Dolphin Quays Developments Ltd v Mills & Ors

A third-party costs order against receivers requires the court to exercise the broad discretion under Supreme Court Act 1981, s 51(3) in circumstances that are exceptional in the ordinary run of litigation. Receivers acting as agents of the company are not ordinarily the real parties to proceedings brought to enforce the company’s contractual rights. Funding, control, personal benefit, impropriety or unreasonableness may justify an order, but none is automatically required in every case. The availability of security for costs is relevant to discretion, although it does not remove jurisdiction. Where receivers continue as the company’s agents and there has been no winding up, the company remains the party responsible for the litigation. A failed claim, without more, does not justify transferring the company’s costs liability to its receivers or secured lender.

The claimant company, acting through its administrative and fixed charge receivers, sued its former director, Peter Mills, for damages for refusing to complete a flat purchase without an agreed set-off. The claim failed because the set-off term was not recorded in the written contract, contrary to Law of Property (Miscellaneous Provisions) Act 1989, s 2.

Mills applied under Supreme Court Act 1981, s 51(3) for an order that the receivers pay his costs. He argued that the receivers and the appointing bank were the real parties, had funded or controlled the proceedings, and would benefit from them. The central issue was whether justice required a non-party costs order where the receivers had acted for the company and Mills had not sought security for costs.

1. Application dismissed. The court had jurisdiction under Supreme Court Act 1981, s 51(3) to order non-parties to pay costs, but declined to exercise it.
2. The ordinary starting point was that a third-party costs order requires an exceptional circumstance, assessed against the normal range of litigation. This was an ordinary attempt by receivers to enforce a contractual right forming part of the security. The failure of the claim was not exceptional. There was also no impropriety or unreasonableness in its initiation or conduct.
3. The principle in Dymocks Franchise Systems (NSW) Pty v Todd did not make the receivers the real parties. They had not funded the proceedings in the relevant sense, had no personal or beneficial interest in the outcome, and were not litigating for their own purposes. The bank had neither funded, initiated nor controlled the proceedings in the relevant sense.
4. In the absence of a winding up, the receivers remained agents of the company under s 109(2) of Law of Property Act 1925 and clause 5.3 of the charge. The company therefore remained the party to the proceedings, brought and conducted by its agents for the benefit and at the expense of those claiming under the charge or equity of redemption.
5. The availability of security for costs under CPR rule 25.13 was a significant discretionary consideration. Mills could have sought security promptly, and the hardship he suffered did not make it just to impose liability on the receivers after the event. The decisions concerning receivers after winding up did not alter that conclusion.