Sony / ATV Music Publishing LLC & Anor v WPMC Ltd & Anor

Under section 51 of the Senior Courts Act 1981, a non-party costs order may be made where justice requires it. A controller of an impecunious company is not liable merely because of the corporate relationship. The court should consider whether the controller caused the company to pursue or defend proceedings to promote the controller’s own economic interests, and whether the controller controlled or funded the litigation. Divergence between the controller’s interests and those of other shareholders or creditors is unnecessary. Impropriety is not required. The weight of any warning, and the need for causation, depend on the circumstances. The jurisdiction remains fact-sensitive and discretionary.

The claimants had succeeded against WPMC in copyright proceedings, with costs awarded against WPMC. WPMC subsequently entered liquidation and failed to pay those costs. The claim against Iambic had earlier been stayed following its winding up.

The claimants applied under section 51(3) of the Senior Courts Act 1981 for an order that David Bailey, who had acquired majority ownership and control of WPMC, pay their costs from the date of acquisition. The central issue was whether it was just to make a non-party costs order where the controller had controlled and partly funded the company’s defence for a prospective personal economic benefit.

1. Application granted. It was just to order Mr Bailey to pay the claimants’ costs from 4 January 2013.
2. The governing principles were those stated in Dymocks Franchise Systems (NSW) Pty v Todd [2004] UKPC 39. The jurisdiction is exceptional only in the sense that it falls outside the ordinary run of litigation. The ultimate question is whether an order is just in all the circumstances. A person who controls or funds litigation and stands to benefit from it may be treated as the real party.
3. The court should be slow to make an order against a controller unless the controller caused the company to pursue or defend the claim to promote the controller’s own economic interests, as distinct from those of other shareholders and creditors. It is unnecessary to show a divergence between the controller’s interests and those of the other stakeholders.
4. Control and funding are alternative, rather than cumulative, considerations. An order is more readily made where the controller causes a company to bring a claim than where the company merely defends one. Impropriety or speculative litigation may support an order, but their absence does not prevent one. A warning is relevant according to its likely effect on the proceedings, and causation is required to some extent.
5. Mr Bailey controlled WPMC and its defence, partly funded the defence, and caused WPMC to continue litigating because he hoped to recover his own and fellow investors’ losses through the Documentary. WPMC’s other debts were principally litigation-related debts owed to Mr Bailey’s companies and associates. In economic reality, Mr Bailey was the real party.
6. His reliance on the merits of WPMC’s defences, settlement attempts, the claimants’ motives and the absence of an earlier warning did not make an order unjust. The evidence did not establish that an earlier warning would have altered his conduct or produced an appeal.

This was a first-instance application following the judgment in the underlying proceedings, [2015] EWHC 1853 (Ch), and subsequent costs orders against WPMC. WPMC entered liquidation without pursuing its permitted appeal.