Kirby v Hoff

A non-party costs order is exceptional in the sense that it is not usual, but neither funding, control, personal benefit, nor bad faith is an indispensable requirement. The court must evaluate the circumstances as a whole, including the non-party’s control of the litigation, funding involvement, potential benefit, status as the real party, any warning, and any impropriety. An appellate court reviewing such an order asks whether the first-instance decision was one the judge, properly directing herself, could reach. The court may exercise its discretion afresh where material reasoning was flawed, while reaching the same result on the evidence.

Mr Kirby appealed against a decision of Master Fontaine ordering him to pay costs incurred by Mr Hoff in proceedings brought by Atlantic Air Ltd, a company controlled and principally funded by Mr Kirby. The company’s claim against Mr Hoff was struck out after it failed to provide security for costs, and the company then entered liquidation. Mr Hoff applied for a non-party costs order under Supreme Court Act 1981, section 51. The Master concluded that Mr Kirby had controlled and funded the litigation, stood to benefit from it, and had acted in bad faith. The central issues were whether the Master had exercised the discretion on proper principles and whether the order should stand despite errors in the reasoning.

1. Appeal dismissed. The jurisdiction to make a non-party costs order under section 51 of the Supreme Court Act 1981 was accepted. The appeal was by way of review, not rehearing. The question was whether the Master’s conclusion was one she could properly reach, not whether the appellate court would have reached the same conclusion.

2. The relevant considerations ordinarily include the exceptional nature of the jurisdiction, the non-party’s control of the litigation, funding involvement, potential benefit, whether the non-party was the real party, the existence and timing of any warning, and bad faith or impropriety. No single factor is decisive. Bad faith or impropriety is not a prerequisite.

3. The Master was wrong to say that there was no evidence of impropriety but evidence of bad faith. Bad faith ordinarily involves subjective dishonesty and is a serious allegation. The court nevertheless found impropriety in the broader sense of unreasonable and unacceptable conduct. The order could properly be made even without that finding.

4. Mr Kirby controlled both the company and the litigation. Although the company paid the lawyers, it could litigate only because Mr Kirby had kept it afloat through substantial loans and financial support. Any real benefit from recovery would substantially accrue to him as the company’s principal creditor. The claim was commenced despite the company’s financial position, the threatened security application, and the limited apparent value of the claim against Mr Hoff, then abandoned without satisfactory explanation.

5. These circumstances supported the conclusion that the proceedings were motivated in part by personal antipathy and were calculated to expose Mr Hoff to substantial costs while preventing recovery of his employment award. The absence of an early warning did not materially assist Mr Kirby, particularly because he had been aware of the possibility of non-party costs orders. Exercising the discretion afresh, the court reached the same conclusion as the Master and dismissed the appeal.

• High Court (Queen’s Bench Division): Master Fontaine ordered Mr Kirby to pay Mr Hoff’s costs as a non-party costs order on 30 June 2010. Eady J subsequently granted permission to appeal. The High Court, per Mr Justice Davis, dismissed the appeal.