Full Colour Black Limited v The artist known as "Banksy" & Anor

Indemnity costs may be ordered after discontinuance where proceedings, viewed objectively and in the round, were pursued for an improper or collateral purpose and involved conduct unreasonable to a high degree. The court may examine whether the claim lacked real vitality and was used as leverage to extract a settlement. Discontinuance, weak merits or tactical conduct alone is insufficient. A non-party costs order against a controlling director is distinct and more demanding. Control, sole ownership and indirect benefit do not ordinarily displace limited liability. The applicant must ordinarily show that the director was the real party seeking personal benefit, or that the director engaged in serious personal impropriety or bad faith causatively linked to the costs.

Full Colour Black Limited discontinued its libel claim against the artist known as Banksy and Pest Control Office Limited before determination of the defendants’ summary judgment application. The defendants sought indemnity costs from 10 October 2023, alleging that the proceedings had been used to exploit Banksy’s concern about anonymity and to obtain a wider commercial accommodation. They also sought a non-party costs order against Andrew Gallagher, FCB’s sole director and shareholder.

The court had to decide whether the manner and purpose of the litigation took the case outside the norm for indemnity-costs purposes, and whether Mr Gallagher’s control, benefit and conduct justified personal liability under Senior Courts Act 1981 and the Civil Procedure Rules.

1. FCB was ordered to pay the defendants’ costs from 10 October 2023 on the indemnity basis. The application for a non-party costs order against Mr Gallagher was refused. A payment on account was ordered in a sum to be determined.
2. Under Civil Procedure Rules 1998, r 38.6(1) provides the ordinary costs consequence of discontinuance, but the court may make a different order. The indemnity-costs discretion under r 44.3 is broad, fact-sensitive and evaluative. The receiving party must show conduct or circumstances taking the case outside the norm, and conduct relied on must be unreasonable to a high degree, although dishonesty or moral blameworthiness is unnecessary.
3. Following Hosking v Apax Partners LLP [2019] 1 WLR 3347, the court may examine the documentary record and the manner in which proceedings were pursued at the point of discontinuance. A claim may warrant indemnity costs where it was continued as leverage for settlement rather than for adjudication. The court should not finally determine unadjudicated merits, but may consider apparent weaknesses insofar as they illuminate the purpose and vitality of the proceedings.
4. Objectively, the claim had no real prospect of success, particularly because an honest-opinion defence was likely to dispose of it. More importantly, FCB used the proceedings to exert pressure by maintaining the risk that Banksy might be identified or required to give evidence. The inclusion of Banksy as a defendant, the reservation of a naming application, correspondence seeking his full name, pleading choices and wider commercial settlement proposals cumulatively demonstrated conduct unreasonable to a high degree. The indemnity-costs threshold was therefore crossed.
5. The jurisdiction under s 51 of Senior Courts Act 1981 is distinct. Following Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 and Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Tiracet ve Sanayi AS v Aytacli [2021] 4 WLR 101, control and indirect benefit are relevant indicia but are not sufficient. The director must ordinarily be the real party seeking personal benefit, or have acted with serious impropriety or bad faith of a qualitatively different order from ordinary litigation misjudgment. Mr Gallagher’s benefit was indirect, the company had legal representation, and the evidence did not establish personal bad faith, deliberate misuse of the corporate form, or a causative basis for personal liability.
6. The non-party costs application was accordingly refused. If the parties could not agree the payment on account, its amount and timing would be determined on further written submissions.