In a recent judgement, the Supreme Court has upheld a High Court order for costs against a director of a number of companies (the Companies) which were involved in proceedings with First Active plc (First Active), despite the fact that the director was not a party to the proceedings.
The Court took the view that the director (Mr Cunningham), who also owned or controlled the Companies, had funded the proceedings and should be held accountable for the costs.
Background to the order for costs
The Companies had a banking relationship with First Active who advanced money to them. The relationship deteriorated over time, with the eventual appointment of a receiver over certain properties and allegations of fraud by the Companies against First Active.
Following lengthy litigation, and various sets of proceedings brought by the Companies spanning a number of years, the Companies claims were ultimately rejected by the High Court. Mr Justice Clarke held that Mr Cunningham should be made personally liable for the costs of First Active, despite the fact that Mr Cunningham was not a party to those proceedings. In making the order for costs, Mr Justice Clarke was satisfied that the Companies were insolvent and that that litigation was funded externally by Mr Cunningham. The Court noted that Mr Cunningham was the moving party behind the litigation and that he and his wife would have been the main beneficiaries had the proceedings been successful.
Mr Cunningham appealed the Order to the Supreme Court.
Factors to be taken into account in making non-party order for costs
In dismissing the appeal, Mr Justice McKechnie in the Supreme Court was satisfied that the High Court had jurisdiction to the make the order for costs by virtue of Order 15, Rule 13 of the Rules of Superior Courts or section 53 of the Supreme Court Judicature (Ireland) Act 1877. Mr Justice McKenchnie said that he did not believe that a trial judge’s exercise of the discretionary non-party costs jurisdiction should be burdened by complex or rigid principles. However, he did set out some non-exhaustive illustrative factors, which should be taken in to account in making such an order, which are as follows:
- The extent to which it might have been reasonable to think that the company could meet any costs if it failed;
- The degree to which the non-party would benefit from the litigation if successful, including whether it had a direct personal financial interest in the result;
- The extent to which the non-party was the initiator, funder and/or controller of, and moving party behind, the litigation;
- Any factors which may touch on whether the proceedings were pursued reasonably and in a reasonable fashion; the assessment of the conduct of the proceedings may lean either in favour of or against the making of the order sought;
- There is no requirement that there be a finding of bad faith, impropriety or fraud, though the same, if present, will support the ordering of costs against the non-party;
- Whether the non-party was on notice of the intention to apply for a non-party costs order and the timing and extent of the notice;
- Whether the successful party applied for security for costs in advance of the trial.
Mr Justice McKechnie went on to say that the Court’s discretion is a wide one, but it must be exercised judicially and, in all the circumstances, must give rise to a just result.
Effect of the Decision
In his judgment Mr Justice McKechnie made it clear that it is for the trial judge to assess each particular set of circumstances to determine whether making such a discretionary order is in the interests of justice.
With this in mind, and depending on the circumstances of the particular case, those behind the litigation of an insolvent company should be aware of the potential for a non-party costs order being against them if the litigation is unsuccessful. On the other side, those facing litigation from an insolvent company may consider the potential for seeking non-party costs if the litigation is successfully defended.