Equitas Ltd & Anor v Horace Holman & Company Ltd & Anor

A non-party costs order is discretionary and fact-sensitive. It may be made where a non-party is more than a funder and is a real party who controls or substantially benefits from the litigation. Control in the ordinary capacity of a company director, and support provided as part of a wider strategy to protect creditors, do not necessarily satisfy that test. Early warning of a possible application is ordinarily required. Failure to warn is a material, and in an appropriate case highly material, consideration, particularly where the non-party is to be cross-examined on matters relevant to the application. Witness immunity does not prevent evidence given in proceedings from being used on a subsequent application for costs under section 51 of the Supreme Court Act 1981. The trial judge should generally hear the application unless apparent bias is established.

Equitas had obtained judgment and a costs order against Horace Holman. Horace Holman subsequently entered creditors’ voluntary liquidation and failed to pay the judgment or costs. Equitas applied under section 51 of the Supreme Court Act 1981 for a non-party costs order against Mr Powell, Horace Holman’s owner and director, alleging that he controlled and funded the litigation, stood to benefit from it, and pursued it to protect his personal reputation.

Mr Powell also sought recusal of the trial judge, alleging apparent bias arising from the judge’s case management and the conduct of cross-examination at the earlier hearing. The issues were whether a non-party costs order should be made, whether the absence of an early warning was material, whether witness immunity applied, and whether the judge should recuse himself.

1. Non-party costs order refused. The jurisdiction under section 51 of the Supreme Court Act 1981 is not confined to funded claims or to cases where the non-party expects a monetary benefit. The central question is whether, in the circumstances, the non-party was a real party to the litigation or otherwise bore the relevant responsibility for it.
2. Mr Powell controlled Horace Holman and took primary responsibility for instructing solicitors. That conduct was undertaken in his capacity as director and did not, without more, make him a real party. Camomile’s financial support was part of a broader run-off strategy intended to protect creditors and avoid liquidation. It was not funding of the litigation in the sense contemplated by the authorities, and treating Mr Powell as the funder would impermissibly pierce the corporate structure.
3. The prospect that Camomile might recover some of its advances if costs were recovered from Equitas was insufficient to establish a personal financial benefit to Mr Powell. Camomile supported the run-off generally, rather than the defence specifically. The evidence also failed to show that the litigation was pursued to protect Mr Powell’s personal reputation or employment prospects.
4. Failure to warn Mr Powell of the possibility of a non-party costs application was an important additional reason for refusing the order. The need for warning arises when the possibility of an application exists, not only when a decision to apply has been made. The omission was particularly material because Mr Powell was to be cross-examined about the conduct of the proceedings and accepted that, if warned, he would have obtained advice and brought the litigation to an end.
5. Witness immunity did not prevent Equitas from challenging evidence given by Mr Powell or using that evidence in determining liability for costs under section 51. The questioning was not improperly disallowed.
6. Recusal refused. The fair-minded and informed observer would not conclude that there was a real possibility of bias. The judge was entitled to raise the warning issue in case management, and the trial judge should ordinarily determine a subsequent non-party costs application unless there is a compelling reason to the contrary.

First-instance decision. The judgment refers to the earlier judgment given by the same court on 26 April 2007, which awarded sums and costs against Horace Holman, but no citation for that judgment is stated.