Autumn is well underway. I took most of the summer off this year, after the horrors of last summer and returned last month from Rhodes and before that Portugal, feeling refreshed and ready for the challenge of a new legal year. Soon the clocks will change, and we shall face the long descent into the dark, before the seasons change again and the long haul to spring begins.
Autumn is also the season of legal conferences and next week is the ACL Conference in London, where I shall be delivering a talk on Non Party Costs Orders (NPCOs) which is one of the more conceptually troubling areas of costs work, and which throws up any number of challenges. It is also one of the areas of practice that produces the sort of hard edged legal argument, which makes this job so enjoyable.
The jurisprudence on NPCOs is legion and never ceases to flow, as the scope for such an Order is wide, and can arise in any number of contexts. The appellate courts positively disapprove of the citation of first instance decisions in other first instance cases, as there is limited value in doing so, as they are inevitably fact sensitive. Nonetheless they are interesting for a number of reasons. A recent decision which caught my eye is that of Paper Mache Tiger Limited v Lee Mathews Workroom Pty Ltd (in Liquidation) v Lee Mathews  EWHC 338 (Comm).
First, the case provides a useful aide memoire of the various principles and criteria which assist, if not govern, the court’s very wide discretion as to what is “just”:
8. I was referred to the summary of relevant principles contained in Goknur v Aytacli  EWCA Civ 1037;  4 WLR 101 (Goknur). In that case at , Lord Justice Coulson, with whom the rest of the Court agreed, summarised the legal principles which apply to NPCO applications as follows (with full references to the cases citation where they first appear):
“a) An order against a non-party is exceptional and it will only be made if it is just to do so in all the circumstances of the case (Gardiner v FX Music Limited (2000) WL 33116500 (27 March 2000, unreported), Dymocks Franchise Systems (NSW) Pty Limited v Todd and others  UKPC 39,  WLR
b) The touchstone is whether, despite not being a party to the litigation, the director can fairly be described as “the real party to the litigation” (Dymocks, Goodwood Recoveries v Breen  EWCA Civ 414, Threlfall).
c) In the case of an insolvent company involved in litigation which has resulted in a costs liability that the company cannot pay, a director of that company may be made the subject of such an order. Although such instances will necessarily be rare (Taylor v Pace Developments Ltd  BCLC 406), s.51 orders may be made to avoid the injustice of an individual director hiding behind a corporate identity, so as to engage in risk-free litigation for his own purposes (North West Holdings Plc (In Liquidation (Costs)  EWCA CIV 67). Such an order does not impinge on the principle of limited liability (Dymocks, Goodwood,
d) In order to assess whether the director was the real party to the litigation, the court may look to see if the director controlled or funded the company’s pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party (Metalloy Supplies Ltd v MA (UK) Ltd  1 W.L.R. 1613, Metalloy). But if the company’s stance was dictated by the real or perceived benefit to the individual
director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the “real party”, and could justly be made the subject of a s.51 order (North West Holdings, Dymocks, Goodwood).
e) In this way, matters such as the control and/or funding of the litigation, and particularly the alleged personal benefit to the director of so doing, are helpful indicia as to whether or not a s.51 order would be just. But they remain merely elements of the guidance given by the authorities, not a checklist that needs to be completed in every case (Systemcare (UK) Limited v Services Design Technology  EWCA Civ 546).
f) If the litigation was pursued or maintained for the benefit of the company, then common sense dictates that a party seeking a non-party costs order against the director will need to show some other reason why it is just to make such an order. That will commonly be some form of impropriety or bad faith on the part of the director in connection with the litigation (Symphony Group plc v Hodgson  QB 179, Gardiner, Goodwood, Threlfall).
g) Such impropriety or bad faith will need to be of a serious nature (Gardiner, Threlfall) and, I would suggest, would ordinarily have to be causatively linked to the applicant unnecessarily incurring costs in the litigation.”
9. I was also referred to Asprey Capital Limited v Rediresi  EWHC 28 (Comm). In that case, Patricia Robertson KC, sitting as a Deputy High Court Judge made the following ten additional points at  – , which I gratefully adopt:
a. The NPCO jurisdiction is a highly fact-specific jurisdiction;
b. There is now an abundance of authority on the absence of any need for abundant authority on the principles which should guide a judge as to whether to make a third party order for costs (per Moses LJ in Alan Phillips Associates Ltd v Terence Edward Dowling t/a The Joseph Dowling Partnership & Ors  EWCA Civ 64, at .);
c. In the particular context where the order is sought to be made against the director or shareholder of an insolvent company, there must be some factor that makes it just to make the order, notwithstanding the principle of limited liability. The decided cases offer examples but are not exhaustive of the factors that might be relevant, or the ways in which these might combine in a given case to tip the balance.
d. The only immutable principle is that the discretion must be exercised justly – Deutsche Bank v Sebastian Holdings  EWCA Civ 23 at ;
e. Funding, by itself, may be consistent with the director pursuing the proceedings for the benefit of the company. Equally, however, the absence of funding will not preclude the making of an order if the proceedings were being run for the personal benefit of the director, rather than in the interests of the company. Impropriety in the conduct of the proceedings, where serious, may justify an order even where the element of personal benefit is lacking. However, it does not follow that some lesser degree of impropriety is irrelevant in a case where there are also other factors in favour of making an order. Ultimately, it is not a matter of operating a “checklist” but an exercise of a broad discretion. Something that would not be sufficient by itself may be the feather that tips the scale when it is viewed cumulatively with other features of the case.
f. Whilst the NCPO jurisdiction is a “summary jurisdiction”, it does not follow that it will only be exercised (a) where the Court can deal with the matter shortly and (b) without determining any disputed issues of fact.
g. Whereas the trial judge may be able to deal with a s51 application very swiftly, that may not be as true where the application has to be dealt with by a judge other than the trial judge. It does not follow, however, that the application must proceed as if it were a mini-trial. The Court can in principle limit the length of the hearing, limit (or indeed not permit) cross examination, limit the parties to the “big 5 points” and, where appropriate, decide the matter on the basis of witness statements alone, so as “to ensure that the application is dealt with as speedily and inexpensively as is consistent with fairness to both sides”: Robertson Research International Limited v ABG Exploration BV and Others at  and  (13 October 1999, Unreported, Mr Justice Laddie).
h. When deciding whether to make an order in circumstances where some of the relevant facts are disputed, the Court does not approach the matter as if it were an application for summary judgment: Greco Air Inc v Tokoph  EWHC 115 (QB)  per Burton J. Rather, the Court must balance considerations of proportionality and justice, bearing in mind that this is a form of satellite litigation which should not be allowed to expand beyond reasonable bounds.
i. In most cases, justice is adequately served by the Court doing the best it can to resolve disputed matters on the documents, which it does on a balance of probability (Centrehigh Ltd v Amen  EWHC 625 (Ch) at -);
j. The absence of a warning that a party intended to seek an NPCO, given whilst the litigation was still in progress, is capable of being a relevant factor pointing against making an order, if an earlier warning might have altered the way the non-party conducted themselves in ways relevant to the exercise of discretion. If, however, the non-party is, objectively, “the real party” to the litigation, “the
absence of a warning may be of little consequence” Deutsche Bank v Sebastian Holdings  EWCA Civ 23 at  and .
Secondly, it illustrates how common factors in common scenarios can affect the overall decision, and provides a useful gauge, for thinking how a particular case may turn out. When undertaking any form of litigation, after all the purpose first, last and always, is not to write a legal essay, but to win.
If you are coming along to the ACL next week, I shall be there all day (and into the evening courtesy of Hailsham Chambers generous hospitality) so please come over and say hello.