The recent case of Weatherford Global Products v Hydropath Holdings Limited (Hydropath), Clearwell International Limited (Clearwell) and Others (2014) serves as a useful reminder that anyone contemplating supporting, controlling or instigating litigation, while not actually being a party to that litigation, could be at substantial risk of being ordered by the court to pay the costs of one or more parties involved in the litigation.
The case was heard in the Technology and Construction Court and involved a dispute in relation to the supply by Hydropath of electronic devices intended to be used for the purposes of preventing scale building up within oil pipes. It was contended by the claimant that the devices gave rise to the creation of sparking in adjacent pipework in breach of warranty. Hydropath contested the claim, and also brought counterclaims against the claimant and other parties brought into the proceedings.
The trial judge gave judgment in favour of the claimant on its claim and dismissed the counterclaim awarding indemnity, rather than the more usual standard, costs against Hydropath and Clearwell in relation to the counterclaim. It is worth noting that within the judgment the judge criticised the parties for the amount of irrelevant documentation and witness statement evidence put before the Court which had unnecessarily extended the time necessary for the trial and the costs involved in the case.
Subsequently Weatherford sought an order that Dr Daniel Stephanini, director of both Hydropath and Clearwell, should be responsible for paying personally the costs incurred in defending the counterclaim even though he was not a party to the main proceedings.
Section 51 of the Senior Courts Act 1981 gives a discretion to the court to make an order for costs against a non-party to the extent that it considers it just to do so. The discretion should only be used in exceptional cases and various principles have been set out in case law as to when it may be appropriate for such an order to be made. Merely being involved in the management of a litigating company or providing funds for a litigating party will not normally be likely to give rise to a non-party costs order, but where the manager or funder stands to benefit personally from the litigation or otherwise acts in a manner that is regarded as unreasonable in relation to the litigation there is an increased risk of such an order being made.
In this case the judge considered that Dr Stephanini had not acted unreasonably in causing Hydropath to defend the proceedings brought by the claimant, and would not therefore be held personally responsible for the costs of defending the main action. However the judge took a different view in relation to the counterclaims which were “at best speculative”. Dr Stephanini’s lawyers argued that a costs order should not be made against him as no sufficiently timely warning had been given to him of the possibility of such an order.
The judge found that Dr Stephanini had throughout the case been the major shareholder of Hydropath and Clearwell, had exercised control of the companies in relation to the litigation, stood to benefit from the litigation if successful and funded a substantial part of the costs of the companies in circumstances where at least one of them would otherwise be potentially insolvent. As the counterclaims were speculative it had been unreasonable to pursue them and in the circumstances the judge decided to make an order that Dr Stephanini should be required to pay the costs of the counterclaims. The lack of warning was outweighed by the other factors.
For more information about the issues raised in this article or to find out more about how the Dispute Resolution team can help you please contact Mike Robinson on 0118 952 7206 or email [email protected].
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