Kerry Underwood

NON-PARTY COSTS ORDER DISALLOWED WHERE NO WARNING GIVEN

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In September and October I am delivering my new course – Getting the Retainer Right – details and booking form here.

In Sony/ATV Music Publishing LLC and another v WPMC Ltd and another [2018] EWCA Civ 2005 (6 September 2018)

the Court of Appeal allowed an appeal against a non-party costs order as the judge had erred in giving no weight to the lack of warning given to the non-party.

The appellant was the director and majority shareholder of WPMC Limited, the unsuccessful defendant in a copyright action.

WPMC Limited was ordered to pay the claimant’s costs.

WPMC Limited was then voluntarily wound up and a liquidator was appointed.

About a year later, the claimant, SATV, notified the appellant that they intended to seek a non-party costs order.

The appellant objected, but the court held that, although there was no explanation for the lack of warning, it would not have made any difference.

The Court of Appeal held that the absence of any warning here was fatal to the application for the non-party costs order, although each case will depend on its acts.

SATV knew that WPMC Limited would not be able to pay their costs and that WPMC Limited and the appellant were operating on the same assumption.

As such, the failure to warn for so long was manifestly unfair to the appellant because he was deprived of realistic opportunities to settle the litigation or to protect himself against the adverse effects of a non-party costs order by taking out ATE insurance, or to abandon the defence of the litigation at a much earlier stage.

 

“85. I have concluded that the judge left out of account features of the case which were relevant to the question he had to decide. I must therefore exercise the discretion afresh. I would accept that Mr Bailey provided limited funding for the litigation, and was responsible for keeping it alive, hoping ultimately to derive personal benefit. I nevertheless take into account that defending the proceedings for copyright infringement enabled the company to protect the Documentary for future exploitation, and the proceedings were thus in a very real sense in the interests of the company. The proceedings were also in the interests of Firefly, who would expect to be repaid their debt, in one way or another, out of any proceeds of exploitation. Whilst a neutral factor, I would observe that no criticism whatever could be, or was, made of Mr Bailey’s conduct in defending the proceedings on the basis of the legal advice he had received.

  1. Thus far I would regard matters as fairly evenly balanced. It might be said that Mr Bailey, standing as he did to benefit from the outcome, was “a real party” if not the only one. However the absence of any form of warning is, in my judgment, fatal to the application for the NPCO. It is plain, as the judge indeed held, that SATV knew or should have appreciated that WPMC would not be able to pay their costs in the event that the claim succeeded, and they knew that WPMC, and Mr Bailey with whom they dealt directly, were operating on the same assumption. In those circumstances the failure to warn until a year after final judgment is given strikes me as manifestly unfair to Mr Bailey. It would be unjust because Mr Bailey was deprived of realistic opportunities to settle the litigation or to protect himself against the adverse effects of a NPCO, or to abandon the defence of the litigation at a much earlier stage.

 

Additionally, the court held that it is not necessary to show that the interests of a third party director and his company diverge before a non-party costs order can be made.

The court rejected the submission that if non-party costs orders were available where the interests of the company and its shareholders were aligned, several unprincipled consequences would follow, including piercing the corporate veil and undermining the need for a causative link between the third party’s actions and the costs.

The appellant was not the sole stakeholder as WPMC Limited had a substantial creditor which would also benefit from the successful defence of the proceedings.

There was no basis for extending the Arkin principle whereby a professional funder’s liability for costs is limited to the amount of funds it provided to this type of case.

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Written by kerryunderwood

September 24, 2018 at 8:04 am

Posted in Uncategorized

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