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

Last Updated: 10 September 2008
Article by Richard Bailey

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

  1. 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

  1. subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in

    1. the civil division of the Court of Appeal;

    2. the High Court; and

    3. any county court

Shall be in the discretion of the court.

  1. 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

  2. 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 –

  1. that person must be added as a party to the proceedings for the purposes of costs only; and

  2. 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, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances"

Goodwood was approved and amplified by the Court of Appeal in Petromec Inc v Petroleo Brasileiro SA Petrobras - [2006] EWCA Civ 1038 where at paragraph 10 of the Judgment Longmore LJ stated "...I would therefore wish to record my respectful view that paragraph 59 of the judgment of Rix LJ in Goodwood (by which in any event, bound) correctly states the law in the following terms...". Longmore LJ then in paragraph 11 of the Judgment stated:

"For the avoidance of doubt, it may not be necessary to add that this principle is not confined to "directors".

In the case of Dymock Franchise Systems v Todd - [2004] 1 WLR 2807, Lord Brown of Eton-under-Heywood summarised at paragraph 29 the authorities as follows:

"where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or appeal fails."

In the case of Jackson v Thakrar - [2007] EWHC 626, His Honour Judge Coulson stated at paragraph 44 of his judgment:

"In other words, in each case, what was being funded was a positive claim that was in the particular interest of the funded party himself."

It has been argued that causation is the appropriate test, a point which was raised in the case of Total Spares & Supplies Ltd & Anor v Antares SRL & Ors - [2006] EWHC 1537 Mr Justice David Richards states at paragraph 54 of his judgment:

"In the light if these recent statements, it cannot in my judgment any longer be said that causation is a necessary pre-condition to an order for costs against non-party. Causation will often be a vital factor but there may be cases where, in accordance with principle, it is just to make an order for costs against a non-party who cannot be said to have caused the costs in question."

In essence therefore the test to be applied when determining whether to make an order under section 51(1) is:

  1. if the non-party was "the real party" in that the action was pursued for his benefit; and

  2. the non-party controlled and/or funded the litigation then on a fact sensitive basis the court should consider exercising its discretion in ordering costs against a non-party.

It is sometimes argued that such an order can only be made in exceptional circumstances which Mr Justice Morgan in PR Records v Vinyl 2000 Limited & Ors - [2007] EWHC 1721 meant "no more than outside the ordinary run of cases".

This test has been interpreted in other ways including issues of causation and funding but in the case of I-Remit Inc v Far East Express Remittance Ltd - [2008] EWHC 939 (Ch) David Richard J found that the directors and sole shareholders of a company which went into liquidation following a trial were liable for a third party cost order. In particular of note is that the Judge found that the case against the first respondent was all the stronger because the defence and counterclaim in that case was based on the evidence of the respondent.

Further it was also found in this case that the absence of any notice by the applicant of an intention to seek an order was not (in the circumstances of the case) a strong factor for denying the application as the applicant did not know at the time of the trial that the respondent had greatly reduced its business.

In addition this case is authority for the proposition that it is not a requirement for the granting of an order that the respondent funded the litigation. The learned judge followed the guidance in Goodwood and determined that the respondents had controlled the defence and counterclaim and success would have been largely or entirely for their own benefit.

A defence often raised to these applications is the failure to make an application for security for costs. Such an application has been held not to be a bar to an application for a third party cost order. This line of defence was considered by the Court of Appeal in Petromec and in particular by Longmore LJ who at paragraph 14 in which he stated:

"But the fact that in the course of the proceedings a judge (Andrew Smith J in this case) ordered security which, in the event, has turned out to be inadequate should not be any reason for declining to exercise jurisdiction in an otherwise appropriate case. As the judge said in paragraph 43 "it is no more unjust to make the backers of an insolvent company liable for the costs.... Than it is to require them to provide security for costs on its behalf."


Therefore, as stated above, the test to be applied by the Court when deciding whether to exercise its powers under the CPR and under Section 51 of the Supreme Court Act 1981 is a three-part one as follows:

  1. Did the non party control the proceedings? and/or

  2. Did the non party fund the proceedings? and/or

  3. Were the proceedings for the non party's personal benefit?

What Might Constitute Controlling The Proceedings?

Whilst the Court has a discretion to determine what might constitute controlling the proceedings it is clear that if a non party were to be the principal witness and/or be the party giving instructions on behalf of the party to proceedings to solicitors then that person might well be held by the Court to be controlling the proceedings. This may be all the clearer if rather than instructing solicitors the company is represented by the person in their own right.

Did The Non Party Fund The Proceedings?

While the simple payment of legal fees will not be enough to obtain a costs order against a non-party, if that person has controlled proceedings or will benefit from the success of any proceedings then funding will be considered and if that party has funded the claim then it would appear more likely that a costs order would be made against them.

Were The Proceedings For The Non Party's Personal Benefit?

This is an important question and the Court will ask itself and one might foresee a presumption by the Court that if you are a sole director or one of only a couple of directors of a company which is particularly small that you would personally benefit from proceedings being successful and therefore determining that the proceedings were for that non party's personal benefit.

If the Court finds all three to be the case it is highly likely that a third party costs order will be made against the non party. Therefore if you are director of a small construction company and you are pursuing debts owed to your company which, if not paid, will lead to your company going into liquidation then there is a high risk that if you lose the case the non party will be made a party and ordered to pay the costs of the action.

To see further articles on matters relating to construction, engineering and energy projects, please visit

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.