Sony/Atv Music Publishing LLC and Another (Claimants1) v Wpmc Ltd ((in Liquidation)) and Another David Bailey (Costs Defendant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Arnold |
| Judgment Date | 03 March 2017 |
| Neutral Citation | [2017] EWHC 389 (Ch) |
| Docket Number | Case No: HC-2012-000143 |
| Court | Chancery Division |
| Date | 03 March 2017 |
[2017] EWHC 389 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Arnold
Case No: HC-2012-000143
and
Ian Mill QC and Andrew Scott (instructed by Lee & Thompson LLP) for the Claimants
Benjamin Williams QC (instructed by Simons Muirhead & Burton LLP) for the Costs Defendant
Hearing date: 13 February 2017
Approved Judgment
Introduction
This is an application by the Claimants ("SATV") for an order under section 51(3) of the Senior Courts Act 1981 that David Bailey pay most of the costs of SATV's claim against the Defendants. On 1 July 2015 I handed down judgment in favour of SATV on their claim against the First Defendant ("WPMC") ( [2015] EWHC 1853 (Ch), [2015] RFC 28). The claim against the Second Defendant ("Iambic") had been stayed at an early stage in consequence of Iambic's winding up on 17 September 2012. On 15 July 2015 I made an order which, among other things, required WPMC to pay SATV's costs, assessed on the indemnity basis from 26 July 2014 for the reasons given in my judgment of that date, and to make an interim payment of £375,000 on account of those costs. WPMC went into liquidation on 5 August 2015. SATV now seek to recover from Mr Bailey their costs as from 4 January 2013, which is the date on which Mr Bailey acquired majority ownership and control of WPMC.
Applicable principles
Save in one respect, there is little dispute as to the applicable principles. The main principles were authoritatively stated by Lord Brown of Eaton-under-Heywood giving the judgment of the Privy Council in Dymocks Franchise Systems (NSW) Pty v Todd [2004] UKPC 39, [2004] 1 WLR 2807 at [25] as follows:
"(1) 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. The ultimate question in any such 'exceptional' case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. (2) Generally speaking the discretion will not be exercised against 'pure funders', described in para 40 of Hamilton v Al Fayed (No 2) [2003] QB 1175, 1194 as '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'. In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. (3) 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, a concept repeatedly invoked throughout the jurisprudence …
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'
Moore-B ick LJ recently emphasised the continuing authority of this guidance in Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23, [2016] 4 WLR 17 at [62]:
"As all three members of the court observed in Petromec, the exercise of the discretion is in danger of becoming overcomplicated by authority. The decision of the Privy Council in Dymocks, which contains an authoritative statement of the modem law, explains and interprets the Symphony guidelines in a way which reflects the variety of circumstances in which the court is likely to be called upon to exercise the discretion. … We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind."
The principal area of dispute between the parties concerns the approach to be adopted in the case of an application against a non-party who was at the material times in control of an impecunious corporate party and caused it to bring or defend the proceedings in question. Counsel for Mr Bailey submitted that there was no jurisdiction, or if there was jurisdiction it should not be exercised, to make an order unless there was some divergence between the interests of the controller and the interests of the company, such that the bringing or defence of the proceedings had been in the interests of the controller rather than in the interests of the company. Counsel for SATV disputed this, and submitted that it was proper to make an order, in an appropriate case, where the interests of the controller were aligned with those of the company.
Counsel for Mr Bailey relied in support of his submission in particular upon passages from two judgments in the early years of the non-party costs jurisdiction, namely those of Lloyd LJ in Taylor v Pace Developments Ltd [1991] BCC 406 at 409 and Millett LJ in Mettaloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613 at 1619–20. As he acknowledged, however, this question was considered by Lord Brown in Dymocks, who quoted part of Millett LJ's judgment among other authorities ( Taylor v Pace was not cited). Lord Brown expressed the Privy Council's conclusion at [29] as follows:
"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 or appeal 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."
Since then, there have been a number of decisions of the Court of Appeal in which this question has been discussed. It is not necessary to refer to all of them. In Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723 at [59]. Rix LJ said:
"Where a non-party director can be described as the 'real party', seeking his own benefit, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances."
In Systemcare UK Ltd v Services Design Technology Ltd [2011] EWCA Civ 546, [2012] 1 BCLC 14 at [13] Lewison LJ commented on this passage:
"It is to be noted that controlling on the one hand and funding on the other are separated by 'and/or'. Thus it is not the case that both elements need to be present."
In Threlfall v ECD Insight Ltd [2013] EWCA Civ 1444, [2014] 2 Costs LO 129 at [13] Lewison LJ added:
"If a non-party costs order is made against a company director, it is quite wrong to characterise it as piercing or lifting the corporate veil; or to say that the company and the director are one and the same. As Mr Shaw has demonstrated, the separate personality of a corporation, even a single-member corporation, is deeply embedded in our law. But its purpose is to deal with legal rights and obligations. By contrast, the exercise of discretion to make a non-party costs order leaves rights and obligations where they are. The very fact that the making of such an order is discretionary demonstrates that the question is not one of rights and obligations of a non-party, for no obligations exist unless and until the court exercises its discretion. Moreover the fact that the discretion, if exercised, is exercised against a non-party underlines the proposition that the non-party has no substantive liability in respect of the cause of action in question. Of course, it is not enough merely to say that Mr Whitney was a director of ECD, but in deciding whether or not to make such an order, the court is not fettered by the legal realities. It is entitled to look to the economic realities. It is in this sense that many of the cases pose the question whether the non-party is 'the real party' in the case."
The conclusion that I draw from these authorities is that the court should be slow to make an order against the controller unless the controller has caused the company to bring or defend the claim in order to promote his own economic interests, as distinct from the interests of other shareholders and creditors of the company; but it is not necessary for the applicant to show that there is a divergence between his interests and those of the other stakeholders.
I would add four points, none of which is in dispute. First, an order will more readily be made where the controller causes the company to bring a claim than where he causes it to defend a claim: see e.g. Goodwood v Breen at [48] (Rix LJ) and Sims v Hawkins [2007] EWCA...
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