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

Under section 51 of the Senior Courts Act 1981, a non-party costs order may be determined summarily where the non-party has such a close connection with the litigation that it is just to treat that person as the real party. Control of the litigation, financial support and an expectation of personal benefit are powerful indicators.

The guidance concerning third-party costs orders is not a set of mandatory conditions. A failure to warn the non-party, a failure to join that person, and the absence of security for costs are relevant circumstances, but their weight depends on the facts. The overriding and immutable requirement is that the statutory discretion be exercised justly.

After a 44-day trial, Cooke J gave judgment for Deutsche Bank A.G. against Sebastian Holdings Inc and dismissed Sebastian’s counterclaim. He ordered Sebastian to pay 85% of the Bank’s costs on the indemnity basis.

The Bank then sought a non-party costs order against Mr Alexander Vik, Sebastian’s sole shareholder and director. Cooke J joined him as a defendant for costs purposes and ordered him to pay £36,204,891 on account of costs: [2014] EWHC 2073 (Comm).

Mr Vik appealed. He challenged the summary procedure, the absence of an earlier warning, witness immunity, the exercise of discretion, Article 6 fairness, and the inclusion of forensic-accountancy costs.

1. The court dismissed both Mr Vik’s application to adduce fresh evidence and his appeal. The order against him was a proper exercise of the discretion under section 51 of the Senior Courts Act 1981.

2. A section 51 application does not assert a new cause of action against the non-party. It asks the court determining the litigation to exercise its statutory costs discretion. Where a non-party’s connection with the proceedings is sufficiently close, the court may use a summary procedure and rely on the evidence and factual findings from the trial. The ordinary evidential rules applicable to independent litigation between a party and a stranger do not govern that exercise.

3. Mr Vik was properly treated as the real party to the litigation. He was Sebastian’s sole shareholder and director, controlled its affairs and the conduct of the action, gave its principal factual evidence, and stood to obtain substantial personal benefit if it succeeded. He had a full opportunity to contest the factual case. Findings on the counterclaim which were unnecessary to determine its substantive merits could nevertheless be directly relevant to costs.

4. The guidance in Symphony Group Plc v Hodgson was guidance rather than rigid rules. A warning, joinder and security for costs are factors in deciding whether a summary procedure is just. They are not preconditions. The absence of a warning carried little weight because a warning would not have affected the conduct of litigation which Mr Vik controlled for his own benefit.

5. Witness immunity did not prevent the order. Liability was not imposed merely because Mr Vik had given false evidence. It rested principally on his control of, participation in, and personal interest in the litigation. Nor did the order pierce the corporate veil: a non-party costs order creates no substantive liability for the underlying cause of action.

6. There was no breach of Article 6. The trial judge’s adverse findings and previous involvement did not prevent him from deciding the consequential costs application fairly. Mr Vik was liable for the costs for which Sebastian was liable, subject to the detailed assessment; there was no basis to exclude the forensic-accountancy fees.

• Court of Appeal (Civil Division) — dismissed Mr Vik’s appeal and his application to adduce fresh evidence: [2016] EWCA Civ 23.
• High Court of Justice (Commercial Court) — Cooke J joined Mr Vik as a defendant for costs purposes and ordered him to pay £36,204,891 on account of the Bank’s costs: [2014] EWHC 2073 (Comm).