The Creative Foundation v Dreamland Leisure Ltd & Ors

A non-party costs order is exceptional only in the sense that it falls outside the ordinary run of litigation. The governing question is whether, in all the circumstances, it is just to make the order. A person who substantially funds proceedings and also controls them or stands to benefit from them may be treated as a real party. The benefit may be financial, reputational or personal. Causation is also required: the non-party’s conduct must be an effective cause of the costs incurred. Where those factors are established, a costs order may be made against the non-party, but it should be limited to costs causally attributable to the relevant conduct.

The Foundation obtained summary judgment against Dreamland for delivery up of a section of wall bearing a Banksy mural. Dreamland was subsequently placed into creditors’ voluntary liquidation and could not meet the costs order made against it. The Foundation applied under section 51(3) of the Senior Courts Act 1981 for an order that Rochelle Godden, who was joined as a costs defendant, pay its costs.

She accepted that she had paid most of the defendants’ legal costs, but disputed that she had agreed to fund the defence, benefited from it or controlled it. The central issue was whether, applying the principles governing non-party costs orders, it was just to make an order against her and, if so, what costs should be recoverable.

1. The application was granted in part. Arnold J held that Rochelle substantially funded the defence, that Dreamland would not have defended the claim without that funding, that the defence was undertaken principally for her benefit, and that she was actively and closely involved in the defence. She was therefore a real party to the proceedings, making this an exceptional case in which it was just to order her to pay costs.

2. The governing principles stated in Dymocks Franchise Systems (NSW) Pty v Todd [2004] UKPC 39 were applied. “Exceptional” means outside the ordinary run of cases. The ultimate question is justice in all the circumstances. Pure funders will generally not be ordered to pay costs, but a person who both funds proceedings and substantially controls them or stands to benefit from them will ordinarily be liable if the proceedings fail.

3. The relevant benefit need not be a direct financial benefit from the litigation. It may be reputational or consist of personal satisfaction from defeating an opponent or settling a score. The court accepted that Rochelle stood to benefit through the proposed charitable use of the mural proceeds and through reputational and emotional interests.

4. The court adopted the causation approach stated by Chadwick LJ in Byrne v Sefton Health Authority [2001] EWCA Civ 1904, [2002] 1 WLR 775. It was unnecessary to resolve the different approach expressed by Morritt LJ in Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232, because either approach would produce the same outcome.

5. Rochelle was not ordered to pay all the Foundation’s costs. The order was limited to costs incurred from the date on which Dreamland filed its acknowledgement of service, since the Foundation would have incurred costs up to service of the claim even if Dreamland had not defended it.