Eyes wide open
Non-party costs orders – disclosure in support
Eyes wide open: non-party costs orders – disclosure in support
Eyes wide open: non-party costs orders – disclosure in support
A recent decision in the Technology & Construction Court (TCC) in Topalsson GMBH -v- Rolls-Royce Motor Cars Ltd [2024] EWHC 297 (TCC) highlights the risks to directors’ funding and controlling litigation from applications for non-party costs orders, with disclosure of information relating to the funding of the proceedings being a possibility.
Background
Topalsson and Rolls-Royce were the parties to proceedings arising out of the termination of an agreement between them for the development and supply of digital twin software for a new car configurator. Following a trial, it was held that Rolls-Royce’s termination of the agreement was lawful, and damages were awarded in Rolls-Royce’s favour. A costs order (circa £1 million) was also made generally in favour of Rolls-Royce. These sums remained unpaid by Topalsson. Rolls-Royce applied for information on the funding of the claim in support of its application for a non-party costs order under s 51 of the Senior Courts Act 1981 (SCA 1981) against the founder, managing director and majority shareholder of Topalsson, Mr Topal. Topalsson sought to resist the application on grounds including that the non-party costs application was inherently unlikely to succeed, and that there were severe consequences for the claimant in Germany if it was ordered to supply the information sought.
Disclosure in support of Non-party Costs Orders
Section 51 of the Senior Courts Act 1981 empowers the court to make costs orders against non-parties to proceedings. Further, it was undisputed that where a power exists to grant a remedy there is, inherent in that power, the power to make ancillary orders to make the remedy effective; and that is what Rolls-Royce sought in this case in the form of, disclosure of information as to the funding of the claim. Whether an order should be made is discretionary, but guidance had been provided in the leading case of Automotive Latch Systems Ltd -v- Honeywell International Inc [2008] EWHC 3442 (Comm). The applicant in that case sought: the identity of all individuals; companies or other entities which had provided funding since a particular date; the amount of such funding in each case; the terms on which such funding was provided; the extent of each such party’s involvement in the conduct of the action; and the nature and extent of that party’s interest (financial or otherwise) in the outcome of the action. The order was granted on the basis that it was unsatisfactory that the court should determine the application without more than the mere disclosure of the names of funders or that the applicant should seek to join funders, against whom it later transpired there was no basis to consider a non-party costs order. This case set a high bar in terms of the information that could be sought when the court is exercising its discretion.
The order for payment of costs by a non-party under Section 51 will always be exceptional and any application should be treated with considerable caution. The mere fact that someone has funded proceedings would generally be insufficient to support an application that they pay the costs of the successful party. Pure funders, as described at the case of Hamilton -v- Al-Fayed No. 2 [2002] EWCA Civ 665 reported [2003] QB 117 at [40], will not normally have the discretion exercised against them. That definition of “pure funders” means 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. However, where the non-party not merely funds the proceedings but substantially also controls or, at any rate, is to benefit from them, he will ordinarily be responsible for paying the successful party’s costs if the proceedings fail.
Decision of the TCC
The TCC ordered that the disclosure sought by Rolls-Royce be provided. It was not a requirement that Rolls-Royce establish that the application for a non-party costs order was likely to succeed. There were circumstances where the very purpose of an application for disclosure of funding related information might determine the existence, identity, and potential relevance of funders. Whilst there was no impropriety alleged against Mr Topal, there was nothing inherently weak in Rolls-Royce’s claim that Mr Topal had controlled the litigation in a manner that could be said to have set him apart from the ordinary company director. The Court found on the facts that the existence of any real risk to Topalsson of criminal or civil proceedings in Germany were it to provide the information was, at best, extremely limited. Accordingly, in the circumstances of the instant case, it was appropriate to order that Topalsson provide the information or documentation relating to the funding of the proceedings. The TCC was satisfied that the information sought by Rolls-Royce on the disclosure application was likely to be highly relevant to the exercise of the court’s discretion when ultimately considering the Section 51 non-party costs application.
Implications
Directors and other non-parties to litigation need to be aware of the powers the court has to make costs order against non-parties, and the associated risks. The decision in this case reinforces the court’s willingness to order parties to disclose funding information where there is reason to believe litigation may have been funded by parties against whom a non-party costs application might properly be obtained. That information can be extensive, and might include documents relevant to: the identity of all individuals involved; companies or other entities which had provided funding; the amount of such funding in each case; the terms on which such funding was provided; the extent of each such party’s involvement in the conduct of the action; and the nature and extent of that party’s interest (financial or otherwise) in the outcome of the action.
Non-party litigation funders therefore need to enter into any funding arrangements with their “eyes wide open”.
It can be noted that the court can order disclosure of information or documents even where compliance with such an order could put a party at risk of a breach of criminal law in other jurisdictions. In assessing the risk, the court will weigh up the importance of the disclosure against any actual risk of prosecution in other jurisdiction(s).
For further information on this topic, please contact Duncan Hope and Dan Taylor.
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