Alan Phillips Associates Ltd v Terence Edward Dowling (t/a The Joseph Dowling Partnership & Ors

The power under section 51 of the Supreme Court Act 1981 to order a non-party to pay costs is a broad discretion. Earlier authorities identify relevant considerations but do not constitute a rule book.

A director who is the real party to company litigation may be ordered to pay its costs where the director controls or funds the proceedings for personal benefit. Impropriety or bad faith is unnecessary. The court must make an objective, fact-sensitive assessment of whether the order is just.

The trial judge is normally best placed to undertake that assessment. Appellate interference should be rare and is justified only where the judge plainly erred.

A company brought proceedings to recover architectural fees. The defendants successfully resisted the claim and obtained judgment on a counterclaim for professional negligence. The company was then insolvent and unable to satisfy the defendants’ costs.

The defendants applied in Chichester County Court for a costs order against the company’s director and majority shareholder. They relied on his control and personal benefit from the litigation, the practical identity between him and the company, and his deliberate failure to notify professional indemnity insurers. HHJ Barratt made the order on 2 June 2006.

The director appealed. The central issue was whether the judge had properly exercised the discretion to make a non-party costs order under section 51 of the Supreme Court Act 1981.

1. Appeal dismissed unanimously. Chadwick LJ held that the judge was entitled to order the director personally to pay the company’s costs liability. Moses LJ agreed and emphasised the restricted role of an appellate court.

2. Section 51 of the Supreme Court Act 1981 confers a discretion which is not confined by specific limitations. Authorities indicate the considerations on which a court may focus, but they must not be treated as a rule book. Applying Petromec Inc v Petrolio Brasileiro SA Petrobras [2006] EWCA Civ 1038, the decision normally belongs to the trial judge, who has the best knowledge of the circumstances.

3. The court applied the approach stated in Goodwood Recoveries v Green [2005] EWCA Civ 414. A non-party director who is the real party, seeks personal benefit and controls or funds the litigation may justly be made liable for costs. The jurisdiction does not depend upon bad faith or impropriety. Its exercise requires an objective and fact-sensitive assessment.

4. The order was just because there was an exceptionally close practical identity between the director and the company. Relevant matters included the continuation of his former practice through the company, substantially identical stationery, use of the same VAT number, changes in the named insured and the parties’ own confusion about who had brought the proceedings. As director, majority shareholder and one of the company’s two beneficial owners, he also stood personally to benefit from its claim.

5. The director deliberately withheld notification from the insurers to preserve his personal claims record. He also obtained substitution of the company as claimant without revealing the possible consequences for the defendants’ negligence counterclaim and insurance protection. Viewed as a whole, his conduct made it unjust for him to rely upon the company’s separate legal personality to avoid the costs liability.

6. Appeals concerning non-party costs orders should be rare. The Court of Appeal should intervene only where the judge plainly erred. No such error occurred.

1. Court of Appeal (Civil Division): The director’s appeal was dismissed unanimously: [2007] EWCA Civ 64 .

2. Chichester County Court: On 2 June 2006, HHJ Barratt ordered the director personally to pay the costs for which the claimant company was liable.

3. Chichester County Court: On 21 December 2005, HHJ Barratt dismissed the company’s claim, gave judgment for the defendants on their counterclaim and ordered the company to pay their costs.