The Court recently set out an interesting ruling on costs relating to an application for
indemnity costs and a third party costs order. The First Defendant
(the "Defendant") applied to have the Plaintiff and any
third parties who may have caused, controlled or funded the
Plaintiff's claim, pay the Defendant's costs on an
indemnity basis and an order for the third party funder to be
liable for costs. In the present case, the Plaintiff had commenced
a derivative claim against the Defendant in January 2015 but the Ex
Parte Order granted on 21 January 2015 for injunctive relief and
leave to serve out of the jurisdiction (the "Ex Parte
Order") was subsequently set aside in the Chief Justice's
ruling on 4 December 2015. In this ruling, the
Judge held that the Plaintiff lacked standing to commence a
derivative claim as the Plaintiff was not the registered
shareholder and had failed to establish that there was a serious
issue to be tried against the anchor defendant company as it no
longer was in the control of the wrongdoer.
The Judge found the Defendant's argument persuasive, namely
that the Plaintiff Company was judgment proof as it had no assets
to pay any costs order, and had been incorporated specifically to
avoid such adverse costs orders. The Plaintiff had also confirmed
to the court that it currently did not have funding available to
meet the Defendant's costs. The Chief Justice held that in
these particular circumstances he was persuaded that the Plaintiff
had obtained and defended the Ex Parte Order "in a way
which was manifestly abusive". Specifically the Judge
cited that the Plaintiff's case was unmeritorious and that the
Plaintiff company had been specifically formed to pursue the
litigation and the Plaintiff continued to engage in the litigation
knowing that it was immune from the costs regime.
The Judge further held that a third party, whether a third party
funder or not, of the litigation would also be liable for the
Defendant's costs. Interestingly, the Judge stated that it
could not be suggested that a third party costs order could only be
granted if proof was given that the third party actually provided
the funding. The Judge noted that it was sufficient for the Court
to hold the third party responsible for costs in circumstances
where the proceedings were being brought for the benefit of a
particular third party and that the third party had effectively
been controlling the proceedings. In the present case the third
party in question denied funding the claim but gave a clear
indication of express interest in the claim and the fact that he
was the sole shareholder of the Plaintiff and thereby was
effectively the individual commencing the proceedings.
A question was also raised as to if the third party needed to be
joined to the proceedings for the purposes of making the costs
order against him. The Judge held that this was not necessary to
join the third party to the proceedings and cited Justice
Bell's ruling in Phoenix Global Fund Ltd. v Citigroup Fund
Services (Bermuda) Ltd.  Bda LR 61. Phoenix held that the
Rules of the Supreme Court 1985 read along with the Supreme Court
Act 1905 contained wording that defined a party as a person that
had been served with notice of, or attending any proceeding,
whether or not named on the record. The third party in Majuro had
given evidence he was a party to the proceedings already even
though he was not named on the record. Phoenix further held that
the legislation read together also signified that "any
person who is directly affected by any proceeding, as signified by
either appearing or having been given an opportunity to appear, may
be treated as a party for costs purposes."
The Judge subsequently awarded an indemnity costs order against
the Plaintiff and the third party and ordered the Plaintiff and the
third party to disclose the identity of such other persons (if any)
who had been actually funding the present litigation. This case
shows the Court's far reaching jurisdiction in awarding costs
orders and demonstrates the Court's willingness to include the
party that stood to benefit from the litigation.
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.
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