Legal Watch: Personal Injury 30th October 2014 Issue: 038
Costs/third party funding The commercial case of Excalibur Ventures LLC v Texas
Keystone Inc and others (2014) EWHC 3436 (Comm) is of
In This Issue:
funded by a third party.
• Costs/third party funding
considerable interest to all defendants faced with a claimant The claimant’s case against all of the defendants had been
dismissed and the judge ordered the claimant to pay the
• Costs/CFA • Liability/harassment
defendants’ costs on the indemnity basis. The claimants failed to make substantial payments on account of costs, as ordered
by the judge and its funders were joined into the proceedings. The funders fell into four groups that, at various times and for various purposes, had provided the claimant with the financial
means to bring or continue the claim. Had the action been successful the funders collectively stood to gain substantial
returns on their investment in the litigation. The defendants therefore applied for orders that the funders should be held
jointly and severally liable to pay their costs. Some funders
accepted their liability to pay the costs but disputed that they should be assessed on the indemnity basis, some disputed any liability to pay and others did not appear at the hearing. Broadly speaking the issues before the court were: • Should any of the funders be ordered to pay costs on the indemnity basis?
• In determining what (if any) proportion of the costs the funders should pay should those costs be capped?
• Should the court treat any of the funders differently
because of the stage at which they contributed or because of the terms of the agreement entered into?
Having recited his reasons for having awarded costs against the claimant on the indemnity basis (which were highly critical of the claimant’s conduct), the judge considered his
wide discretionary powers to make a costs order against a non-party. He found that the funders were professional or
commercial funders, rather than ‘pure’ funders. However, he
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found it appropriate to apply an Arkin cap, limiting each
He also concluded that the third party, a solicitor, had been
with those costs to be paid on the indemnity basis. The
statements and that she had become convinced of the truth
funder’s liability to the extent of the funding provided but judgment also apportioned each funder’s costs liability to that period of the action to which its funding related.
‘...the judge considered his wide discretionary powers to make a costs order against a non-party’ Comment
“the guiding hand” in the preparation of his wife’s witness of what he had been saying to her. Granting a third party
costs order against the third party, the judge acquitted him of dishonesty. However, the judge found that it was the third
party who had controlled the litigation. He had regard to the
fact that he was a solicitor, stating that solicitors carried with
them certain standards, which should be applied in their everyday life.
Dismissing the appeal, the High Court judge held that the
judge had been wrong to conclude that the third party
had controlled the litigation once it had started: the wife’s defence had been settled by counsel, on instructions from
solicitors unconnected to the third party; further, there was
This judgment will undoubtedly cause third party funders
unchallenged evidence that the witness statements were
likely to take far more interest than before in how a claim is
the third party, in the conduct of his private affairs, to the
relationship with the claimant’s legal advisers. They will also
capacity. Nevertheless, the judge had been entitled to make
an adverse costs order, particularly one on the indemnity
the fact that, as the judge found, it was the third party and
to review how they approach cases in the future. They are
not prepared by him. The judge had also been wrong to hold
conducted, the merits of continuing at each stage and their
same standards as would apply to him in his professional
need to consider what steps to take to minimise the risk of
a third party costs order against him. The crucial point was
basis, where proportionality does not apply.
he alone, who generated his wife’s unsuccessful defence to
From a defendant perspective the judgment is helpful. It
makes it clear that even where the conduct of the funded party is open to serious criticism that may not relieve the funder from a liability to meet an adverse costs order.
This theme carries through into the next two cases. In Virdi
v RK Joinery Ltd and another (2014) EWHC 3492 (Ch) the
third party/appellant appealed against a third party costs order made against him at the instance of the claimant/ respondent.
the possession proceedings. With his legal knowledge and experience, he was clearly the dominant partner in at least
that part of their marital relationship. The judge had been
satisfied at the trial that it was the third party who “made the running in the events that led up to the litigation”. He also
found that he had “allowed himself to develop a case that had absolutely no merit and was totally without foundation”.
The wife’s role in the development of her defence was, on the judge’s findings, a purely passive one. She was loyal to the third party and allowed herself in good faith to be
The claimant had brought possession proceedings against
persuaded of the truth of what he said had happened at
to her. The claim was defended, it being asserted that
reached. Without the third party’s initiative and powers of
which included various terms. The judge found that no such
defence would never have seen the light of day.
the third party’s wife on the expiry of a tenancy granted
the meeting at which the alleged oral agreement had been
the wife and the claimant had reached an oral agreement
persuasion, the version of events which underlay the wife’s
agreement had been reached and that the wife’s defence had been totally without merit. He ordered her to pay the
claimant’s costs of the proceedings on the indemnity basis. 02
‘...it was the third party who “made the running in the events that led up to the litigation”’ In another commercial case, SC DG Petrol SRL v Vitol Broking Ltd [Lawtel 29/10/2014] the applicant defendant
applied for an order to assist it in identifying whether there was a party other than the claimant against whom an order for costs could be made.
The claimant had issued proceedings against the defendant two years earlier, at a time when it had also applied for
insolvency proceedings to be opened in Romania where it
had been incorporated. The defendant applied for security for costs and the claimant offered a charge on a property
owned by its director and his wife, along with a personal guarantee from them. The defendant was not satisfied with that and obtained an order for security for costs by a
payment into court. The claimant failed to comply, its claim
was struck out and judgment was entered in favour of the defendant with an order for costs against the claimant. The claimant failed to have the judgment set aside or varied and
the court directed payment of costs. It failed to make any payment and the defendant applied for the instant order.
The defendant submitted that under S51(3) Senior Courts
Act 1981 the court had power to determine by whom, and
where the defendant, rather than the court, was considering whether there was a person other than the claimant against
whom it might be appropriate to make an order in respect of unpaid costs. The court had an ancillary power to order
solicitors on record to disclose who had financed litigation.
Where a power existed to grant a remedy, there was a power to make that remedy effective. The power under S51 to order non-party costs was ineffective unless there was an
inherent power to discover who those persons might be. The court was satisfied that it had the power to make the order
sought. Having due regard to the interests of justice and
the overriding objective, and the claimant’s solicitors were ordered to answer the defendant’s proposed questions.
Comment These cases are all of importance to defendants faced with ‘mixed’ claims under qualified one way costs shifting
(QOCS) i.e. personal injury claims which are protected
by QOCS brought with non-personal injury claims for the benefit of another party, or funded by another party, which do not have that protection. If the claim fails as a whole,
or the non-personal injury claim is unsuccessful, there is the potential to recover costs against a third party who has
funded or controlled the non-personal injury element of the litigation. Identify such a party may be even more important
if the personal injury claim is found to be without merit or to be fundamentally dishonest and where the QOCS protection is removed.
to what extent, costs were to be paid.
‘The court had an ancillary power to order solicitors on record to disclose who had financed litigation’ Allowing the application, the High Court judge held that the case was not yet at the stage where a non-party would
be added for the purposes of costs only. It was at a stage 03
Costs/CFA The case of Caliendo and another v Mishcon De Reya and
and orders (factor (b)). In a case where the failure was
the application of Jackson/Denton.
demonstrated, or where it was otherwise obvious that relief
another (2014) EWHC 3414 (Ch) combines a costs case with The claimant applied for relief from sanctions imposed
for a failure to serve notice on the defendant solicitors of the existence of a conditional fee agreement (CFA) and an
neither serious nor significant, where a good reason was
from sanctions was appropriate, parties should agree that
such relief be granted without the need for the expenditure of further costs.
after-the-event (ATE) insurance policy within the seven-day
The assessment to be made was of the seriousness or
– Pre-Action Conduct (PDPAC).
the defendants of the grant of relief. It was relevant that
period specified by CPR 44.15(1) and the Practice Direction
The claimant had retained the defendants to act on its behalf
in relation to the disposal of its interests in various corporate entities. It alleged professional negligence against them and pre-action correspondence followed. The claimant entered into the ATE policy and CFAs with its solicitors and counsel
in relation to the proposed claim. However, the claimant was some three-and-a-half months late in notifying the
defendants of the funding arrangements. According to the
claimant, its failure to provide notice within seven days of the funding arrangements having been entered into, as required by the PDPAC, was unintentional and had been rectified
as soon as it came to its notice. It issued proceedings and applied under CPR 3.9 for relief from sanctions.
Allowing the application, the High Court judge held that the correct approach to applications for relief from sanctions
had been authoritatively stated by the Court of Appeal in Denton. According to that judgment, the court’s first task
was to identify and assess the seriousness and significance of the failure to comply with any rule, practice direction
or court order which engaged CPR 3.9. If the breach was neither serious nor significant, the court was unlikely to need to spend much time on the second or third stages,
which were, respectively, to consider why the default
significance of the breach, not the consequences for
the rules provided automatic sanctions for the breach, presumably because funding arrangements were by their nature of considerable significance and failure to notify a
defendant of them might cause it to proceed to its detriment
in determining whether or not to defend the claim. In the instant case, however, the defendants had not sought to
assert that it would have acted differently had it been served with notice of the funding arrangements within the required
period; therefore, earlier notification would not have altered
their position as regards any potential settlement. It followed
that the defendants were unable to show material prejudice in their conduct of the case arising from the breach.
‘…the rules were a means to an end and not an end in themselves. A culture of observance had to be fostered fairly, without inappropriate penalty’
occurred and to evaluate all the circumstances of the case
Taking the matter in the round, it was not fair, just or
Such an evaluation included the need for litigation to be
factor (a). The importance of observing the rules and the
and to enforce compliance with the rules, practice directions
historically, to be an unduly relaxed approach to compliance
so as to enable the court to deal justly with the application.
proportionate to deny the claimant relief on the basis of
conducted efficiently and at proportionate cost (factor (a)),
need for a culture change away from what was perceived,
04
was inherent in factor (b). However, the rules were a means to an end and not an end in themselves. A culture of observance had to be fostered fairly, without inappropriate penalty. Therefore, while the default was serious in the sense that it occurred in respect of a rule for which an automatic
sanction was imposed in the event of its breach, it had not
had a serious or significant adverse effect on the efficient conduct and progress of the litigation. Notwithstanding the need to encourage compliance, it would not be just to withhold relief from sanction.
05
Liability/harassment In Boylin v Christie NHS Foundation (2014) EWHC 3363
(QB) the claimant brought a claim under S1(1)(a) Protection
from Harassment Act 1997 and in common law negligence against her employer, the defendant foundation, alleging
that she had suffered bullying and harassment which had caused severe and lasting psychiatric injury.
The claimant had been the defendant’s senior human resources manager. Its chief executive appointed an external consultant to carry out an executive review of the
‘…the consultant had not pursued the necessary “course of conduct” which was a prerequisite for liability…’
HR function. The chief executive felt that HR could play a
Dismissing the claimant’s claim, the High Court judge held
need an appropriately experienced manager. There was a
who manufactured a grievance without good cause,
role. The external consultant was appointed interim director
immaturely, it would have found that the consultant’s
line manager. During September and October 2010 there
unreasonable or regrettable to oppressive and unacceptable
alleged the consultant was aggressive and angry. In one
not pursued the necessary “course of conduct” which was a
not think she would be able to fulfil the role of HR director.
between them were difficult, and doubtless the consultant
the claimant on 10 November, in response to the claimant
and the claimant felt poorly treated, the consultant was not
to work her notice if she left, she swore at the claimant
nor did she treat her in a manner that constituted bullying
claimant that she was well-known around Manchester and
In respect of the common law claim, there was nothing
potentially larger role within the defendant, which would
that whilst the court found the claimant to be someone
question as to whether the claimant would be fit for such a
misrepresented events in her own interest and behaved
of the workforce. In that role, she became the claimant’s
conduct on 10 November crossed the line from unattractive,
were meetings between them, during which the claimant
under S1(1)(a). However, on the evidence, the consultant had
meeting, the consultant informed the claimant that she did
prerequisite for liability under S1. Whilst previous meetings
The consultant admitted that, in a meeting between her and
did not always conceal her own annoyance and irritation
stating that she had received a job offer and did not intend
physically or verbally aggressive towards the claimant and
and effectively threatened her. The consultant informed the
or harassment.
would be able to influence how the claimant was seen. They
worked together later that day. The defendant terminated its contract with the consultant following investigation of
the claimant’s subsequent complaint. The claimant went on sick leave on 22 November. She received anti-depressants and saw a clinical psychologist for five months.
unusual or unacceptable about the defendant’s business decision to initiate an executive review and there were
understandable reasons for appointing the consultant, despite her being an external consultant, as interim director
of HR. The claimant reacted badly to those developments, adopting a very negative attitude of grievance and even
assuming that she would be left with no job. Save in one
respect, there was no breach of duty by the defendant. The consultant admitted to swearing at and threatening
the claimant on 10 November. The defendant accepted responsibility for the consultant’s significant misconduct. 04
On that occasion, she did not treat the claimant with the
respect to which she was entitled. The threat in particular
was wholly improper and caused real distress and wellfounded anxiety. However, the breach ought not to be
taken out of proportion. It was a momentary lapse by the consultant and within minutes she and the claimant were
working normally again. The threat was not repeated and by the end of the day it was doubtful whether the claimant still
thought it would be implemented. As soon as the claimant
made her complaint, the defendant acted with exemplary speed and the consultant immediately admitted her behaviour. Her appointment was appropriately terminated
and the claimant was assured that the consultant was no
longer her line manager and would not thereafter be on site. The issue was whether the single breach of duty caused or
materially contributed to the mental illness that the claimant alleged she had sustained. Whilst the court was prepared
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to proceed on the basis that her condition was as severe as described by one of the medical experts, it accepted another’s opinion that such a severe condition would be
caused by events as a whole. The real cause of such a condition was the claimant’s burning sense of grievance
at the management process, encompassing the executive
Contact Us
and as her line manager and the reduction in her own
Geoff Owen, Learning & Development Consultant
review, the consultant’s appointment as interim HR director
management autonomy, together with her apprehensions
about the outcome of the process. Seen in that context, the 10 November incident did not cause or materially contribute
For more information please contact:
T: 01908 298216 E: gro@greenwoods-solicitors.com
to her mental condition.
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