Goodwood Recoveries Ltd v Breen

A director or shareholder may be ordered to pay a company’s litigation costs under section 51(3) where, on an objective and fact-sensitive assessment, that person was the real party: seeking personal benefit and substantially controlling the litigation. Lack of bona fides or impropriety is not an indispensable condition, although either may strongly support the order.

Causation requires a sufficient link between the non-party’s involvement and the costs. Where the litigation would not have existed without that involvement, the link may extend to all its costs. Persistent dishonest conduct in pursuing a claim, including withholding material evidence and attempting to prevent contrary evidence being given, can also make the whole litigation improper and justify liability for all costs.

The claimant company had bought an alleged debt and pursued a failed claim against Mr Breen. Mr Michael Slater, who with his wife had owned the company, was its director, secretary, solicitor, investigator and only witness. He continued to conduct the proceedings after a purported sale of the company.

Mr Recorder Woods, sitting in the Central London Civil Justice Centre, dismissed the substantive claim and then made a third-party costs order against Mr Slater under section 51(3) of the Supreme Court Act 1981. The Recorder found that Mr Slater had dishonestly suppressed a key letter, given dishonest evidence and sent an improper letter intended to deter a witness.

Mr Slater appealed against his liability for the whole costs. The central issues were whether his position and conduct were sufficiently exceptional, and whether they had caused the costs claimed.

1. Appeal dismissed. Rix LJ, with whom May LJ agreed, upheld the order requiring Mr Slater to pay the defendant’s costs of the action under section 51(3) of the Supreme Court Act 1981.

2. The applicable approach was that stated in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39. A non-party director may be liable where he is the real party to the litigation, pursuing it for his own benefit and substantially controlling or funding it. The absence of bad faith does not preclude an order. Mr Slater and his wife had acquired the claim through their company, and Mr Slater had controlled the litigation throughout for his own intended benefit. The conditional-fee arrangement did not prevent that conclusion.

3. The necessary causal inquiry was whether the costs would have been incurred but for the non-party’s involvement. The answer was plainly no. Mr Slater found the claim, bought it and caused it to be brought in the name of his family company. He was therefore the cause of all the litigation costs.

4. There was also an independent basis for the order. Mr Slater knew when proceedings were issued that the relevant witnesses maintained that the guarantee debt had been settled, and he had access to material supporting that position. His deliberate non-disclosure, dishonest evidence and attempt to deter a witness were not isolated incidents. They supported the conclusion that the litigation as a whole had been pursued by improper and dishonest means and was grossly speculative. Those matters caused the whole of the costs.

5. It was unnecessary to determine the respondent’s notice alleging that Mr Slater had lacked a bona fide belief in the claim from the outset. It was also unnecessary to resolve the precise relationship between the causation observations in Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232 and Byrne v Sefton Health Authority [2001] EWCA Civ 1904, although Rix LJ expressed a preference for the former approach.

• Court of Appeal (Civil Division): In [2005] EWCA Civ 414, dismissed Mr Slater’s appeal and upheld the third-party costs order.
• Central London Civil Justice Centre: Mr Recorder Woods, on 22 May 2004, ordered Mr Slater to pay the defendant’s costs under section 51(3) of the Supreme Court Act 1981.