Lingfield Properties (Darlington) Ltd v Padgett Lavender Associates

A non-party costs order under Supreme Court Act 1981, section 51, is exceptional and requires careful consideration of all the circumstances. Relevant factors may include whether the non-party funded or controlled the litigation, stood to benefit from it, was the real party, or pursued speculative litigation or acted improperly. Funding or management alone is insufficient. The court must also respect the public interest in preserving witness immunity. Under CPR 48.2, a person must be joined for costs purposes where the court is considering whether to exercise its section 51 power, provided the application is not wholly misconceived.

The claimant had failed in earlier proceedings and had been ordered to pay the defendants’ costs on an indemnity basis. The defendants applied under CPR 48.2 and Supreme Court Act 1981, section 51, to join Michael Hepker and seek a non-party costs order against him.

They alleged that Mr Hepker had funded, controlled and benefited from the litigation, and had acted improperly. Mr Hepker disputed those allegations, relied on the claimant company’s separate identity, and argued that the application was premature and that he had not been given a reasonable opportunity to prepare his case. The central questions were whether he should be joined and whether it would be just to make a costs order against him.

1. Joinder. CPR 48.2 requires a person to be added as a party for costs purposes where the court is considering whether to exercise its power under section 51, and requires a reasonable opportunity to attend the further hearing. The only condition for joinder is that the court is considering exercising the section 51 power. The application was not so lacking in merit as to be misconceived, so Mr Hepker had to be joined.
2. Applicable principles. A non-party costs order is exceptional and must be approached with considerable caution. The authorities, including Petromec v Petroleo Brasileiro [2006] EWCA Civ 1038, Symphony Group v Hodgson [1994] QB 179 and Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs) [2004] UKHL 39, provide guidance rather than a rule book. Exceptional circumstances may arise where a non-party substantially controls or benefits from the litigation, is the real party, or pursues speculative litigation or acts improperly. Funding alone is ordinarily insufficient, particularly where the funder is disinterested.
3. Summary procedure. The application was summary. The court could rely on findings already made in the substantive judgment where the issues were closely linked to evidence given by Mr Hepker. It could not resolve new disputed facts without disclosure, cross-examination or oral evidence.
4. Application. Mr Hepker was principally involved in managing the action and had arranged funding, but the evidence did not establish that he was the real party or that the claimant was merely nominal. The claimant owned the disputed asset, risked its own assets and had funding arrangements that did not materially depend on Mr Hepker’s personal contribution. The court accepted that the board probably applied its mind independently to the litigation.
5. The principal complaint concerned Mr Hepker’s evidence, which the court had found incorrect. That engaged the important public interest in witness immunity. The court left open whether that immunity might yield in another case, but held that this was not such a case. No material impropriety in his management of the litigation had been established, and it would not be just to make a section 51 costs order. The application therefore failed.

The judgment records that the claimant’s substantive claim had previously been dismissed in [2007] EWHC 2989 (QB). The present decision concerned the defendants’ subsequent application for joinder and a non-party costs order.