The Supreme Court has confirmed that a person funding or substantially controlling litigation, who stands to personally benefit if the litigation is successful, may, despite not being a party to the litigation, be held personally liable for some or all of the costs.
In Moorview Developments v First Active [2018] IESC 33 the Supreme Court upheld a High Court costs order against the director and shareholder of an insolvent company for costs incurred in defending legal proceedings.
The Supreme Court noted that while the general rule is that an order for costs will only be made against parties to the litigation, a court can, in certain exceptional circumstances, award costs against a non-party to ensure no injustice is done. The rationale behind this approach is that non-parties should not be permitted to reap the benefits of successful litigation without bearing the risk of an exposure to costs if the case is unsuccessful.
Facts
A group of companies owned and controlled by Mr Cunningham brought a series of unsuccessful legal proceedings against First Active PLC. As the companies were insolvent and unable to meet the costs orders made against them, the High Court, on application of First Active PLC, granted a non-party cost order against Mr Cunningham as director, shareholder and main driver of the litigation, making him personally liable for the costs of the proceedings.
Mr Cunningham appealed to the Supreme Court.
Decision
The Supreme Court firstly held that courts have jurisdiction to make non-party costs orders. It went on to point out the factors that a court should consider in deciding whether to make such an order included:
The extent to which it might have been reasonable to think that a party to the proceedings could meet any costs if it failed in its action;
The extent of the non-party funder's interest in the litigation, including the extent to which a non-party funder stands to benefit from the litigation;
The non-party funder's role in the litigation, including the degree to which the non-party controls the litigation;
The overall reasonableness of bringing or defending the proceedings and the manner in which the proceedings were conducted;
Whether the successful party applied for security of costs in advance for trial;
Whether there was any bad faith, impropriety or fraud on the part of the non-party funder (though this is not a pre-requisite); and
Whether the non-party funder was on notice of the intention to apply for a non-party costs order, the point at which he/she was put on notice, and the extent of the notice provided.
The Court stressed that these factors were not exhaustive and, depending on the facts of the given case, other factors might be relevant or some factors might weigh more heavily than others. It also cautioned against treating these factors as rigid rules rather than general guidelines in a holistic consideration of whether the exercise of the discretion to award a costs order against a non-party is appropriate in all the circumstances of a given case.
Having looked at the circumstances of the case before it, the Supreme Court concluded that the High Court was correct in making the non-party costs order. It had been clear to all from the outset that the companies would not themselves be able to meet the costs of litigation. The Court observed that Mr Cunningham was the driving force behind the litigation and stood to principally benefit, had the litigation been successful. The Court also noted that Mr Cunningham had been put on notice of the potential award of non-party costs against him at a very early stage in the proceedings.
The Supreme Court emphasised that in making a non-party costs order, it was not requiring the non-party to meet any underlying liability of the company concerned; rather, it is only exposed to paying the costs incurred by the opposing party in the litigation funded, and not any other liability. There was no issue of piercing the corporate veil as Mr Cunningham was not being made liable for the company's debts, rather he had an independent liability for the costs incurred by the successful party based on his own actions.
