Non-Party Costs Archives

Indemnity Costs Awarded for Libel Claim Used to Pressure Anonymous Artist

Costs on Discontinuance, Indemnity Costs, New Costs Blog, Non-Party Costs

The King’s Bench Division’s decision in Full Colour Black Limited v Banksy [2026] EWHC 795 (KB) addresses the costs consequences following discontinuance of libel proceedings which the court found had been pursued to exert improper pressure rather than to obtain vindication by adjudication.

Background

Full Colour Black Limited, trading as Brandalised (“FCB”), is a company established in 2007 whose business model centres on the commercialisation of contemporary street art, including works attributed to Banksy. Andrew Gallagher is FCB’s sole director and shareholder. He began photographing Banksy’s art in 2001 and subsequently, through FCB, began exploiting those works commercially by granting licences to reproduce photographs of the artworks on clothing, greeting cards and related merchandise.

Banksy is an internationally renowned pseudonymous street artist who has consistently sought to preserve his anonymity. The Second Defendant, Pest Control Office Limited, is a registered company that publicly describes itself as the parent and legal guardian for Banksy. It holds an exclusive worldwide licence of the copyright in Banksy’s artworks and acts as his sole approved authentication body. Consistent with Banksy’s publicly stated opposition to the commercial exploitation of his works, neither Banksy nor Pest Control licences his images to third parties for commercial purposes.

The relationship between FCB and the Defendants had been fractious for well over a decade before these proceedings were commenced. The Defendants had repeatedly objected to FCB’s activities on copyright grounds, and FCB had repeatedly resisted those objections whilst simultaneously seeking to persuade Banksy to enter into a commercial arrangement. Notably, in correspondence dating back to November 2011 and again in January 2014, Mr Gallagher had drawn attention to the risk that litigation would expose Banksy to public identification, given that he would be required to give evidence to establish authorship and ownership of copyright. Those communications were accompanied by proposals for confidential commercial discussions. Aaron Wood, a Chartered Trade Mark Attorney who acted for FCB, made a series of public statements to similar effect, including comments to the BBC, the Daily Telegraph, and Australian television, all of which acknowledged that Banksy faced a fundamental dilemma: pursuing copyright litigation would require him to reveal his identity.

FCB’s business model was, as the court noted, legally precarious. A photograph of an artwork may attract its own copyright, but that does not displace the copyright in the underlying artistic work. Reproducing photographs of Banksy’s works on merchandise without a licence from the copyright owner carried an inherent risk of infringement proceedings. FCB had no such licence.

The immediate trigger for the libel proceedings was a collaboration between FCB and the fashion retailer GUESS, which launched a clothing collection in October 2022 marketed as “GUESS X BRANDALISED WITH GRAFFITI BY BANKSY”. The collection featured images derived from Banksy’s works, including the well-known “Flower Thrower”. No permission had been sought from or granted by Banksy or Pest Control. On 18 November 2022, Banksy posted a photograph of the Regent Street GUESS store window on his Instagram account, accompanied by the following message: “Attention all shoplifters. Please go to GUESS on Regent Street. They’ve helped themselves to my artwork without asking, how can it be wrong for you to do the same to their clothes?” The post attracted widespread public and media attention and led to crowds gathering outside the store, its temporary closure, and the removal of the “GRAFFITI BY BANKSY” wording from the window display.

On 21 December 2022, FCB sent a formal letter of claim to the Defendants alleging that the Instagram post was defamatory. A Claim Form was issued on 6 September 2023 and served on 13 September 2023. The Particulars of Claim alleged that the post conveyed the meaning that FCB had stolen Banksy’s artwork by licensing images to GUESS without permission or other legal authority, and that publication had caused serious harm to FCB’s reputation and serious financial loss within the meaning of section 1 of the Defamation Act 2013. Significantly, the final sentence of paragraph 2 of the Particulars of Claim included a purported reservation of the right to seek an order requiring Banksy to identify himself for the purposes of the proceedings.

Following service of Acknowledgments of Service in September 2023, FCB’s solicitors objected to Banksy’s failure to state his full name in the Acknowledgment of Service, relying on CPR 10.5(1)(d). On 4 October 2023, an article was published in The Sun in which Mr Wood was quoted commenting that “the worst thing that could happen to Banksy is if he gets unmasked by appearing in court”. On 10 October 2023, the Defendants’ solicitors provided a substantive response, admitting responsibility for publication of the Instagram post, denying that it was defamatory, and advancing defences of truth and qualified privilege. That letter also addressed the anonymity issue and foreshadowed a formal application for anonymity.

On 22 November 2023, the Defendants issued an application seeking an order that Banksy’s real identity be withheld and that he be referred to only as “Banksy” in the proceedings (“the Identity Application”), together with an extension of time for service of a Defence. The matter was referred to Nicklin J, who on 8 December 2023 made an order, without a hearing, giving directions for the Identity Application and directing FCB to issue any application seeking an order that Banksy identify himself by 5 January 2024, failing which the relevant sentence in the Particulars of Claim would be struck out. The order also required FCB to explain what it sought to achieve against Banksy that it could not legitimately achieve against the Second Defendant alone.

FCB did not pursue the naming application. On 28 February 2024, by consent, the court stayed the claim against Banksy pending resolution of the claim against the Second Defendant and confirmed the striking out of the reservation of rights sentence. The Identity Application was resolved by consent order on 12 March 2024, granting Banksy anonymity pursuant to CPR 39.2(4).

The Second Defendant served its Defence on 26 January 2024. Notably, the Defence did not advance a defence of honest opinion, despite that having been foreshadowed in earlier correspondence. FCB served its Reply on 8 March 2024, in which it resiled from its earlier case on publication and declined to admit that Banksy was the creator of the relevant artworks, requiring the Second Defendant to prove those matters. The Defendants characterised this as a tactical shift intended to maintain the risk that Banksy might be required to give evidence.

FCB then took no steps in the litigation for over a year. On 4 February 2025, the Second Defendant issued an application for summary judgment and/or striking out of the claim. FCB instructed new solicitors in February 2025, who engaged in without prejudice save as to costs correspondence seeking to settle not only the libel proceedings but also wider matters between the parties, including trade mark disputes, and proposing a broader “co-existence” commercial arrangement. The Defendants rejected that approach. On 27 March 2025, before the summary judgment application was determined, FCB served a Notice of Discontinuance.

On 22 July 2025, the Defendants issued an application seeking: (1) an order that FCB pay their costs on the indemnity basis; (2) a non-party costs order against Mr Gallagher personally; and (3) a payment on account of costs. The application was heard by Nicklin J on 28 November 2025, with judgment handed down on 1 April 2026.

Legal Principles

Indemnity costs

When a claim is discontinued, CPR 38.6(1) provides that the claimant is liable for the defendant’s costs on the standard basis. The court may, however, make a different order.

In Thakkar v Mican [2024] 1 WLR 4196, the Court of Appeal summarised the key principles governing indemnity costs orders. To obtain indemnity costs, the receiving party must surmount a “high hurdle” by demonstrating “some conduct or some circumstance which takes the case out of the norm”. Where the application is based on the paying party’s conduct, it is necessary to show that such conduct was “unreasonable to a high degree”, though it is not necessary to demonstrate “a moral lack of probity or conduct deserving of moral condemnation”. The phrase “out of the norm” reflects something outside the ordinary and reasonable conduct of proceedings.

In Hosking v Apax Partners LLP [2019] 1 WLR 3347, the Court of Appeal considered indemnity costs following discontinuance. The court held that discontinuance does not of itself justify an assessment of the merits, nor does it ordinarily require the court to determine whether the claim was unwarranted. However, the court is entitled to examine the circumstances of the case at the point of discontinuance, including the documentary record and the manner in which the proceedings were pursued, to assess whether the claim lacked real vitality or was continued as a means of extracting a settlement.

A hallmark of cases falling “out of the norm” is that proceedings have been high-risk litigation pursued, and often deliberately publicised, to exert pressure in the hope of extracting a settlement, with frail evidential support and little regard to their prospects of success at trial or any genuine objective of securing vindication by adjudication. Although such conduct may not amount to an abuse of process in strict terms, the court may have been intentionally used as an instrument of leverage – an “anvil for settlement” – rather than as an adjudicator. Where such conduct is demonstrated, discontinuance should not deter, and may positively incline, the court towards an award of indemnity costs.

Non-party costs orders

The jurisdiction to make a non-party costs order derives from section 51 of the Senior Courts Act 1981. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, the House of Lords held that the ultimate question is whether, in all the circumstances, it is just to make the order. Where a non-party not only funds but also substantially controls proceedings, or stands to benefit from them, justice will ordinarily require that if the proceedings fail, the non-party should bear the successful party’s costs. In such cases, the non-party may properly be characterised as the “real party” to the litigation.

Where the proposed non-party is a director or shareholder of a corporate litigant, the authorities emphasise the fundamental importance of limited liability. In Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Tiracet ve Sanayi AS v Aytacli [2021] 4 WLR 101, the Court of Appeal held that control of the litigation, even sole control, is not of itself sufficient to justify a non-party costs order against a director. The touchstone is whether the director can fairly be described as “the real party to the litigation”. To persuade a court to make such an order, the applicant will usually need to establish either that the director was seeking to benefit personally from the company’s pursuit of the litigation, or that he or she was guilty of serious impropriety or bad faith. Such impropriety or bad faith must be of a serious nature and will ordinarily need to be causatively linked to the applicant unnecessarily incurring costs.

The Indemnity Costs Application

The Defendants limited their application to costs incurred from 10 October 2023, the date on which they provided their substantive response to the claim and formally raised the issue of protection of Banksy’s anonymity. They contended that the litigation was deployed as a means of exerting improper pressure by exploiting Banksy’s well-known and long-standing desire to preserve his anonymity. They relied on the history of threats made by FCB, the repeated acknowledgement that Banksy faced a risk of being unmasked if he became embroiled in legal proceedings, FCB’s early procedural steps and pleadings which raised the prospect of identifying Banksy, and the repeated linkage drawn between that issue and FCB’s commercial demands.

The Defendants further relied on the timing of FCB’s discontinuance, which occurred only when FCB was confronted with a substantive challenge to the viability of its case and the imminent incurring of further costs. That sequence, they submitted, supported the inference that the proceedings were abandoned once they ceased to be an effective means of applying pressure.

FCB resisted any award of indemnity costs. It submitted that the claim was properly brought to vindicate its reputation and was always arguable. It emphasised that discontinuance does not, without more, justify indemnity costs and that parties must be free to discontinue when litigation is no longer proportionate or commercially sensible. FCB denied that the proceedings were pursued for any improper or ulterior purpose and submitted that there was no strategy to threaten or procure the unmasking of Banksy. It relied on the fact that it did not pursue a naming application and ultimately accepted a stay of the claim against Banksy as being inconsistent with any alleged impropriety.

The Court’s Analysis on Indemnity Costs

Nicklin J held that the case fell outside the norm and that FCB must pay the Defendants’ costs on the indemnity basis from 10 October 2023. His conclusion did not rest on discontinuance alone, nor did it depend upon a finding that FCB was not entitled to discontinue when it did. It was founded on the manner and purpose for which the proceedings were pursued, viewed objectively and in the round.

The court found that, on the material before it, the defamation claim was, viewed objectively, without any real prospect of success. In particular, once the relevant context was taken into account, an honest opinion defence would, in all likelihood, have disposed of the claim. The court noted that honest opinion was “far and away the strongest defence” and that its omission from the Defence was otherwise difficult to understand. The most likely explanation was that reliance on that defence was recognised to carry an increased risk that Banksy would be required to give evidence, with the attendant risk of identification.

The critical feature which explained why such a claim was nonetheless pursued, and what took the case outside the norm, was that the proceedings were deployed to exert pressure relying upon Banksy’s well-known concern to preserve his anonymity as central to his artistic expression. The court referred to the history of communications in which Mr Gallagher drew attention to the risk to Banksy’s anonymity inherent in litigation and sought to use that risk as leverage in disputes concerning the commercial exploitation of Banksy’s works.

That dynamic was also reflected in the conduct of the litigation. The inclusion in the Particulars of Claim of a purported reservation of a right to seek an order requiring Banksy to identify himself, the subsequent correspondence pressing for Banksy’s “full name”, and the pleading decisions which had the effect of maintaining the possibility that Banksy might ultimately be required to give evidence, were not incidental to the procedural course adopted. Taken cumulatively, they served to maintain and to some extent to amplify the very risk which the court later took steps to contain by case management and anonymity orders.

A further consideration reinforced that conclusion. At an early stage of the proceedings, the Second Defendant admitted responsibility for publication of the Instagram post. In circumstances where the Second Defendant had done so, and having regard to the remedies sought by FCB, there was little objective justification for naming Banksy as a personal defendant. The decision nevertheless to include Banksy as a defendant from the outset, and to maintain his presence in the proceedings until compelled by case management to do otherwise, was consistent with the conclusion that FCB deliberately exposed Banksy to the risk inherent in the proceedings that his anonymity might be jeopardised, and that this was intended to exert pressure rather than to secure remedies which could not adequately be obtained against the Second Defendant alone.

The court rejected Mr Gallagher’s evidence that the proceedings were brought for vindication of legal rights in defamation. It reached that conclusion because it was inconsistent with the objective documentary record and with the inherent logic of the position which FCB adopted. A claim which, viewed objectively, had no real prospect of succeeding by adjudication was difficult to reconcile with a purely vindicatory purpose; whereas it was readily explicable if the proceedings were regarded as creating leverage by reason of the continuing sensitivity around Banksy’s anonymity.

The court made a further distinct finding regarding the honest opinion defence. Viewed in the context of the proceedings as a whole, the continuation of the proceedings could be understood as proceeding on the basis that Banksy would be reluctant to take procedural or evidential steps which might increase the risk of identification, even if those steps were otherwise available. The absence of an honest opinion defence was consistent with that analysis.

The correspondence in March 2025, marked without prejudice save as to costs, provided further support. FCB’s settlement overtures were not confined to compromise of the defamation proceedings. They were framed to link settlement to wider matters and to the prospect of a broader “co-existence” or commercial arrangement under which FCB would be permitted to continue exploiting Banksy’s works. Whilst not sufficient on its own, it provided support to the conclusion that the proceedings were being used, at least in part, to seek a broader commercial accommodation rather than to obtain vindication by adjudication.

Finally, the timing of the discontinuance – in the face of a substantive challenge and the prospect of further significant costs – was consistent with the inference that the proceedings were abandoned once they ceased to serve the function for which they were being deployed. No other explanation had been offered by FCB as to the sudden decision to discontinue.

Taking these matters together, the court was satisfied that the proceedings were pursued in a manner and for purposes which were unreasonable to a high degree and which took the case outside the norm. The Defendants’ limitation of their application to costs incurred from 10 October 2023 was appropriate and proportionate. Although FCB’s plan to exploit the Defendants’ concerns over Banksy’s anonymity was implemented when the Claim Form was issued and Particulars of Claim drafted, 10 October 2023 was the date on which the Defendants provided their substantive response to the claim and formally raised the issue of protection of Banksy’s anonymity in the proceedings.

The Non-Party Costs Application

The Defendants submitted that Mr Gallagher was the driving force behind the litigation, exercised complete control over it, and stood to benefit personally from its outcome. In those circumstances, they argued, he should properly be regarded as the real party to the proceedings. Alternatively, they submitted that Mr Gallagher’s conduct met the threshold of serious impropriety required to justify a non-party costs order, relying on the same features of the litigation conduct said to justify indemnity costs.

Mr Gallagher submitted that the principles governing non-party costs orders against directors and shareholders are stringent and deliberately so, reflecting the fundamental importance of limited liability. He accepted that he controlled the litigation, but submitted that control, even when combined with sole ownership, is not sufficient to justify a non-party costs order. He denied that he was the real party to the litigation in the relevant sense, submitting that the claim was brought to vindicate the company’s asserted commercial and reputational interests, and that any benefit to him was no more than the indirect consequence of his shareholding. He further denied any serious impropriety or bad faith on his part.

The Court’s Analysis on the Non-Party Costs Application

Nicklin J refused the application for a non-party costs order against Mr Gallagher. The court held that the application raised a distinct and more exacting question than the indemnity costs application. The issue was not whether the litigation was conducted in a manner which justifies an indemnity costs order against a company, but whether it is just to impose personal liability for costs on a person who was not a party to the proceedings, thereby displacing the principle of limited liability.

The court was satisfied that the two jurisdictions are distinct and that the thresholds are not co-extensive. While the same facts may be relevant to both applications, a finding sufficient to justify indemnity costs does not automatically or necessarily justify a non-party costs order. A separate and more exacting analysis is required before displacing the principle of limited liability.

An indemnity costs order is concerned with marking, in costs, litigation conduct which is unreasonable to a high degree or otherwise outside ordinary and reasonable forensic behaviour. It does not require a finding of dishonesty or moral turpitude. By contrast, where the proposed non-party is a director/shareholder of a corporate litigant, control of the litigation – even sole control – and even the pursuit of litigation which is ill-advised or tactically motivated will not ordinarily suffice. Something more is required: either that the director be properly characterised as the “real party” to the litigation in the relevant sense, or that the director’s personal conduct involves serious impropriety or bad faith of a qualitatively different order from ordinary litigation misjudgment or tactical opportunism.

Mr Gallagher plainly exercised control over the litigation as FCB’s sole director and shareholder. The court also accepted that he was, in a practical sense, the directing mind of the company and that the conduct which it had found to take the case outside the norm for the purposes of indemnity costs reflected decisions taken under his direction. However, the law draws a deliberate distinction between responsibility for litigation conduct which warrants an indemnity costs order against a corporate party, and the exceptional step of imposing personal liability for costs under section 51 of the Senior Courts Act 1981.

In the present case, whilst Mr Gallagher plainly controlled the litigation, the court was not satisfied that he was the “real party” to it in the requisite sense. The claim was brought in the company’s name and sought relief for the company, namely vindication of asserted corporate reputational and commercial interests and recovery of alleged corporate loss. Any personal advantage to Mr Gallagher from a successful outcome would have been indirect and incidental to his shareholding. That is not unusual in the case of a small company whose shares are held by, and whose affairs are controlled by, a single director, and does not, without more, justify treating the director as the true litigant and transferring to him the company’s costs liability.

The court also took into account that FCB was advised by solicitors and Counsel. The litigation strategy adopted was formulated and implemented with the benefit of legal advice, albeit directed towards objectives which the court had found to be improper for the purposes of the indemnity costs analysis. That feature did not excuse the company’s conduct, but it was relevant to whether it is just to impose personal liability on the director in the absence of clearer evidence that he acted in bad faith of the kind contemplated by the authorities. The court was not satisfied that any aspect of Mr Gallagher’s personal conduct provided a sufficient causative basis for transferring to him personal responsibility for costs arising from the company’s prosecution of the claim.

The Defendants also relied on the allegedly precarious financial position of FCB as supporting the inference that Mr Gallagher was using the company’s corporate personality to shield himself personally from the costs consequences of litigation. The court was unable to draw that inference on the evidence before it. While there was material suggesting that FCB’s financial position deteriorated significantly after publication of the Instagram post, the court did not have sufficient evidence as to the company’s financial health at the time when the litigation strategy was adopted and pursued, or as to whether FCB was then insolvent, undercapitalised, or being rendered unable to meet an adverse costs order by design.

Nor was the court persuaded that the evidence established serious impropriety or bad faith by Mr Gallagher personally of the qualitatively different order required to justify a non-party costs order. The court had found that the proceedings were deployed to exert pressure. However, the evidence did not establish, to the requisite standard, that Mr Gallagher engaged in dishonesty towards the court, deliberate manipulation of the corporate form to render the company unable to meet an adverse costs order, or other conduct of a markedly different order from aggressive or opportunistic litigation strategy. In short, the conduct warranted the sanction of an indemnity costs order against the corporate claimant, but it did not cross the higher threshold required to make it just to impose personal costs liability on Mr Gallagher.

The court also took into account the delay in bringing the non-party costs application which, while not determinative, reinforced the conclusion that it would not be just to make such an order.

Conclusion

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 Andrew Gallagher was refused. FCB must make a payment on account of costs in a sum to be determined.

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The Technology and Construction Court’s decision in Thomas Barnes & Sons PLC (In Administration) v Blackburn with Darwen Borough Council [2026] EWHC 24 (TCC) confirms that secured creditors who fund, benefit from, and exercise real control over administration litigation are properly treated as “real parties” for non-party costs purposes.

Background

The dispute originated from a contract for the construction of a bus station in Blackburn, entered into in 2014 between Blackburn with Darwen Borough Council (BBC) and Thomas Barnes & Sons Plc (Barnes). BBC terminated the contract in 2015. Barnes, by then in administration, subsequently issued proceedings in the Technology and Construction Court in 2020, claiming damages in excess of £3 million for alleged wrongful termination [§2].

The claim proceeded to an 11-day trial in July 2022. In a judgment handed down in October 2022, the claim was dismissed in its entirety [§2]. BBC, as the successful defendant, was entitled to its costs. The company in administration had no means to meet this costs liability.

The Respondents to the present application are Mr Thomas Barnes (Thomas), a former director and shareholder of Barnes, and Mrs Pamela Barnes, Mr Craig Barnes, and Mr Scott Barnes. The latter three are, respectively, the widow and the executors of the estate of Brian Barnes (Brian), Thomas’s late brother and co-owner of the company [§5]. The company’s administrators had been appointed in November 2015 by the Respondents in their capacity as debenture holders, to whom the company owed approximately £684,714.66 [§7].

From the outset of the litigation pursued in administration, the Respondents provided the funding for the company’s legal costs and disbursements [§11]. They also, following an application by BBC, provided security for BBC’s costs totalling approximately £583,000, comprising a payment into court of around £138,000 and charges over properties valued at around £445,000 [§24-25]. BBC’s incurred and budgeted costs at the time were around £995,000 [§25].

Following the dismissal of the claim, BBC sought to recover the shortfall in its costs by making an application under section 51 of the Senior Courts Act 1981 for a non-party costs order (NPCO) against the Respondents [§1, §3]. The application was heard on 12 December 2025.

Costs Issues Before the Court

The ultimate issue was whether it was just to make a NPCO against the Respondents, requiring them to pay BBC’s recoverable costs of successfully defending the claim, to the extent those costs were not satisfied by the security already provided. This required the court to determine several factual and legal sub-issues, including the degree of funding, control, and personal financial benefit derived from the proceedings [§29-36, §38-39].

The Parties’ Positions

BBC’s Position: BBC submitted that the Respondents were the real parties to the litigation. They had funded the claim entirely, thereby enabling it to be brought. They had a direct and substantial financial interest in its outcome as the primary secured creditors, standing to recover their debt from any successful award [§3]. Thomas, in particular, was alleged to have exercised a significant degree of control over the litigation, including introducing the solicitor (Ms Morrison) whom the administrators then instructed, attending the pre-action meeting where he was referred to as Ms Morrison’s “client,” and being intimately involved in its substance [§8, §14]. BBC argued it was just that those who stood to gain personally from the claim should bear the costs of its failure, rather than the public purse [§39].

The Respondents’ Position: The Respondents resisted the order. Thomas asserted that he did not control the litigation; his involvement was limited to providing necessary assistance to the administrators in his capacity as a former director [§12]. He stated that all decisions were made by the joint administrators. The Respondents acknowledged funding the claim and having a financial interest, but argued this was consistent with creditors funding an officeholder to realise assets for the benefit of the estate [§32]. They emphasised there was no evidence of impropriety or bad faith. They also pointed to the absence of any specific warning, after the 2016 and 2017 correspondence, that a NPCO would be sought, and noted they had already provided substantial security for costs, suffering significant personal loss [§26].

The Court’s Decision

The court granted the application and made a NPCO against the Respondents, jointly and severally liable for BBC’s recoverable costs, subject to the security already provided. The liability of Craig and Scott Barnes was limited to their capacity as executors of Brian’s estate [§45].

In reaching its decision, the court applied the principles from Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39 and Goknur Gida v Aytacli [2021] EWCA Civ 1037 [§28-36].

The key findings were:

Funding and Financial Interest: It was conceded and found as a fact that the Respondents funded the litigation and stood to benefit personally from its success [§40]. Although other creditors might have benefited if the claim succeeded spectacularly, the Respondents were the only guaranteed substantial beneficiaries [§40]. By the May 2022 progress report, payments of around £328,000 had already been made to them from other realisations, leaving around £357,000 due [§23]. Despite the reduced claim valuation — Barnes’s own quantity surveyor had by then assessed the maximum claim at only £1.789m against BBC’s valuation of around £604,000 [§22] — they continued to fund a costly trial.

Control of the Litigation: The court rejected Thomas’s assertion that he was merely assisting the administrators. Considering his introduction of the solicitor to the administrators [§14], his passionate belief in the claim [§8, §14], his attendance at every day of trial during which he “undertook active investigations” [§14], and the administrators’ reliance on his knowledge and funding, the court found he exercised “a real degree of control” alongside the administrators [§15, §41]. The court observed that the litigation “could not have continued” without Thomas’s substantial input on the claim’s substance and the Respondents’ willingness to finance it [§15]. For the other Respondents, while they did not themselves control the litigation, their willingness to fund it meant they supported Thomas’s pursuit of the claim [§16, §41].

“Real Party” Analysis: The court concluded the Respondents were “the real parties to the proceedings in very important and critical respects” [§42]. They were not pure funders but persons who funded, benefited from, and (in Thomas’s case) controlled the litigation for their own purposes. The court did not find impropriety or bad faith, but held that this was not required where funding, benefit, and control justified the order [§30-31, §42]. The court distinguished cases where a NPCO might discourage legitimate funding by officeholders, finding the Respondents’ position was fundamentally that of risk-taking litigants with a primary eye on their own financial recovery [§44]. The court expressly rejected the submission that making an NPCO in these circumstances would have a “chilling effect” on the ability of officeholders to fund justified claims [§44].

Other Factors: The court considered but attached limited weight to the lack of a specific post-2017 warning. It noted that as early as December 2016 and May 2017, BBC’s solicitors had written to the administrators’ consultants and then the administrators themselves, referring to the possibility of a NPCO and citing Deutsche Bank [§9-10]. The court found there was no compelling reason to believe this was not communicated to the Respondents, especially as they had not addressed these letters in their evidence [§10, §26]. The provision of security was a relevant but not determinative factor, and the negotiated amount did not preclude a further order [§43].

The court held that, in all the circumstances, justice required that the Respondents, who had sought to gain access to justice for their own substantial benefit, should bear the cost of the defendant’s successful defence, rather than the defendant (and ultimately the public) bearing the unrecovered shortfall [§39, §42].

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The High Court’s decision in Baroness Lawrence of Clarendon OBE & Ors v Associated Newspapers Limited [2025] EWHC 3207 (KB) confirms that claimants combining to pursue a common factual case may face joint and several liability for the defendant’s common costs, with significant implications for ATE insurance structuring in multi-party litigation.

Background

A group of seven high-profile individuals, including Baroness Lawrence, Sir Elton John, and Prince Harry, the Duke of Sussex, brought separate claims against Associated Newspapers Limited (the Defendant). Their individual claims have been case managed together and are heading towards a combined trial of all issues in all claims [§11]. A key feature of the litigation was that each claimant relied not only on allegations specific to them but also on a substantial body of similar fact and generic allegations common to all claims. Each claimant’s pleading expressly relied on the common allegations as a “modus operandi” supporting their individual case [§10].

At a costs and case management conference (CCMC) in November 2024, the court made an order that included definitions for ‘Individual Costs’ and ‘Common Costs’ for the purposes of costs management and for sharing the claimants’ own costs amongst themselves [§5]. This order did not, however, address the potential liability of the claimants for any adverse costs orders in favour of the Defendant [§6–7]. Following that order, the claimants obtained After-The-Event (ATE) insurance policies totalling approximately £14.1 million (£2.35 million per claimant), calculated on the basis of several liability for any adverse costs [§9, §19]. The Defendant subsequently applied for a determination on the nature of the claimants’ potential liability for costs. Separately, both parties applied to vary their court-approved costs budgets upwards, citing significant developments in the litigation.

Costs Issues Before The Court

The court was required to determine two discrete costs issues. The first was the Defendant’s application for an order specifying that, if any claimant was ordered to pay costs to the Defendant, they would be severally liable for their own ‘Individual Costs’ but jointly and severally liable with any other unsuccessful claimant(s) for the Defendant’s ‘Common Costs’ [§3]. The second issue concerned the competing applications by both the claimants and the Defendant to increase the budgets for several phases of the litigation, namely: Issue/Statements of Case, CMC, Disclosure, and Witness Statements [§33].

The Parties’ Positions

- The Defendant’s Position on Costs Liability: The Defendant, represented by Roger Mallalieu KC, argued that the claimants were pursuing a collective strategy based on common allegations, with each claimant’s case relying on and supporting the others [§10–11]. Citing authorities including Stumm v Dixon (1889) 22 QBD 529, Dufoo v Tolaini [2014] EWCA Civ 1536, Rowe v Ingenious Media Holdings plc [2020] EWHC 235 (Ch), and Ontulmus v Collett [2014] EWHC 4117 (QB), it was submitted that where parties combine to present a common claim or defence, the established principle is that they are jointly liable for the costs of that common endeavour [§12]. The Defendant relied on the claimants’ correspondence seeking several liability and on their ATE arrangements as reasons to determine costs liability at this stage [§8–9].
- The Claimants’ Position on Costs Liability: The claimants, represented by Andrew Hogan, resisted the application [§15]. They argued that costs orders should ordinarily be made at the end of a case and that no good reason had been shown for a pre-emptive order [§16]. They submitted that their claims remained separate, with distinct individual elements, and that their ATE insurance had been reasonably obtained on a several liability basis [§19]. Imposing joint and several liability now could force them to seek additional, costly insurance cover to guard against the risk of being left solely liable for common costs if a co-claimant could not pay [§9, §19]. In the alternative, they argued that if an order was made, it should be for several liability only, citing factors including that these were separate claims brought by seven individuals in six claims, represented by three firms of solicitors [§22].
- Positions on Budget Variations: Both parties filed Precedent T forms seeking increases in four phases of their budgets: Issue/Statements of Case, CMC, Disclosure and Witness Statements [§33]. The claimants relied on the need for Amended Replies, an additional CMC, extra disclosure work and the increased number of Defendant witness statements [§39, §48, §55, §66]. The Defendant pointed to the burden of answering significantly amended Particulars of Claim, the additional CMC, the costs of maintaining a legacy email archive and the increased number of its own witness statements [§44, §52, §59, §70]. The court then applied CPR 3.15A, assessing in each case whether there had been a ‘significant development’ and what sums were reasonable and proportionate [§34–37].

The Court’s Decision

Costs Liability Application: The court granted the Defendant’s application [§23]. It held it had jurisdiction under its wide case management powers (CPR 3.1) to make such an order, and that costs sharing orders had become “commonplace in multi-party actions where parties combine to litigate common issues” [§24].

The court applied the principle from Stumm v Dixon that each party is liable jointly with each other for the whole of the reasonable costs of their common claim or defence, but only severally for the individual costs of their claim [§25–26]. The court referred to Rowe v Ingenious Media Holdings plc, noting that it emphasised the need to pay particular attention to “the nature of the claim” when deciding whether to order joint or several liability for costs [§27]. The present case was materially different: the claimants’ cases depended “not merely on them bringing the same central case based on the Similar Fact and Generic cases, but also on each individual Claimants’ own specific case being said to cross support each of the other Claimants’ cases and the collective case as a whole” [§30].

The court rejected the argument that the decision should be deferred. It considered it “imperative” that the claimants understood the consequences of the way the litigation was being conducted, particularly given the substantial costs already incurred and further substantial trial-preparation costs to come [§31]. The fact that the claimants might need to reassess their ATE insurance was “in their own best interests” and not a reason to refuse the order [§31]. The order would not “tie the court’s hands” if circumstances later justified a departure [§32].

Budget Variations: The court assessed each variation request against the test in CPR 3.15A, requiring a ‘significant development’ in the litigation [§34–36]. It noted that “if agreement cannot be reached on a figure for a particular phase of the budget, the Court is not bound by any offer which has been made” [§37].

For the Claimants:

- - Issue/Statements of Case: Sought £139,295 (£36,120 time costs plus £103,175 disbursements); allowed £20,000 [§39–43]. The court found the Replies went beyond their proper function and, regarding the Ward Allegations, “impermissibly advanced a factual case that contradicted the case advanced in the Particulars of Claim” [§42].
  - CMC: Sought £200,000; allowed £200,000 in full [§48–51]. A further CMC was a significant development not previously contemplated.
  - Disclosure: Sought £495,520; allowed £80,000 [§55–58]. The court held the claimants were “largely responsible for their own failure to undertake the disclosure exercise properly in the first place” and had only obtained “several discrete but limited orders for disclosure against the Defendant” [§57].
  - Witness Statements: Sought £175,000; allowed £50,000 [§66–69]. The budget had assumed the Defendant would serve a maximum of 30 witness statements; 11 further statements required consideration, which constituted a significant development.

For the Defendant:

- - Issue/Statements of Case: Sought £958,558; allowed £95,000 [§44–47]. The court accepted this was a “more legitimate” request given the claimants’ “significant amendments” imposing “a significant burden to answer and investigate new allegations” [§46]. The preparation of supplemental witness statements could not fall within this phase.
  - CMC: Sought £200,000; allowed £200,000 in full [§52–54].
  - Disclosure: Sought £424,439 (including £357,919 for server costs); allowed £357,919 [§59–65]. The claimants argued that the cost of maintaining a legacy email archive was a business overhead and not a “legal cost” under CPR 44.1, citing London Scottish Benefit Society v Chorley (1884) 13 QBD 872. The court rejected this argument, accepting the Defendant’s evidence that the server cost was “only being incurred by reason of this litigation” and was therefore an expense “necessarily arising from the litigation and necessarily caused by the course which it takes” [§64–65].
  - Witness Statements: Sought £250,800; allowed £90,000 [§70–73]. The increase in witness numbers was “because the scope of the claim has expanded by amendment, bringing in new allegations” [§72].

The court also noted that the November 2024 order required amendment to constitute a proper costs management order as mandated by CPR 3.15(2), observing that “parties seldom draft proper or effective costs management orders” [§74–77].

Reasonable Joint Costs Recoverable In Full Regardless Of Number Of Defendants

Group Litigation: A Determination Of Costs Related To Common Issues

CPR 3.15A | Costs Budget Revisions | Significant Developments And The Need To Act Promptly

Costs Budgeting | Significant Developments

Costs Budgeting, Proportionality And Incurred Costs

Security For Costs In UK Civil Litigation

Director Ordered To Pay Creditor’s Costs Personally Despite Rule 3.4 In Failed Administration Application

Commercial Litigation, New Costs Blog, Non-Party Costs, Wasted Costs

This costs judgment in Settle v Sandstone Legal Limited [2025] EWHC 2771 (Ch) provides a modern example of a director being held personally liable for an opposing creditor’s costs in an administration application, following findings that he knowingly misled the court with false witness evidence.

Background

On 31 January 2025, Mr Andrew Settle (sole director of Sandstone Legal Limited) applied for an administration order seeking appointment of his chosen nominees to facilitate a pre-pack sale to his new company, Precision. At the first hearing on 7 February 2025, ICC Judge Barber rejected the pre-pack as the consideration was so low it failed even the third limb of paragraph 11(b) of Schedule B1 to the Insolvency Act 1986. The court adjourned the application and appointed Phillippa Smith and Jessica Thomas as interim managers.

At the resumed hearing on 21 February 2025, the court granted an administration order but appointed Ms Smith and Ms Thomas as administrators—rejecting Mr Settle’s original nominees. In a judgment reported at [2025] EWHC 742 (Ch), ICC Judge Barber found Mr Settle had knowingly included “material, self-serving untruths likely to mislead the Court” in his first and second witness statements. All employees had been made redundant and lease break clauses exercised by 31 January 2025—yet Mr Settle’s evidence portrayed the company as a going concern requiring urgent pre-pack administration.

Costs were reserved to a hearing on 18 June 2025, with judgment handed down on 30 October 2025.

Costs Issues

The court determined four key costs issues:

- - Petitioning creditor’s costs: Whether Medical-Legal Appointments Limited’s costs of its winding-up petition should be payable as an administration expense
  - Administrators’ pre-administration costs: Whether the interim managers’ costs qualified as pre-administration expenses under rule 3.52 IR 2016
  - Applicant’s costs: Whether Mr Settle’s costs were automatically payable as an expense under rule 3.12(2) IR 2016
  - Personal costs order: Whether Seven Stars Legal Limited could recover costs directly from Mr Settle despite rule 3.4 IR 2016 (which treats a director’s application as made by the company)

Decision

1. Petitioning Creditor’s Costs

The court ordered that the petitioning creditor’s costs of both the winding-up petition and administration application be paid as an administration expense. Applying Irish Reel Productions Ltd v Capitol Films Ltd [2010] EWHC 180 (Ch), the court held that rule 3.12(2)’s phrase “any person whose costs are allowed by the court” encompasses costs of a winding-up petition dismissed at the same time as an administration order is made. No party opposed this order.

2. Administrators’ Pre-Administration Costs

The court declared the interim managers’ costs were pre-administration expenses under rule 3.52 IR 2016. ICC Judge Barber held that “so long as a sufficiently direct and appropriate connection can be demonstrated between the work carried out by an insolvency practitioner pre-administration and the achievement of the ultimate administration itself,” such costs qualify as pre-administration expenses. The interim managers were found to have been “highly effective in their work, in extremely challenging conditions” and their work “was all directed to the enablement of the administration that followed.”

However, the court refused the application to re-prioritise these expenses under rule 3.51(3) without a properly evidenced formal application on notice to affected parties.

3. Applicant’s Costs | No Automatic Right Under Rule 3.12(2)

Mr Settle argued that rule 3.12(2) IR 2016—which states “the costs of the applicant… are payable as an expense of the administration“—gave the court no discretion to deny his costs. The court emphatically rejected this submission.

ICC Judge Barber held that rule 3.12(2) “must be read subject to section 51 of the Senior Courts Act and paragraph 13(1)(f) of Schedule B1.” By operation of rule 12.41 IR 2016, CPR r.44.2 was “plainly engaged.” The court was “fortified in that conclusion” by Ardawa v Uppall [2019] EWHC 1663 (Ch).

Applying the “costs follow the event” principle under CPR 44.2, the court found Mr Settle was not the successful party. His pre-pack application had been “roundly rejected” and different administrators appointed. The court held Seven Stars was “in substance the successful party” as it had successfully opposed the pre-pack and secured appointment of its chosen nominees.

Mr Settle’s recoverable costs were capped at the issue fee only. The court acknowledged his application achieved a “short reprieve” for the company, but held “the fact that the Company was not ultimately wound up… was not down to Mr Settle… but rather to the hard work of Seven Stars, supported by the Petitioner, the interim managers and the solicitor manager.“

4. Personal Costs Order | When Rule 3.4 Doesn’t Protect Directors

Seven Stars sought a personal costs order against Mr Settle under section 51 of the Senior Courts Act 1981. Mr Settle resisted, arguing rule 3.4 IR 2016 precluded this—rule 3.4 provides that once filed, a director’s administration application “is to be treated for all purposes as an application by the company.”

The court rejected this defence, holding that “rule 3.4 must be read subject to section 51 of the Senior Courts Act and paragraph 13(1)(f) of Schedule B1.”

Even if rule 3.4 made Mr Settle a “non-party” for costs purposes, the court held it was just to make a personal costs order because “Mr Settle was plainly the ‘real party’ over that period, seeking to benefit personally from his proposed pre-pack administration and conducting the litigation on self-serving evidence which he knew to be materially false, without proper regard for the interests of the Company or the creditors as a whole.”

The court found the circumstances exceptional. Mr Settle’s knowingly false evidence “tainted and distorted the whole of the first hearing, which ran late into the evening.” He had acted without transparency, failed to respond to creditors’ information requests, and “put arrangements in place to set up Precision and to line up a short, covert, purported marketing process” using insolvency practitioners he had previously used for another pre-pack. “Had Mr Settle engaged constructively and transparently with the Company’s creditors and put in place a proper marketing process… the administration application could easily have been dealt with in one hearing.”

Mr Settle was ordered to pay Seven Stars’ costs up to and including the 7 February 2025 hearing personally, without recourse to the insolvent estate, subject to detailed assessment if not agreed.

The court declined to make a personal order for costs after 7 February 2025, recognising Mr Settle’s neutral stance at the resumed hearing and that he corrected the false evidence in his third witness statement (albeit without apology or adequate explanation). Those later costs were ordered as an administration expense.

The court distinguished Med-Gourmet Restaurants Ltd v Ostuni Investments Ltd [2013] BCC 47 (where both sides’ costs were allowed as expenses despite misleading information), noting “there appears to have been little or no debate on costs” in that case and emphasising that “judicial rulings on costs are highly fact-specific.“

Key Takeaways for Practitioners

1. Directors’ personal exposure persists: Rule 3.4 IR 2016 does not shield directors from personal costs orders under section 51 SCA 1981 where they are the “real party” pursuing the litigation for personal benefit with dishonest evidence. This applies even though the application is formally treated as made by the company.

2. Rule 3.12(2) is not automatic: Courts retain discretion to deny or cap applicant’s costs as administration expenses. Rule 3.12(2) must be read subject to section 51 SCA and CPR 44.2 applies via rule 12.41. Applicants who fail to achieve their sought relief (particularly failed pre-packs) risk recovering only nominal costs.

3. Conduct matters significantly: Knowingly false witness evidence justifies exceptional costs sanctions including personal liability, even where the substantive application is initially well-founded. Lack of transparency, covert pre-pack arrangements, and failure to engage constructively with creditors will compound costs exposure.

4. Pre-administration costs require direct connection: Interim managers’ costs qualify as pre-administration expenses under rule 3.52 where “sufficiently direct and appropriate connection” exists to the eventual administration. However, re-prioritising such expenses under rule 3.51(3) requires formal application with proper evidence—creditors’ approval alone is insufficient.

Non Party Costs Orders | Court Of Appeal Decision

Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order

CPR 44.2 And The Courts’ Discretion As To Costs

Section 51 Costs Jurisdiction Injunction Without Claim Form | Gotti

Indemnity Basis Costs Following Discontinuance

Indemnity Costs And The High Risk Of Pursuing A Weak Case

When Interlocutory Costs Orders Survive Discontinuance But Underlying Conduct Is Penalised

Commercial Litigation, Costs on Discontinuance, Indemnity Costs, New Costs Blog, Non-Party Costs

The High Court’s decision in MEX Group Worldwide Limited v Ford & Ors [2025] EWHC 2689 (KB) addresses how courts allocate costs where discontinuance, proven contempt, and wrongfully obtained injunctions intersect.

Background

MGWL obtained a worldwide freezing order on 20 October 2023 requiring defendants including Mr Smith and CSM to disclose assets. Mr Smith and CSM failed to comply with the disclosure obligations. Other defendants successfully applied to discharge the WFO on 15 December 2023 due to material non-disclosure by MGWL. MGWL’s appeal was dismissed on 8 August 2024. Meanwhile, MGWL issued contempt proceedings against Mr Smith and CSM on 22 March 2024.

After two adjournments in June and July 2024, for which Mr Smith and CSM were ordered to pay costs on account totalling £50,000, contempt was proven on 13 December 2024. On 7 March 2025, MGWL discontinued the underlying Scottish proceedings, causing the WFO to be discharged. The court was required to determine the costs consequences. The Scottish court had already awarded costs against MGWL on an indemnity basis with a 75% uplift.

Costs Issues Before the Court

The court faced multiple competing costs principles. Under CPR 38.6, a discontinuing claimant is presumed liable for the defendant’s costs. However, the established principle is that a defendant found in contempt ordinarily pays the claimant’s contempt costs, often on an indemnity basis. At the same time, the WFO had been obtained by material non-disclosure and should never have been granted. The court also had to consider whether existing interim costs orders made against the defendants should stand despite the discontinuance, and whether an inquiry as to damages should be ordered under the cross-undertaking despite the proven contempt.

The Parties’ Positions

MGWL submitted that costs should be determined on an issue-by-issue basis. It sought to recover the costs of the contempt application, arguing that it had succeeded in proving the contempts. MGWL also sought costs of resisting various applications including those for cross-examination of witnesses and for a stay. It emphasised the defendants’ conduct in failing to comply with the WFO and in seeking unjustified adjournments. MGWL contended that contempt proceedings typically attract indemnity costs in the applicant’s favour.

Mr Smith and CSM argued that they were the overall winners due to the discontinuance. They relied on the presumption in CPR 38.6 that MGWL should pay their costs of the entire proceedings. They sought an order reversing the interim costs orders made in MGWL’s favour. They highlighted the serious non-disclosure by MGWL in obtaining the WFO and the findings of the Court of Appeal, which demonstrated that the WFO should never have been granted. They pointed to the Scottish court’s indemnity costs order as showing the appropriate approach to MGWL’s conduct.

The Court’s Decision

The court held that the starting point was that MGWL had effectively lost the action due to the discontinuance. Applying CPR 38.6(1) and the principles established in Brookes v HSBC Bank plc, the presumption was that MGWL must pay the defendants’ costs. MGWL had failed to displace this presumption. Its practical and financial reasons for discontinuance were insufficient, and there was no unreasonable defendant conduct that would justify a departure from the usual rule. The court rejected MGWL’s issue-by-issue approach, stating that it would be “cautious about eroding that starting point by chiselling away issue by issue in the circumstances where there is a grave question as to whether the action should have ever been brought, whether the WFO should ever have been granted.”

The court then addressed how this general approach should be modified to account for the specific circumstances. First, the court held that the costs orders made at the adjournment hearings in June and July 2024 should stand despite the discontinuance. Following the reasoning in Dar El Arkan v Al Refai rather than the obiter dictum in Safeway Stores Ltd v Twigger, the court held that interim orders do not automatically fall away on discontinuance. These orders stood because they reflected specific unreasonable behaviour by Mr Smith and CSM in seeking unjustified adjournments, separate from the overall merits of the case.

The treatment of the contempt costs required more nuanced consideration. Ordinarily, a defendant who refuses to provide disclosure information under a WFO and is found in contempt would be liable for the contempt costs, typically on an indemnity basis. However, the court identified significant mitigating factors. The WFO should never have been granted due to material non-disclosure. The WFO would likely have been discharged on jurisdictional grounds had the defendants applied, as had occurred with the other defendants. The discontinuance of the Scottish proceedings raised serious questions about whether there was ever a proper basis for the underlying claim. Moreover, MGWL had continued the contempt proceedings even after losing its appeal in the Court of Appeal on 8 August 2024, which raised serious concerns about its motivation.

In light of these factors, the court ordered that MGWL should recover only 50% of its contempt costs from inception to 13 December 2024, to be assessed on the standard basis rather than the indemnity basis typically awarded in contempt cases. This reflected the court’s serious misgivings about MGWL’s conduct in pursuing the WFO despite the non-disclosure issues and the Court of Appeal’s decision. As the court observed, whilst an issue-by-issue approach is sometimes the fairest, it was not appropriate in this case to the extent that it would lead to a departure from the overall starting point, which was that Mr Smith and CSM were the successful parties.

From 13 December 2024, when the court ordered that the contempt penalty hearing and the set-aside application be heard together, the costs of both applications became inextricably linked. From that point, no further costs were awarded to MGWL for the contempt application. Instead, the costs of the action were awarded to Mr Smith and CSM.

The court made no order as to costs for several specific applications, including applications for permission to appeal the contempt findings, applications to cross-examine witnesses, and an application for a stay pending other proceedings. This reflected the court’s view that while these applications were unsuccessful, they were not entirely unmeritorious in the context of the overall concerns about the action.

On the question of the basis of assessment, the court declined to award indemnity costs to Mr Smith and CSM despite the Scottish court having done so. The court noted that the costs orders were multi-faceted and involved orders going in different directions, with the defendants having been unsuccessful on various applications. The decision to make a standard order as to costs reflected the overall justice of the case, where costs were awarded in different directions and proportions.

The final costs order was that MGWL should pay Mr Smith and CSM’s costs of the action on the standard basis, subject to MGWL recovering 50% of the contempt costs from inception to 13 December 2024 on the standard basis, the existing orders in MGWL’s favour totalling £50,000 standing, and no order as to costs for the specified applications.

In relation to the cross-undertaking as to damages, the court ordered an inquiry into the losses claimed by Mr Smith and CSM, finding that there was credible evidence that the WFO had caused loss. MGWL had argued that the defendants’ contempt should bar the inquiry, but the court rejected this. The existing costs orders already addressed the contempt conduct, and the more significant factor was that the WFO should not have been obtained or maintained. The defendants had been denied the opportunity to prove the WFO was wrongly obtained due to the discontinuance.

Key Takeaway

This decision demonstrates that discontinuance costs principles will generally prevail even where contempt has been proven, particularly where the underlying injunction was wrongly obtained. Proven contempt may reduce the defendants’ costs recovery for specific periods or applications where their conduct was unreasonable, but it will not reverse the overall costs liability where the claimant discontinues. Material non-disclosure in obtaining a freezing order will contaminate all subsequent costs applications, even where the applicant succeeds on discrete issues such as contempt. Interim costs orders reflecting specific unreasonable conduct will generally survive discontinuance and need not be reversed.

CPR 38.6: Discontinuance And Costs – The Legal Principles

CPR 38.6 | Default Rule Disapplied On Discontinuance

Indemnity Basis Costs Following Discontinuance

CPR 38.6 | Post-Discontinuance Conduct Can Be Considered

Who Should Pay The Costs Of A Withdrawn And Undetermined Application?

CPR 38 | Discontinuance | Default Rule Disapplied

Costs Capping Inappropriate Where Unrecovered Costs Shift To Non-Party Tenants

Housing, New Costs Blog, Non-Party Costs

The Court of Appeal’s decision in Spender v FIT Nominee Ltd [2025] EWCA Civ 1319 establishes that costs capping orders must be refused where their effect would be to transfer costs risk from appellant parties to non-parties through service charge recovery provisions.

Background

The case concerned an application for a costs capping order under CPR rule 52.19 in a dispute between tenants and their landlords regarding service charges. The appellants were 70 of the 436 tenants at St David’s Square in London E14, and the respondents were the landlord companies, which were ultimate subsidiaries of NatWest bank. The substantive proceedings related to the reasonableness of service charges for the estate’s security system. [§1]

The First-tier Tribunal had found in favour of the tenants, holding that the sums were reasonably incurred only to the extent of 19% of the charges demanded by the landlords. [§1] On the landlords’ appeal, the Upper Tribunal allowed the appeal, finding (subject to a concession on one aspect which was irrelevant to this application) that the charges were reasonably incurred. [§1] The tenants then appealed to the Court of Appeal. [§1]

In their appellants’ notice, the tenants had initially sought an order that both sides bear their own costs of the appeal, which was refused. [§2] The current application under CPR r52.19 was supported by a witness statement from Mr Liam Spender, who represented himself and the other appellant tenants. [§2] The tenants’ position was that without a costs capping order, their appeal would be stifled due to the disproportionate costs risk compared to their individual financial interests in the dispute. The tenants estimated the landlords’ costs at £150,000; counsel for the landlords gave an estimate of £90,000, which the court accepted as reasonable. [§3]

Costs Issues Before the Court

The court was required to determine whether to exercise its discretion to make a costs capping order under CPR r52.19, which applies to appeals from proceedings where costs recovery is normally limited or excluded at first instance. [§5] The key issue was whether such an order was appropriate in the context of landlord and tenant litigation, particularly considering the interaction between the Civil Procedure Rules and the cost recovery mechanisms under the Landlord and Tenant Act 1985. [§15-16]

The tenants argued that the usual costs rules would stifle their appeal, as the landlords’ estimated costs of approximately £90,000 were disproportionate to the £480,000 total service charge in dispute, which represented approximately £1,500 per individual appellant tenant (based on the total divided by 70 tenants in the litigation, though the overall value was spread across all 436 tenants on the estate). [§3, §18] They emphasised the inequality of arms between ordinary homeowners and corporate landlords, and the need to facilitate access to justice. [§3]

The Parties’ Positions

The appellant tenants contended that a costs capping order was necessary to facilitate access to justice. They submitted that without protection from adverse costs, they would be unable to pursue their appeal to vindicate their rights. They highlighted their success at first instance and the reversal by the Upper Tribunal, leaving them in an invidious position. [§3] The tenants pointed to the significant disparity in financial resources between the parties and the relatively modest individual financial stakes for each tenant. [§3]

The court noted that while the evidence from the tenants as to their financial position was not extensive, and that in other circumstances this might have been important, the decisive consideration related to the interaction between costs capping orders and the provisions of the Landlord and Tenant Act 1985. [§5]

The Statutory Framework

Both parties acknowledged that sections 19 and 20C of the Landlord and Tenant Act 1985 are relevant because they have a bearing on costs in proceedings of this kind. [§16] The starting point is that when there is litigation between a landlord and tenants, the landlord can often (depending on the terms of the lease) recover incurred litigation costs as part of the service charge. [§16] The general provisions of s.19 apply, so that only costs reasonably incurred can be charged via the service charge. [§16] Section 20C then gives the court power to prevent that recovery from taking place if it would not be just and equitable. [§16]

It was common ground that orders under section 20C are commonly made where the tenant succeeds. In such circumstances, it is not difficult to see why it would not be just and equitable for the landlord to recover, through the service charge, the costs of unsuccessfully prosecuting proceedings. [§17] On the other hand, it was also common ground that such orders are rarely made where the landlord wins in the litigation. [§17]

The Court’s Decision

The Court of Appeal refused the application for a costs capping order. [§21] Lord Justice Birss (with whom Lord Justice Nugee agreed) confirmed that CPR r52.19 was engaged because the appeal was from proceedings where costs recovery was limited at first instance. [§14(i)] The court derived several applicable principles from the case law [§14]:

(i) The rule applies (and only applies) in appeals in which, at first instance, cost recovery was limited or capped;

(ii) Engagement of the rule does not automatically mean an order is warranted (Glass v Freyssinet) – it means there is power to make the order in the exercise of the court’s discretion;

(iii) The discretion involves considering all circumstances, including the means of both parties and the need to facilitate access to justice (r52.19(2));

(iv) The fact an appeal is wholly unmeritorious is a reason not to make the order (Blair v Wickes);

(v) Facilitating access to justice is a factor of substantial weight (Lewison LJ in Shorts v Google);

(vi) Simply showing that the risk of adverse costs in the Court of Appeal is a deterrent is not enough, because that risk is meant to be a deterrent (Glass v Freyssinet). Bare assertions in the evidence will be treated with scepticism and evidence of means will need to be full and frank (Shorts v Google). However, evidence demonstrating that a party’s modest means has the result that they would not pursue the appeal due to the risk of adverse costs, whereas the other party can take that risk, would support making the order (Manchester College v Hazel and Shorts v Google). [§14]

The Effect of a Costs Capping Order in This Context

The decisive consideration was the interaction between costs capping under the CPR and the cost recovery provisions of the Landlord and Tenant Act 1985. [§19] The court found that if a costs capping order were made and the tenants lost the appeal, the 70 appellant tenants would pay costs up to the cap (for example, £25,000). The remainder of the landlord’s assessed costs (for example, £50,000 using a £75,000 total figure) would be unpaid. [§18-19]

In that case, no order under s.20C of the 1985 Act would be likely. Therefore, the landlord would be able to recover those unpaid costs as part of the service charge, from the tenants as a whole – that is, all 436 tenants. [§19] In other words, the effect of a capping order in these circumstances would be to shift the costs risk of this appeal from the 70 appellant tenants to the whole group of 436 tenants of the property. [§19]

As a result, the tenants who chose not to be involved in this appeal would bear the costs risk which the appellant tenants, who did wish to bring the appeal, did not wish to bear. [§19] Lord Justice Birss held: “That is not a result which accords with justice or the overriding objective.” [§19] Therefore, even if this was otherwise a proper case in which to make a costs capping order of some kind, the consideration of the operation of s.19 and s.20C of the 1985 Act undermined that position. [§19]

The “Real Contest” Analysis

Lord Justice Nugee emphasized this point in his concurring judgment. His Lordship observed that the purpose of the tenants seeking a costs-capping order was to limit their exposure to an adverse costs order if they lose the appeal. [§23] But the practical effect of such an order in the present case would mean that any costs not recovered from the appellant tenants would (so long as reasonable) be recoverable from the tenants on the estate as a whole. [§23]

Lord Justice Nugee stated: “So the real contest in the present case is not between the tenants who are appealing and their landlord; the real contest is between the 70 tenants who have brought the appeal and the other 366 tenants on the estate who have not. Once seen in that light, I think it inevitably follows that it would not be just to make the order that is sought.” [§23]

Distinguishing Prince of Wales Road

The court noted that in the landlord and tenant case of Prince of Wales Road RTM v Assethold Ltd [2024] EWCA Civ 1544, the problem identified in the present case did not arise, and so the fact there was a costs capping order in that case did not assist the appellants. [§20]

Implications for Practice

This decision establishes an important limitation on the availability of costs capping orders under CPR r52.19 in landlord and tenant appeals. Where the effect of a costs cap would be to transfer unrecovered costs from participating appellants to non-participating parties through statutory cost recovery mechanisms (such as service charge provisions), the court will refuse to make such an order even where the standard criteria for costs capping might otherwise be satisfied.

The decision demonstrates that courts will look beyond the immediate parties to an appeal and consider the collateral consequences of costs orders on non-parties who would be affected by the exercise of statutory cost recovery powers. This is consistent with the overriding objective’s requirement that cases be dealt with justly and at proportionate cost.

For practitioners advising tenant clients considering appeals from tribunal decisions, this decision highlights the importance of:

Understanding how costs may be recovered through service charge mechanisms under the relevant lease and the Landlord and Tenant Act 1985
Considering the impact of a costs capping application on non-participating tenants
Recognizing that inequality of arms and access to justice concerns may be outweighed by the risk of shifting costs to non-parties
Distinguishing cases involving RTM companies or other structures where the cost-shifting problem may not arise

The decision also reinforces that costs capping orders remain discretionary and fact-sensitive, requiring careful analysis of the statutory and contractual framework within which litigation costs may be recovered.

Protective Costs Orders | The Principles

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The High Court’s decision in Ivey & Ors v Lythgoe & Anor [2025] EWHC 2325 (Ch) demonstrates the narrow circumstances in which costs-only joinder CPR 46.2 is appropriate, particularly where non-parties actively contest liability for negligence.

Background to the Costs Application

The claimants challenged two wills of their deceased uncle, claiming he died intestate or alternatively seeking rectification. Their case centred on allegations that Trust Inheritance Limited (the will-writing company) had negligently implemented the deceased’s 2009 will instructions, removing not just one beneficiary as requested but also the deceased’s own family members.

The claimants had issued separate negligence proceedings against Trust Inheritance in the County Court but had not served particulars of claim. They then applied to either join Trust Inheritance as a costs-only party to the probate proceedings under CPR 46.2, or alternatively to consolidate the two sets of proceedings.

The Costs-Only Party Application

The claimants sought to join Trust Inheritance as a costs-only party to facilitate a future non-party costs order under section 51 of the Senior Courts Act 1981. They argued the rectification claims arose directly from Trust Inheritance’s negligence and that it was just and reasonable for the company to bear the associated costs.

The claimants cited authorities including Re Bimson, Gerling v Gerling, and Pead v Prostate Cancer UK where non-party costs orders had been made against solicitors for will drafting errors.

Trust Inheritance opposed costs-only joinder, arguing that the summary procedure for non-party costs orders was inappropriate where it actively contested allegations of negligence requiring a full trial on breach, causation, and quantum.

The Court’s Costs Analysis

HHJ Paul Matthews refused the costs-only joinder application, applying the principles from Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23. The court emphasised that summary procedure under section 51 is only appropriate where the non-party has “a sufficiently close connection to the litigation such that it would not be unjust to bind them to the findings of fact made in the main action.”

The judge distinguished the cited authorities on the basis that in those cases, the solicitors had not resisted the applications. Here, Trust Inheritance contested liability, meaning complex issues of negligence, causation, and loss would require a full trial.

The court held it would be inappropriate to engage the summary jurisdiction before conclusion of the probate claim, stating: “if it would not be appropriate to engage the summary procedure after the conclusion of this claim, it is even less appropriate to do so before that conclusion.”

Consolidation as Alternative

Instead, the court granted the alternative application for consolidation under CPR 3.1(2)(h). Both claims arose from the same factual matrix and Trust Inheritance did not oppose consolidation. The effect was that Trust Inheritance became a party to the single set of consolidated proceedings to be managed in the High Court.

Following consolidation, the court exercised its power under CPR 3.1(2)(o) to order Trust Inheritance to attend mediation scheduled for 17 October 2025. However, recognising Trust Inheritance’s need for detail, the court ordered the claimants to serve particulars of claim in the negligence action by 17 September 2025, giving a month to prepare for mediation.

Practical Implications for Solicitors

This decision clarifies when costs-only joinder is appropriate versus consolidation where separate proceedings exist. The court’s analysis reveals several key principles:

Costs-only joinder requires uncontested liability: The summary procedure under section 51 works where non-parties do not seriously contest their involvement. Where liability is actively disputed, the full trial process is necessary.

Timing matters for costs applications: Courts will not engage summary costs jurisdiction before the underlying claim concludes, particularly where complex issues of causation and quantum require determination.

Consolidation offers broader remedies: Where separate proceedings exist against the same non-party, consolidation may achieve practical objectives (such as mediation orders) more effectively than costs-only joinder.

Documentary requirements for mediation: Even where courts order mediation, parties must have sufficient detail about claims against them to participate meaningfully.

The decision reinforces that section 51 applications work best where non-parties acknowledge their role in causing the litigation costs, rather than where substantive disputes about professional negligence require resolution through the full trial process.

Non Party Costs Orders | Court Of Appeal Decision

Entitlement to costs: Costs orders in favour of or against non-parties – Guidance on circumstances for non-party costs orders, citing key authorities like Dymocks Franchise Systems and Arkin v Borchard Lines
Costs only proceedings: The application under CPR Part 8 – Procedural guidance on costs-only proceedings under CPR Part 8, relevant to the application process mentioned in Ivey v Lythgoe
Costs only proceedings: Obtaining the order for costs – Details the procedural requirements for obtaining costs orders in costs-only proceedings, including CPR 46.14 provisions
CPR 38.6: Discontinuance And Costs – The Legal Principles – Analysis of costs principles following discontinuance, relevant to consolidation alternatives and costs discretion under CPR 44.2
Applications concerning misconduct or wasted costs: Personal liability of legal representatives for costs – wasted costs orders – Covers personal liability of legal representatives for costs, relevant to professional negligence context

Applicants Awarded 50% Costs Due To Partial Success And Conduct Issues

Costs Against Successful Party, Indemnity Costs, New Costs Blog, Non-Party Costs, Summary Assessment

Background

This costs judgment arose from proceedings in the Technology and Construction Court concerning a freezing injunction made on 15 August 2022. The applicants, Click Above Corben Mews Limited (acting by its fixed charge receivers) and Victoria Capital Trust, had sought clarification that the freezing injunction did not prohibit their dealing with and disposal of certain properties. The respondents comprised eleven parties, including a right to manage company, various individuals, and corporate entities.

The substantive judgment was handed down on 23 January 2025, following which the parties agreed terms for an order varying the injunction. The variation made clear that the injunction did not prohibit the dealing with and disposal of the Properties by the Receivers. The order provided that any issues as to costs would be determined following written submissions.

The background to the application involved a complex group structure where Click St Andrews was subject to the freezing injunction, whilst the Properties were owned by Click Above Corben Mews Limited. The applicants held a charge over the Properties and sought to enforce their security. The respondents had concerns about whether Click St Andrews might have a beneficial interest in the Properties, which uncertainty arose largely from Click St Andrews’ failure to comply with disclosure obligations under the freezing injunction.

Pre-action correspondence between February and August 2024 revealed the parties’ divergent positions. The applicants maintained that the Properties did not fall within the scope of the injunction and that their Charge took priority over any interest Click St Andrews might have. The respondents flagged risks that disposing of the Properties might breach the injunction and proposed ring-fencing £52,680 from the proceeds of sale as a practical solution.

Costs Issues Before the Court

The court was required to determine several discrete costs issues following the substantive application. First, the incidence of costs needed to be decided – whether costs should follow the event given the applicants’ success, or whether the court should make no order as to costs in light of the parties’ conduct and the circumstances leading to the application.

Second, the court needed to consider the basis of assessment. The applicants sought costs on the indemnity basis, arguing that the respondents’ conduct was out of the norm and had forced them to make an unnecessary application. The respondents resisted this, maintaining their conduct had been reasonable throughout.

Third, the court was asked to undertake a summary assessment of costs. Two versions of the applicants’ statement of costs were before the court: one filed in July 2024 totalling £24,058 plus VAT, and another filed in January 2025 totalling £42,338 plus VAT. The respondents objected to reliance on the January version and sought to cap costs at the July figure.

Finally, the court needed to consider an alternative submission by the respondents that a third party costs order should be made under CPR Part 46.2(1) against Click Group Holdings Ltd, Click St Andrews, or Aaron Emmett, on grounds that their breach of disclosure obligations had necessitated the application.

The Parties’ Positions

The applicants adopted a straightforward position: they were the successful party and costs should follow the event. They argued that the judgment vindicated their position that the freezing injunction did not prohibit their dealing with the Properties, and that the variation order simply clarified this position. They submitted that the respondents should pay their costs, assessed on the indemnity basis due to the respondents’ unreasonable conduct.

The applicants relied on early settlement offers made on 5 February 2024 and 22 February 2024, proposing no order as to costs if the respondents agreed to allow disposal of the Properties. They characterised the respondents’ conduct as “unresponsive, unreasonable, lacked any application of commercial common sense and in certain instances was nonsensical”, particularly regarding the priority issue.

The respondents advanced several arguments against a costs order. They contended the application was entirely avoidable, citing Taylor v Van Dutch Marine Holdings Ltd [2017] EWHC 636 (Ch) as authority that a creditor with security over an asset subject to a freezing order can enforce security without seeking variation of the order. They acknowledged this case was not cited to the court but argued the applicants should have been aware of the legal position.

The respondents maintained they had never positively asserted that the injunction prohibited the applicants from dealing with the Properties. Rather, they were unable to confirm the position due to uncertainty about Click St Andrews’ potential beneficial interest, arising from that company’s non-compliance with disclosure orders. They argued their proposal to ring-fence proceeds showed a reasonable desire to resolve matters without litigation.

On the indemnity basis issue, the respondents cited Arcadia Group Brands Ltd v Visa Inc [2015] EWCA Civ 883, arguing that weakness of a legal argument alone does not justify indemnity costs without evidence of hopeless proceedings or ulterior motives.

Regarding summary assessment, the respondents objected to the January 2025 statement of costs, noting the 75% increase from the July version. They argued that national guideline rates should apply given the applicants’ solicitors were based in Guildford, resulting in rates approximately 25% lower than those claimed.

The Court’s Decision

Mrs Justice Jefford determined that the applicants, as the successful party, were entitled to some portion of their costs. However, she declined to order full costs, instead ordering the respondents to pay 50% of the applicants’ costs. This reflected the court’s assessment of the overall circumstances, including what she termed “the conundrum” faced by the parties, their respective conduct, and the measure of success on various issues.

The court found that whilst the applicants were successful on the main issue, they had failed on several alternative arguments. These included unsuccessful applications for declarations, arguments that the injunction should be discharged entirely, and requests for retrospective undertakings as to damages. The judge noted these “far ranging” issues had consumed substantial time and cost.

On the basis of assessment, the court rejected the application for indemnity costs. Mrs Justice Jefford held there was “nothing so unreasonable in the respondents’ conduct that it was taken out of the norm of assessment on the standard basis.” She found the proceedings were not plainly hopeless nor pursued with ulterior motives, distinguishing the case from circumstances warranting indemnity costs.

Regarding summary assessment, the court expressed concern about the discrepancies between the two statements of costs. The judge found it “wholly unsatisfactory” that costs were allegedly omitted from the July version and questioned how over £5,000 of counsel’s fees could have been mistakenly excluded. She particularly scrutinised the increase in counsel’s fees from £2,750 to £8,000 and the additional £5,000 claimed for costs submissions.

The court summarily assessed costs at £34,100 before applying the 50% reduction, resulting in £17,050. A further 15% reduction was applied to account for the higher hourly rates claimed compared to national guideline rates, producing a final figure of £14,500 (excluding VAT). The parties were given 56 days to pay, recognising that the respondents were effectively individuals.

The court declined to make a third party costs order under CPR Part 46.2(1). Mrs Justice Jefford held that the applicants’ success turned on the priority of the Charge rather than whether Click St Andrews had any interest in the Properties. She found that disclosure failures, whilst explaining the respondents’ position, were not determinative of the application’s merits and did not justify a costs order against third parties.

Finally, the court considered a without prejudice save as to costs offer made by the applicants on 17 January 2025, proposing that the respondents pay costs on the standard basis rather than the indemnity basis sought. As the applicants did not achieve this minimum outcome (receiving only 50% of costs), no adjustment was made for this offer.

Credit Hire Companies Liable For Costs As Real Parties Under QOCS Exception

New Costs Blog, Non-Party Costs, Personal Injury, QOCS

Background

These consolidated appeals concerned two road traffic accident cases where claimants had entered into credit hire agreements and subsequently brought proceedings that included claims for personal injury and credit hire charges. In both cases, the claims failed and costs orders were made in favour of the defendants. However, due to the operation of Qualified One-Way Costs Shifting (QOCS), these costs orders could not be enforced against the claimants. The defendants then sought non-party costs orders against the respective credit hire companies.

In the first case, Tescher v Direct Accident Management Limited, a motorcycle accident occurred on 19 November 2018. The claimant entered into credit hire agreements with Direct Accident Management Limited (DAML) and brought proceedings through solicitors Bond Turner. The claim included damages for personal injury and special damages of over £22,000, of which £19,633.36 related to credit hire charges for 88 days. The claimant pleaded impecuniosity. District Judge Swan dismissed the claim on 8 December 2022 and ordered the claimant to pay the defendant’s costs, subject to QOCS protection. The judge directed DAML be joined as a second defendant for costs purposes.

District Judge Jeffs subsequently heard the defendant’s application for a non-party costs order on 10 May 2023. Evidence was filed including documents showing DAML and Bond Turner were part of the Anexo group, which described itself as focused on providing replacement vehicles and legal services to impecunious customers involved in non-fault accidents. DJ Jeffs dismissed the application, finding DAML was not the “real party” and that causation had not been established. Permission to appeal was granted and the matter was transferred to the Court of Appeal.

In the second case, AXA Insurance v Spectra, an accident occurred on 23 October 2019 resulting in the claimant’s vehicle being written off. The claimant entered into a credit hire agreement with Spectra Drive Limited on the day of the accident. Liability was admitted on 28 October 2019, but the hire continued for 89 days. Proceedings were commenced against AXA Insurance under the European Communities (Rights against Insurers) Regulations 2002, claiming general damages for personal injury (unlikely to exceed £3,800) and special damages of £16,160.94, predominantly credit hire charges.

AXA made a Part 36 offer of £2,750 for the personal injury claim only on 18 November 2020. On 25 May 2021, AXA’s solicitors highlighted that the claimant had insured another vehicle within 10 days of the accident and threatened to plead fundamental dishonesty. The claimant discontinued on 28 May 2021, resulting in the usual costs order under CPR r38.6(1), subject to QOCS.

AXA applied for two orders: setting aside QOCS protection on grounds of fundamental dishonesty and a non-party costs order against Spectra. Deputy District Judge Carson found no fundamental dishonesty but initially awarded 65% of AXA’s costs (£3,432) against Spectra. On appeal, HHJ Gargan overturned various findings and refused the non-party costs order, noting AXA’s “good fortune in escaping a judgment and costs” as a factor against making such an order. He suggested general guidance would be welcome given the frequency of credit hire cases.

Costs Issues Before the Court

The central issue before the Court of Appeal was whether and in what circumstances non-party costs orders should be made against credit hire companies when credit hire cases fail and the claimant is protected by QOCS. This required the court to consider the interaction between the QOCS regime introduced in 2013 and the established principles governing non-party costs orders under section 51 of the Senior Courts Act 1981.

The court needed to determine whether credit hire companies could be characterised as “real parties” to the litigation or persons for whose financial benefit claims were made within the meaning of CPR r44.16(2)(a). This rule provides an exception to QOCS where proceedings include a claim made for the financial benefit of a person other than the claimant, and r44.16(3) expressly contemplates non-party costs orders in such circumstances.

A crucial subsidiary issue was causation – whether the credit hire companies’ involvement had caused the defendants to incur costs they would not otherwise have incurred. This included examining the nature and extent of control exercised by credit hire companies over litigation and whether a strict “but for” test applied.

The court also had to consider the proper approach to exercising discretion when the jurisdiction for non-party costs orders was engaged, including questions of attribution between different elements of mixed claims (personal injury and credit hire) and what proportion of costs should be ordered against the credit hire company.

The Parties’ Positions

The appellants (the defendants in the original proceedings) contended that non-party costs orders should have been made against both credit hire companies. They argued that the credit hire companies were the real beneficiaries of the litigation relating to hire charges and exercised sufficient control over the proceedings through the structure of their agreements. They submitted that the inevitability of litigation flowing from credit hire agreements with impecunious claimants satisfied the causation requirement.

The appellants relied on Farrell v Birmingham City Council [2009] EWCA Civ 769, where a non-party costs order was made against a credit hire company, arguing this established the principle in the credit hire context. They contended that Lord Mustill’s observation in Giles v Thompson [1994] AC 142 about “healthy discipline” through costs orders supported their position. They also argued that CPR r44.16(2)(a) and Practice Direction 44 paragraph 12.2 specifically identified credit hire as an example of claims made for another’s financial benefit.

Regarding the Spectra case specifically, the appellants submitted the judge erred in relying on AXA’s “good fortune” in obtaining a costs order following discontinuance, citing Nelson’s Yard Management Company v Eziefula [2013] EWCA Civ 235 that potential success at trial does not justify departing from the usual costs consequences of discontinuance.

The respondent credit hire companies argued that credit hire claims were legitimate claims by claimants, validated by Giles v Thompson and Lagden v O’Connor [2003] UKHL 64. They contended they were not the “real party” as they had no direct right to damages and the claimant retained a genuine legal liability for hire charges. They submitted that any benefit they derived was consequential rather than direct.

The respondents argued there was no principled distinction between credit hire companies and solicitors acting on conditional fee agreements, neither of whom face non-party costs orders in ordinary circumstances. They challenged Practice Direction 44 paragraph 12.2 as wrong and without legislative force. On causation, they argued for a strict “but for” test, submitting the defendants would have incurred similar costs defending the personal injury claims regardless of the credit hire element.

In the Spectra case, the Respondent’s Notice challenged the judge’s findings that Spectra was the principal beneficiary and primary cause of the litigation, arguing these conclusions were incorrect even without the “good fortune” point.

The Court’s Decision

The Court of Appeal allowed both appeals and made non-party costs orders against the credit hire companies. Lord Justice Birss, giving the leading judgment, established comprehensive guidance for future cases involving non-party costs applications against credit hire companies in the QOCS context.

The court held that credit hire companies in these circumstances satisfy the “real party in all but name” test. The essential characteristics of credit hire agreements – hire on credit with payment deferred until conclusion of damages claims – combined with claimants’ alleged impecuniosity made litigation inevitable for all practical purposes. The court found this created sufficient control over the litigation and established the necessary causation, as litigation was the only realistic means by which credit hire companies would be paid.

On the interpretation of CPR r44.16(2)(a), the court confirmed that credit hire claims are made for the financial benefit of a person other than the claimant. While QOCS was introduced to protect claimants in personal injury claims, it was not intended to protect non-parties for whose financial benefit claims were made. The court noted that r44.16(3) expressly contemplates non-party costs orders in these circumstances.

The court rejected the respondents’ analogy with solicitors acting on CFAs, distinguishing that solicitors are not the genesis of claims, their fees are not the subject of claims, and CFAs do not bind claimants to pursue claims. Credit hire companies, by contrast, were found to be the real beneficiaries of litigation for hire charge damages through the structure of their agreements.

Regarding causation, the court rejected a strict “but for” test, holding that the inevitability of litigation flowing from the credit hire agreement structure was sufficient. The court stated it was unnecessary to consider whether costs would be higher without the credit hire element, as such questions were better addressed at the stage of determining quantum.

The court proposed a two-stage approach for future cases: first, determining whether the non-party costs jurisdiction is engaged, and second, deciding the appropriate amount. Where credit hire claims are several times larger than personal injury claims, an order for all costs would likely be appropriate absent special circumstances.

In the DAML case, the court found the judge’s conclusions on the “real party” test and causation were incorrect. The court ordered DAML to pay all the defendant’s costs, given the credit hire charges were several times larger than the personal injury damages.

In the Spectra case, the court dismissed the Respondent’s Notice and found the judge correctly identified Spectra as the principal beneficiary. However, the judge’s reliance on AXA’s “good fortune” was held to be an error. The court reinstated the Deputy District Judge’s original order requiring Spectra to pay 65% of AXA’s costs.

The court emphasised that PD 44 paragraph 12.5(a) provides that when r44.16(2)(a) applies, courts will usually order the other person to pay costs, while it will only be exceptional to permit enforcement against the claimant. This guidance aligned with the court’s analysis that non-party costs orders against credit hire companies would be likely absent special circumstances.

Understanding Non-Party Costs Orders

New Costs Blog, New News Article, Non-Party Costs

When a legal dispute ends, the question of who pays the legal costs is paramount. Typically, the losing party foots the bill for the winner’s reasonable costs. But what happens if the losing party can’t pay, perhaps due to insolvency? Or what if someone else was secretly pulling the strings or stood to gain the most from the litigation? This is where the powerful, and sometimes surprising, tool of a Non-Party Costs Order (NPCO) comes into play in UK civil litigation.

What Exactly is a Non-Party Costs Order (NPCO)?

An NPCO is an order made by a court in England and Wales that requires someone not formally a claimant or defendant in a lawsuit to pay some or all of the legal costs incurred by one of the actual parties. This power is a significant exception to the general rule that only the named parties are responsible for costs.

- - The losing party is a “man of straw” (unable to pay), and another individual or entity was the true instigator or beneficiary of the failed litigation.
  - Individuals might try to use a company’s separate legal personality (the “corporate veil”) to engage in litigation without personal risk, especially if the company is under-resourced.

The possibility of an NPCO also acts as a deterrent against frivolous claims or the improper use of corporate structures to avoid costs.

The Legal Foundations: Where Does This Power Come From?

The court’s authority to make NPCOs isn’t arbitrary. It’s primarily derived from:

Section 51 of the Senior Courts Act 1981: This is the main statutory source, granting courts broad discretion over who pays legal costs and to what extent. The crucial part, Section 51(3), states the court has “full power to determine by whom and to what extent the costs are to be paid.“
Civil Procedure Rule (CPR) 46.2: This rule sets out the essential procedural steps. It ensures fairness by requiring that the non-party:

- Is formally added to the proceedings for costs purposes only.
- Is given a reasonable opportunity to attend a hearing and make their case.

When Can a Court Make an NPCO? Key Principles

The court’s decision to issue an NPCO is highly discretionary and fact-specific. However, several core principles, largely developed through case law, guide this discretion:

- - The Overarching Test: Is it “Just”? This is the single most important principle. The court will only make an NPCO if it is “just” to do so in all the circumstances of the case. What is considered just can evolve and depends heavily on the specific facts.
  - “Exceptional” Circumstances: NPCOs are described as “exceptional.” This doesn’t mean they are incredibly rare, but rather that the case falls “outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense.” This was clarified in the influential case of Dymocks Franchise Systems (NSW) Pty Ltd v Todd.
  - Identifying the “Real Party”: A crucial factor is whether the non-party was, in substance, the “real party” to the litigation – the one truly controlling it, funding it for their own ends, or standing to be the main beneficiary.
  - The Triad: Funding, Control, and Benefit: Courts closely examine the extent to which the non-party:
    - Funded the litigation.
    - Controlled its conduct.
    - Stood to benefit from its outcome. “Pure funders” (those with no personal interest, control, or benefit beyond perhaps a standard commercial loan return) are generally protected, as affirmed in Dymocks. However, if funding is combined with significant control or benefit, an NPCO becomes more likely.
  - Causation: There generally needs to be a link between the non-party’s actions and the costs being claimed. The case of Jobanputra v Modi highlighted causation as a “vital factor.”
  - Impropriety or Bad Faith: While not always essential, if a non-party has acted improperly or in bad faith (e.g., pursuing a knowingly false claim), this can heavily influence the court’s decision to make an NPCO.

Who Can Be Targeted by an NPCO?

Several categories of non-parties frequently find themselves facing NPCO applications:

- - Company Directors (especially of insolvent companies): This is a common scenario. If a director uses an insolvent company to litigate for their personal benefit (rather than the company’s genuine benefit), or acts with serious impropriety, they risk an NPCO. The Court of Appeal in Goknur Gida v Aytacli provided key guidance, stating that “something more” than just being a director is needed if the litigation was for the company’s benefit. This “something more” is often personal gain or serious misconduct.
  - Litigation Funders: The landscape for commercial litigation funders has evolved significantly. The “Arkin cap” (which suggested a funder’s liability was limited to their investment amount) is no longer a strict rule, following cases like Davey v Money. Courts now have broader discretion, and funders who actively control or stand to gain substantially from litigation may face uncapped NPCOs. The recent Supreme Court decision in PACCAR has also introduced new complexities regarding the enforceability of some litigation funding agreements, though its direct impact on NPCO principles is still unfolding.
  - Insurers: The Supreme Court in Travelers Insurance Company Ltd v XYZ clarified the position for insurers. An insurer won’t typically face an NPCO just for funding its insured’s defence. Liability usually arises if the insurer becomes the “real defendant” or “unjustifiably intermeddles” in the litigation, causing costs.
  - Credit Hire Organisations (CHOs): Insurers increasingly seek NPCOs against CHOs, especially where the claimant has Qualified One-Way Costs Shifting (QOCS) protection. The courts will look at the CHO’s financial benefit and control over the claim.
  - Liquidators: A high threshold of impropriety or bad faith is generally required for an NPCO against a liquidator acting in their official capacity, as established in Metalloy Supplies Ltd v MA (UK) Ltd.

The NPCO Application Process: A Brief Overview

Applying for an NPCO involves distinct procedural steps:

- - Who and When: Usually, the successful party applies after it becomes clear the losing party can’t pay. Applications are ideally heard by the trial judge. Early warning to the non-party is advisable.
  - Joinder and Hearing: The non-party must be formally joined to the proceedings for costs purposes and given a chance to be heard at a dedicated hearing (CPR 46.2).
  - Evidence: The applicant must provide evidence to support the grounds for the NPCO, demonstrating factors like control, benefit, and causation. This might include funding agreements, correspondence, or financial records. Disclosure orders can sometimes be sought to obtain necessary information.

Key Risks for Non-Parties

The NPCO regime presents significant risks:

- - Financial Liability: The most obvious risk is being ordered to pay substantial legal costs, potentially exceeding any initial investment.
  - Additional Legal Costs: Defending an NPCO application incurs further expense.
  - Reputational Damage: A finding of improper conduct can harm a non-party’s reputation.
  - Uncertainty: The discretionary nature of NPCOs means outcomes can be hard to predict.