(1) Merchantbridge & Company Ltd and Another v (1) Safron General Partner 1 Ltd (2) H E Mohd Al Zubair and Others (Defendants (Costs Only)

Hearing dates: 18 and 19 April 2011

This is an application by the Claimants for costs orders against non-parties under Section 51 of the Senior Courts Act 1981. It is a further example of how these applications which were once intended to be short, prompt and summary exercises have become very expensive and time consuming satellite litigation. It is ten years since the events which have given rise to this claim arose; it is almost five years since I gave judgment at the trial. No party has gained anything from this case, only the lawyers have won. The two main protagonists have both died. In recent times this dispute has been only about who should bear the high costs fruitlessly incurred. At the trial of the action itself two Counsel appeared. At the hearing of this satellite application four Counsel have appeared, two of them leading Counsel. This has been a depressing saga.

The Parties to this Application

The first Claimant ("Merchantbridge") assigned its rights to this litigation to the second Claimant in 2004. The first Defendant ("SGP1") is a Cayman Islands company which was the general partner of a limited partnership, Safron Partners 1 LP which operated an investment fund ("the Fund"). SGP1 acted as fund managers. I do not repeat background information about the parties and the disputes between them which is set out in my judgment dated 8 June 2006 following the trial of the action. The other nine defendants are all said to be investors in the Fund or involved with funding the costs of the defence of this action. These defendants fall into 3 camps.

First there are the second ("H E Al Zubair"), third ("Zent"), sixth ("Islay") and seventh ("Wicklow") Defendants for whom Mr Matthew Collings QC appears. H E Al Zubair paid £78,621 from an account of his, it is said (and I have no reason to doubt), on behalf of Zent. Islay funded the defence in the sum of £78,635, it says (and I have no reason to doubt) on behalf of Wicklow a company in the same group for which it provides management services.

Secondly, there are the fourth ("DB Suisse"), fifth ("BTI") and tenth ("DB AG") Defendants for whom Mr Stephen Midwinter appears. DB Suisse admits paying £78,351.16 towards SGP1's defence costs. I have no reason to doubt the evidence from DB Suisse that it made the payments (after DB had acquired the Bankers Trust group) because the investor BTI had no bank account itself. DB AG is the parent company and made no contribution itself.

Thirdly there are the eighth ("Solid") and ninth ("Telcom") Defendants who have not participated. It seems clear that Solid contributed £78,635 towards the defence costs and Telcom £46,466 being 22% and 13% of the total funding of £360,888.

The Claimants contend that the second to tenth Defendants should be ordered to pay the claimant's costs of the proceedings because they funded, substantially controlled and were interested in the defence of SGP1. The claimants say that these defendants were the "real parties" who funded and/or controlled the proceedings for their own benefit and interest. The second, third, sixth and seventh defendants admit the facts of the claim but contend that the vital ingredients of personal benefit and interest on the part of the funders are missing. The fourth, fifth and tenth Defendants contend that DB Suisse was the only funder in this group that it acted reasonably and in good faith throughout, was a reluctant funder and did not control or conduct the litigation. In this action I refer throughout to the first Defendant as SGP1. References to "the Defendants" are to the 2 ^nd to 10 ^th Defendants.

The Action and the Trial

The matters in issue in the action itself occurred between 1997 and 2001. The action has somehow stayed on foot since 8 October 2003. I decline in what is supposed to be a summary procedure to conduct a detailed analysis of events taking place over 14 years and for a description of the issues in the action I refer to the judgment of the Court of Appeal dated 14 February 2005 setting aside the order of Morison J granting summary judgment to SGP1 and to my judgment at the trial which I have already mentioned. It will also shorten this judgment before dealing with the relevant facts to first identify the relevant legal principles.

The Law

The relevant principles are not in dispute between the parties. The question whether a non-party costs order should be made is for the discretion of the Court exercised on the basis of the relevant facts. This is clear from Section 51 itself which provides in relevant part that the costs of and incidental to all proceedings in the High Court shall be in the discretion of the court and the court shall have full power to determine by whom and to what extent the costs are to be paid. By Section 51(3) these matters are then to be regulated by rules of court. It is clear from the authorities cited that the Court of Appeal sees these applications as requiring a summary procedure not over complicated by reference to or by over-analysis of case law. The process is not however straightforward for at least two reasons. First the cases to which I have been taken make it clear that it is for the appellate courts to establish guidelines and parameters for the exercise of the discretion by first instance judges. That guidance is to be found in at least nine of the appellate cases (one Privy Council and eight Court of Appeal) to which I have been taken. These are:-

(i) Hamilton Al Fayed (No 2)[2003] QB 1175 (May 2002);

(ii) Gulf Azov Shipping v Idisi[2004] EWCA Civ 292 (March 2004);

(iii) Dymocks Franchise Systems v Todd [2004] 1 WLR 2807 (July 2004);

(iv) Goodwood Recoveries Ltd v Breen [2006] 1 WLR 2723 (April 2005);

(v) Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055 (May 2005);

(vi) Petromec Inc v Petroleo Brasileiro [2007] 2 Costs LR 212 (July 2006);

(vii) Sims v Hawkins[2007] EWCA Civ 1175 (November 2007);

(viii) Dolphin Quays Developments Ltd v Mills [2008] 1 WLR 1829 (April 2008); and

(ix) Oriakhel v Vickers[2008] EWCA Civ 748 (July 2008).

Secondly, the appellate guidance is contained in cases where the facts are often unusual and the relevant considerations diverse. Some observations relied upon by Counsel in this case are very specific to those facts and circumstances. A further factor is that in some respects "the law has moved a considerable distance"– see Petromec at paragraph 11 and the earlier cases are not always still as authoritative as they were. It seems to me that the aspects of the principles most relevant to this application are as follows.

First, the usual incidence of costs is between the parties. The court does not generally award costs against a non-party. There is however no longer, if there ever was, a requirement for the circumstances to be " exceptional" before the jurisdiction is exercised. As it is put in Petromec at paragraph 18:— "previous decisions of this court have rightly emphasised that the jurisdiction to order that costs be paid by a non-party must be exercised with caution but the circumstances of this case were, for the reasons which the judge gave, particularly compelling" (see also the judgment of Morritt LJ in Globe at 239–240 "…the exceptional case is one to be recognised by comparison with the ordinary run of cases not defined in advance by reference to any further characteristic".).

'Although costs orders against non-parties are to be regarded as "exceptional", exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense.'Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, 2815 per Lord Brown.

'Generally speaking the discretion will not be exercised against "pure funders".'Dymocks at 2815. Pure funders are 'those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course'.Hamilton v Al Fayed (No 2)[2003] QB 1175, 1194 per Simon Brown LJ. Pure funders are in a similar position to 'disinterested relatives' who might fund a litigant's case merely out of love or familial duty.

'Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation'.

'Nor, indeed, is it necessary that the non-party be "the only real party" to the litigation … provided that he is "a real party in … very important and critical respects".'Dymocks at 2815.

It will generally be relevant to the Court's exercise of discretion whether the non-party is...