Facts
Appeal
Non-party costs orders
Court's general discretion in relation to costs
Decision
Comment


The High Court recently gave judgment on an appeal against a master's costs decision in A P (UK) Limited v West Midland Fire & Civil Defence Authority.(1) The master's costs decision related to a non-party costs order made against Ravindra Patel, Ganshyam Patel and Parul Patel. The judgment is interesting for its comprehensive overview of non-party costs orders and its comments relating to the court's wide discretion as to costs in general.

Facts

A P (UK) Limited (APL) was a paper making and processing business based in Wolverhampton. Ravindra Patel and Parul Patel were directors of APL. Ganshyam Patel, a shadow director, was the main decision maker and controlled the litigation.

APL brought a fire claim against the West Midland Fire & Civil Defence Authority relating to a fire in APL's factory that had been fought by the fire authority. The claim was dismissed in March 2001 after APL failed to comply with two unless orders to provide security for the fire authority's costs.

In February 2005, only three days before the limitation period expired, APL issued a second claim against the fire authority. The claim form was served shortly before it expired, but the particulars of claim were served two days out of time. The fire authority applied to strike out the claim. Judgment with an order for costs in favour of the fire authority was handed down in March 2006, by which point APL had gone into administration. APL's administrators informed the fire authority that APL could not pay those costs.

APL was dissolved in January 2008. The fire authority applied for, and was granted, an order joining the Patels to the proceedings for the purposes of costs recovery. The master ordered the Patels (among other things) to pay 80% of the fire authority's costs of the second action, estimated at that stage to be approximately £140,000.

Appeal

The master's decision was appealed to a High Court judge by both the Patels and the fire authority on various grounds. However, ultimately the only issue for the appeal court was whether the 80% apportionment ordered by the master was appropriate.

In summary, the fire authority contended that given the principles on which non-party costs orders are made and the master's findings of fact, there was no middle ground on the costs that the Patels should be ordered to pay – either it was the costs in full or nothing at all. The Patels contended that the master had given insufficient weight to the fact that they had acted in good faith and in what they perceived were the best interests of APL. They further contended that the master had failed to take into account the fire authority's conduct, which – the Patels argued – was the real reason that the fire authority had incurred such substantial costs.

Non-party costs orders

There is no express provision setting out the court's power to award costs against a non-party. Instead, the court's jurisdiction is based on Section 51 of the Senior Courts Act, which was applied to make a non-party costs order for the first time in Aiden Shipping v Interbulk Ltd (The Vimeira) (No 2).(2) The court had exercised this jurisdiction cautiously for some time, but there has been a gradual shift towards a greater willingness to order non-parties to pay costs.

Applications for non-party costs orders in complex cases, particularly those involving multiple non-parties, tend to have the three distinct stages that are often dealt with at multiple hearings – namely:

  • the application to join the non-parties to the action for the purposes of costs;
  • the terms of the costs order to make against these parties; and
  • the detailed assessment of such costs as the non-party is ordered in principle to pay.

Court's general discretion in relation to costs

As set out above, the appeal in A P (UK) Limited was in the end limited to considering only whether the 80% apportionment ordered by the master was the correct order to make (ie, the second of the above stages). The judge considered the extent of the court's general discretion regarding costs and, in particular, the following parts of Civil Procedure Rule (CPR) 44.3:

  • CPR 44.3(4) and CPR44.3(5) – when deciding what costs order (if any) to make, "the court must have regard to all the circumstances, including… the conduct of all the parties…[which] includes- (a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed the Practice Direction (Pre-Action Conduct)…(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (c) the manner in which a party has pursued or defended his case or a particular allegation or issue".
  • CPR 44.3(6) – the court may order a party to pay "a proportion of another party's costs".

Decision

In arriving at her decision, the master had focused on the conduct of APL and the Patels, but gave little or no weight to the fire authority's conduct. The master decided to discount the liability of the Patels by 20%, principally because:

  • there were differences between their individual positions;
  • she had not found that the Patels had acted in bad faith, with any impropriety or had hidden behind shell companies; and
  • she had found that the Patels had brought the action in good faith for the benefit of APL.

In the High Court the judge found that the master's decision to order a percentage discount of the Patels' liability was appropriate. However, he considered that when determining what that discount should be, she should also have considered in more detail and given more weight to the fire authority's conduct. While he acknowledged the various instances of poor conduct on the part of APL and the Patels – in particular, bringing the second claim extremely late and not complying with the pre-action protocol – he considered that the fire authority had had at least four opportunities to dispose of the claim before substantial costs were incurred:

  • The fire authority should have set out in its pre-action response letter detailed reasons why APL's claim would fail and that if APL continued to pursue its claim, the fire authority would immediately seek security and a striking out order. In the judge's view, this would "inevitably have caused [APL] to think again about the wisdom of proceeding further".
  • Had the fire authority sent such a detailed response and otherwise followed proper pre-action procedure, APL would have had to reply to the fire authority's detailed response, thereby "forcing it to rethink its strategy".
  • If the parties had correctly followed pre-action procedure, it "could, indeed should, have precipitated a without prejudice meeting between the parties' legal representatives, during which the [fire] authority's legal representatives could have explained how formidable the [fire] authority's position… really was", which would have forced the Patels to rethink their strategy.
  • If the above initiatives failed, the fire authority "should have applied for security for costs to be provided by way of unless order".

Taking into account the fire authority's conduct, the judge concluded that the Patels' liability should be discounted by a further 30%, resulting in them being liable for 50% (not 80%) of the fire authority's costs.

Comment

This decision serves as a warning to defendants. This was a claim pursued not once, but twice, by claimants who were by all accounts impecunious. Having had the second claim brought against it, the fire authority presumably dealt with matters in a way that it, no doubt on advice, considered most appropriate in the circumstances. It must be supposed that the fire authority wanted to do nothing other than dispose of the claim as quickly and cost effectively as possible, and no doubt this informed its strategy.

Despite this, the High Court judgment effectively sets out a series of actions (or lack thereof) by the fire authority which, in the judge's view and with the benefit of hindsight, caused the fire authority to incur significant fees. The court must consider the actions of all parties when exercising its discretion as to costs. However, it is surprising that, given the facts of this case, the judge placed such a high emphasis on a defendant's supposed failure to dispose quickly and cost effectively of a claim which, in all likelihood, had minimal prospects of success.

This case provides two useful reminders. First, non-party costs orders can be a useful tool in a successful party's armoury when it comes to costs recovery. Second, the court has wide discretion as to costs in general. This decision is perhaps an example of the post-Jackson court's increasing appetite to encourage all parties to act in the most cost-effective and proportionate manner possible.

For further information on this topic please contact Daniel Wyatt at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (daniel.wyatt@rpc.co.uk).

Endnotes

(1) [2013] EWHC 385 (QB).

(2) [1986] 1 AC 965.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.