Merchantbridge & Co Ltd & Anor v Safron General Partner 1 Ltd

A non-party costs order under Senior Courts Act 1981, section 51, is discretionary and does not require exceptional circumstances. The court should consider whether the non-party had an interest in the litigation, controlled it, caused costs to be incurred, or was the real party in important respects.

Pure funders who lack a personal or business interest will generally be protected, reflecting the policy of access to justice. Funding may nevertheless justify an order where the funder has a legitimate business interest and controls the litigation, even though the funding supports a defence and the funder acts openly and without moral blame. The cap applicable to certain professional funders is not a general rule for commercial non-party funders.

The claimants sought costs orders against the second to tenth defendants under section 51 of the Senior Courts Act 1981. They had funded, or were said to have funded and controlled, the defence conducted by the insolvent first defendant, Safron General Partner 1 Ltd.

The substantive action had been brought by Merchantbridge & Co Ltd and later assigned to Safron Advisors Ltd. Summary judgment initially obtained by the first defendant was reversed by the Court of Appeal. The action was later tried, liability was established, and damages and costs were assessed. The issue was whether the funders should bear the claimants’ costs, and if so, for what period and on what basis.

The application succeeded against Zent, DB Suisse, Wicklow, Solid and Telcom. It failed against H E Al Zubair, BTI, Islay and DB AG.

1. Discretion and governing principles. Section 51 gives the court a broad discretion to determine by whom and to what extent costs are paid. Exceptional circumstances are not a precondition. The court must apply appellate guidance to the particular facts and avoid over-complicating a summary jurisdiction.
2. Interest and pure funding. A pure funder is normally protected where it has no personal or financial interest, does not fund as a business and does not control the litigation. The defendants had a legitimate business interest in avoiding the nuisance, risks and loss of control associated with an unopposed claim. Their motives were not concealed or morally blameworthy, but they were not purely disinterested funders.
3. Control. Although day-to-day conduct was delegated to Mr Jackson, he acted at the defendants’ behest, was paid by them, sought their approval for material decisions and lacked authority to conduct the litigation without it. The defendants therefore controlled the litigation through their agent. Their decisions determined whether the defence continued, ceased or resumed.
4. Causation and justice. Without the funding, default judgment would have followed and the claimants would have incurred substantially fewer costs. The defendants also permitted substantial quantum work after liability had been established, although the quantum trial never occurred. Justice therefore required them in principle to pay the claimants’ costs.
5. Extent and liability. The order covered the litigation from approximately 1 January 2004, excluding the initial period required to consider whether and how the defence should be funded. Joint and several liability was appropriate because the successful funders acted in concert and their differences did not justify apportionment.
6. The limitation recognised in Arkin v Borchard Lines Ltd was directed to professional funding that facilitates access to justice while leaving the claimant primarily interested and in control. It did not justify capping these defendants’ liability at their contributions.

Not an appeal. The judgment records earlier procedural stages in the underlying action, including the reversal of summary judgment by the Court of Appeal on 14 February 2005 and the later assessment of quantum, but this application was determined at first instance.