The Court of Appeal overturned an order requiring a company director and majority shareholder to pay the significant costs incurred when the defendant company was itself unable to meet the legal bill of the winning opponent. While the individual, Mr Bailey, had provided funding and assisted in running what proved to be an unsuccessful defence, he had acted in reliance on legal advice. Critical to this decision was the absence of any early warning from the other side that it planned to go after Mr Bailey despite having been told, a year before trial, that the defendant company was bereft of assets. The issue was only raised a year after the claimant had secured judgment. An early warning might well have had a dramatic impact upon the litigation. The risk of a possible adverse personal costs liability could have led to the case being abandoned or it might have prompted the acquisition of costs liability insurance. It was manifestly unreasonable to impose an unexpected, significant costs liability absent such a clear, early warning. Written by professor Dominic Regan, of City Law School, London, and special advisor to the Association of Costs Lawyers.
Sony/ATV Music Publishing LLC and another company v WPMC Ltd (in liquidation) and others  EWCA Civ 2005
What are the practical implications of this case?
The absence of a warning to Mr Bailey, the outsider, was fatal to the attempt to make him liable for costs. While it is conceivable that an order could be made in a blatant case, despite the lack of a warning, it is prudent to give clear, early notice of the intention to pursue a stranger.
What was the background?
The defendant company was successfully sued in a copyright action. It was proposing to release a documentary showing a film of The Beatles performing at a concert in 1964. The claimant held worldwide copyright in the majority of the songs performed and wished to prevent any broadcast of the footage. Arguments advanced by the defendants were rejected at trial by Arnold J who consequently made a substantial costs order against WPMC, including a payment on account of them in the sum of £375,000. The company had no assets to speak of and indeed their solicitors had conveyed this to the claimants before trial. The defendant company was wound up very quickly after the judgment. Frustrated, the claimant then brought in Mr David Bailey, who was a sophisticated and successful businessman, seeking an order that he personally should foot the legal bill. He had been a director of, and investor in, the losing company. An order was made against him which was the subject of this appeal.
The law in this area
Section 51(3) of the Senior Courts Act 1981 provides that ‘The court shall have full power to determine by whom and to what extent the costs are to be paid.’ Aiden Shipping Limited v Interbulk Limited (1986) AC 965, a House of Lords decision, confirmed that the statute empowered the court to order absolutely anyone to pay costs; it was irrelevant that the person was not party to the relevant action. In Symphony v Hodgson  QB 179, at 192-193, Balcombe LJ, with whom Staughton and Waite LJJ agreed, identified a number of ‘material considerations’, which were not intended to amount to an exhaustive list. One of these was that the party seeking an order should ‘warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him’.
What did the court decide?
The Court of Appeal held that Arnold J had failed to take account of material factors which meant that his decision was flawed. As a consequence, the Court of Appeal exercises the costs discretion afresh.
Mr Bailey had injected some funding to keep the litigation afloat and indeed he would personally benefit from a successful outcome. Nevertheless, the defendant company would be a clear beneficiary too had it won and been able to exploit the potential value of exhibiting a rare Beatles concert around the world. It was noted by the court that leading counsel had, belatedly, agreed to act for the defendant upon a conditional fee basis. This was indicative of counsel having a belief that the defence was meritorious. It was never suggested that Mr Bailey had defended the claim in an improper manner.
Why was the failure to warn about the personal costs threat so significant? Floyd LJ said:
However the absence of any form of warning is, in my judgment, fatal to the application for the NPCO ….In those circumstances the failure to warn until a year after final judgment is given strikes me as manifestly unfair to Mr Bailey. It would be unjust because Mr Bailey was deprived of realistic opportunities to settle the litigation or to protect himself against the adverse effects of a NPCO, or to abandon the defence of the litigation at a much earlier stage’ (at para ).’
In other words, there were strong arguments to suggest that if the threat of a non-party costs order had been raised early on in the proceedings the conduct of Mr Bailey might have been very different. As the court observed, he might have abandoned the case or protected himself by securing after the event insurance cover.
- Court: Court of Appeal, Civil Division
- Judges: Kitchin and Floyd LJJ
- Date of judgment: 6 September 2018
Professor Dominic Regan is special advisor to the Association of Costs Lawyers and he assisted Lord Justice Jackson with costs issues from 2010 until Sir Rupert retired from the Bench on 7 March 2018.
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