Thomas Barnes & Sons PLC v Blackburn With Darwen Borough Council

The claimant company had brought proceedings against a local authority (Blackburn With Darwen Borough Council) in the Manchester Technology and Construction Court seeking damages for wrongful termination of a contract for the construction of a new bus station in Blackburn. After an 11 day trial the judge dismissed the claim. The local authority applied for a non-party costs order on the basis that the respondents had funded the case, had a direct financial interest in its outcome, and at least one of them to some extent had controlled the case, and were therefore, in substance, the real parties to the litigation, so that it was just that they should be ordered to pay the authority’s recoverable costs, to the extent that they had not been satisfied by recourse to costs, security which had been successfully applied for and already provided.

The judge considered CPR 46.2 and various authorities, notably Deutsche Bank v Sebastian Holdings [2016] EWCA Civ 23, and the leading Privy Council case, Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs) [2004] UKPC 39. From the latter he cited the following principles as summarised in the White Book:

1. Although costs orders against non-parties are “exceptional,” exceptional means only that the case is outside the ordinary run of cases which parties pursue or defend for their own benefit and at their own expense. The ultimate question in any such exceptional case is whether in all the circumstances it is just to make the order. Inevitably this will be fact specific to some extent.
2. Generally the discretion will not be exercised against pure funders, that is, those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course. The public interest in the funded party getting access to justice will generally outweigh the recovery of costs by the successful unfunded party.
3. If however the non-party not only funds but controls or benefits from the proceedings, justice will ordinarily require that they will pay the successful party’s costs if the funded party fails. The non-party is not so much facilitating access to justice as themselves gaining access to justice for their own purposes and are themselves a real party to the litigation.
4. The most difficult cases are those in which a non-party funds a receiver, a liquidator or a financially insecure company with a view to advancing the funder’s own financial interests. Generally a non-party funding proceedings by an insolvent company solely or substantially for their own financial benefit should be liable for the costs in the event of failure. But non-party costs orders will not invariably be made in such cases, particularly where the funder is a director or liquidator acting in the interests of the company rather than their own.
5. A non-party should not ordinarily be liable for costs which would in any event have been incurred without the non-party’s involvement in the proceedings, although the position may be different where a number of non-parties have acted in concert.

Having reminded himself of those and the essential features of the case, he turned to what he described as the fundamental question, whether or not in the circumstances of the case before him the respondents should have to pay the balance of the reasonable legal costs of successfully defending the claim, or whether the local authority (in other words, the council tax payers) should have to do so.

He answered that question by reference to a number of factors, one being that the respondents had all funded the claim and had all stood to benefit personally from its success. “They were not,” he conceded, “the only prospective beneficiaries but – apart from the modest amount due to the preferential creditors – they were the only ones who were guaranteed to recover a substantial amount unless the claim succeeded in all respects in relation to liability and very substantially in relation to quantum.” Also relevant was the fact that the first respondent, Thomas Barnes, had exercised “a real degree of control over the proceedings from start to finish,” although the administrators had too, “as was appropriate to their position as officeholders.” “The other Respondents,” he found, “in effect left it to Thomas, the administrators and the lawyers to resolve, but were prepared to back up Thomas’ determination to pursue the claim by providing funding…” Warnings about the costs implications of the parties’ conduct had also been given.

The judge concluded:

“In my judgment [the respondents] were all, therefore, as it was put in Dymocks, the funders of the litigation and persons who were substantially to benefit from them. In Thomas’ case he was also someone who substantially controlled the proceedings. Here, therefore, they are in my judgment properly to be treated as the real parties to the proceedings in very important and critical respects. On the face of it, therefore, it is just that they, rather than BBC as the successful defending party, should have to pay the costs of the successful defendant.”

The judge went on to say that this was not a case which had public interest implications:

“[T]his not a case where the order is being sought against an officeholder or a director with no, or only a modest, personal interest in the success of the litigation and little or no real control over the claim. I do not accept a submission that any creditor who is minded to fund a claim in similar circumstances would be dissuaded by the knowledge that, in addition to having to fund the costs of the claim and provide security, they would also be at risk of having to make up the shortfall between the amount provided by way of security and the other party’s reasonable costs of its successful defence of the proceedings. In short, I do not accept that making a NPCO in these circumstances would have a chilling effect on the ability of officeholders in similar situations being able to fund justified claims against third party debtors of the company in question.”

This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.

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