Deutsche Bank A.G. v Sebastian Holdings Inc & Anor

A non-party costs application invokes a statutory discretion within the existing proceedings. The overriding requirement is that the discretion be exercised justly. Where a non-party’s connection with the litigation makes it fair to bind him to the trial evidence and findings, the application may be determined summarily without applying the evidential rules governing independent proceedings. A person who controls and supports litigation for personal benefit may be its real party and ordinarily bears a substantial risk of costs liability. Funding is relevant but is not a prerequisite. The absence of a warning is one consideration whose weight depends on the circumstances and resulting prejudice. Findings unnecessary to the substantive decision may remain relevant to costs. Making an order against a company’s controller on these grounds does not pierce the corporate veil.

Deutsche Bank brought proceedings against Sebastian Holdings Inc, a company used by Alexander Vik as his personal investment vehicle, to recover amounts due on trading accounts. Mr Vik was its sole shareholder and director, controlled the litigation and gave its principal factual evidence. After a lengthy trial, Cooke J awarded the Bank approximately US$243 million, dismissed Sebastian’s counterclaim and ordered Sebastian to pay 85% of the Bank’s costs on the indemnity basis. Sebastian made no payment and was said to have no assets.

The Bank then sought a non-party costs order against Mr Vik as the real party to the litigation. Cooke J rejected his jurisdictional objections, joined him for costs purposes and ordered him to pay £36,204,891 on account: [2014] EWHC 2073 (Comm). Mr Vik appealed. He challenged reliance on the trial findings, the absence of a warning, the treatment of witness immunity, the exercise of discretion and the inclusion of forensic accountants’ fees. He also sought permission to introduce fresh evidence about how a warning would have affected his conduct.

The appeal and the application for permission to adduce fresh evidence were dismissed.

1. An application under section 51 of the Senior Courts Act 1981 seeks the exercise of a statutory costs discretion. It asserts no independent cause of action. The discretion must be exercised justly, and non-party orders are exceptional only in being outside the ordinary run of litigation conducted by parties for their own benefit and at their own expense.
2. The critical procedural consideration was the nature and degree of the non-party’s connection with the litigation. A summary determination using the trial evidence and findings was permissible where that connection made it fair to bind the non-party. Mr Vik controlled Sebastian and its litigation, supported the proceedings and stood to benefit personally. He had a full opportunity to contest the relevant facts. The rules governing issue estoppel, abuse of process and admissibility in independent proceedings therefore required no determination.
3. The court’s costs jurisdiction was ancillary to, but separate from, its jurisdiction over the substantive dispute. Findings unnecessary to deciding the counterclaim remained relevant where they concerned Mr Vik’s relationship with Sebastian or his conduct of the litigation.
4. The guidance in Symphony Group Plc v Hodgson supplied relevant considerations rather than mandatory conditions. As explained in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, the significance of a warning depended on the circumstances and its likely effect. The Bank had no obligation to explain its failure to warn. That failure carried little weight here, and the possibilities of joinder or security for costs did not establish unfairness.
5. Funding was relevant but was not a prerequisite. The finding that Mr Vik funded the proceedings by leaving assets available to Sebastian was justified by his relationship with the company and consistent with Petromec v Petrobras. Treating him as the real party for costs purposes did not pierce the corporate veil or impose substantive liability for Sebastian’s obligations.
6. The order rested primarily on Mr Vik’s position as the real party, rather than merely on his false evidence. The witness-immunity observations in Oriakhel v Vickers were obiter and required caution. More generally, costs orders against witnesses required considerable care and respect for the principles underlying witness immunity.
7. Adverse trial findings did not disable the judge from determining consequential costs impartially. Applications against non-parties should normally be decided by the trial judge; exceptions were likely to be rare. Neither the judge’s additional factual findings nor his disapproval of the trading activity established unfairness or a breach of article 6.
8. As the real party, Mr Vik could be liable for all costs payable by Sebastian, including the forensic accountants’ fees, subject to arguments available on detailed assessment. His proposed fresh evidence was not credible, and no satisfactory explanation justified withholding it below. The order for payment on account was upheld.

1. Court of Appeal (Civil Division): In [2016] EWCA Civ 23 , dismissed Mr Vik’s appeal against the non-party costs order and his application for permission to adduce fresh evidence.
2. High Court: Cooke J, in [2014] EWHC 2073 (Comm) , rejected Mr Vik’s jurisdictional objections, joined him for costs purposes and ordered him to pay £36,204,891 on account of the Bank’s costs.
3. High Court: Following the trial of the main action in November 2013, Cooke J gave judgment for the Bank for US$243,023,089, dismissed Sebastian’s counterclaim and ordered Sebastian to pay 85% of the Bank’s costs on the indemnity basis. No citation for that judgment is supplied.