Deutsche Bank AG v Sebastian Holdings Incorporated & Anor

A non-party costs order is discretionary and exceptional, but “exceptional” means outside the ordinary run of litigation conducted by parties for their own benefit and expense. The controlling question is whether, in all the circumstances, it is just to make the order. Funding is not a jurisdictional prerequisite, and the relevant factors are neither rigid nor exhaustive. A person who controls litigation, stands to benefit from it, causes costs to be incurred through impropriety, or deliberately deprives the litigating party of assets may be liable. In a section 51 application, findings from the underlying trial may bind a closely connected non-party as a privy. The application remains summary, although disclosure or cross-examination may be ordered where essential. The trial court is ordinarily the natural forum for determining liability for costs.

Following a trial in which Deutsche Bank obtained judgment against Sebastian Holdings Incorporated for approximately US$243 million and an order for 85% of its costs on the indemnity basis, the company failed to pay the judgment debt and interim costs. Alexander Vik, its sole shareholder and director, had controlled the litigation and was joined as a defendant for costs purposes only.

Mr Vik challenged service out of the jurisdiction and sought to stay the application on grounds including lis alibi pendens and forum non conveniens, relying on parallel proceedings in New York and Connecticut. The court dismissed those objections and then considered whether section 51 of the Senior Courts Act 1981 justified making Mr Vik personally liable for the costs owed by the company.

1. Jurisdiction. The section 51 application concerned the exercise of an English statutory costs discretion, not the same lis as the foreign proceedings, which were based on alter ego and fraudulent-transfer claims. No foreign court could exercise the section 51 jurisdiction. England was therefore the natural and appropriate forum, particularly since this court had tried the underlying action and could determine the application summarily.
2. Effect of the earlier judgment. Mr Vik was a privy of SHI. He was its sole shareholder and director, controlled the litigation, gave the relevant evidence and stood to benefit from success. The findings against SHI were admissible and binding against him for the purposes of res judicata and issue estoppel. The rule in Henderson v Henderson also prevented him from relitigating matters decided, or which should have been raised, in the original action.
3. Section 51 principles. Under section 51 of the Senior Courts Act 1981 and CPR Part 46.2.1, the court must exercise a broad discretion justly. Funding is not essential. Control, benefit, impropriety, asset transfers and causation are relevant but non-exclusive considerations. The “real party” concept is helpful but does not exhaust the jurisdiction.
4. Mr Vik had transferred assets from SHI to impede recovery, controlled the conduct of the litigation, pursued dishonest and improper defences and counterclaims, caused substantial costs to be incurred, and stood to benefit from the litigation. Those factors independently justified an order. Any failure to seek security, join him earlier or warn him did not cause prejudice and carried little weight.
5. The new evidence sought to reopen matters determined at trial and was inadmissible or incapable of acceptance. It did not displace the findings concerning SHI’s assets, transfers or financial position.
6. It was entirely just to order Mr Vik to pay all sums owed by SHI to Deutsche Bank in respect of the costs awarded on 8 November 2013, together with the costs of the non-party costs application.

This was a first-instance decision on a non-party costs application. The judgment records that the underlying trial judgment had been given on 8 November 2013, permission to appeal had been refused, and the Court of Appeal had refused permission to appeal from an earlier case-management order concerning the section 51 application.