Europeans Ltd v Revenue and Customs

A non-party costs order is governed by the overall justice of the case. The jurisdiction is exceptional in the sense that it falls outside the ordinary case, but exceptional circumstances are not a precondition. The court must consider all relevant circumstances, including whether the non-party managed, funded or caused the litigation and, where the non-party is a company director, whether the litigation was pursued in good faith for the company’s interests or substantially for the director’s personal benefit. An early warning of the intended application is highly material, but failure to give one is not conclusive. In a case involving a speculative appeal against findings of serious fraud, the delay in warning did not outweigh the circumstances supporting the order.

HMRC sought a third-party costs order against Mr Tarik Meghrabi under Senior Courts Act 1981 section 51, in respect of costs incurred in an unsuccessful High Court appeal by Europeans Ltd from a London VAT Tribunal decision. The company had entered voluntary liquidation and had no assets. Mr Meghrabi was its sole shareholder, sole effective director and the person who caused the appeal to be brought and withdrawn.

He argued that he had acted in good faith in the company’s interests and that HMRC had given notice of the proposed personal costs application too late. The central issue was whether, considering all the circumstances, it was just to make him personally liable for the appeal costs.

1. The application was granted. The court ordered Mr Meghrabi to pay HMRC’s costs of the company’s High Court appeal, assessed at £18,400.

2. The governing question under Senior Courts Act 1981 section 51(3) and CPR 48.2(1) was whether, in all the relevant circumstances, it was just to make the non-party pay costs. Such an order is exceptional because it lies outside the ordinary run of litigation conducted by parties for their own benefit and expense. Exceptional circumstances are not a separate precondition.

3. The recognised categories include cases where the non-party managed, maintained, financed or caused the litigation. Funding is not essential. For a company director, the court must consider whether the director genuinely believed that the case was proper and in the company’s interests, or whether the director was the real party pursuing litigation substantially for personal benefit. Impropriety need not be proved where speculative litigation was pursued for that personal benefit.

4. Mr Meghrabi had caused the appeal, controlled the company, funded it from personal resources and had a direct personal interest in reversing findings that he had known of fraudulent transactions. The notice of appeal was insubstantial and speculative. There was no evidence of a bona fide belief that the appeal was properly brought for the company’s interests. The circumstances therefore fell outside the ordinary case of a director of a one-person company, and limited liability did not prevent the order.

5. HMRC’s failure to warn Mr Meghrabi at the earliest opportunity was a serious concern. The requirement for an early warning is a highly material consideration, but it is not conclusive. The court had to assess the overall fairness of the order. The delay did not outweigh the speculative nature of the appeal, the underlying findings of fraud, the absence of a reasoned challenge to those findings and the other circumstances.

6. The court cautioned HMRC that the decision was not carte blanche for late warnings in future cases.