Koninklijke Philips Electronics NV v Aventi Ltd.& Ors

An order under section 51 of the Supreme Court Act 1981 requiring a non-party to pay costs is exceptional. The court must distinguish a pure, commercially disinterested funder from a funder whose interests are advanced by the litigation. Funding must have been causative, in the sense that the litigation would not have continued without it. Pure funding alone is insufficient. Where the funder has a direct commercial interest and the funding caused the litigation, the question is whether, in all the circumstances, justice requires an order. The court may limit the order to costs attributable to the funded litigation and exclude costs relating to claims not shown to have been caused by the funding.

Philips brought patent infringement proceedings against Aventi Limited concerning unlicensed compact discs. Princo Digital Disc GmbH supplied Aventi and provided an indemnity concerning royalties, funded Aventi’s defence, and supplied prior-art material. Princo later withdrew its funding, after which Aventi became unable to continue defending the action and went into liquidation.

Philips subsequently obtained permission to join Princo and Mr Kuo for the purpose of seeking costs under section 51 of the Supreme Court Act 1981. The issue was whether Princo’s funding and commercial interest justified a non-party costs order, and whether Mr Kuo was personally liable.

1. Disposition. Princo Digital Disc GmbH was ordered to pay Philips’ costs of the Aventi action, except insofar as those costs were increased by the claim concerning Fornet or other manufacturers’ discs. No costs order was made against Mr Kuo.
2. An order against a non-party is exceptional. The factors identified in Symphony Group v Hodgson provide guidance but are not exhaustive. The principles stated in Murphy v Young’s are of general application, including the need to consider fairness, the protection which joinder would have provided, the closeness of the non-party’s connection with the litigation, and whether funding alone is sufficient.
3. The authorities, including Hamilton v Al Fayed and Globe Equities Ltd v Global Legal Services Ltd, establish a distinction between pure funders and funders with a personal or commercial interest. Funding is a precondition: the funder must be responsible for the litigation in the sense that, without the funding, it would not have taken place or continued. A pure, commercially disinterested funder will not ordinarily be ordered to pay costs.
4. Where that precondition is satisfied, the court must decide whether justice requires the order in all the circumstances. Princo had a substantial commercial interest in the outcome, was not a pure funder, and its funding was causative of Aventi’s defence. Its limited involvement in the conduct of the action did not prevent an order.
5. The royalty indemnity was an ordinary commercial transaction and did not materially affect the costs issue. The evidence showed that Aventi would not have defended the action without Princo’s costs funding. The costs order was therefore confined to the litigation caused by that funding.
6. Mr Kuo had never provided funds to Aventi. His joint liability with Princo for infringement did not make him liable under section 51 for the costs of the Aventi action.

Permission to appeal was granted on the section 51 costs issue because, although the judge considered his exercise of discretion proper, he was not entirely satisfied about the legal framework. Permission was refused on the issue concerning Mr Kuo.

First instance decision. The judgment records that the Court of Appeal authorities provided guidance on section 51 and that permission to appeal was granted on the non-party costs issue.