, depending upon the circumstances, that the funder has

something to gain alongside the nominal party. In the case of a solicitor, for

example, it is not necessary to demonstrate that in the event of the litigation

leading to a successful outcome he would be the sole beneficiary. Even though

his client may recover compensation for himself, the solicitor could still be

regarded as benefiting, or potentially benefiting, from the case to the extent that

a costs order should be made against him."”

Solicitors

38. In Myatt v National Coal Board (No. 2) [2007] EWCA Civ 307 [2007] 1 WLR 1559

the Court of Appeal had dismissed the Claimants’ appeals against the finding that the

conditional fee agreements were unenforceable. The issue was whether there was

jurisdiction to make an order that the Claimants’ solicitors, Ollerenshaws, pay some or

all of the Defendant’s costs.

39. Dyson LJ held that the mere fact that a solicitor is on the record prosecuting proceedings

for his or her client was not fatal to an application for a NPCO: Myatt at [8]. An NPCO

was made in the case because the main reason why the appeal was launched was to

protect the solicitor’s claim to their profit costs of £200,000 in all 60 cases: [12]. The

decision was expressly limited to cases where the litigation was funded by a CFA and

where the issue was as to the enforceability of the CFA: [23].

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40. It was important to emphasise the need for parties who think that they may apply for an

order for costs against solicitors in similar circumstances to warn the solicitors at an

early stage, so as to give them a reasonable opportunity for deciding whether or not to

continue with proceedings: per Dyson LJ at [14].

41. Despite Lord Brown’s description of a respondent funding proceedings (paragraph

43(3) above), funding the proceedings is not a jurisdictional pre-requisite to making a

NPCO; it is sufficient to establish jurisdiction if a respondent has effectively controlled

the proceedings and has sought to derive potential benefit from them: Systemcare at

[27].

42. If a solicitor funds disbursements as the case proceeds, does that render a NPCO likely

if the claim fails? In Flatman v Germany [2013] EWCA Civ 278 the Court of Appeal

answered in the negative (at [45] – [46]):

“45. In my judgment, therefore, the legislation does visualise the possibility that

a solicitor might fund disbursements and, in that event, it would not be right to

conclude that such a solicitor was 'the real party' or even 'a real party' to the

litigation. As for the policy imperative argued by Mr Brown, after the event

insurance is not a pre-requisite of bringing a claim on a CFA (see King v

Telegraph Group [2005] 1 WLR 2282 at paragraph 100 and Floods of

Queensferry Ltd v Shand Construction Ltd (supra) at paragraph 37). The fact

that a litigant can (or cannot) afford an expert report or the court fee says nothing

about his or her ability to fund the costs incurred by opponents in an

unsuccessful claim and, indeed, Eady J (at paragraph 25 of his judgment)

recognised that the solicitor could advance disbursements with a technical

(albeit improbable) obligation for repayment.

46. That much is also clear from the fact that solicitors are entitled to act on a

normal fee or conditional fee for an impecunious client whom they know or

suspect will not be able to pay own (or other side's costs) if unsuccessful (see

Sibthorpe v Southwark BL [2011] 1 WLR 2111 at paragraph 50; Awwad v

Geraghty [2001] QB 570 at 588; Dophin Quays Developments Ltd v Mills

[2008] 1 WLR 1829 at paragraph 75.”

43. There has been no case in which mere alleged negligence on the part of solicitors in

relation to obtaining After the Event Insurance (“ATE”) has been sufficient on its own

to justify a NPCO.

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44. In Heron v TNT and Mackrell Turner Garrett [2013] EWCA Civ 469 the Court of

Appeal held that failure to obtain ATE alone was not sufficient to justify a NPCO.

45. The case started out as a claim that the solicitors firm had negligently failed to obtain

ATE and had then influenced the litigation so as to conceal their negligence from their

client, in going to extreme lengths to avoid paying the other side’s costs, even though

it should have been clear that C would not beat D’s offers at trial.

46. Leveson LJ stated as follows:

“31. There is no doubt that a non-party costs order can be made against legal

representatives but that, in every case, such an order is exceptional (see per

Balcombe LJ in Symphony Group Plc v Hodgson [1994] 1 QB 179 at 192). The

principles were then subject to elaboration by Lord Brown in Dymocks

Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39 [2004] 1 WLR 2807

(at para. 25) in these terms:

"(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 ….

(2) Generally speaking the discretion will not be exercised against 'pure

funders', described in para 40 of Hamilton v Al Fayed (No 2) [2003] QB

1175, 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". …

(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… 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

[Knight v FP Special Assets Ltd (1992) 174 CLR 178] provided that he

is 'a real party in … very important and critical respects'."

16

32. Mr Bacon also relied on the observations of Dyson LJ (as he then was) in

Myatt v National Coal Board (No 2) [2007] 1 WLR 1559 when he said (at para.

8):

"In my judgment, the third category described by Rose LJ in the Tolstoy-

Miloslavsky case [acting outside the role of solicitor] should be

understood as including a solicitor who, to use the words of Lord Brown

in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, is 'a real party …

in very important and critical respects' and who 'not merely funds the

proceedings but substantially also controls or at any rate is to benefit

from them'. I do not accept that the mere fact that a solicitor is on the

record prosecuting proceedings for his or her client is fatal to an

application by the successful opposing party, under s.51(1) and (3) of

[the Senior Courts Act 1981], that the solicitor should pay some or all

of the costs. Suppose that the claimants had no financial interest in the

outcome of the appeal at all because the solicitors had assumed liability

for all the disbursements with no right of recourse against the clients. In

that event, the only party with an interest in the appeal would be the

solicitors. In my judgment, they would undoubtedly be acting outside

the role of solicitor, to use the language of Rose LJ."

33. The context of that decision is, however, important. It concerned the

enforceability of a specific type of CFA agreements and had the potential to

impact on the solicitors' ability to claim profit costs in some 60 cases. Dyson LJ

made the point that although the decision had wider relevance, its relevance

"was limited to cases where the litigation is funded by a CFA and where the

issue is as to the enforceability of the CFA" (para. 23).

34. Mr Bacon also relied on two first instance decisions which he said were

illustrative examples of cases in which judges had made non-party costs orders

against solicitors in circumstances very similar to those which obtain here. In

Adris v The Royal Bank of Scotland plc [2010] 4 Costs LR 598, [2010] EWHC

941, Judge Waksman QC (sitting as a judge of the High Court) was concerned

with discontinued county court cases in relation to s.78 of the Consumer Credit

Act 1974 and made an order against a solicitor whose literature had represented

that "your solicitor will purchase, at their cost, a legal expenses insurance policy

[ie. ATE insurance]" but had failed to do so and failed to explain the costs

consequences. He also considered it "obvious" that the clients would not have

proceeded with this litigation without ATE insurance so that they would not

have been issued or progressed (see para. 43). That is clearly not this case and

in this fact-sensitive jurisdiction is entirely distinguishable.

35. The second case to which Mr Bacon directed our attention was an

unreported county court decision. In my judgment, that decision does not take

the analysis further even if (about which, with respect, I have real reservations)

it was correctly decided. On the wider issue and in any event, I deprecate an

ever-widening reference to judgments which have no authoritative value and

may be no more than examples of the exercise of judicial discretion.

17

36. Based on the facts as found by the judge and with which I would not

interfere, the application has to be put on the basis that the failure by MTG

to obtain ATE insurance (and the subsequent failure to admit that fact to

Mr Heron) is itself sufficient not only to give rise to a breach of duty to him

but, in addition, to demonstrate that MTG had become a 'real party' to the

litigation, the person 'with the principal interest' in its outcome, or that it

was acting 'primarily for his own sake'. If that was so, as I have said, every

act of negligence by a solicitor in the conduct of litigation (thereby giving

rise to a conflict) which means that an opposing party incurs costs which

might not otherwise have been incurred would be sufficient. When pressed

by Beatson LJ during the course of argument, Mr Bacon was unable to

identify a principled way of drawing the line so as to avoid this

consequence.

37. I do not accept that the law goes anything like that far. A solicitor is

entitled to act on a CFA for an impecunious client who they know or suspect

will not be able to pay own (or other side's costs) if unsuccessful (see Sibthorpe

v Southwark BL [2011] 1 WLR 2111 at para. 50; Awwad v Geraghty [2001] QB

570 at 588; Dolphin Key v Mills [2008] 1 WLR 1829 at para. 75). As far as the

other side is concerned, whether the solicitor has negligently failed to obtain

ATE insurance to protect his client (as opposed to not being able to obtain such

insurance) does not impact on the costs they will incur unless it is demonstrably

provable that the costs would not have been incurred (as in Adris). That is not

the case here.

38. Mr Sachdeva argued that the appeal was an attempt to short circuit

threatened professional negligence proceedings by Mr Heron to which

MTG would be able to put in issue questions of breach, causation,

contributory negligence and quantum all of which could be challenged by

cross examination. Speaking for myself, I doubt how live some of those issues

will be but that arguments can be deployed with the benefit of tested evidence

is beyond question. It is certainly appropriate for that forum to determine

the extent to which MTG may be liable to compensate Mr Heron for any

costs that he will have to pay to his employers' insurers; this summary

procedure is not.” (emphasis added)

2 July, 2013

VIKRAM SACHDEVA

39 Essex Street

London WC2R 3AT

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