Litigation funding: Irish Supreme Court holds a non-party liable for legal costs in a landmark judgment
Moorview Development Limited and others v First Active Plc and others [27.07.18]
On 27 July 2018, the Supreme Court upheld a 2011 High Court decision that a non-party to proceedings, who was a director and shareholder of the insolvent plaintiff companies, was personally liable for the costs awarded against those companies. This landmark judgment has potentially far reaching implications for current and future defendants and will be welcomed by insurers.
A number of companies, known as the Cunningham Group, brought proceedings against First Active plc alleging that the fraudulent actions of the bank led to the financial demise of the group. The companies in the Cunningham Group were controlled by a Mr Brian Cunningham, however it is important to note that Mr Cunningham was not a party to the litigation.
The proceedings were unsuccessful and it became clear that the Cunningham Group was ‘hopelessly insolvent’ from the outset of the proceedings. First Active applied to the court to make Mr Cunningham personally liable for costs which amounted to over €10 million.
High Court judgment
In the High Court, Mr Justice Clarke found Mr Cunningham personally liable for the defendants’ legal costs. Clarke J found that the insolvency of the Cunningham Group meant that funding must be external and that, as a primary player in the litigation, Mr Cunningham was the primary beneficiary to a successful action. The court was influenced by the fact that Mr Cunningham did not deny on affidavit that he was the funder and he refused to identify the funder. Mr Cunningham appealed almost every aspect of this decision to the Supreme Court.
Supreme Court judgment
The Supreme Court emphatically dismissed all of Mr Cunningham’s arguments, confirmed the reasoning of Clarke J and found Mr Cunningham personally liable for the defendants’ costs.
The court first confirmed that they had a wide discretion when ordering costs, but that such discretion must be exercised judicially and, in all the circumstances, must give rise to a just result. It then set out the non-exhaustive factors a court should consider relevant in making a non–party liable for costs, which included:
- The extent to which it might have been reasonable to think that the losing party could meet the litigation costs.
- The degree to which the non-party would benefit from the litigation if successful, including whether it had a direct personal financial interest in the result.
- The non-party’s role in the litigation to include the degree to which the non-party controls the litigation.
- Whether the proceedings were pursued reasonably and in a reasonable fashion.
- There is no requirement of bad faith, impropriety or fraud.
- Whether the non-party was on notice of the intention to apply for a non-party costs order, at what point in the litigation such notice was communicated and the extent of the notice so provided.
Applying all the factors, the court found that it should exercise its discretion in finding Mr Cunningham liable to pay the bank’s legal costs. The court held that it would be unjust for a person to be able to pursue litigation largely for his own benefit with no risk of an adverse costs award being made against him, where such a company was insolvent and unable itself to meet such an adverse costs award.
The court was critical of the manner in which the litigation had been conducted as well as the serious procedural failures which added to the ligation costs. In particular, it was critical that the Cunningham Group had repeatedly reformulated their claim against the bank.
Should a defendant give notice to a non-party funder?
The court gave a lengthy analysis of the sixth factor, being the notice given to the non-party. The court held that, while notice to the non-party was not a pre-requisite to making a costs order, a lack of notice would present a strong argument not to make an order. However, practitioners and litigants should pay heed to the court’s words of caution in relation to such notices. The court emphasised that a party should not send a notice where there are no reasonable grounds for making the application or as a means to suppress a legitimate claim and to do so would amount to an abuse of process.
Non-party litigation funding in Ireland has been much discussed in recent years. In short there are two types of non-party funding: commercial third party funding, whereby an entity or person unrelated to the action but who would profit from any award funds the litigation; and third party funding, where the funder has a lawful or legitimate concern in the litigation, as Mr Cunningham did in this case. The former remains illegal in Ireland and while the latter is legal, there are now significant costs risks for such funders arising from this judgment.
Although the general rule remains that a court should only order costs against a party in the case, following this Supreme Court decision, it is clear that the Irish courts can and will make non-party costs orders where it considers it just to do so. In light of this significant judgment, defendants and their insurers should carefully examine the potential role being played by non-party funders on any given set of proceedings and where appropriate put such funders on notice that costs could be sought from them. This may assist greatly in bringing appropriate proceedings to an earlier conclusion.