Judge: Kitchin LJ and Floyd LJ
Citation:  EWCA Civ 2005
The failure of a claimant to warn the director a defendant company that a non-party cost order would be sought against him personally, until a year after judgment, was fatal to the order being made against him in circumstances where it was plain that the defendant company would not be able to pay the claimant’s costs.
In a copyright infringement action the judge rejected each of the defendant company’s defences and gave judgment in the claimants’ favour. He also ordered the defendant to pay their costs. It was subsequently resolved that the defendant company should be voluntarily wound up. The claimants wrote to the director and majority shareholder stating that they intended to seek a non-party costs order against him. The judge granted application, and ordered the director to pay their costs from January 2013 onwards. The judge found that the appellant was the “real party”, as he controlled and partly funded the defence of the claim with a view to his own benefit.
The director appealed and the Court of Appeal found that no criticism could be made of the appellant’s conduct in defending the proceedings on the basis of the legal advice he had received. Whilst it might be said that the appellant, standing as he did to benefit from the outcome, was “a real party”, if not the only one; the absence of any form of warning was fatal to the application for the non-party costs order. It was plain that the respondents knew or should have appreciated that the company would not be able to pay their costs in the event that the claim succeeded, and they knew that the company, and the appellant, were operating on the same assumption. In those circumstances, the failure to warn until a year after final judgment was given was manifestly unfair to the appellant. It was unjust because he was deprived of realistic opportunities to settle the litigation or to protect himself against the adverse effects of a non-party costs order, or to abandon the defence of the litigation at a much earlier stage.