Sims v Hawkins

JurisdictionEngland & Wales
JudgeLord Justice Rix,Lord Justice Keene,Lord Justice Lloyd
Judgment Date14 November 2007
Neutral Citation[2007] EWCA Civ 1175
Docket NumberCase No: B2/2007/0158
CourtCourt of Appeal (Civil Division)
Date14 November 2007

[2007] EWCA Civ 1175


Lord Justice Rix and

Lord Justice Keene and

Lord Justice Lloyd

Case No: B2/2007/0158

EX 190058






Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Andrew Parsons (instructed by Messrs Cresswell & Co) for the Appellant

Ms Katie Scott (instructed by Messrs Clarke Willmott) for the Respondent

Hearing dates: 10 October 2007

Lord Justice Rix

This appeal is about the payment of costs by a non-party, pursuant to section 51(3) of the Supreme Court Act, 1981. 1 In Aiden Shipping Co Ltd v. Interbulk Ltd (The Vimeira) [1986] AC 965, the House of Lords held that this provision gave such power to the courts to order a non-party to pay costs. Lord Goff of Chieveley said (at 981A/B):

“Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice…If any problem arises, the Court of Appeal can lay down principles for the guidance of judges of first instance…”


Twenty years later the jurisdiction is well recognised, and has been applied in a variety of situations. As Lord Goff foresaw, the court of appeal has given guidance as to general principles. There are a number of well-known decisions in which these principles have been worked out, such as Symphony Group plc v. Hodgson [1994] QB 179, Murphy v. Young & Co's Brewery plc [1997] 1 WLR 1591, Hamilton v. Al Fayed (No 2) [2002] EWCA Civ 665, [2003] QB 1175, and Arkin v. Borchard Lines Ltd [2005] EWCA Civ 655, [2005] 1 WLR 3055. Of particular importance is a recent decision of the Privy Council, Dymocks Franchise Systems (NSW) Pty Ltd v. Todd [2004] UKPC 39, [2004] 1 WLR 2807. The principles laid down in these authorities are not in dispute, and it is not suggested in this appeal that the judge got the law wrong. It is now well-established that one of the principal questions for the court is whether the non-party (who renders himself liable to the regime, whether by funding or controlling the litigation or even in some other way) is the “real party” to the litigation: see Dymocks at para 25.


One particular situation which has given the courts a little trouble is that of the non-party in a corporate setting who is inevitably close to a company litigant, such as a director, controlling shareholder or liquidator. Such persons are almost as a matter of course in charge of the company's litigation, and, where the company is insolvent or practically so, may be funders too: are they therefore liable under the section 51(3) regime? This problem has itself been discussed in a number of cases, such as Taylor v. Pace Developments Ltd [1991] BCC 406, Metalloy Supplies Ltd v. MA (UK) Ltd [1997] 1 WLR 1613, In re North West Holdings plc [2001] 1BCLC 468 and GoodwoodRecoveries Ltd v. Breen [2006] EWCA Civ 414, [2006] 1 WLR 2723 (all decisions in this court). The concern in such cases is to

avoid trespassing illegitimately on the concept of the separate liability of the company. This is the area in which the present appeal lies.

In Metalloy at 1620, Millett LJ put the problem in this way:

“Such an order is, however, exceptional, since it is rarely appropriate. It may be made in a wide variety of circumstances where the third party is the real party interested in the outcome of the suit…It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of separate liability would be eroded and the principle that such orders should be exceptional would be nullified. The position of a liquidator is a fortiori.”


Millett LJ there was prophetic in identifying the test of the “real party” as central, as the Privy Council in Dymocks to establish. He also put forward “some impropriety or bad faith” as a possible alternative basis of liability, but not as essential to it (see Goodwood at paras 59 and 70).


Dymocks was not itself concerned with the case of a director or other internal agent or officer of a company: but Lord Brown of Eaton-under-Heywood summed up the position in these terms:

“29. In the light of these authorities their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.”


However, a section 51(3) order is ultimately dependent upon an exercise of discretion. As Lord Justice Longmore said in Petromec Inc v. Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038 [2007] Costs LR 212 at para 10:

“If the evidence is that a respondent (whether a director or shareholder or controller of a relevant company) has effectively controlled the proceedings and has sought to derive potential benefit from them, that will be enough to establish the jurisdiction. Whether such jurisdiction should be exercised is, of course another matter entirely and the extent to which a respondent has, in fact, funded any proceedings may be very relevant to the exercise of discretion.”


In that case Longmore LJ also deplored the danger that the exercise of the jurisdiction becomes over-complicated by reference to authority (at para 11). Lord Justice Laws spoke in similar terms. He said that while the learning is important as indicating the kind of considerations upon which the court will focus, it must not be treated as a rule-book (at para 19). And in Alan Phillips Associated Ltd v. Dowling [2007] EWCACiv 64, [2007] 1 BLR 151 Lord Justice Chadwick referred to the dicta in Petromec v. Petrobras and added (at para 21):

“He [Longmore LJ] observed that, essentially, the decision whether or not to make a third party costs order under section 51 of the Supreme Court Act 1981 lay in the discretion of the judge – who ought usually to be the trial judge as the judge having the best knowledge…and that the appellate court should be cautious before intervening to reverse that exercise of discretion.”


Lord Justice Moses said (at para 31):

“…this court should not interfere with the judgment of a judge as to the propriety of such an order unless the judge plainly erred.”


In the present case, the judge, HHJ Havelock-Allan QC, made a section 51(3) order against Mr and Mrs Hawkins, respectively the sole director and company secretary, and shareholders, of the company in question, but only from a certain point of time in this litigation, viz 1 October 2005. It is not Mr and Mrs Hawkins who appeal against that order, but the claimant in whose favour the order was made, Mr Sims: because he complains that the order should have been made so as to apply right from the outset of the dispute, from the time a letter before action was sent on 27 November 2000, or at any rate from some later date, such as when the company concerned ceased to trade on 31 May 2002. However, the judge found that it was only from 1 October 2005, a few months before trial, that the personal motives of Mr and Mrs Hawkins, rather than the interests of the company, began to make it just to conclude that they should be made liable for the company's costs, on the basis that from that time they were acting substantially for their own benefit.


The appellant, Mr Sims, accepts that the judge directed himself correctly on the law, and he also accepts the judge's findings of fact – although as will appear below the latter concession is not quite complete. He accepts that the jurisdiction is fact-sensitive. He submits, however, that the judge applied the law to the facts incorrectly, and thereby erred in his discretion; and, in particular, he submits that he applied his own findings inconsistently at a crucial point of his judgment. The respondents, Mr and Mrs Hawkins, submit that the judge's judgment is coherent, and, as an exercise in discretion, unassailable.


It is necessary now to set out the facts in greater detail.

The facts


The claimant and here the appellant, Mr Dean Sims, bought the last remaining unit of a property development, unit 2, on 31 March 2000, for £185,000, from the developer, a company then called Roger Hawkins Design and Construct Ltd (the “company”). That purchase led to this litigation, which commenced on 25 October 2001, in which Mr Sims sued the company for breach of contract and/or misrepresentation and/or breach of the Defective Premises Act 1972. In all there were twelve units at the development, which was at Higher Compton Barton, near Paignton in Devon. There had been a flood at the development in October and again in December 1999: Mr Sims had known about the floods when he bought unit 2, but his complaint was that he did not know as much about the inadequacy of the development's drainage system as he should have done. Remedial works had been put in hand by...

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