Goknur Gida Maddeleri Enerji Imalat Ithalat Ihracat Ticaret Ve Sanati A.S. v Organic Village Ltd & Anor (Rev 1)

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 making the order is just in all the circumstances. A person who funds and controls proceedings, or substantially benefits from them, may be treated as the real party. However, a company director who funds litigation conducted bona fide for the company’s benefit is in a special position. Directorship, control, funding and an indirect financial interest do not alone justify personal costs liability. Something more, such as impropriety, bad faith or improper conduct, is ordinarily required. The nature and level of funding, the company’s separate liability, and the wider costs context are relevant to the discretionary decision.

The claimant sought a non-party costs order against the second defendant, the former managing director of the first defendant company. The application followed long-running litigation concerning allegedly defective fruit juice. The company’s counterclaim succeeded on breach of contract and misrepresentation, but only nominal damages were awarded. The claimant was awarded part of its counterclaim costs, while the company had earlier obtained substantial costs orders against the claimant.

The company later failed to commence detailed assessment proceedings, causing its costs to be disallowed and requiring repayment of sums paid on account. The claimant sought to recover those sums, together with its assessed costs, from the former director personally. The central issue was whether, applying section 51 of the Senior Courts Act 1981 and CPR 46.2, it was just to make the order.

1. Application dismissed. It would not be just to make a non-party costs order against Mr Aytacli.

2. The court had jurisdiction under section 51 of the Senior Courts Act 1981, regulated by CPR 46.2. The discretion was fact-specific and required consideration of whether an order was just in all the circumstances. The principles summarised in Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors (No. 2) were applied.

3. Mr Aytacli had controlled the litigation before and after his resignation as director. His guarantees and charge securing the company’s solicitors’ fees amounted to funding for these purposes. The type and level of funding, and the fact that it began only about halfway through the litigation, were relevant to the discretion.

4. Control and funding did not establish that the proceedings were pursued solely or substantially for Mr Aytacli’s own financial benefit. The company remained primarily liable for its debts, and the litigation was pursued for the benefit of the company and its creditors. The reasoning of Metalloy Supplies Ltd (in liquidation) v MA (UK) Ltd and Housemaker Services Ltd & Another v Cole & Another was accepted. In the case of a director and shareholder, something more than funding and control was ordinarily required, such as impropriety, bad faith or improper conduct.

5. The trial judge’s rejection of Mr Aytacli’s evidence about alleged emails did not amount to a finding of impropriety or bad faith. The conduct findings in the earlier judgments likewise did not justify personal costs liability.

6. There was an independent reason to refuse the order. The claimant’s claim arose because the company lacked resources to fund detailed assessment of its own costs. In the wider context, the claimant would probably otherwise have made a substantial net payment to the company. That context could properly be considered in deciding the separate non-party costs application.

7. The court declined to determine whether the claimant had any direct recovery claim against the company’s former solicitors for sums paid on account. That issue was unnecessary to the result.