Most costs orders are made between the parties to the litigation. But not always.
In some cases, the party on the record is not the real economic actor. The litigation may have been funded, controlled, promoted or pursued for the benefit of someone else. That person may be a director, shareholder, funder, insurer, group company, claims management company, commercial backer, litigation controller or other non-party standing behind the proceedings.
Where the named party cannot or will not meet an adverse costs order, the successful party may ask whether someone else should pay. That is the territory of non-party costs orders.
I advise and appear in applications for non-party costs orders, both for applicants and respondents. These applications are serious, fact-sensitive and often commercially sensitive. They should not be launched casually. Nor should they be ignored when threatened.
Why non-party costs orders matter
A non-party costs order can turn an otherwise worthless costs order into a real recovery. It can also expose a person or company to a substantial liability which they did not expect to face.
For applicants, the jurisdiction may provide a route to recovery where the losing party is insolvent, impecunious, asset-light, outside the jurisdiction, or merely a vehicle through which someone else chose to litigate.
For respondents, the application may be personally or commercially serious. A director, shareholder, funder or insurer may find that their involvement in the litigation is being examined in detail, with allegations about control, benefit, funding, conduct and fairness.
The court’s task is not simply to punish involvement in litigation. People fund, support and direct litigation for many legitimate reasons. The real question is whether, looking at all the circumstances, it is just to make the non-party liable for costs.
That requires evidence, judgment and careful presentation.
When I am instructed
I am commonly instructed in cases involving:
- Applications for non-party costs orders;
- Threatened applications against directors or shareholders;
- Claims involving insolvent or impecunious parties;
- Litigation funders;
- ATE insurers and liability insurers;
- Group companies and associated entities;
- Claims management companies;
- Commercial backers of litigation;
- Those said to have controlled or benefited from proceedings;
- Funded commercial litigation;
- Group actions and collective proceedings;
- Security for costs and adverse costs risk;
- Enforcement strategy after judgment;
- Privilege and disclosure issues;
- Appeals from non-party costs decisions.
The application may arise at the end of the case, but the facts which determine the outcome are often created much earlier.
Acting for applicants
For an applicant, the attraction of a non-party costs order is obvious. The opponent may have no money. The costs order may be practically useless. Yet someone else may have funded, controlled or benefited from the litigation.
The application must be built carefully.
It is usually necessary to identify:
- Who the proposed respondent is;
- What role they played in the litigation;
- Whether they funded the proceedings;
- Whether they controlled or influenced the conduct of the case;
- Whether they stood to benefit from success;
- Whether the named party can meet the costs order;
- What caused the applicant to incur the costs now claimed;
- Why it is just to make the order.
The application should not be a fishing expedition. Nor should it be a vague complaint that someone stood behind the losing party. The court will expect evidence and a coherent explanation of why the non-party should be made liable.
I advise applicants on whether a non-party costs application is worth making, what evidence is needed, when the application should be made, how the proposed respondent should be notified, and how the application should be framed.
Acting for respondents
For a proposed non-party respondent, the first task is to understand precisely what is alleged.
Is the allegation that the respondent funded the litigation? Controlled it? Benefited from it? Used the named party as a vehicle? Caused costs to be incurred? Acted improperly? Or is the application simply an attempt to find a solvent target after the event?
A respondent may have strong answers. They may have acted at arm’s length. They may have provided ordinary commercial support. They may have had no real control over the litigation. They may not have caused the applicant to incur the costs now claimed. They may not have stood to benefit in the way alleged. Or it may simply be unjust to make the order.
I advise directors, shareholders, funders, insurers, companies and individuals resisting non-party costs applications. These cases need a calm and structured response. Indignation is understandable, but evidence and analysis are more useful.
Directors and shareholders
Applications against directors and shareholders are common.
A company may bring or defend proceedings and then be unable to pay the costs order. The successful party may then look to those who controlled the company’s litigation, funded it, or stood to benefit from it.
But a director is not liable for costs merely because he caused a company to litigate. A shareholder is not liable merely because he hoped the company would succeed. The court will examine the reality of the involvement, the degree of control, the benefit sought, the funding position, the conduct of the litigation and the justice of the case.
These applications often involve a mixture of costs law, company law realities and commercial judgment. They can be powerful where the company was used as a litigation vehicle. They can be weak where the application is merely an attempt to get around ordinary principles of corporate personality.
I advise both applicants and respondents in non-party costs applications involving directors, shareholders and company controllers.
Funders and commercial backers
Litigation funders and commercial backers may be exposed to costs where their involvement goes beyond passive support, or where the justice of the case requires them to bear responsibility for the costs consequences of the litigation they enabled.
The issues may include:
- The extent of the funding;
- The funder’s expected return;
- The degree of control or influence;
- The adequacy of ATE insurance;
- The relationship between funding and security for costs;
- Settlement conduct;
- Whether the funded party can meet an adverse costs order;
- Whether the funder should bear costs as the price of the litigation it supported.
I advise funders, funded parties and opponents on non-party costs risk in funded litigation, including commercial claims, group actions and collective proceedings.
Insurers
Insurers may become involved in non-party costs disputes where they fund or control litigation, direct strategy, stand behind a defence, or are alleged to have been the real party interested in the litigation.
The question is not simply whether an insurer was involved. Insurers are often involved in litigation for entirely proper reasons. The issue is whether the nature and extent of the involvement makes it just for an order to be made.
I advise on non-party costs issues involving liability insurers, ATE insurers and other insurance-backed litigation.
Group companies and associated entities
Where one company litigates but another company funds, controls or benefits from the litigation, a non-party costs application may be considered.
These cases require close attention to the corporate structure and commercial reality. The court may need to understand who made the decisions, who paid the bills, who stood to gain, who controlled the litigation, and why the named party was used.
I advise on applications involving group companies, associated entities and commercial structures where the named litigant may not be the only relevant economic actor.
Group actions and collective proceedings
Non-party costs issues can be particularly important in group litigation and collective proceedings.
These cases often involve funders, insurers, special purpose vehicles, representative parties, class representatives, solicitors, claims management structures and substantial adverse costs risk. The funding and control of the litigation may be central to the case from the outset.
A defendant may seek security for costs or later consider a non-party costs application. A claimant team, funder or insurer may need advice on how to structure the litigation so that adverse costs risk is understood and managed.
I advise on non-party costs risk in group actions, collective proceedings and other multi-party claims.
Evidence, privilege and disclosure
Non-party costs applications often turn on documents.
The applicant may seek material showing funding, control, benefit, instructions, board decisions, insurance, settlement discussions or litigation strategy. The respondent may object on grounds of privilege, confidentiality, relevance or proportionality.
These issues need careful handling. Asking for too much may damage the application. Refusing too much may damage the response. The important question is usually: what evidence is actually needed to prove or answer the allegation?
I advise on the evidence, privilege and disclosure issues which arise in non-party costs applications.
Timing and procedure
Timing matters.
A non-party costs application made too late may face objections based on fairness and delay. An application made too early may lack the evidence needed to succeed. A proposed respondent should usually be given proper notice and a fair opportunity to respond.
The application should identify the proposed non-party, the order sought, the basis for the order, and the evidence relied upon. The court will expect clarity. A non-party should not be left to guess the case against them.
I advise on when to make an application, how to respond to one, what evidence is required, and what procedural steps should be taken.
Appeals
Non-party costs orders often involve discretion and evaluation. That does not make them immune from appeal, but it does affect how an appeal must be framed.
An appeal may require an error of principle, procedural unfairness, inadequate reasons, reliance on irrelevant matters, failure to consider relevant matters, or a conclusion outside the proper ambit of the court’s discretion.
I advise on appeals from non-party costs decisions, including prospects, grounds of appeal, permission and the commercial value of appealing.
Who I act for
I am instructed by solicitors, insurers, litigation funders, commercial parties, directors, shareholders, companies, costs lawyers, claimants, defendants and proposed non-party respondents.
I act for both applicants and respondents. That is useful because these applications are highly tactical. The strengths and weaknesses of an application are often clearest when viewed from both sides.
What to send when instructing me
When seeking advice on a non-party costs issue, it is helpful to send:
- The pleadings;
- The judgment or order giving rise to the costs issue;
- Any costs order already made;
- Any evidence about funding, control or benefit;
- Any funding agreement, ATE policy or relevant insurance material;
- Any correspondence with the proposed non-party;
- Any company or group structure information;
- Any application notice or draft application;
- Any witness statements;
- Any material relied upon to show insolvency or inability to pay;
- The amount of costs sought;
- Any relevant hearing date or deadline;
- A short chronology;
- A short note identifying the proposed target’s role.
These applications are fact-sensitive. A clear chronology and a focused explanation of the non-party’s alleged involvement are often essential.
Instructing me
I am often instructed where costs liability may extend beyond the named parties, or where a person or company is threatened with liability for the costs of litigation conducted in another name.
Non-party costs applications can be powerful, but they need judgment. They should be considered carefully before being launched, and answered carefully when made.
For availability, fee arrangements and urgent enquiries, please contact my clerks at Hailsham Chambers.