Brampton Manor (Leisure) v McLean

Under section 51 of the Supreme Court Act 1981, a third-party costs order is discretionary and turns on whether, in all the circumstances, it is just to make the order. The jurisdiction commonly arises where a non-party has funded and controlled litigation, has a financial or personal interest in its outcome, or is the real party conducting the case. A director’s duty to act in the company’s interests does not ordinarily extend to personally funding or conducting the litigation. An early warning of a possible costs application is not a condition precedent, but is a highly material factor. The closeness of the non-party’s connection with the litigation may justify reliance on the trial judge’s findings in the costs application.

Clydesdale Bank plc successfully defended a claim brought by Brampton Manor (Leisure) Limited concerning the appointment of receivers under a debenture. Mr Woolf was the company’s director, majority shareholder, funder, principal witness and representative at trial. The bank applied for an order requiring him personally to pay its costs.

The application followed the company’s unsuccessful action and earlier unsuccessful applications concerning summary judgment and security for costs. The central issues were whether Mr Woolf was sufficiently connected with and interested in the litigation, whether the trial judge’s findings could fairly be relied upon, and what significance should be given to the warning that a third-party costs order might be sought.

1. Jurisdiction and governing principles. The court applied the discretionary jurisdiction under section 51 of the Supreme Court Act 1981. The principles stated in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 governed the exercise of the discretion. The fact that an order against a non-party is exceptional merely means that it falls outside the ordinary run of litigation. The ultimate question is whether the order is just in all the circumstances.
2. A non-party who substantially controls proceedings or stands to benefit from them will ordinarily be liable for costs if the proceedings fail. The court also applied the approach in Knight v FP Special Assets Ltd [1992] 174 CLR 178 to litigation brought by an insolvent or financially insecure company where the non-party actively conducts the litigation and has an interest in its subject matter.
3. The court treated the guidance in Petromec Inc v Petroleo Brasiliero SA Petrobras [2006] EWCA Civ 1038 as confirming that effective control and a potential benefit establish the jurisdiction, while funding remains relevant to the discretionary question. The availability or inadequacy of security for costs does not prevent an order in an otherwise appropriate case.
4. Mr Woolf’s connection with the company was unusually close. He was its director and majority shareholder, funded and conducted the litigation, gave the only trial evidence, controlled settlement discussions, and had a personal interest because success would have affected disqualification proceedings against him. His conduct placed the case within the principles in Dymocks Franchise Systems (NSW) Pty Ltd v Todd and Knight v FP Special Assets Ltd.
5. The court accepted the trial judge’s findings for the purpose of the application. The closeness of Mr Woolf’s connection meant that reliance on those findings did not cause injustice. His complaints about the merits, alleged bias and the late amendment were matters for an appeal and did not displace the costs jurisdiction.
6. The warning given on 15 June 2006 was not a condition precedent, but Mr Woolf should have had a short period to consider his position. The order was therefore made only for costs incurred from 1 July 2006, on the standard basis, to be assessed if not agreed.

Not stated in the judgment.