Myatt & Ors v National Coal Board

The court may make a non-party costs order against solicitors who pursue litigation substantially for their own financial benefit. Their formal role as the client’s legal representatives does not confer immunity where, in economic reality, they are also real parties to the litigation.

The jurisdiction under section 51 of the Supreme Court Act 1981 is fact-sensitive. The ultimate question is whether an order is just in all the circumstances. A client’s separate financial interest and the opposing party’s failure to give timely warning of a proposed non-party costs application remain material to the exercise of the discretion and may justify limiting the solicitors’ liability.

The claimants appealed against Master Wright’s determination that their conditional fee agreements with Ollerenshaws were unenforceable. The Court of Appeal dismissed those appeals on 18 July 2006. The claimants’ petitions for leave to appeal to the House of Lords were subsequently dismissed.

The defendant was entitled to its appeal costs, but the claimants apparently had no effective after-the-event insurance because enforceable conditional fee agreements were a condition of cover. The defendant therefore sought a non-party costs order against Ollerenshaws. The firm had funded the appeals and possessed a substantial financial interest in establishing the enforceability of the agreements across the four test cases and approximately 60 similar cases.

The central questions were whether section 51 of the Supreme Court Act 1981 permitted an order against solicitors despite the claimants’ own financial interest, and, if so, how that discretion should be exercised.

Non-party costs order made: Ollerenshaws were ordered to pay 50% of the defendant’s appeal costs.

1. Dyson LJ held that section 51(1) and (3) of the Supreme Court Act 1981 conferred jurisdiction to order costs against solicitors where litigation was pursued for their benefit, or to a substantial degree for their benefit. A solicitor who was a real party in important and critical respects could fall outside the protected role of an ordinary legal representative. The client’s concurrent financial interest did not remove that jurisdiction.

2. Tolstoy-Miloslavsky v Aldington [1996] 1 WLR 736 did not determine the hybrid situation in which solicitors had the principal financial interest while their clients retained a lesser interest. Its category of solicitors acting outside their professional role extended, when read with Dymocks v Todd [2004] UKPC 39, to solicitors who funded proceedings and stood substantially to benefit from them.

3. The jurisdiction was fact-specific. Its exercise depended ultimately upon whether an order was just in all the circumstances. The four appeals were principally brought to protect Ollerenshaws’ entitlement to substantial profit costs in the test cases and numerous related cases. It was most unlikely that the claimants would have pursued the appeals merely to recover their comparatively modest disbursements.

4. The claimants nevertheless had a genuine financial interest because their disbursements remained payable or irrecoverable. The defendant had also failed to warn Ollerenshaws until after dismissal of the appeals that a costs order might be sought against them. Early warning was important because it would have given the firm a reasonable opportunity to decide whether to continue.

5. Lloyd LJ agreed. He characterised Ollerenshaws as acting in a dual capacity: for clients with a genuine interest, but primarily for the firm’s own commercial benefit in establishing its right to profit costs. He regarded the decision’s wider relevance as limited to conditional-fee litigation concerning the enforceability of the agreement. Sir Henry Brooke agreed with both judgments.

1. House of Lords: The claimants’ petitions for leave to appeal were dismissed on 6 December 2006.
2. Court of Appeal (Civil Division): The claimants’ substantive appeals were dismissed on 18 July 2006. The decision was reported at [2007] 1 WLR 554. In the present costs judgment, the court ordered Ollerenshaws to pay 50% of the defendant’s appeal costs.
3. Supreme Court Costs Office: Master Wright held that the claimants’ conditional fee agreements were unenforceable.