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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655 (26 May 2005) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2005/655.html Cite as: [2005] 3 All ER 613, [2005] EWCA Civ 655, [2005] 4 Costs LR 643, [2005] WLR 3055, [2005] 2 Lloyd's Rep 187, [2005] CP Rep 39, [2005] 1 WLR 3055 |
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and Case Nos: A2/2004/0315 and 0315/C |
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr Justice Colman
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE BROOKE
and
LORD JUSTICE DYSON
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YEHESHKEL ![]() | Claimant |
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- and – |
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BORCHARD LINES LTD CAMOMILE LINES PLC FURNESS WITHY(SHIPPING) LTD ZIM ISRAEL NAVIGATION CO LTD DEUTSCHE NAH-OST LNIEN GmbH & CO KG KNSM-KROONBERGH BV -and- MANAGERS & PROCESSORS OF CLAIMS LTD |
First, Second & Third Defendants First, Third and Fifth Part 20 Defendants 11th Part 20 Defendants |
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Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Steven Gee QC and Hugh Mercer (instructed by Davies Arnold and Cooper) for Camomile, Furness, DNOL and KNSM
Vasanti Selvaratnam QC and Fergus Randolph (instructed by Berwin Leighton Paisner) for Zim
Guy Mansfield QC and Sarah Lambert (instructed by Gordon Dadds & Co) for MPC (in the first three appeals)
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Crown Copyright ©
Lord Phillips, MR
This is the judgment of the court to which all members have contributed.
Introduction
The facts
The MPC appeal
MPC's role
The judge's approach
"71. It is indeed highly desirable that impecunious claimants who have reasonably sustainable claims should be enabled to bring them to trial by means of non-party funding. It is further highly desirable in the interests of providing access for such claimants to the courts that non-party funders, such as MPC should be encouraged to provide funding, subject always to their being unable to interfere in the due administration of justice, particularly in order to forward their own interest in their stake in the amount recovered. If all professional funders were by definition to be subject to non-party costs orders, there would be no such funders to provide access to the courts to those who could not otherwise afford it."
The authorities
"Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings…shall be in the discretion of the court…The court shall have full power to determine by whom and to what extent costs are to be paid."
In Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 the House of Lords held that this power was expressed in wide terms, leaving it to the rule making authority, if it saw fit to do so, to control its exercise by rules of court and to the appellate courts to establish principles for its exercise. In particular, there was no justification for implying a limitation on the power to award costs to the effect that an award could only be made against a party to the litigation.
"Much maintenance is considered justifiable today which would in 1914 have been considered obnoxious. Most of the actions in our courts are supported by some association or other, or by the state itself. Comparatively few litigants bring suits, or defend them, at their own expense. Most claims by workmen against their employers are paid for by a trade union. Most defences of motorists are paid for by insurance companies. This is perfectly justifiable and is accepted by everyone as lawful, provided always that the one who supports the litigation, if it fails, pays the costs of the other side."
"70. The position of the professional funder is very different. Almost always the funding arises out of a contractual obligation, for example where the funder is a trade union, an insurer or a professional or trade association. Normally such a funder exercises considerable control, management and supervision of the litigation …
71. … It would be very exceptional that a situation would arise where it would not be just and reasonable to make a s51 order against a professional funder.
72. The reverse is the position in the case of a pure funder. It will be rare or very rare that it will be just and reasonable to make an order against him."
"The starting point, as it seems to me, is to recognise that, where there is tension between the principle that a party who is successful in defending a claim made against him ought not to be required to bear the costs of his defence and the principle that a claimant should not be denied access to the courts on the grounds of impecuniosity, that tension has to be resolved in favour of the second of those principles."
Hale LJ concurred, albeit with some reservation.
"We are not sure that the adjective 'pure' assists in the analysis. It is, we believe, designed to draw a distinction between those who assist a litigant without ulterior motive and those who do so because they have a personal interest in the outcome of the litigation. Public policy now recognises that it is desirable, in order to facilitate access to justice, that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation. Intervention to this end will not normally render the intervener liable to pay costs. If the intervener has agreed, or anticipates, some reward for his intervention, this will not necessarily expose him to liability for costs. Whether it does will depend upon what is just, having regard to the facts of the individual case, if the intervention is in bad faith, or for some ulterior motive, then the intervener will be at risk in relation to costs occasioned as a consequence of his intervention."
"1) Although costs orders against non-parties are to be regarded as "exceptional", exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.
2) Generally speaking the discretion will not be exercised against "pure funders", described in paragraph 40 of Hamilton v Al Fayed as "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". In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.
3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation, a concept repeatedly invoked throughout the jurisprudence - see, for example, the judgments of the High Court of Australia in Knight and Millett LJ's judgment in Metalloy Supplies Ltd (in liquidation) v MA (UK) Ltd [1997] 1 WLR 1613. Consistently with this approach, Phillips LJ described the non-party underwriters in TGA Chapman Ltd v Christopher [1998] 1 WLR 12 as "the defendants in all but name". Nor, indeed, is it necessary that the non-party be "the only real party" to the litigation in the sense explained in Knight, provided that he is "a real party in ... very important and critical respects" - see Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406, referred to in Kebaro at pp 32-3, 35 and 37. Some reflection of this concept of "the real party" is to be found in CPR 25.13 (2) (f) which allows a security for costs order to be made where "the claimant is acting as a nominal claimant".
4) Perhaps the most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed, financially insecure companies generally) in litigation designed to advance the funder's own financial interests."
Discussion
"21. It is, in my judgment, a misunderstanding of this passage and seriously inconsistent with the relevant principles to suggest that a third party costs order will necessarily be appropriate against a professional funder given that he is by definition not a pure funder. Whether such an order is appropriate in any given case must depend primarily on whether on the evidence before it on the application the court is satisfied that such an order is appropriate to reflect (i) the defendant's success and (ii) the risk of prejudice to the objective of protection of the due administration of justice. Specifically, I am unable to accept that the mere fact of a contract for a share in the proceeds of the litigation necessarily involves such material prejudice. Whether it does will depend on the legal and practical relationship between the professional funder and the claimant. If that relationship by reason of the terms of the funding agreement is such as not to give rise to any material opportunity to the funder to influence the conduct of the litigation to serve his own interests as distinct from the proper running of the trial and the funder does not in the event intervene or attempt to do so, there will be strong grounds for declining to make an order for costs against him where, but for such funding, access to the court would have been impossible."
The result in this case
The costs order against Borchard
The history of the litigation
"The Claimant, by 1st March 2001, will write to Zim to ask for disclosure of the additional documents referred to in the Claimant's application for disclosure (which application, for the avoidance of doubt, remains currently pending before the Court). The Defendants will also write to Zim informing Zim that they have no objections to Zim's production of those documents to the Claimant, and the Defendants will copy those letters to the Claimant by 1st March 2001."
By the same order the judge directed that the matter should be set down for a seven-week trial starting on the first available date in January 2002.
The approach to Zim in March 2001 and the strike-out application
"…[I]t cannot be said that there is no realistic prospect of any further supportive evidence by means of further disclosure or by means of the cross-examination of witnesses who are likely to give evidence. For example, the defendants might be placed in a very questionable position if without good reason they failed to call Mr Levy, even though he was an employee of Zim and not of the defendants. Given that there is some, albeit slender evidence to support the claimant's allegation, it would be quite unfair to deny the claimant the opportunity for further disclosure and further investigation through cross-examination offered by a full trial. CPR 24.2 has the purpose of anticipating the claim which is fanciful but not the claim which is merely improbable."
The decision to join the Part 20 defendants and the Phase 3 directions
"This rather seems to bear out Mr Reynolds's surmise…that Zim are deliberately dragging their heels. That perhaps makes it all the more pressing that some sort of an order should be made that brings them here, albeit kicking and screaming, and makes it desirable that they should be forced to join the party or be bound by the result if they do not want to.
What we discussed last time, what we would want to avoid particularly in a case where we cannot win, and you are never going to get any costs from the claimant, is to have to spend a lot of money pursuing Zim in separate proceedings where they may not even be bound by the result of the earlier proceedings and where a whole lot of new material and evidence may suddenly pop up which may show that the original result perhaps was wrong. They have not acted expeditiously. They have obviously been keeping tabs on the action as it goes along, as they must be able to see some potential liability even at the stage where interlocutory proceedings were going on."
"Our position is we would like a CMC earlier because we do want Zim to actively participate in the trial…….
We do want Zim brought in. We do want them brought in as soon as possible and we do want a CMC as soon as possible so that we can start marshalling our forces. So we would suggest if they are allowed 14 days to acknowledge service."
"7. Issues of contribution, if relevant, shall be resolved in a third phase to the trial of this action, such phase to follow the judgment on matters of liability and question in the main action.
…
9. Each Defendant and Part 20 Defendant shall be deemed to have served a Part 20 contribution notice on every other Defendant and Part 20 Defendant. In the event that the matter cannot be agreed between the parties, there shall be directions at a further CMC for appropriate pleadings to be exchanged in respect of such contribution proceedings following the judgment on liability and questions on the main action.
10. Each Part 20 Defendant to be bound by the judgment of the main action.
…
12. Nothing in this part of the Order is intended to affect the incidence of costs."
The judge's reasons for his judgment on costs
"34. Further, in the present case, the Part 20 proceedings were not such as would necessarily be conclusively determined by the result of the main action. I can see that in cases where, if the defendant lost to the claimant, it would inevitably follow that the third party must be liable to the defendant, to impose on the defendant the burden of the Part 20 defendant's costs as well as his own might amount to an injustice so great as to justify making an order that the Part 20 defendant should recover his costs direct from the impecunious claimant. However, where, as in this case, there were likely to be discrete Part 20 issues arising out of the Conference Agreements and the conduct of Zim in relation to conference members, the Part 20 issues do no more than overlap on the issues in the main action. They are not co-extensive.
35. Additionally, this is not a case where Borchard and the third party Part 20 defendants made common cause as to joinder. Quite the contrary. Borchard did not send letters before action or invite conditional acceptance of liability before commencing the Part 20 proceedings. Instead it pursued an arm's length approach to the Part 20 defendants which was consistent with the maintenance of the separate nature of the Part 20 proceedings. Further, Borchard has derived from the joinder of Zim the benefit of both factual and expert evidence, while adducing no expert evidence itself. It may well be that even if Zim had not been joined, the factual evidence would still have been available. However, the expert evidence would not.
36. In these circumstances this would not, in my judgment, be an appropriate case in which to make a cut-through order confining the Party 20 defendants to recovery of their costs direct from MrArkin."
"In reaching this conclusion I have very much in mind that Borchard was aware at the time when it joined the Part 20 defendants that it was facing an impecunious claimant and that absent a section 51(3) order against an outside funder (MPC) it was exposed to the risk of the court taking the approach to costs identified in Johnson v. Ribbins. It made no attempt before the trial to co-operate with the other conference members as to the provision of or the cost of expert evidence and was content to pursue its defence by the cheapest means possible – reliance on the expert evidence adduced and paid for by others. There was a very low level of co-operation between Borchard and all the other parties as to how expert evidence was to be deployed by way of defence."
"In particular, Zim occupied a central position in MrArkin's
allegations of abusive conduct and, on the face of it, had evidence directly material to those allegations. Secondly, although Zim had given a measure of co-operation to Miss Holmes of the 2-4 defendants' solicitors in the course of her visit to Israel in 2000, it was far from clear whether they had approached the process of disclosure of documents as effectively and searchingly as would have been the case if they had been a party to the proceedings. Thirdly, it was quite unrealistic for Borchard to fight the claim on the basis that if Mr
Arkin
succeeded, separate proceedings could be pursued against Zim. The risk of inconsistent findings was far too great to leave that to chance."
He went on to say (at para 6) that Zim played a major part in the trial, did not cause increased costs by duplication of evidence given by other parties, and adduced evidence of facts, disclosed documents and made available factual witnesses who gave important evidence helpful to the court.
The practical effect of the judge's costs order
Own Costs | Zim's Costs | DNOL/KNSM's Costs | Total Liability | |
Borchard | £813,000 | £1.62 m | £1.085 m | £3.518 m |
Furness/Camomile | £1.830 m | £915,000 each | ||
DNOL/KNSM | £1.36 m | £271,000 | £135,500 each | |
Zim | £1.8 m | £180,000 | £180,000 |
How should the costs be apportioned justly?
"(1) The court has discretion as to
(a) whether costs are payable by one party to another;
(b) the amount of those costs; and
(c) when they are to be paid.
(2) If the court decides to make an order about costs –
(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but
(b) the court may make a different order."
"Apart from the impact of legal aid, the consideration of which, as we have already observed, is excluded by the Act itself, we can see nothing which the defendant can call in aid except the impecuniosity of the plaintiff, but it cannot be right to deprive a third party of an order for costs to which he is otherwise entitled against the defendant, because the defendant when looking to the plaintiff for reimbursement found a person not worth powder and shot."
Our conclusions on Borchard's appeal
The distribution of MPC's liability for costs between the six parties