Montpelier Business Reorganisation Ltd v Jones & Ors

A non-party costs order under Senior Courts Act 1981, section 51, is a fact-sensitive discretionary remedy. The question is whether, in all the circumstances, it is just to require the non-party to pay costs. A non-party who substantially funds insolvent-company litigation for its own financial benefit will ordinarily be liable, particularly where it is the real party and controls the litigation. Control is important but not essential. A shareholder does not receive the special protection accorded to a director merely because it is connected with the company. Funding need not be direct or substantial enough to make every contributor liable: a contingent benefit, modest contribution, lack of control and absence of real-party status may justify refusing an order.

The claimant’s substantive contractual claim had failed, leaving it insolvent and unable to satisfy costs awarded to Mr Armitage. The court had joined Montpelier Professional (Leeds) Ltd (MP Leeds) and Montpelier Professional Ltd (MPL) to determine Mr Armitage’s application for non-party costs orders. The application alleged that both companies had funded the claimant’s litigation and that MPL had also controlled it and stood to benefit from success. The central issue was whether it was just to make an order against either or both companies, applying the principles governing non-party costs orders.

1. The court ordered MPL to pay Mr Armitage’s costs of the substantive litigation on the same terms as the claimant, and refused the application against MP Leeds.

2. Section 51 of the Senior Courts Act 1981 gives the court jurisdiction to determine by whom and to what extent costs are to be paid, including by a non-party. The application is summary in nature and should be determined principally by the evidence and findings at trial, together with an assessment of the relevant conduct.

3. The governing question is whether an order is just in all the circumstances. The jurisdiction is exceptional only in the sense that it lies outside the ordinary run of litigation conducted by parties for their own benefit and at their own expense. A pure funder will generally not be ordered to pay costs. By contrast, a non-party who funds proceedings by an insolvent company solely or substantially for its own financial benefit will generally be liable. Funding includes furnishing funds and, in appropriate circumstances, allowing the company to retain funds for litigation.

4. Control and financial benefit are important indicators that the non-party is the real party, but control is not a prerequisite. The absence of impropriety does not prevent an order against a shareholder or other non-party, although the position of a director is special because of separate corporate personality and the director’s duties to the company. Failure to seek security for costs or to give an early warning is relevant but neither is a prerequisite.

5. MPL was the predominant funder through an unsecured, interest-free loan. It had substantial direct financial interests, including protection from its guarantee obligations and the prospect of receiving the litigation’s financial benefit. It also exercised control through Mr Gittins and was the real party. It was therefore just to make the order. MP Leeds made no sufficiently meaningful contribution, exercised no material control, and had only a contingent indirect benefit. It was not a real party, so no order was justified, including a partial order.

First-instance decision on an application for non-party costs orders following the claimant’s unsuccessful substantive litigation. The earlier judgment was reported at [2016] EWHC 977.