Moorview Developments Ltd & Ors v First Active plc & Ors

An interesting decision on the potential exposure of non-party “funders” to legal costs arose out of the long running litigation taken by the Cunningham Group against First Active plc and the receiver appointed by it over assets of the companies in the Group. The litigation involved claims against First Active for fraud, misrepresentation and breach of contract in its dealings with the Group and a claim against the receiver for negligence in his management of the business and assets of the Group. 

The litigation taken by the Cunningham Group was largely unsuccessful and a range of costs orders were made against the relevant companies within the Group. First Active then sought to make Mr Cunningham, in his capacity as director of the companies, personally liable for such costs.

Mr Cunningham resisted the application for personal liability on a number of grounds, including that the proceedings were brought by the companies which had a separate legal personality to him as a director. It was argued that the plaintiffs were the companies and that there could be no basis for joining him personally to the proceedings.

Mr Justice Clarke accepted that Mr Cunningham could not be joined as a plaintiff against his will, but noted that orders for costs were distinct to orders for substantive relief. He said that he saw no reason in principle why a non-party could not be joined as a defendant solely for the purpose of being made liable for costs which might ordinarily be awarded against the plaintiff. He ultimately held that he had the power to make a non-party “funder” liable for the costs of the action.

Mr Justice Clarke set out in broad terms how this power should be exercised and identified certain key factors to which the Court should have regard, including (i) the extent to which it might be reasonable to think that the plaintiff could meet any costs if it failed in its action; (ii) the degree of possible benefit to the non-party concerned; and (iii) whether the proceedings were pursued in a reasonable fashion.

In ordering that Mr Cunningham be joined as a defendant for the purposes of making him liable for costs, the judge had regard to the following: 

• The Group companies were hopelessly insolvent from the outset and it was clear that First Active would never have recovered its costs if successful
• Mr Cunningham was the funder and driving force behind the litigation
• He, along with his wife, were the beneficial owners of the Group companies and would have been the beneficiaries of the litigation if successful
• The Group companies had conducted the litigation in a manner which unnecessarily and significantly added to the costs incurred by the First Active and
• First Active had at an early stage warned of its intention to seek a costs order against Mr Cunningham, and he was therefore on notice that a costs application was being contemplated

Mr Justice Clarke noted that an important policy objective in allowing costs to be awarded against non-party “funders” was to prevent them from having a “free ride” in the manner in which they conducted litigation. The power of the Court to make a non-party pay costs was highlighted as a powerful deterrent: if the power did not exist, such parties could reap the benefits of successful litigation, but would not risk any personal exposure in the event that the case did not succeed.

Contributed by Niamh Cacciato and Barry Cahir.