R + V Versicherung AG v Risk Insurance and Reinsurance Solutions SA & Ors

A non-party costs order is discretionary and depends on what is just in all the circumstances. The order is exceptional, but that means outside the ordinary run of litigation conducted by parties for their own benefit and expense.

Relevant considerations include the non-party’s control or substantial influence over the proceedings, improper conduct causing the litigation to be pursued, and any financial interest in its outcome. A director or shareholder of an insolvent company may be ordered to pay costs where he controlled and improperly caused the company to litigate. A witness’s evidence may be central, but care is required because of witness immunity. Failure to join or warn the non-party is relevant principally through any resulting prejudice.

R+V sought an order under section 51 of the Supreme Court Act 1981 that Jean-Claude Chalhoub be jointly and severally liable with the Risk defendants for costs awarded after the trial of R+V’s claims and the defendants’ counterclaim.

Mr Chalhoub had been joined for costs purposes under CPR rule 48.2 after the trial. In the earlier judgment, R + V Versicherung AG v Risk Insurance and Reinsurance Solutions SA [2004] EWHC 2682 (Comm), the court found a dishonest conspiracy involving Mr Chalhoub and held that R+V was entitled to revoke the Risk group’s underwriting authority. The Risk defendants failed to pay the ordered costs.

The central issue was whether Mr Chalhoub’s control of the litigation and reliance on dishonest evidence made it fair and just to impose personal liability for R+V’s costs.

1. Applicable principles. The court’s discretion under section 51 of the Supreme Court Act 1981 is governed by the requirement to do what is just in all the circumstances. There are no hard and fast rules. A non-party costs order is exceptional, but the expression describes litigation outside the ordinary run, not an additional legal test.
2. The relevant considerations included whether the non-party controlled the proceedings, caused the company improperly to pursue or defend them, funded or benefited from them, and was in substance the real party. A person’s failure to have been joined at the outset, or failure to receive an early warning, was relevant chiefly to the question of prejudice.
3. Particular caution was required where the proposed order was based on evidence given by a witness. Witness immunity had to be respected, but its purpose was to encourage truthful evidence and did not protect a person who deliberately misled the court.
4. Application. Mr Chalhoub substantially controlled the Risk defendants’ litigation. He was the chief executive and the principal person responsible for the underlying transactions and the conduct of the proceedings. The defence and counterclaim depended substantially on his evidence, which the court had found false and dishonest. He thereby caused the Risk companies to persist in litigation on a false basis. Those circumstances made the case exceptional.
5. R+V could have joined Mr Chalhoub at the outset, but he understood the issues and was already central to the litigation. The absence of earlier joinder and warning caused no significant prejudice. The evidence did not establish that he personally funded the litigation or was financially interested in its outcome as the real party, but that finding did not outweigh his control and dishonest conduct.
6. The application was granted. Mr Chalhoub was ordered to be jointly and severally liable with the original Risk defendants for R+V’s costs.

The judgment records an earlier trial judgment and subsequent costs orders in the same proceedings. It is a first-instance decision on R+V’s application for a non-party costs order.