PR Records Ltd v Vinyl 2000 Ltd & Anor

This is an appeal from the decision of Master Teverson dated 13^th September 2006, whereby the Master dismissed an application dated 12^th April 2006 made by PR Records Limited (“PR”) against Mr Adrian Owlett. By that application, PR sought, first, an order that Mr Owlett be added as a party to this action pursuant to CPR 48.2(1)(a) and, secondly, an order that Mr Owlett be ordered to pay the costs incurred by PR in relation to the earlier stages of these proceedings at a time when Mr Owlett was not a party to them (“a non-party costs order”). The application for Mr Owlett to be made the subject of a non-party costs order was made under Section 51 (3) of the Supreme Court Act 1981 and CPR 48.2.

One of the issues raised on this appeal relates to the nature of the inquiry which a court should be asked to undertake on an application by a party to proceedings to join someone who was previously not a party to those proceedings, for the purpose of seeking a non-party costs order. In particular, should the reaction of a court to an application to join a non-party for this purpose be that such joinder is normally appropriate (in the absence of material showing that the joinder would be an abuse of process) or should the court be expected to examine the merits of the substantive application for a non-party costs order, so that only sufficiently strong claims for such an order should be allowed to proceed to the second stage?

For the purposes of explaining the course of PR’s application to join Mr Owlett as a party and the reasons given by the Master for dismissing that application, it is necessary to say something about the proceedings in which this application is made.

The proceedings arose out of an agreement made in April 1999 between PR and Vinyl 2000 Limited (“V2K”). Mr and Mrs Owlett owned both of the 2 issued shares in V2K. The agreement was that Mr and Mrs Owlett would transfer 50% of the shareholding in V2K to a Mr Bulmer, who was a Director of PR. PR and V2K also made detailed arrangements as to a future trading relationship between them. Mr Owlett provided a personal guarantee in relation to any monies due from V2K to PR pursuant to that trading relationship.

Some months after Mr Owlett entered into the guarantee in relation to V2K, he claimed that he was not bound by the guarantee. On 5^th January 2000, Mrs Owlett stepped in and gave her guarantee in respect of the liability of V2K to PR in substitution for the guarantee of Mr Owlett.

Later still, the relationship between PR and Mr Bulmer on the one hand, and V2K and the Owletts on the other hand, broke down. This led to two sets of court proceedings. The first action, called “the share action”, was brought by Mr Bulmer against Mr and Mrs Owlett. Mr Bulmer sought to enforce the agreement that 50% of the shares in V2K should be transferred to Mr Bulmer. The present action was the second action, called “the PR action”, which related to sums of money which PR said were owed to it by V2K. In relation to those claims, PR sued Mrs Owlett on her guarantee in relation to V2K. V2K defended the claims brought by PR and counterclaimed for substantial sums which exceeded the claims put forward by PR. Mrs Owlett contended that the guarantee she had signed was not binding on her on account of alleged duress. She also relied upon the defences and set-offs put forward by V2K.

I was told that when PR issued its proceedings it was the subject of a Company Voluntary Arrangement and one of the principal purposes of the CVA was to enable PR to pursue its claim against V2K and Mrs Owlett.

The position as regards the parties in the two actions referred to above was, therefore, that Mr and Mrs Owlett were defendants in the share action and V2K and Mrs Owlett (but not Mr Owlett) were defendants in the PR action.

The two actions were tried before Mr Berry QC, sitting in the Chancery Division, as a Judge of the High Court. The trial took some 11 days. I understand that the trial began in December 2002 and continued in July 2003. Mr Berry provided a draft of his proposed judgment to the parties in August 2003. I understand that the parties made written submissions to the Judge in relation to the draft judgment and that judgment was finally handed down on 2^nd December 2003.

In the share action, Mr Bulmer succeeded in his claim against Mr and Mrs Owlett. Mr and Mrs Owlett were ordered to pay Mr Bulmer’s costs on the standard basis and to pay a sum on account of those costs.

At the trial of the PR action, there were many issues arising on the claim and the counterclaim. I will not rehearse all of the detail of those various claims. Essentially, PR succeeded and V2K and Mrs Owlett lost the PR action. PR was held to be entitled to recover most if not all of the sums it had claimed. Mrs Owlett was held liable on her guarantee.

In view of some of the submissions made to me in relation to the involvement of Mr Owlett in the PR action, I should refer briefly to certain matters which appear from the judgment of Mr Berry. At paragraph 32 of his judgment, he stated that he preferred the evidence of Mr Bulmer to the evidence of Mr and Mrs Owlett. He stated that Mr and Mrs Owlett were seeking to find ways of avoiding the difficulties in which they had found themselves as a result of the guarantee and the ending of the trading relationship with PR. He thought some of their evidence was unparticularised and unconvincing. At paragraph 57, he referred to a suggestion made by PR that V2K had deliberately overcharged PR; the Judge rejected the suggestion that there was deliberate overcharging. At paragraphs 61 to 70 the Judge dealt with an invoice raised by V2K relating to an alleged liability of PR to pay for services said to have been provided by Mr Owlett. At paragraph 69, the Judge said that it was significant that the invoice for Mr Owlett’s services was not raised until it became apparent that there was a very real dispute between the parties which could involve litigation. The Judge rejected V2K’s claim for payment for these services. At paragraphs 72 to 75, the Judge dealt with a further invoice from V2K to PR relating to certain metalwork provided to PR. The claim by V2K was rejected on the grounds that the metalwork in question did not belong to V2K, but belonged to Mr Owlett. At paragraph 76, the Judge referred to a submission made on behalf of PR as to certain features of V2K’s invoices which were said to call for an explanation. In the end, at paragraph 77, the Judge decided that he did not need to make findings in relation to those submissions as he had already held (for other reasons) that there was no liability under the invoices.

On 2^nd December 2003, after handing down judgment in both actions, the Judge was asked to deal with the costs of both actions. I have already stated that he made an order for costs in the share action against Mr and Mrs Owlett. In the PR action he made an order for costs against the only defendants in that action, namely, V2K and Mrs Owlett. He ordered those defendants to make a payment on account of costs. I was shown a note of the submissions made to the Judge on the 2^nd December 2003 on the subject of costs. Counsel for Mr Bulmer and PR appears to have applied for an order that the costs of both actions be paid by the defendants to both actions. The Judge pointed out that Mr Owlett was only responsible for the costs in the share action as that was the only action in which he was a party. Counsel for Mr Bulmer and PR agreed with the Judge’s comment. In the end, the Judge made separate orders in the two actions and because Mr Owlett was not a party to the PR action, the order for costs in that action was not expressed to be as against him. It would not be right to say that the Judge considered and rejected an application for a non-party costs order against Mr Owlett in the PR action. The true position was that there was simply nothing that could be regarded as an application for a non-party costs order against Mr Owlett when judgment was handed down on the 2^nd December 2003.

Following the giving of judgment on the 2^nd December 2003, there have been a number of applications to the Court. In May 2004, Mr Bulmer obtained a charging order against Mr and Mrs Owlett’s beneficial interest in their matrimonial home; this order was in respect of the interim costs order in the share action. In January 2005, PR obtained a charging order against Mrs Owlett’s beneficial interest in the matrimonial home in respect of interim payment orders (including an interim costs order) in the PR action. In August 2005, Mr Bulmer and PR jointly issued a claim for an order for sale of the matrimonial home. An order for sale was made without opposition by Deputy Master Rhys on 8^th December 2005. I understand that this led to investigation as to the details of the beneficial interests of Mr and of Mrs Owlett and of the different sums due by way of costs in the two actions. In January 2006, Mr Bulmer and PR obtained a freezing order against the entire net proceeds of sale of the matrimonial home but shortly thereafter the freezing order was discharged.

On 12^th April 2006, PR made the application under CPR 48.2 which ultimately led to the hearing before the Master on the 13^th September 2006 and this present appeal. On 21^st November 2006, PR’s costs in the PR action were assessed in the sum of £45,936.46. Incidentally, Mr Bulmer’s costs in the share action were assessed in the sum of approximately £16,000 but this figure only emerged in April 2007, following an appeal by Mr Bulmer from an earlier assessment in November 2006.

As already stated, the application for a non-party costs order against Mr Owlett in the PR action was made on the 12^th April 2006. The application was, effectively, in two parts. The first part was to the effect that Mr Owlett be added as a party pursuant to CPR 48.2(1)(a) and the second part was for an order that he be liable for PR’s costs of the PR action. The application referred to Mr Owlett having funded the defence, having benefited from running the defence (on the grounds that he was a 50% shareholder in V2K) and being the primary controlling mind in respect of the defence. On those grounds, the application notice stated that it was just and reasonable to make a non-party costs order.

The application of 12^th April 2006 was supported by a witness statement, dated 26^th April 2006, of a Mr Sharpley. Mr Sharpley had been a Director of PR and was a former solicitor. In his witness statement, Mr Sharpley referred to Mr Owlett being a shareholder in, and a Director of, V2K. Mr Sharpley stated that Mr Owlett controlled the defence in the PR action, funded the defence and counterclaim and that success in the defence and counterclaim would have benefited Mr Owlett considerably. In paragraphs 5 and 6 of his witness statement, Mr Sharpley contended that documents which had come to light following judgment on 2^nd December 2003 revealed that monies had been transferred from V2K’s bank account. The suggestion was that these transfers meant that V2K was not good for the judgment debt against it and, further, that the transfers were in favour of Mr and/or Mrs Owlett.

The application dated 12^th April 2006 came before Master Teverson on 30^th June 2006. Mr Sharpley had prepared written submissions on behalf of PR. On page 3 of those submissions, Mr Sharpley referred again to sums having been withdrawn from V2K’s bank account, with the result that V2K could not itself have funded the defence and counterclaim. Mr Sharpley referred in detail to a number of decided cases dealing with the circumstances in which a court might think it appropriate to make a non-party costs order. He concluded with the submission that it would be just and reasonable to make such an order against Mr Owlett.

On 30^th June 2006, Master Teverson adjourned the application of 12^th April 2006 to be heard on the 13^th September 2006 with a time estimate of half a day. Paragraph 2 of the order made on the 30^th June 2006 dealt with the documents which should be before the court on the next occasion and these were to be limited to documents “considered absolutely necessary to enable the court to determine whether or not permission should be granted to add Mr Owlett as a party to these proceedings”. That paragraph is of some significance as it shows that the hearing fixed for the 13^th September 2006 was intended to investigate the first stage of the applications made by PR, namely, whether Mr Owlett should be added as a party, rather than being designed to deal with the entirety of the application, including the second stage as to whether it was just to make a non-party costs order against Mr Owlett.

On the 4^th August 2006, Mr and Mrs Owlett prepared separate witness statements. Those witness statements made the point that no notice had been given by PR of an intended application for a non-party costs order against Mr Owlett until a hearing before the Costs Judge on 3^rd April 2006. The witness statements also dealt with the funds transferred from V2K. It was stated that the case being made by PR as to the transfer of funds was quite misleading and that there was an innocent explanation in that the funds were paid to Mr and Mrs Owlett as salaries properly due to them.

On the 18^th August 2006, Mr Bulmer prepared a witness statement in support of PR’s application. In relation to the point that no notice of a potential claim against Mr Owlett for non-party costs order had been made until April 2006, Mr Bulmer revealed that Mr Sharpley on behalf of PR had raised that issue with PR’s solicitors before the original trial.

Mr Sharpley prepared further written submissions for the hearing before the Master on 13^th September 2006. Mr Sharpley took the opportunity of itemising in some detail the consideration which PR had given to the possibility of an order for costs against Mr Owlett. The chronology prepared by Mr Sharpley referred to this topic being considered with PR’s solicitors in November 2002, June 2003, July 2003, August 2003, September 2003 and after judgment in December 2003. The point which Mr Sharpley wanted to make was that PR had thought about seeking a non-party costs order against Mr Owlett but needed evidence of funding of the defence and counterclaim being attributed to Mr Owlett and this evidence did not emerge until later in the course of the various procedural steps taken after judgment, to which I have referred above.

Before referring to the decision of the Master on 13^th September 2006, it is convenient to record what is now common ground as to the funds used to pay for V2K’s and Mrs Owlett’s defence in the PR action. Both the share action (in which Mr and Mrs Owlett were defendants) and the PR action were funded up to a sum of about £110,000 from monies raised on Mr and Mrs Owlett’s shared beneficial interests in their matrimonial home. The sum of £110,000 was raised in various ways and at various stages but it is not necessary to record the detail for present purposes.

On the 13^th September 2006, Master Teverson dismissed the application of 12^th April 2006. The transcript of his judgment extends to some 6 pages although he stated that his reasons were “briefly expressed” taking into account the state of his list that day. At paragraph 2 of his judgment he directed himself that the issue he had to decide was whether or not to give permission for Mr Owlett to be added as a party to the action. That statement makes it clear that the Master was only considering the first stage under CPR 48.2(1)(a), as to whether or not it was appropriate to join Mr Owlett as a party. The Master referred to the course of the litigation before Mr Berry QC. He referred to the funding position and the submissions made on behalf of PR. At paragraph 8, he recorded the submission for PR that it was appropriate to add Mr Owlett as a party if the Master was satisfied “that the application was not vexatious and that there was a prima facie case”. At paragraph 9 he accepted that the threshold was “a relatively low one” and that he asked himself if he was satisfied that the application for a non-party costs order was “an arguable one”. He referred to the disadvantage he had of not having been the trial judge.

In paragraph 10 of his judgment, the Master referred to the question of funding and to the circumstance that this was a case of a husband and wife agreeing that money should be borrowed on the security of their matrimonial home in order to fund the defence of one of them. In paragraph 11 of his judgment, he stated that Mr Owlett thought that the purpose of the funding was to protect and defend V2K and to protect and defend Mrs Owlett. The Master referred to the fact that there was no suggestion in the judgment that the defence and counterclaim on behalf of V2K was not bona fide or was not being pursued bona fide in the interests of the Company. He suggested that Mr Owlett’s conduct was not “so exceptional as to justify such an order” i.e. a non-party costs order. He repeated that point at paragraph 15 of his judgment. He stated that the facts of the present case were a long way removed from the facts of the Privy Council decision in Dymocks Franchise Systems (NSW) Pty Limited, [2004] 1 WLR 2807. He repeated that there was nothing in the judgment of 2^nd December 2003 to suggest that the PR action was defended otherwise than on bona fide grounds. At paragraph 19, he stated that he was not persuaded that the threshold had been crossed (i.e. the threshold for joining Mr Owlett as a party) and he was not persuaded that there was an arguable claim for such an order against Mr Owlett. He stated:

“My overriding reason for reaching that conclusion, based upon the contents of the judgment, is that it appears from the judgment that the action brought against V2K and Mrs Owlett was an action that was bona fide defended.”

Nowhere in his judgment does the Master refer to the contention raised in the witness statements and in the written submissions as to the alleged transfer of funds from V2K to Mr and Mrs Owlett. It may be that that point was not emphasised at the oral hearing before the Master on the 13^th September 2006.

The Master refused permission to appeal. Permission to appeal was granted by Lindsay J. The learned Judge gave his reasons in some detail for the grant of permission to appeal. He said:

“The learned Master stopped this application in limine by refusing the joinder of Mr Owlett as a party, a joinder made essential by CPR 48.2 (1) (a). Whilst it must be right to stop litigation going further if it is plainly obviously doomed to fail, that fate, (in a case such as this, where evidence had been already been filed by both sides, in some respects conflicting) can only be properly arrived at upon an assessment of the body of the evidence. I do not read the Master’s judgment as disclosing that such an assessment had been made. He concentrated on what the Deputy Judge had said in the judgment in the action. His overriding reason for his decision consisted of what the Deputy Judge (Mr Simon Berry QC) had said in the action – see the Master’s paragraph 19. But Mr Berry could not be expected to deal with the sort of issues as to funding, the giving of instructions in the action, post-judgment dissipation by Vinyl 2000 Limited, the evidence filed as to the subsequent taking of the account and so on, which was material to the granting or refusal of the application to join Mr Owlett as a party. In other words, much more was needed on the Master’s behalf than a study, however careful, of Mr Berry’s judgment, but I am far from sure that that additional assessment was made. Moreover, I am far from sure, also, that a decision that the main action was bona fide defended by Vinyl 2000 Limited and Mrs Owlett, even if that was an assessment reached in the light of all the evidence including post-Berry evidence, would suffice to doom the application by PR Records Limited to failure. Plainly there can be actions which are bona fide defended, in the sense that the defendant honestly believes that he has a good defence, but which can lead to a third party being liable for the defendant’s costs. The fact that Mr Owlett, in addition to his role in the company, was also husband of a guarantor of the corporate defendant is an added feature that requires particular attention. In the circumstances, I cannot say that there is no real prospect of success on appeal.”

Shortly before the hearing of the appeal before me, Mr Owlett served a Respondent’s Notice. The Respondent’s Notice made four points in particular. The first was to contend that the Master had applied too low a test as to the threshold which PR had to cross before joining Mr Owlett as a party and proceeding to the second stage of investigating whether a non-party costs order should be made in all the circumstances. The Respondent’s Notice suggested that there should be a “filter test” which should require PR to show that there was a “good prima facie case” for the making of a non-party costs order. The second point emphasised the delay between the judgment on 2^nd December 2003 and the making of the application on 12th April 2006. The third point was that the application by PR involved a variation of the order made by the trial judge. However, in the course of argument, this point was not pursued. The fourth point emphasised that the funding in the present case by Mr Owlett was the funding of his wife’s defence and involved raising funds from the jointly owned matrimonial home; it was contended that this case of funding was very different from the type of case when a non-party costs order was appropriate. Together with this point, the Respondent’s Notice made the further point that there was no causal link between any funding by Mr Owlett of V2K (who were described as defending the claim on the same grounds as Mrs Owlett) and the costs incurred by PR, since PR would have incurred those costs in any event in respect of Mrs Owlett’s defence.

By Section 51 (1) of the Supreme Court Act 1981, the costs of and incidental to all proceedings in the High Court are, in general, in the discretion of the court. By Section 51 (3), the court has full power to determine by whom and to what extent the costs of such proceedings are to be paid. It is now well established that the court has jurisdiction in a proper case to make an order for costs in favour of, or against, a person who was not a party to the proceedings at an earlier stage.

Costs orders in favour of or against non-parties are now the subject of CPR 48.2. Rule 48.2 (1) provides:

“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 –

(a)

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

and

(b)

he must be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.”

Rule 48.2 (2) provides that Rule 48.2 (1) does not apply where the court is considering whether to make a wasted costs order as defined in Rule 48.7. In view of some of the submissions made to me at the hearing of this appeal, I will refer, briefly, to Rule 48.7.

Rule 48.7 cross refers to Section 51 (6) of the Supreme Court Act 1981 which gives the court power, amongst other things, to order a legal representative to meet “wasted costs” in certain cases. Rule 48.7 applies where the court is considering whether to make such an order. Rule 48.7 (2) provides that the court must give the legal representative a reasonable opportunity to attend a hearing to give reasons why it should not make such an order. This rule is supplemented by CPR 48 PD which gives directions relating to Part 48- Costs – Special Cases. Paragraph 53.2 of the Practice Direction states that a court may make a wasted costs order against a legal representative on its own initiative. Paragraph 53.3 deals with the mode of application for a wasted costs order. Paragraph 53.5 states that the court will give directions about the procedure to be followed to ensure that the issues are dealt with in a way which is fair and as simple and summary as the circumstances permit. Paragraph 53.6 states that as a general rule the court will consider whether to make a wasted costs order in two stages. At the first stage, the court must be satisfied that it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made and that the wasted costs proceedings are justified notwithstanding the likely costs involved. At the second stage, after giving the legal representative an opportunity to give reasons why the court should not make a wasted costs order, the court decides whether it is appropriate to make such an order. The Practice Direction does not expressly refer to applications for non-party costs orders under Rule 48.2.

The CPR contains a general rule dealing with the addition of a party: see Rule 19.2. By Rule 19.2 (2), the court is given power to order a person to be added as a new party where, in particular, there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.

The notes in the White Book in relation to Rule 19.2 do not reveal much about the practice in relation to applications under that rule. However, in my judgment, it is reasonably clear how the court would normally react to an application to join a party. An applicant for such an order would normally be expected to explain the nature of the claim which the applicant had against the intended party and the purpose to be served by joining that party. If the applicant was not able to explain its claim against the intended party and/or was not able to say what purpose was served by joining the intended party, then the court might very well dismiss the application. If, for some reason, it was clear that a joinder of the intended party was an abuse of the process of the court then again the court would be expected to dismiss the application. Of course, it will often arise that the intended party denies that the applicant has any proper claim against him. The way for such a contention to be tested would, in my judgment, normally be that the intended party should be added as a party so that he can then defend the claim. Such a defence might take the form of the added party applying for summary judgment under Part 24. Even where it is clear at the time of adding the further party that that party intends to apply under Part 24, that would not generally be a reason for refusing to add that party. It still makes good procedural sense for the party to be added and then for the matter to proceed under Part 24, if appropriate, or with the case being defended in some other way. However, I can conceive of a case where it is so clear that a Part 24 application by the added party would succeed that the court might be prepared to refuse to add that party in the first instance.

I will not at this stage in this judgment attempt to summarise the case law as to when a court may make a non-party costs order. I will need to deal with that briefly in due course. In the first instance, I will consider the procedural point as to the correct response from the court to an application under Rule 48.2 to join a party for the purpose of seeking a non-party costs order against that person.

In Symphony Group Plc v Hodgson 1994 QB 179, Balcombe LJ at page 193 stated that the appropriate procedure was a summary one, not necessarily subject to all the rules that would apply in an action. In particular, the findings of fact made by the judge in giving judgment in the main action would be admissible in the summary application for a non-party costs order. However, this approach could only be justified if the connection of the non-party with the original proceedings was so close that he would not suffer any injustice by allowing this exception to the general rule.

Mr Deacon, who appeared on behalf of PR effectively adopted the reasoning of Lindsay J when giving permission to appeal. It will be remembered that Lindsay J had questioned whether the Master should have stopped the application in limine. Lindsay J suggested that one could stop the matter in limine only where the application was plainly and obviously doomed to fail.

On the second day of the hearing of this appeal, Mr Deacon cited the unreported decision of Etherton J in Dranez Anstalt v Hayek [2005] EWHC 2435 (Ch) as authority for the proposition that an application to join a non-party under Rule 48.2 should be acceded to, unless it could be said that the application was an abuse of process.

Mr Francis contended to the contrary. He submitted that the application to the court to join a non-party presented the court with an opportunity to “filter” out cases where there was not, in the court’s preliminary view, a sufficient prospect of success to justify the non-party being exposed to the second stage of the inquiry under Rule 48.2(1)(b). Mr Francis suggested there were a number of reasons of convenience which would make that course appropriate.

In his judgment in the Dranez case, Etherton J had referred to an earlier decision, given by Laddie J in Robertson Research International Limited v ABG Exploration BV, The Times, 3^rd November 1999. It is appropriate to refer to both of these decisions at first instance on the procedural question raised in the present case.

In the Robertson Research case, the claimant applied for a non-party costs order against a director of, and the secretary of, the defendant. The complaint was, essentially, that the non-parties had effectively caused the defendant company to defend the proceedings when there was no proper defence and, further, that the assets of the defending company were transferred away during the course of the proceedings. It was accepted that the claimant had an arguable case for a non-party costs order against the director and secretary. The claim against the defendant had not gone to trial because the defendant had belatedly conceded the claim. The director and secretary were joined as parties pursuant to Rule 48.2. The second stage of the matter under Rule 48.2(1) (b) came before the Master at a time when it was expected that the hearing of the costs application might take 2 to 3 days. Counsel for the director and secretary submitted that a hearing of that length was not appropriate, and could not properly be called a summary hearing, with the result that the claim for non-party costs order should be dismissed without consideration of the merits. The Master agreed. The claimant appealed. Laddie J held that even if it were the case that an application of this kind has to be dealt with in a summary way, one could still call a 2 day hearing, as contemplated, a summary hearing. The Judge also indicated that the judge hearing the application could use extensive case management powers to keep the matter within proper bounds. The judge dealt with the relevant procedural rules in some detail. The director and secretary had submitted that the analogy of a wasted costs application should be applied. It was submitted that the settled practice was that wasted costs applications should be dealt with in a summary way and briefly, rather than at length. It was then submitted that there was no distinction between the procedure to be adopted in wasted costs cases and in non-party costs order cases. It was finally submitted that the settled procedural practice for wasted costs applications should apply to non-party costs order cases. Laddie J was prepared to find that the practice in relation to wasted costs application was that, if the application could not be dealt with summarily, it should be dismissed without regard to its merits. However, having considered the rationale behind wasted costs orders and the rationale behind non-party costs orders, he distinguished the two jurisdictions. He was not prepared to regard the practice in relation to wasted costs as being applicable to non-party costs order cases. At paragraphs 39 to 41 he then dealt with the approach to be adopted on applications for non-party costs orders. He said at paragraph 40:

“All that is required is that the court should exercise its considerable administrative powers to ensure that the application should be dealt with as speedily and as inexpensively as possible consistent with fairness to both sides. For example in many cases cross examination will not be permitted, although sometimes it will (see Nordstern v Internav Court of Appeal unreported 25^th May 1999).”

At paragraph 41 of his judgment he stated that an application for a non-

party costs order was different from an application for costs against a

party. With a non-party, he said “the hurdle is much higher”. He added:

“If the judge can see that the claim is almost bound to fail to negotiate that hurdle or that, as in Bristol & West v Bhadresa, the claim is merely speculative, he should dismiss it summarily. But if there is a good arguable case, he should allow the claimant to proceed with it at risk as to costs.”

In the course of argument in the present appeal, consideration was given as to whether the two stage approach referred to in paragraph 53.6 of CPR 48 PD might be usefully adopted in relation to applications under Rule 48.2 for non-party costs orders. In my judgment, having regard to the powerful reasoning of Laddie J, distinguishing a wasted costs case from a non-party costs order case, the practice in the former should not be regarded as directly applicable to the latter.

In Dranez Anstalt v Hayek, Etherton J had to consider an application to add a party pursuant to Rule 48.2 (1) (a). The applicant accepted that the court was not obliged to accede to the application and the court had some discretion in the matter. For example, if on a quick appraisal it was seen that the joinder of the non-party would be an abuse of process, then the court should decline to join the non-party. It was submitted that, at the stage of joinder, one should not attempt a preliminary assessment of the merits in order to see whether the application had a real prospect of success. The non-party resisted the application for joinder and wished to contend that there should be a preliminary hearing on the merits to see whether the application deserved to go forward to the second stage. Etherton J did not accept that submission. He said at paragraph 39:

“Notwithstanding [Counsel’s] eloquent and attractive submissions, the possibility of a preliminary hearing on the merits in those circumstances in order to see whether the application should go forward for a determination which is itself to be conducted summarily does not strike me as sensible or efficient. Contrary to the philosophy of a summary process, such a possibility is likely to encourage a proliferation of such preliminary hearings leading, in the case of failed challenges on the merits, to the airing of issues twice, delay and the expenditure of more time, costs and resources both of the court and of the parties. Those adverse consequences would be magnified by any appeal from the initial decision on joinder.”

Etherton J then considered the decision of Laddie J in Robertson Research International Limited v ABG Exploration BV and in particular the suggestion in paragraph 41 of the judgment in that case, as to the right approach for a judge considering an application for a non-party costs order. It was pointed out that Laddie J was not dealing with any issue at the joinder stage. Etherton J stated at paragraph 50 that the idea of a preliminary assessment on the merits was contrary to the philosophy of a summary process which underlies this jurisdiction. At paragraph 52 he rejected the idea that the applicant had to show an “arguable” case at the joinder stage.

What Etherton J was prepared to do was to consider a submission by the non-party that the applicant’s delay in making the application for joinder had caused prejudice to the non-party so that joinder of the non-party should not be permitted. The learned Judge ruled against this submission but stated that it would be open to the non-party, following joinder, at the second stage to renew its submissions based on delay as one of the matters to be taken into account by the judge at that hearing: see paragraph 61.

Mr Francis drew my attention to Barndeal Limited v Richmond upon Thames London Borough Council [2005] EWHC 1377 (QB) as an example of a case where a non-party costs order was refused. That decision does not discuss the procedural questions raised in this case. It is not apparent from the decision whether the 3 non-parties who were pursued in that case were ever formally made parties under Rule 48.2 (1) (a). The applications against them appear to have been considered under Rule 48.2 (1) (b) and the judge commented on the lack of real evidence to support the allegations which were made against them. I do not find assistance in this decision as to the approach to be adopted on an application such as the present under Rule 48.2 (1) (a) to join a person who was previously a non-party for the purpose of proceeding to the second stage under Rule 48.2 (1) (b).

In the present case, I will follow the approach of Etherton J in Dranez Anstalt v Hayek. That approach appears to me to be consistent with the general approach which is appropriate in the case of an application to join a party under CPR Rule 19.2. I also find Etherton J’s comments about the inappropriateness of having a preliminary assessment at the first stage, followed by a summary assessment at the second stage, as being wholly justified. Whilst it is true that the second stage may be more summary in some cases and less summary in others, that does not to my mind invalidate the reasoning.

Applying the above approach in the present case, it cannot be argued that the joinder of Mr Owlett and allowing the matter to proceed to the second stage under Rule 48.2 (1) (b) involves an abuse of the process of the court, unless it could be said that the delay by PR in making this application was an abuse of the process of the court. I note that Etherton J did deal with the subject of delay in that case at the preliminary stage of considering the joinder of a non- party. Whether that is strictly appropriate here, I will do the same in this case.

Mr Francis on behalf of Mr Owlett says that there has been considerable delay and inadequate explanation for the delay. He says that PR knew the result of the trial when it received the draft judgment in August 2003 and had plenty of time to consider whether it wished to seek a non-party costs order against Mr Owlett before judgment was given and orders were made on 2^nd December 2003. Indeed, even if PR was not wholly clear as to whether it would pursue an application against Mr Owlett, it would have been open to it to tell the judge on 2^nd December 2003 that there were matters which it wished to investigate further and that within a short time it would make its position clear. Mr Francis submitted that the question of Mr Owlett’s involvement in the litigation was clear from the events of the trial and that the matters now relied upon as showing that Mr Owlett funded the litigation could have been discovered by PR before December 2003 or, at any rate, long before April 2006 when the present application was made. I agree with Mr Francis that PR could have done more, and earlier, to bring forward the present application.

However, what Mr Francis does not submit is that the delay has caused any real prejudice to Mr Owlett. No doubt, the fact that Mr Owlett will have to deal with an application under Rule 48.2 is prejudicial to him but that prejudice would have arisen irrespective of the date of the application against him. There are also indications in the evidence that the outcome of the trial, being so adverse to V2K and Mrs Owlett, has meant that Mr and Mrs Owlett have been very severely affected by this litigation. However, again, that adverse consequence flowed from the result of the trial and not from the passage of time between December 2003 and April 2006. Mr Francis relies on the fact that the trial judge, Mr Berry QC, has now retired from practice and is no longer sitting as a deputy judge so that an application under Rule 48.2 will have to be determined by some other judge. I agree with Mr Francis that in all cases of this kind, it is preferable for the Rule 48.2 application to be heard by the trial judge. However, trial judges become unavailable to hear applications of this kind for all sorts of reasons and in the present case I do not regard it as right to hold that PR’s delay in making the application has caused that state of affairs to come about in the present case nor further to hold that that fact should be fatal to the application proceeding further. Further, I do not give any real weight to the suggestion that it will be more difficult in this case to determine matters of fact a few years after the relevant events. Accordingly, I would not myself decline to join Mr Owlett as a party by reason of delay which has occurred in this case.

The above reasoning leads me to the conclusion that the right order in the present case is to permit the joinder of Mr Owlett under Rule 48.2(1)(a) and to allow the matter to proceed to the second stage under Rule 48.2(1)(b). The Master did not adopt the approach which finds favour with me. In fairness to the Master, he was not shown the decision of Etherton J in Dranez Anstalt v Hayek. I also agree with the views expressed by Lindsay J (which I have set out above) when he granted permission to appeal the decision of the Master. It follows that I should allow this appeal

Having decided to allow the appeal, the normal next step would be to allow the parties to attempt to agree directions for the hearing of the second stage under Rule 48.2(1)(b) and, in default of agreement, for the court to give appropriate directions.

I have considered whether the appropriate course in the present case is (wholly exceptionally) to treat this hearing as the hearing of the second stage and to proceed to decide whether to make a non-party costs order against Mr Owlett. Neither party asked me to take that course but I have considered it of my own motion and suggested it to the parties because, in the course of presenting their arguments on the appeal, both counsel cited a large number of authorities on the substantive jurisdiction and addressed me in detail on the facts and the merits of their positions. The hearing of the appeal took a day and a half. The amount of costs which might be the subject of any non-party costs order is approximately £46,000. It seemed to me that a great deal of effort and cost has already been expended on this application to date and it would be unfortunate if a great deal of what has been argued on this appeal will have to be investigated all over again at a future hearing at the second stage.

Before reaching my conclusion on the possibility described in the last paragraph, I will refer, briefly, to the principles as they appear from the more recent authorities.

The jurisdiction to make a non-party costs order was reviewed by the Privy Council in Dymocks Franchise Systems (NSW) Pty Limited v Todd [2004] 1 WLR 2807. The judgment of the Board was delivered by Lord Brown of Eaton-under-Heywood. Lord Brown was prepared to assume for the purposes of that case that a non-party could not ordinarily be made liable for costs if those costs would in any event have been incurred even without such non-party’s involvement in the proceedings: see paragraph 20. He stated that although costs orders against non-parties were to be regarded as “exceptional”, exceptional in this context meant no more than outside the ordinary run of cases, where parties pursue or defend claims for their own benefit and at their own expense: see paragraph 25 (1). The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order. The jurisdiction was fact-specific: see paragraph 25 (1). Generally speaking, the discretion would not be exercised against “pure funders”, that is, those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and do not seek to control its course: see paragraph 25 (2). Where a non-party not merely funds the proceedings but substantially also controls the proceedings or at any rate is to benefit from them, justice will ordinarily require that if the proceedings fail he will pay the successful party’s costs: see paragraph 25 (3). Lord Brown considered cases in which a non-party was in substance “the real party”: see paragraph 25 (3). It was stated that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for its own financial benefit he should be liable for the costs, if his claim or defence or appeal fails. A different view would be taken where the non-party, for example a director or liquidator, was acting in the interests of the company (and more especially its shareholders and creditors) rather than its own interests: see paragraph 29. The absence of an earlier warning of a possible application for a non-party costs order is material but not conclusive: see paragraph 31. Delay in making the application is relevant but, in the Dymocks case, delay which caused no prejudice to the respondent to the application did not result in its failure. At paragraph 33, Lord Brown stated that impropriety “or the pursuit of speculative litigation” might support the making of such an order but the absence of those things did not preclude the making of such an order.

The jurisdiction was considered by the Court of Appeal in Goodwood Recoveries Limited v Breen [2006] 1 WLR 2723. The jurisdiction was described as still “developing”: see paragraph 45. It was stated that the law had moved “a considerable distance” since an earlier decision in 1991: see paragraph 59. Reference was made to cases being “fact-sensitive” requiring an “objective assessment of the circumstances”: see paragraph 59. It was noted that “the pursuit of speculative litigation” could be put in the same category as “impropriety”: see paragraph 59. At paragraph 70, it was stated that the lack of bona fides in the conduct of the litigation was not a necessary condition (although it might otherwise be sufficient). At paragraph 74, reference was made to “the exercise of a principled discretion in the ultimate interests of justice”.

In BE Studios Limited v Smith & Williamson Limited [2006] 2All ER 811, it was held by Evans-Lombe J that it was not a requirement for the making of a non-party costs order against a director, who had funded and controlled litigation consequent on a claim brought by his company at his instance, that impropriety had to be shown in the way that the claim was prosecuted.

The decision of in Total Spares & Supplies Limited v Antares SRL [2006] BPIR 1330 (David Richards J) is important in relation to one aspect of the present dispute. In the Total Spares case, the action of the non-party which was criticised was that the non-party had caused the defendant company to transfer away its assets so that a judgment against the defendant company could not be enforced. This complaint differed from the typical complaint, which arises in these cases, where the non-party has controlled the litigation and has caused the opposing side to incur legal costs in the litigation. It was submitted on behalf of the non-party in the Total Spares case that it was not appropriate to make a non-party costs order against him, because his action had not caused the opposing party to incur costs. The judge held that the applicant for such an order did not have to show that the conduct of the non-party had led to the applicant incurring costs although causation of that kind would often be a vital factor. The real question was whether it was just to make an order for costs against the non-party. It was held that on the facts of the Total Spares case, such an order was indeed just.

The matter was considered again by the Court of Appeal in Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038. Longmore LJ said, at paragraph 10, that the provision of funding was not a jurisdictional pre-requisite to the exercise of the courts discretion in this context. If a non-party had effectively controlled the proceedings and had sought to derive potential benefit from them, that would be enough to establish the jurisdiction. At paragraph 11, he stated that proceedings of this kind could become over complicated by the citation of authority. This point was also made by Laws LJ.

Finally, on the question as to the scope of the jurisdiction to make non-party costs order, I was referred to Jackson v Thakrar [2007] EWHC 626 (TCC). In that case, Judge Coulson dealt with a number of points including questions as to the causation of costs being incurred, funding by a family member (and he discussed earlier cases of that kind), funding by a family member who also has a directorship and/or shareholding in a relevant company and the question of discretion. This decision is a useful illustration of the principles in practice but I need not quote any specific passages.

In his submissions, Mr Francis has explained the nature of the funding, has contended that this is a case of family funding where Mr Owlett funded his wife in her defence, has argued that Mr Owlett’s funding of V2K did not cause any additional costs to PR and that the defence and counterclaim were bona fide.

On the other side, Mr Deacon has joined issue in detail with many of Mr Francis’ submissions. In view of the decision I am about to reach, it is not necessary to rehearse the many points which Mr Deacon has made on what will be the arguments at the second stage of this matter.

Mr Deacon has urged upon me that it would be unfair to PR, in effect, to decide the substantive issue. The hearing before the Master on 13^th September 2006, and the hearing of the appeal before me, were only intended to consider the question of joinder of Mr Owlett. Mr Deacon has correctly submitted that the court should not, when considering that question, address itself in any detail to the outcome of the second stage of the application. PR had no reason to think it needed to present its case in full on the substantive issue and it has not done so. Mr Deacon has stressed the statements in the authorities that the ultimate decision will be a fact-sensitive one as to what appears to the court to be just in all the circumstances. Mr Deacon also makes a specific point, based on the decision in the Total Spares case, that there is an issue that needs to be investigated as to whether Mr Owlett caused substantial assets of V2K to be transferred away so as to make it judgment proof.

In the end, with some regret in view of the time and expense already involved in relation to this application under Rule 48.2(1)(a), I conclude that it would be unfair, and therefore wrong, to take the exceptional course of converting the hearing of this appeal into the substantive hearing of the second stage under Rule 48.2(1)(b).

In view of the fact that this matter will now proceed to the second stage, it would be inappropriate for me to make any further comment on the strengths and weaknesses of the various arguments that will have to be assessed at that second stage.

In conclusion, I allow this appeal and order that Mr Owlett be joined as a party pursuant to Rule 48.2 (1) (a). I indicated at the hearing that, if it assisted the parties, I would be prepared to reserve this matter to myself both for the purpose of giving directions as to how the second stage of this matter should be conducted and for the purpose of hearing the matter at the second stage. If it should transpire that reserving the matter to myself will delay the ultimate disposal of this matter or otherwise become inappropriate, I am prepared to release the matter following an application to that effect supported by an explanation of the good reasons for doing so.