risk level conceptual meter

Providing funds to parties so that the litigation can proceed may not be without risk. Non-parties may be at risk of having to pay an opponent’s costs.

The usual rule in litigation is that the losing party pays the winner’s costs. But if the unsuccessful party is unable to pay, the successful party may look to a third party who has provided funding.

The courts make a distinction between ‘pure funders’, those who have no interest in the outcome of the case and do not have anything to gain by it, and other funders. Costs orders will not usually be made against pure funders.

This is contrasted with commercial funders who fund litigation in return for a percentage of sums recovered. These professional funders will usually be ordered to pay the successful party’s costs up to the limit of the funds provided.

But at the other end of the spectrum are individuals or other entities who fund the claim for personal gain. If the non-party controls the case and stands to benefit from the outcome, the successful party may argue that the non-party is in fact the true party to the litigation and should pay costs. For example, directors or shareholders may find themselves personally liable for costs.

Although such non-party costs orders are made by the court in exceptional circumstances, they may nevertheless expose the non-party to a significant costs risk.

Usually a non-party will be given notice that a costs order will be sought and will be given a reasonable opportunity to attend court. But that is not always the case. In a recent decision* the court held that a costs order would be made against an individual who was not a party to the proceedings but was the sole director and principal shareholder of the defendant companies which were insolvent. The individual had controlled the companies and had funded their unsuccessful counterclaims. He had stood to benefit from the litigation and it had been substantially his decision to pursue the counterclaims which were described as ‘speculative’.

The individual argued that he had been given no prior warning that an application for costs would be made against him personally. The court rejected this argument noting that there was no fixed and binding requirement that a court must always disallow or reduce any costs order that might otherwise have been made where the non-party has not been warned beforehand.

Clearly giving notice in advance is prudent but the court’s approach introduces a degree of flexibility to make orders against non-parties where it is just to do so.

For more information, email blogs@gateleyuk.com.

*Weatherford Global Products Ltd v Hydropath Holdings Ltd and others [2014] EWHC 3243 (TCC)

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.