In a landmark ruling on litigation costs, the Supreme Court confirmed in Moorview Developments Limited and Others v First Active plc and Others that Irish courts enjoy a discretionary jurisdiction to impose liability for costs on individuals who are not a party to proceedings. Following this decision, courts may now look to make orders for costs (known as a "Moorview Order") against non-parties to litigation in circumstances where:
- court proceedings have been funded by an individual who is not a named party in the proceedings. This is mostly likely to be an individual director or shareholder in proceedings instituted in the name of a corporate plaintiff;
- the non-party exercises control over the conduct of the litigation;
- there will be a personal benefit to the non-party should the litigation be successful.
Background
A group of companies under the control of property developer, Brian Cunningham, brought High Court proceedings against First Active plc alleging that it was guilty of fraud and had withdrawn financing from a high-value development project which ultimately resulted in the group’s insolvency. First Active successfully defended the actions and, as the Plaintiff companies were insolvent, applied for orders that Mr Cunningham should be made personally liable for the costs of the proceedings. It was argued by First Active that Mr Cunningham had personally funded the litigation and was at all times in control of the conduct of the proceedings. The High Court ruled in favour of First Active, finding that Mr Cunningham should be held personally liable for the costs in circumstances where the Plaintiff companies were "hopelessly insolvent".
Supreme Court Decision
The Supreme Court upheld the decision of the High Court and found that the courts did have jurisdiction to make orders for costs against non-parties to litigation. In its judgment, the Supreme Court emphasised that the rationale underlying this jurisdiction was to prevent the possibility of an injustice arising whereby a party which had successfully defended proceedings could not recover its costs as a consequence of a strategy to conduct litigation through an impecunious plaintiff. In the Supreme Court’s view, no individual should be permitted a “free ride” by instituting proceedings through another party and stand to directly benefit should the litigation prove successful but at the same insulate itself from any exposure to liability for costs in the event of an unfavourable outcome.
The Supreme Court laid down a number of criteria which courts should apply when considering whether to exercise the jurisdiction to award costs against a non-party. These included:
- The extent to which the non-party has exercised influence and control over the conduct of the proceedings;
- The level of the non-party’s interest in the proceedings and the degree to which it may have benefitted from a favourable outcome to the litigation;
- Any prior notice to the non-party that an application for a non-party costs order would follow in the event that the litigation was successfully defended;
- While there was no necessity to establish dishonesty or fraud, the presence of either was a factor to be considered when deciding whether to make a non-party costs order;
- Whether the defendant could have made an application for security for costs in advance of the trial;
- Was it reasonable for the plaintiff to have concluded that it could meet the defendant’s costs in the event that the proceedings were not successful;
- In exercising their discretion, courts are under a duty to ensure that any costs orders made resulted in a fair and just outcome to the proceedings.
The Supreme Court emphasised that this list was non-exhaustive and that the appropriate weight to be given to each consideration would vary according to the facts of each individual case.
Comment
The Supreme Court decision in Moorview provides welcome confirmation of a jurisdiction to impose liability for costs on a non-party in appropriate circumstances and in order to avoid the possibility of doing an injustice to a successful defendant.
While the general rule remains that an order for costs will only be made against a party to proceedings, Moorview provides insurers and other defendants with an additional option to recover costs incurred in having to defend litigation brought by an impecunious plaintiff. It is also important to stress that the court's jurisdiction to make a non-party costs order is discretionary and that there can be no automatic entitlement to a Moorview Order. Applicants will need to demonstrate an influence over the conduct of litigation and will have to produce either evidence of non-party funding or at the very least evidence from which non-party funding may be inferred.
One of the main factors emphasised by the Supreme Court is the importance of giving early notice of an intention to apply for a non-party costs order. Defendants who suspect that litigation is being funded by a non-party are therefore advised to notify the non-party in writing at the earliest opportunity of an intention to apply for a non-party costs order. From a defendant's perspective, early notification of the risk of significant personal costs liability could also force the non-party into rethinking the wisdom of its strategy of continuing to fund litigation which may stand little prospect of success.
