Third Party Costs Orders: Making Those Who Are Not A Party To The Original Proceedings Pay

In the present economic climate there are an increasing

number of companies going into liquidation and with increasing

cash-flow problems in the industry it is likely that the number

of adjudications, arbitrations and Court claims will increase.

In this article, I review the law on Third Party costs orders,

a topic that may be particularly relevant if you are bringing a

claim as the director of a small company (particularly one

which is little more than a vehicle for you trading by

yourself) and which you are attempting to keep afloat. In this

article I look at the wide jurisdiction given to the Court to

make orders against people who are not a party to the original

proceedings and the test applied by the Court - in other words,

the jurisdiction given to all courts to go behind the corporate

veil of such court orders against those who run or fund limited

companies.

The Statutory Framework

The discretion of the Court to make an order, ordering that

a non-party be made a party to proceedings and held jointly

liable for the costs of an action is contained in Section 51 of

the Supreme Court Act 1981 as substituted by the Courts and

Legal Services Act 1990 which provides:

"4 Costs

the following section shall be substituted for

section 51 of the [1981 c. 54.] Supreme Court Act 1981

(costs in civil division of Court of Appeal and High

Court)

"51 Costs in civil division of Court of Appeal,

High Court and county courts

subject to the provisions of this or any other

enactment and to rules of court, the costs of and

incidental to all proceedings in

the civil division of the Court of

Appeal;

the High Court; and

any county court

Shall be in the discretion of the court.

Without prejudice to any general power to make

rules of court, such rules may make provision for

regulating matters relating to the costs of those

proceedings including, in particular, prescribing scales of

costs to be paid to legal or other representatives,

hig

The Court shall have full power to determine by

whom and to what extent the costs are to be

paid."

This is further supplemented by CPR Rule 48.2 which

states:

"Where the court is considering whether to

exercise its power under section 51 of the Supreme Court Act

1981 (costs are in the discretion of the court) to make a

costs order in favour of or against a person who is not a

party to proceedings -

that person must be added as a party to the

proceedings for the purposes of costs only; and

he must be given a reasonable opportunity to attend

a hearing at which the court will consider the matter

further."

The intention of Section 51(1) has been reviewed in a number

of cases the leading case being Aiden Shipping Co Ltd v

Interbulk Ltd The Vimeira - [1986] AC 965. Judgment was

given by Lord Goff of Chieverley who determined that an order

for costs could be made against a party who has a

"connection" with the litigation.

The jurisdiction of the Court to grant costs order has

subsequently been refined by the Court of Appeal and in

Goodwood Recoveries Ltd v Breen - [2005] EWCA Civ 414.

Rix LJ stated at paragraph 59:

"... the law has moved a considerable distance in

refining the early approach of Lloyd LJ in Taylor v

Pace Developments. Where a non-party director can be

described as the "real party", seeking his own

benefit...