Hamilton v Al Fayed (No 2)

A non-party who provides pure funding for an impecunious litigant will generally not be ordered under section 51 to pay the successful opponent’s costs. The court’s discretion must balance costs recovery against effective access to the courts. That balance ordinarily favours funding which enables a party to pursue what the funders reasonably perceive as a genuine case.

A pure funder has no collateral interest in the outcome, apart from possible reimbursement of the money advanced. The position may differ where funding is oppressive, malicious, or serves an ulterior purpose. The funded party’s own exposure to an adverse costs order remains an important deterrent.

After losing his libel claim against Mohamed Al Fayed, Mostyn Neil Hamilton was ordered to pay Mr Al Fayed’s costs. Mr Hamilton was bankrupt and a substantial sum remained unpaid.

His litigation had been supported by a fighting fund. Mr Al Fayed applied under section 51 of the Supreme Court Act 1981 for orders that nine contributors to the fund should pay his costs. Morland J dismissed the applications.

Mr Al Fayed appealed, contending that the contributors’ funding arrangement and the inability to recover from Mr Hamilton made it just to order them to contribute. The central issue was whether pure funders of an impecunious claimant should generally bear the successful defendant’s unrecovered costs.

1. Appeal dismissed unanimously. Lord Justice Simon Brown and Lord Justice Chadwick held that the policy of enabling access to the courts prevailed over the successful defendant’s interest in recovering costs from the claimant’s supporters.

2. The broad discretion under section 51 of the Supreme Court Act 1981 was not subject to a statutory requirement of exceptional circumstances. Nevertheless, a non-party costs order remained exceptional when compared with the ordinary run of litigation. The ultimate question was whether, in all the circumstances, it was just to make the non-party pay.

3. The respondents were pure funders. They had no collateral interest in the outcome beyond possible reimbursement of their contributions. Their essential motive was to enable Mr Hamilton to litigate a claim which they regarded as genuine, and they neither controlled the litigation nor sought profit.

4. Lord Justice Simon Brown held that pure funding of genuine claims or defences was generally in the public interest. Regular exposure of such funders to section 51 liability would deter voluntary funding, reduce effective access to legal representation, and increase the number of litigants in person. A clear presumption against liability was preferable to a fact-sensitive inquiry in every funding case.

5. Lord Justice Chadwick agreed that fairness to a successful defendant did not generally require a pure funder to meet costs unrecoverable from an impecunious claimant. The analogy with pro bono and conditional-fee legal assistance reinforced that conclusion.

6. Lady Justice Hale agreed, while observing that an order could be justified in exceptional circumstances, particularly where litigation was oppressive, malicious, or pursued for an ulterior motive. Lack of merit could be evidence of such a motive, but was neither necessary nor sufficient by itself.

7. The trial judge had considered some irrelevant matters concerning Mr Al Fayed’s conduct. Exercising the discretion afresh, however, the Court reached the same result. The case remained one of pure funding and disclosed nothing displacing the general presumption. Lord Justice Simon Brown also considered, obiter, that causation would have defeated an order against at least a later contributor whose money did not cause further costs to be incurred.

• Court of Appeal: In [2002] EWCA Civ 665, dismissed Mr Al Fayed’s appeal and upheld the refusal to make non-party costs orders against the contributors.
• High Court, Queen’s Bench Division (Morland J): Dismissed the section 51 applications on 20 June 2001, with reasons handed down on 13 July 2001.