Systemcare (UK) Ltd v (Services Design Technology Ltd & Anor (Rev 1)

A non-party costs order under section 51 of the Senior Courts Act 1981 depends on whether it is just, assessed on all the circumstances. Earlier categories of case are guidance, not an exhaustive checklist.

Control of company litigation and an expectation of personal benefit can establish the jurisdiction without proof that the non-party funded it. A director is not liable merely for causing a company to litigate, but limited liability may be displaced where the director is the real party, promotes speculative or bad-faith litigation, or acts improperly. Insolvency during the litigation is not a prerequisite, although the company’s ability to meet costs and the director’s financial support may be relevant.

A non-party ordered to pay costs must have a fair opportunity to challenge their amount by detailed assessment.

Systemcare (UK) Ltd succeeded at trial against its customer, Services Design Technology Ltd (SDT), for unpaid telecommunications charges. SDT’s counterclaim was dismissed. The county court found that Mr Sharif, SDT’s managing director and principal shareholder, had given dishonest evidence and supported the counterclaim with documents that had not been sent.

After SDT entered liquidation and did not satisfy the costs liability, Systemcare obtained an order joining Mr Sharif and requiring him personally to pay SDT’s costs liability under section 51 of the Senior Courts Act 1981. The judge treated him as the real party interested in, responsible for, and in practical terms the funder of litigation without merit.

Mr Sharif appealed the non-party costs order and its quantification. Systemcare cross-appealed the judge’s order that it recover only half of the costs of the section 51 application.

1. The appeal was allowed only as to quantification. The court upheld the decision to make a non-party costs order against Mr Sharif, but set aside the order fixing his liability at £49,364.29. He was instead to pay Systemcare’s costs of the action on the standard basis until 20 July 2007 and on the indemnity basis thereafter, subject to detailed assessment if not agreed.
2. Section 51 gives a broad discretionary power. The ultimate question is whether it is just to make the order. The categories in Symphony Group plc v Hodgson [1994] QB 179 and the guidance in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 19 were not rigid conditions. A finding that the case is “exceptional” is not a statutory precondition.
3. Mr Sharif’s effective control of SDT’s litigation and his prospective financial benefit established the jurisdiction. Actual funding was relevant to discretion but was not a jurisdictional prerequisite. In practical terms, the judge was entitled to find that Mr Sharif funded the litigation by leaving, and procuring injections of, money from his other interests in SDT.
4. Corporate limited liability required caution. A director does not become liable merely by controlling, funding, or causing bona fide company litigation. Here, however, the litigation was caused by Mr Sharif’s actions; the counterclaim depended on evidence the trial judge rejected; it was at best speculative; and Mr Sharif had used false explanations and bogus documents. Those cumulative features justified the order.
5. The judge had wrongly characterised one alleged basis of Systemcare’s case, namely that Mr Sharif knew SDT could not pay costs if it lost. But that procedural error caused no injustice. The order rested on other grounds advanced by Systemcare and properly available to the judge.
6. The absence of an earlier warning of personal costs liability was relevant but not decisive. No realistic prejudice was shown. The cross-appeal, and Systemcare’s unpursued third-party disclosure application, were dismissed.

• Court of Appeal (Civil Division): By [2011] EWCA Civ 546 , the court upheld the non-party costs order but substituted an order for detailed assessment of the costs payable by Mr Sharif. It dismissed Systemcare’s cross-appeal.
• Guildford County Court: HH Judge Reid QC gave judgment for Systemcare on the underlying claim, dismissed SDT’s counterclaim, and later ordered Mr Sharif, joined as a non-party, to pay £49,364.29 in costs under section 51 of the Senior Courts Act 1981.