Vellacott v The Convergence Group Plc & Ors

The jurisdiction to make a non-party costs order under section 51 of the Supreme Court Act 1981 is exceptional and fact-sensitive. Relevant considerations include whether the non-party controlled or benefited from the litigation, funded it, promoted a speculative or improper case, and caused the costs incurred. A person who is the real party to dishonest and speculative litigation may be ordered to pay the successful party’s costs. Pure funders without a personal interest, benefit or control will not usually be liable. Costs of a failed mediation may be recoverable as costs incidental to the proceedings. Indemnity costs are appropriate where the conduct of the litigation is unreasonable to a high degree and merits judicial disapproval.

Chantrey Vellacott, an accountancy firm, brought claims for unpaid fees against two companies in the Convergence group. The companies counterclaimed for substantial damages, alleging that Vellacott’s negligence had caused the failure of a proposed telecommunications project. During the trial, the companies entered administration and abandoned the counterclaim. Judgment was entered for Vellacott on its fee claims, with costs reserved.

Vellacott then sought indemnity costs, recovery of the costs of a failed mediation, and orders under section 51 of the Supreme Court Act 1981 against the companies’ former directors, Alan and Gail Robinson. The central issues were whether the counterclaim had been improperly or speculatively pursued, whether Mr Robinson was sufficiently involved and interested to justify a non-party costs order, and whether Mrs Robinson’s participation warranted a similar order.

1. The court ordered that the costs payable by the companies be assessed on the indemnity basis. The counterclaim was pursued on a false factual basis, despite the documents showing that licensing difficulties, rather than the alleged structural defects, prevented the project from progressing. Mr Robinson was an evasive and untruthful witness, and the claim should never have been brought. The conduct therefore fell outside the norm and warranted indemnity costs.

2. The costs of the failed mediation were recoverable. The phrase costs “of and incidental to” the proceedings in section 51 extends the recoverable costs beyond steps forming part of the trial itself. The mediation had been arranged during a court-ordered stay to facilitate settlement and was sufficiently connected with the proceedings. It was just that its wasted costs followed the event.

3. The jurisdiction to order costs against a non-party is exceptional. The ultimate question is whether, in all the circumstances, it is just to exercise the jurisdiction. Relevant considerations may include personal benefit, control, funding, promotion of a speculative claim or improper conduct, and whether the conduct caused the costs in question. The court commonly regards a person with control, benefit and funding as the real party to the litigation, although that does not mean that the cause of action was vested in that person.

4. Mr Robinson was jointly and severally liable for the companies’ costs. He had established and financed the group, was its primary beneficial participant, controlled and managed the litigation in substance, supplied the instructions on which the case was based, funded it personally and through Amador, and knowingly pursued a speculative and dishonest case. His conduct caused Vellacott to incur the costs of defending the counterclaim.

5. No order was made against Mrs Robinson. The evidence did not safely establish that she was a real party, controlled the litigation, knowingly funded it, or caused the costs incurred. Her assistance with trial preparation and her witness statement were insufficient, on this summary application, to justify personal liability. The court also declined to determine that the company accounts involved impropriety or that her asserted confidence in the litigation was dishonest.