DNA Productions (Europe) Ltd v Manoukian

Under section 51(3) of the Supreme Court Act 1981, the court may order a non-party to pay costs where a company’s litigation was pursued at that person’s initiative and expense, and the person was the real litigant who stood to benefit from success. The jurisdiction is discretionary and depends on all the circumstances and the conduct of the proceedings. Impropriety or unreasonableness is an important factor, but its absence does not prevent an order. The availability or use of security for costs is also relevant, but does not exclude a non-party costs order.

The defendant successfully defended the claimant company’s claim concerning the price and remuneration arrangements for an event. The claimant was subsequently placed in members’ voluntary liquidation and was unable to meet the defendant’s costs. The defendant applied for an order requiring Mr Manoukian’s opponent, Mr James, to pay those costs as a non-party under section 51(3) of the Supreme Court Act 1981. The application concerned whether Mr James had procured and financed the litigation, stood to benefit from success, and had pursued the claim improperly. The court also considered the significance of security for costs.

1. The court made a non-party costs order against Mr James under section 51(3) of the Supreme Court Act 1981. The order followed the principles stated in Aiden Shipping Co. Ltd v Interbulk Ltd [1986] 1 AC 965, and the later authorities reviewed in BE Studios Ltd v Smith & Williamson Ltd [2005] EWHC 2730 (Ch) and Mills v Birchall & Gilbertson [2008] EWCA Civ 385.
2. The relevant contrast was between a director who bona fide pursues unsuccessful company litigation for the company and its creditors, and a person who is the real litigant. The latter category includes a person whose initiative and finance were necessary for the litigation and who stood to benefit materially if it succeeded.
3. The decision is discretionary and requires review of all the facts and the conduct of the proceedings. Impropriety or unreasonableness in presenting or conducting the claim is an important consideration, but its absence does not preclude an order. The availability of security for costs, whether it was obtained, and whether it could reasonably cover the likely costs are also relevant, but security does not preclude an order.
4. Mr James had initiated and financed litigation which would not otherwise have been brought in that form. He stood to obtain a financial return and sought to preserve the claimant’s business. The claim had nevertheless been pursued in circumstances amounting to impropriety. The claimant had concealed supplier discounts, failed to correct the defendant’s mistaken understanding of the contract, and failed during the litigation to disclose documents demonstrating the deception.
5. Security of £45,000 was not sufficient to protect the defendant against the likely costs of a full trial. The court therefore ordered Mr James to pay the defendant’s costs of the proceedings and the application, with the balance of £53,653.84 payable forthwith with interest at 1 per cent over base rate from 28 May 2008 until payment.