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.
Indemnity Basis Costs Following Discontinuance
Non Party Costs Orders | Court Of Appeal Decision
Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order
CPR 38.6: Discontinuance And Costs – The Legal Principles
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