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Laughing all the way to the Bank: Widening the scope of Third Party Costs Orders?

19/08/16

by Joseph de Lacey and Harshini Ranchhod

Commercial litigation is an expensive undertaking. A contested claim will likely last a number of years, while court and solicitors’ fees have never been higher. For most parties, a form of funding is likely necessary.

Recent years have seen a huge growth in the number of commercial litigation funders[1]. The development of this market has been accompanied by the development of case law concerning third party costs orders – that is, the rules governing the power of the court to order that the costs of a claim (usually the solicitors’ and/or barrister’s costs) be paid by someone who is not technically a party to the claim[2]. The position for commercial funders is reasonably simple – where a commercial funder has funded the losing party in a civil claim, it may be ordered to pay the costs of the winning party, where the losing party is not in a position to pay the winner’s costs itself. The amount that the funder can be ordered to pay is at present capped at an amount equivalent to the amount provided in funding[3].

But what is the position where someone other than a professional, commercial funder supports a claim? The position has been somewhat clarified by a recent decision, in the context of a dispute over ownership of a Banksy mural.

The Creative Foundation v Dreamland Leisure Limited and others [2016] EWHC 859

The Creative Foundation v Dreamland Leisure Limited concerned competing claims to ownership of an artwork painted on to the side of a building in Kent by the artist Banksy. The mural appeared on the back of the building in September 2014. In November 2014, Dreamland Leisure Ltd (Dreamland), the tenant of the building (but not its ultimate owner), removed the mural and sent it to the US to be sold.

Title (ownership) to the mural, and to the cause of action against Dreamland, was purchased by the Claimant, The Creative Foundation (the Foundation), which launched legal proceedings to recover it. In 2015 it applied for and was granted summary judgment. Dreamland lost its claim and was ordered to deliver the mural to the Foundation.

The Costs of the Claim

Having succeeded in its claim, the Foundation naturally turned its attention to recovering its costs from the losing party. This is because the normal rule in the courts of England and Wales is that the loser pays the winner’s costs[4] (or at least a proportion). Accordingly, the Foundation’s normal recourse would have been to apply for an order that Dreamland pay for its costs on the standard basis (where the Foundation would expect to recover around 60-70% of its costs) or the indemnity basis (where, if ordered, the Foundation could expect to recover around 85% of its costs).

Dreamland however was not in a position to pay. It had ceased to trade and the Foundation was placed in the line of unsecured creditors. The Foundation’s choice was to wait to see if there was any money left once Dreamland had paid all its secured creditors, or to try to find someone else who could or would pay. It therefore made an application to the court for an order under section 51(3) of the Senior Courts Act 1981 that a Mrs Godden pay its costs. Who was Mrs Godden? The mother of the directors of Dreamland.

Order for costs/ Principles

The Foundation’s application for a costs order

In support of its application, the Foundation argued that Mrs Godden:

Mrs Godden accepted that she had paid for a considerable portion of the Defendants’ costs of, but disputed that she stood to benefit from a successful defence or that she had controlled it.

Judgment

The court considered the evidence before it and found that:

Conclusion

It is an important principle of English law that the losing party in a civil claim should pay (at least a proportion of) the successful party’s costs. It is a principle of fairness and a means of encouraging those with weak claims or defences to settle at an early stage.

In most cases, the loser who pays will be a party to the proceedings. However, in certain circumstances, where that person or company cannot pay, the courts are willing to look for another party which can, and order it to do so.

While at first sight this principle appears fair and just, it may have the unintended effect of inhibiting access to justice. Today it is becoming increasingly difficult for ordinary people and companies to fund litigation, and help is going to be required. This help may come from family members, business associates, or commercial litigation funders. If the courts continue to expand the category of persons who might be subject to a third party costs order, it may be that benefactors as described above will be less inclined to offer assistance.

How can we help?

Harcus Sinclair LLP frequently represents clients on conditional fee arrangements. The firm also has strong relationships with commercial funders and with after the event (ATE) insurance providers. We are therefore experts in conducting litigation for parties who cannot afford to fund a claim directly. If you are interested in discussing these opportunities and options with a member of our team, please call us on 0207 242 9700.

[1] http://www.financierworldwide.com/litigation-funding-a-progressive-option-for-investors-and-corporations/#.V4UWLfkrKCgn

[2] Section 51 of the Senior Courts Act 1981 – see http://www.legislation.gov.uk/ukpga/1981/54/section/51

[3] http://www.pwclegal.co.uk/services/dispute-resolution/commercial-disputes/exclibur.html

[4] Civil Procedure Rules, Part 44, 44.2 (1) (a)

[5] Dymocks Franchise Systems (NSW) Pty v Todd [2004] UKPC 39

[6] Europeans Ltd v Commissioners for HM Revenue and Customs [2011] EWHC 948 (Ch)

[7] Dymocks Franchise Systems (NSW) Pty v Todd

[8] Re North West Holdings plc [2001] EWCA Civ 68

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