Costs News

28 January 2016
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CA outlines correct judicial approach to third-party costs orders

The just exercise of judicial discretion, rather than following the guidelines set out in Symphony Group PLC v Hodgson, is the most important element in deciding whether to grant a third-party costs order, the Court of Appeal has said.

Lord Justice Moore-Bick was giving the court’s ruling in Deutsche Bank AG v Sebastian Holdings Inc & Anor [2016] EWCA Civ 23, in which Mr Justice Cooke had awarded the claimant $243m and 85% of its costs, amounting to around £60m, on the indemnity basis.

He made a third-party costs order against Alexander Vik, the sole shareholder and director of Sebastian, for the purposes of costs on the basis that he was the defendant’s controlling mind and directed the litigation, and ordered him to pay £36m on account of costs.

One of the key issues in the appeal was the decision in Symphony Group ([1994] QB 179), in which the Court of Appeal offered guidance on the way in which courts should approach applications under section 51 of what is now the Senior Court Act 1981.

In particular, Mr Vik’s counsel submitted that, as a result of Symphony, it was of the utmost importance that any third party against whom a costs order might be sought should be warned of that possibility as soon as it occurred to the eventual applicant and that, if he were not warned, it would almost invariably be unfair to make such an order against him.

He argued that the bank's failure in this case to give Mr Vik any warning of that kind rendered it unjust and contrary to principle to make an order for costs against him.

Moore-Bick LJ said: “It is worth remembering that the Symphony guidelines as a whole were formulated in the context of an attempt by the plaintiff to obtain an order for costs against a third party whose connection with the proceedings was fairly tenuous. The second and third guidelines are concerned with ensuring that such a person has a fair opportunity to deal with any allegations that may affect his liability for costs before the judge makes his findings.

“They are not ostensibly directed to a case such as the present, in which an order for costs is sought against a third party who can properly be regarded as the real party to the litigation. The truth is that Mr Vik had every opportunity to contest the bank's factual and legal case and took full advantage of it. We agree with the judge, therefore, that the only advantage that a warning could have given him would have been an opportunity to reconsider his own position in relation to the proceedings…

“The judge considered that, in the circumstances of this case, the failure to warn Mr Vik that he might face an order for costs against him personally was of very little weight at all. We agree.”

In a postscript to the decision to refuse the appeal, Moore-Bick LJ said: “It will be apparent from what we have said that [Mr Vik’s counsel] sought to place great emphasis on the Symphony guidelines to the point of treating them, in particular the third guideline, as laying down requirements that must be satisfied unless the applicant can demonstrate a good reason for failing to do so.

“In our view, that is not the correct approach. When considering those guidelines, it is important to bear in mind that they were formulated not very long after the decision in Aiden Shipping v Interbulk at a time when applications for costs against third parties were relatively uncommon and that they were intended merely to provide guidance, not to lay down rules.

“Since then, there have been many more applications for orders for costs against third parties under a wide variety of circumstances, as a result of which it has come to be recognised more clearly than perhaps it was at that time that each case turns on its own facts.

“As all three members of the court observed in Petromec v Petrobras, the exercise of the discretion is in danger of becoming over-complicated by authority. The decision of the Privy Council in Dymocks, which contains an authoritative statement of the modern law, explains and interprets the Symphony guidelines in a way which reflects the variety of circumstances in which the court is likely to be called upon to exercise the discretion.

“Thus, the Privy Council has explained that an order of this kind is ‘exceptional’ only in the sense that it is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. Similarly, it has made it clear that the absence of a warning is simply one factor which the court will take into account in an appropriate case when deciding whether, viewed overall, it would be unjust to exercise the discretion in favour of making an order for costs against the third party.

“We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind.”


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