Sims v Hawkins

A non-party costs order under section 51(3) depends ultimately on a broad, fact-sensitive discretion. Control or funding of a company’s litigation does not, without more, make its directors liable. The central inquiry is whether they were the real parties, pursuing or funding the litigation substantially for their own financial benefit rather than for the company.

That inquiry may produce different answers at different stages of proceedings. The absence of express warning is not a bar to an order, but it is a material discretionary factor, particularly for costs incurred before a non-party could reasonably appreciate personal exposure. An appellate court should not interfere with the trial judge’s discretionary assessment unless it is plainly wrong.

Mr Sims succeeded against a property-development company in a claim arising from flooding risks at a residential development. The company was controlled by Mr and Mrs Hawkins, who were its director, secretary and shareholders. It had ceased trading and they had controlled and funded its defence.

His Honour Judge Havelock-Allan QC ordered Mr and Mrs Hawkins to pay the claimant’s costs jointly and severally with the company, but only for costs incurred after 1 October 2005. He found that, from that point, they funded the defence substantially to recover their own investment in the litigation.

Mr Sims appealed, seeking to extend their liability back to the letter before action or, alternatively, to the date when the company ceased trading. The issue was whether the judge’s selection of 1 October 2005 involved an erroneous exercise of discretion under Supreme Court Act 1981, section 51(3).

1. Appeal dismissed. Rix LJ, with whom Keene and Lloyd LJJ agreed, held that the judge had made no error of principle or irrational factual assessment in fixing 1 October 2005 as the start of the Hawkinses’ personal liability for costs.

2. The governing question under section 51(3) was whether the non-party was the real party to the litigation. Control and funding establish the court’s jurisdiction when accompanied by a potential personal benefit, but the making and temporal extent of an order remain discretionary. In a corporate case, a director does not become liable merely by directing and funding a bona fide company defence. A substantial element of personal benefit must be identified.

3. The judge’s reasons had to be read as a whole. He had not found that the Hawkinses acted solely in their own interests throughout. He permissibly found that the defence was bona fide and that reputational interests could be shared by the company and Mr Hawkins. He also permissibly found that the decisive personal motivation arose later, when they were intent on proceeding to trial to recover their own substantial funding of the defence.

4. The distinction between a funded claimant and a funded defendant was material. A speculative claim need not be brought, whereas a defendant must defend, settle or submit to judgment. The fact that a company was dormant did not therefore compel the conclusion that every stage of its defence was pursued solely for its directors’ benefit.

5. Notice of a possible non-party costs application was not a precondition. Its absence was, however, a relevant factor. The judge was entitled to find that the Hawkinses ought reasonably to have appreciated personal exposure shortly before trial, but had not been shown to have appreciated it at the earlier date urged by Mr Sims.

6. Given the trial judge’s detailed knowledge of the litigation and the broad nature of the discretion, the Court of Appeal would intervene only for a plain error on a traditional appellate ground. No such error was shown.

• Court of Appeal (Civil Division): dismissed Mr Sims’s appeal against the temporal limit of the non-party costs order.
• Bristol County Court (transferred from Exeter County Court): His Honour Judge Havelock-Allan QC ordered Mr and Mrs Hawkins to pay, jointly and severally with the company, the claimant’s costs incurred after 1 October 2005 under section 51(3) of the Supreme Court Act 1981.