An application for a non-party costs application where non-party was not warned and no security for costs were sought

The claimant obtained judgment against the defendant and was awarded 85% of its costs. Neither the judgment debt nor the costs were paid by the defendant. The claimant therefore sought a non-party costs order, pursuant to section 51 of the Senior Courts Act 1981, against Mr Vik, the sole shareholder and sole director of the defendant. Mr Vik raised certain procedural objections to the making of the order:

  1. The claimant had failed to apply for security of costs  during the action. Cooke J acknowledged that prior caselaw supports the view that a failure to apply for security against an insolvent company is a relevant factor if an application for a non-party costs order is subsequently made: “Nonetheless [the claimant] was not bound to make any such application and no doubt it would have been opposed”. The defendant had not been prejudiced by the lack of such an application (Longmore LJ having remarked in Petromec v Petroleo Brasileiro SA Petrobras (see Weekly Update 20/06) that it is no more unjust to make the backers of an insolvent company liable for costs than it is to order them to provide security for costs on its behalf). Furthermore, it had not been clear at the time that the defendant would be unable to meet a costs order against it. Accordingly, this consideration carried little weight.
  2. The claimant had failed to join Mr Vik as a party to the action. The judge described this submission as surprising, since there was no obvious cause of action against Mr Vik personally. Non-parties are only usually joined after judgment, when the losing party has failed to pay the costs awarded. Furthermore, given the uncertainty regarding the defendant’s financial standing at the time, the claimant could not be criticised for failing to join Mr Vik earlier on.
  3. Mr Vik was not warned by the claimant that this application might be made. There are authorities which refer to the desirability of a warning to be given of a third party costs application. However, the judge said that he was entirely satisfied that a warning at an earlier stage in this case would have made no difference to the conduct of the proceedings. It would also have been surprising had Mr Vik not received advice from his own lawyers about the possibility of a non-party costs order eventually being made against him: “Whether that is so or not – and I have no evidence on that subject – the failure to warn here is, when seen against the other considerations, of no real weight at all”.

The judge went on to find that, on the facts, there were very strong grounds for making the non-party costs order here. For example, Mr Vik had transferred assets out of the defendant in order to deplete its assets and therefore make it more difficult for the claimant to recover the judgment debt and its costs, and Mr Vik had controlled the proceedings.