knowledge | 6 November 2019 |
Disputes - Non-party Costs Orders in Ireland
The Supreme Court has recently considered the circumstances in which the Irish courts will join a non-party to proceedings for the purpose of making a costs order against it.
Non-party costs orders are known as “Moorview orders”.1 In exercising this jurisdiction, the court recognises the injustice which can occur where an individual commences litigation through an insolvent company for his own benefit but without any risk to himself if the litigation is ultimately unsuccessful.
W.L Construction Ltd v Chawke
In the case before the court,2 the insolvent plaintiff company’s claim was dismissed by the High Court in circumstances where the defendants alleged a failure to make out a case and abuse of process by reason of litigation misconduct orchestrated by a non-party individual who was a 99% shareholder in that plaintiff company. The defendants then obtained an order joining that shareholder to the action for the purposes of making a costs order against him.
This costs order was set aside in the Court of Appeal, principally because the shareholder had not previously been put on notice that such an application might be made. This breached his right to fair procedures.
Examination of the Moorview decision
In reversing the Court of Appeal, O’Malley J referred to the Supreme Court decision in Moorview where the court stressed that a non-party costs order would only be made in exceptional cases to prevent injustice.
It also explained that a non-party costs order against a person, such as a shareholder, did not make that person liable for the underlying debt of the company concerned – rather, that person who was the “real party” to the litigation had an independent liability based on his, her or its own actions having led to costs being incurred by the successful party.
In Moorview, the court identified a non-exhaustive list of factors to be taken into account in deciding whether to make the order bearing in mind the existence of a broad, discretionary approach based on doing justice in all the circumstances. These factors were:
The extent to which it might have been reasonable to think that the company could meet any costs if it failed in the litigation;
The degree to which the non-party would benefit from the litigation if successful, including whether he, she or it had a direct personal financial interest in the result;
The extent to which the non-party was the initiator, funder and/or controller of, and moving party behind, the litigation;
Any factors which might touch upon whether the proceedings were pursued reasonably and in a reasonable fashion (a factor capable of leaning either way);
There was no requirement of bad faith, impropriety or fraud, though of course the same, if present, would support the ordering of costs against the non-party;
Whether the non-party was on notice of the intention to apply, and if so, at what point in the litigation;
Whether the successful party had applied for security for costs (a matter rarely likely to be decisive in itself); and
Most importantly, the discretion was wide but must be exercised judicially and must, in all the circumstances, give rise to a just result.
Finally, the court said that the question of notice, while important, was something better considered as part of an overall exercise based on the discretion of the court, rather than as a mandatory pre-condition to the making of the order. That being said, depending on the circumstances, a court might decide to make only a partial or restricted order limited to costs incurred after the non-party had been put on notice. The court also stressed that the giving of notice should not to be used as a form of illegitimate pressure on an opponent to abandon a reasonable claim or defence.
Decision of the Supreme Court
Coming back to the case at hand, O’Malley J noted that the Court of Appeal had ruled that because the shareholder here was not a party to the action, and was not notified of the defendants’ intention to apply for such a costs order, he could not have known that the defendants might seek to make him liable for their costs. He therefore did not know the case made against him, and was left exposed retrospectively to a significant claim for costs of which he had had no prior warning. She held that this analysis was mistaken.
O’Malley J pointed out that while Moorview was under appeal when the current case was before the High Court, as things stood at that time, it was an established part of the law on costs so that it was incorrect that the shareholder “could not have known” that he might be made liable for costs if the relevant criteria were met.
There was also no issue of the shareholder not knowing the case against him. He was informed of the case being made against him personally, as opposed to the case being made against the plaintiff company, when the defendants sought the costs order against him. It was not uncommon for applications to be made as a trial progressed or when it ended and a party to litigation was not obliged to notify the opposing party, in advance, of the course of action it would adopt in relation to all possible eventualities.
O’Malley J acknowledged that if the shareholder had been given some earlier warning, whether formal or informal, he could have minimised his own exposure and reduced the waste of court time by causing the company to withdraw its claim. However, it was clear from Moorview that this was no more than a factor to be taken into account in the exercise of the court’s discretion when considering where the justice of the case lay. On the facts here, it was difficult to say that the warning should have been given earlier.
She added that the concept of an “informal” warning might need to be treated with some caution as it would be highly undesirable if the content of out of court conversations had to be given in evidence before a trial judge in order to support any subsequent application for a non-party costs order.
Finally, she reiterated that the jurisdiction was one to be exercised only in exceptional cases, and should not be routinely or lightly threatened against opponents on the basis that one part of the evidence appeared to have collapsed.
She upheld the High Court who had held that this was a truly exceptional case, permeated by the dishonesty of the shareholder concerned. That did not mean that he was to be punished by a costs award that would otherwise be the company’s liability. Rather, the point was that he was the company’s controller, the moving party behind the litigation, the person who instructed the other principal witness and, most significantly, responsible for the non-suiting of the plaintiff.
He had been found responsible, through that misconduct and failure, for the exposure of the defendants to very significant legal costs which the plaintiff company would be unable to meet. On the other hand, had the company’s claim been successful, he would have benefitted. This was a clear example of the mischief aimed at by the exercise of the jurisdiction, namely, to prevent persons litigating on a consequence-free basis, with the aim of personal benefit.
Our Disputes Team would be pleased to provide further information in relation to the issues raised in this case. Alternatively, your usual contact in McCann FitzGerald would be happy to assist.
- The jurisdiction of the Irish courts to make such orders having been confirmed in Moorview Developments Ltd v First Active plc  3 I.R. 615.
- W.L. Construction Ltd v Chawke  IESC 74.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.