Dolphin Quays Development Ltd v Mills

This appeal concerns whether a successful defendant may recover his costs from receivers (non-parties) who caused an insolvent company to bring litigation in the company’s name. The Court of Appeal held that an order under section 51(3) of the Supreme Court Act 1981 against receivers is an exceptional remedy to be exercised in accordance with "reason and justice" and will usually require factors such as the non-party having funded, controlled or being the "real party" to the litigation or other circumstances making it unjust for the defendant to be left unpaid.

The court emphasised the relevance of the receivers’ agency (section 109(2) Law of Property Act 1925), the availability of security for costs, the absence of impropriety or unreasonableness in the receivers’ conduct, and the fact that the proceedings were ordinary receivers’ enforcement of security. On those facts the Chancellor’s refusal to order the receivers to pay the defendant’s costs was a proper exercise of discretion and the appeal was dismissed.

Background and parties:

• The appellant, Mr Peter Mills, defended proceedings brought in the name of Dolphin Quays Developments Ltd (the Company) for specific performance of a sale of a long lease. The Company’s proceedings had been conducted by insolvency practitioners appointed as receivers and administrative receivers by the chargee bank.
• The Company’s claim was dismissed at first instance by Mr Peter Leaver QC in April 2006 under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Mr Mills then sought to recover his costs from the Receivers personally by an order under section 51(3) of the Supreme Court Act 1981 on the basis that the real parties in interest were the Receivers/the bank and that the Company was an impecunious vehicle.

Nature of the application: Mr Mills sought an order that the Receivers pay his costs of the unsuccessful company claim as a non-party under section 51(3) Supreme Court Act 1981.

Issues framed by the court:

• Whether the court should exercise its discretion under section 51(3) to order non-parties (the Receivers) to pay costs incurred by the successful defendant when the unsuccessful claimant was an insolvent company; and
• What weight to give to considerations including the receivers’ agency pursuant to section 109(2) Law of Property Act 1925, the availability of security for costs, whether the Receivers were the "real party", and whether there was impropriety or unreasonable conduct by the Receivers.

Court’s reasoning and conclusion:

• The Court reviewed authorities including Aiden Shipping, Dymocks, Metalloy and Knight and summarised that third-party costs orders are "exceptional" in the sense of being outside the ordinary run of litigation where parties litigate for their own benefit; the ultimate question is whether in all the circumstances it is just to make the order.
• The court held that receivers are normally agents of the company (section 109(2) Law of Property Act 1925) and that the defendant’s ordinary remedy where the claimant is insolvent is to apply for security for costs; the availability of security is an important factor in the exercise of discretion though not determinative of jurisdiction.
• On the facts there was no sufficient element of impropriety, unreasonableness or other exceptional circumstance; the Receivers did not fund or control the litigation in a manner making them the "real party" and the proceedings were ordinary enforcement of contractual security. The Chancellor had not misdirected himself and his exercise of discretion was not interfered with.

Contextual note: The court reiterated that orders against non-parties are rare and fact-sensitive; where security for costs is available the court will often prefer that route but, in appropriate cases (for example where the non-party funded, controlled and benefitted from litigation), a third-party costs order may be justified.

Appeal dismissed. The Court of Appeal upheld the Chancellor’s refusal to order receivers to pay the successful defendant’s costs because the decision was a proper exercise of discretion: receivers were agents of the company under section 109(2) Law of Property Act 1925, there was no impropriety or exceptional feature making the Receivers the "real party", and the availability of security for costs was a relevant factor which militated against a third-party costs order on these facts.

Appeal from the High Court of Justice, Chancery Division (Sir Andrew Morritt, C) (HC04C03670). The Chancellor had refused the application of Mr Mills (judgment dated 17 May 2007) and permission to appeal to the Court of Appeal was granted. [2008] EWCA Civ 385 is the Court of Appeal disposition.