In a landmark ruling, the Supreme Court has confirmed that a person who funds litigation, but is not a party to the proceedings, may be liable for some or all of the costs of the proceedings where they are the main controller of, and driving force behind, the litigation and stand to benefit if the party they are funding is successful (Moorview Developments Ltd & Ors v First Active plc). Arthur Cox acted on behalf of First Active plc, as now substituted by Ulster Bank Ireland DAC.
In light of this decision, it is no longer possible for non-party funders to hide behind the corporate veil to avoid a costs order against them personally.
LITIGATION FUNDING IN IRELAND
Litigation funding is where a third party provides financing to allow legal proceedings to progress. Professional third party litigation funding where a commercial organisation unconnected to the litigation in question funds the litigation with a view to making a profit is not currently allowed in Ireland. Third party funding is, however, allowed where the funder has a lawful interest or some legitimate concern in the litigation, e.g. as a shareholder or creditor of a company that is party to the litigation (Read more on litigation funding here and here)
A group of companies owned and controlled by developer Brian Cunningham brought a number of proceedings against First Active plc, but were ultimately unsuccessful. The High Court made various costs orders against the companies, some of which were insolvent, which they were not in a position to meet. On the application of First Active, the High Court made Mr Cunningham, in his capacity as director, shareholder and prime mover of the litigation, personally liable for the costs. This was one of the first cases in this jurisdiction in which an order for costs was made against a non-party, and the first in which a director/shareholder of an insolvent company was made liable for costs incurred by an insolvent company.
Mr Cunningham disputed the power of the High Court to make a non-party costs order and appealed to the Supreme Court.
POWER TO MAKE A NON-PARTY COSTS ORDER
The Supreme Court emphatically held that the Irish courts have power to order costs against a non-party in appropriate circumstances.
The rationale behind non-party costs orders is that non-parties should not be permitted to reap the benefit of successful litigation without bearing the risk of any personal exposure to costs in the event that the case is unsuccessful. In this regard, the Supreme Court noted that there is an important policy objective in allowing costs to be awarded against non-party funders in order to prevent them from having a "free ride" in the manner in which they conduct litigation.
The Supreme Court endorsed the following factors to be considered in assessing the merits of an application for what is now colloquially known as a "Moorview" order:
1. The extent to which it might have been reasonable to think that a party to the proceedings could meet any costs if it failed in its action;
2. The extent of the non-party funder's interest in the litigation, including the extent to which a non-party funder stands to benefit from the litigation;
3. The non-party funder's role in the litigation, including the degree to which the non-party controls the litigation;
4. The overall reasonableness of bringing or defending the proceedings and the manner in which the proceedings were conducted;
5. Whether there was any bad faith, impropriety or fraud on the part of the non-party funder (though this is not a pre-requisite); and
6. Whether the non-party funder was on notice of the intention to apply for a non-party costs order, the point at which he/she was put on notice, and the extent of the notice provided.
The Court stressed that this is not an exhaustive list and that other factors may be relevant depending on the facts of a given case.
PUTTING THE NON-PARTY FUNDER ON NOTICE
Where a party to proceedings believes that their opposing party will not be in a position to pay the costs of the proceedings if they fail in their action, but is being funded in the background by a non-party, he/she should notify the non-party funder as soon as possible that they will seek costs against him/her personally.
In WL Construction Limited v Chawke & Anor, the Court of Appeal held that a "Moorview" order could not be granted where the non-party against whom the order was sought was not on notice of the possibility that a costs order might be sought against them. This decision is currently under appeal to the Supreme Court and we await its decision in this regard. However, the Supreme Court in Moorview found that, although notice is a factor to be considered, a failure to put the non-party funder on notice is not a bar to the court making a costs order against him/her personally.
» The Irish courts have the power to make non-party costs orders in appropriate circumstances.
» Where a party to litigation believes that the other party cannot meet an order for costs, or is being funded by a non-party, further enquiries should be made as soon as possible.
» It is advisable that the non-party is put on notice, at as early a stage in the proceedings as possible, that a party to the proceedings will be seeking a non-party costs order against them personally.