PR Records Ltd v Vinyl 2000 & Ors

A non-party costs order is discretionary and must be exercised according to established principles. Relevant considerations include the non-party’s control of the litigation, personal benefit, funding, and causation of the costs incurred. A director who controls and funds a company’s defence for personal benefit may be liable, particularly where the company’s unsuccessful defence causes the claimant’s costs. “Exceptional” means outside the ordinary run of cases, not rare. The ultimate question is whether the order is just in all the circumstances.

PR Records Limited sought an order under CPR rule 48.2 requiring Mr Adrian Owlett to pay its costs in proceedings brought against Vinyl 2000 Limited and Mrs Susan Owlett. Mr Owlett was not originally a party. Following an earlier appeal, he was joined solely for the purpose of determining the non-party costs application.

Mr Owlett and Mrs Owlett controlled Vinyl 2000’s defence and counterclaim and raised funds from their jointly owned matrimonial home. PR argued that Mr Owlett controlled and funded the litigation, stood to benefit from its success, and caused PR to incur costs. The central issue was whether, applying the principles governing non-party costs orders, it was just to make Mr Owlett jointly and severally liable.

1. Application granted. The court made a non-party costs order against Mr Owlett under CPR rule 48.2, subject to the appropriate drafting of the order.
2. The governing principles were taken from Dymocks Franchise Systems & Todd [2004] 1 WLR 2807. The jurisdiction is discretionary and must be exercised according to principle. The question is whether, in all the circumstances, it is just to make the order.
3. The relevant matters included Mr Owlett’s control of the litigation, whether he stood to benefit personally, whether he funded the defending parties, and whether that funding caused PR to incur costs. The court also considered bona fides, alleged impropriety, non-disclosure, alleged dissipation of assets, exceptional circumstances, and residual discretionary considerations.
4. Mr Owlett predominantly controlled Vinyl 2000’s defence and counterclaim. He personally benefited from preserving the company, which was his livelihood, and from protecting his position as a shareholder. He also had a direct practical interest in defending the claim against Mrs Owlett because enforcement could affect their jointly owned matrimonial home.
5. Mr and Mrs Owlett jointly funded Vinyl 2000 and Mrs Owlett throughout the litigation. It would have been artificial to divide the funding into separate periods or interests. The funding and conduct of the defence and counterclaim caused PR to incur the costs of bringing its claim to a successful conclusion.
6. The court made no adverse finding that the defence and counterclaim were pursued without bona fides. It also declined to make definitive findings on alleged non-disclosure or dissipation of assets on the incomplete evidence. Those matters were, at most, makeweight considerations and were not necessary to justify the order.
7. The word “exceptional” did not require rarity. This was outside the ordinary case because the director equated the company’s interests with his own and funded its unsuccessful defence for personal benefit. In the circumstances, it was just to make Mr Owlett jointly and severally liable for the costs.

The judgment records an earlier procedural appeal concerning Mr Owlett’s joinder for the purpose of the CPR rule 48.2 application. On 18 July 2007, Mr Justice Morgan allowed that appeal and joined Mr Owlett for that limited purpose. The present judgment determined the substantive costs application.