ON APPEAL FROM THE HIGH COURT OF JUSTICE
Mr. Justice Cooke
Strand, London, WC2A 2LL
B e f o r e :
Vice-President of the Court of Appeal, Civil Division
LORD JUSTICE LEWISON
LORD JUSTICE SIMON
| DEUTSCHE BANK A.G.
|- and -
|(1) SEBASTIAN HOLDINGS INC.
(2) ALEXANDER VIK
Mr. David Foxton Q.C., Ms. Sonia Tolaney Q.C. and Mr. James MacDonald (instructed by Freshfields Bruckhaus Deringer LLP) for the respondents
Hearing dates : 5th, 6th and 7th November 2015
Crown Copyright ©
Lord Justice Moore-Bick :
"17. In my judgment, it is not necessary for me to carry out any investigation of the kind which is suggested by Mr Vik in order to determine the section 51 Non-Party Costs Application. The reason for this is the nature of the relationship between [Sebastian] and Mr Vik to which I refer again later in this judgment. As is plain from my judgment in the action, Mr Vik was the sole shareholder and sole director of [Sebastian]. As is plain from statements made by his solicitors in interlocutory applications prior to trial and from evidence at the trial, Mr Vik controlled the conduct of the litigation on [Sebastian's] behalf. Although Mr Johansson may have had "the day to day running" of the litigation, every decision on the conduct of the proceedings had to be taken by Mr Vik himself. Mr Vik "called the shots". He was [Sebastian's] principal witness of fact, spent many days in the witness box and gave all of [Sebastian's] evidence on the issue of available funds and transfers. He stood to benefit from success in the litigation because of his shareholding and his ability and readiness to move [Sebastian's] funds for such purposes as he saw fit.
18. In these circumstances the authorities compel me to the clear conclusion that Mr Vik is a "privy" of [Sebastian] and that, not only are the findings in my judgment admissible evidence in the section 51 application against Mr Vik, but he is bound by my judgment as a matter of res judicata and by my findings in the judgment by reason of issue estoppel. . . . "
"20. . . . Here, in circumstances where Mr Vik was not only the controlling mind and will behind [Sebastian] (keeping, as it would appear from disclosure, no books of account or corporate records for the company which he directed) but also ran the litigation in England in the sense of making all important decisions when instructing [Sebastian's] lawyers and being [Sebastian's] only witness of contemporaneous fact, giving evidence over several days, it is clear that Mr Vik's connection with [Sebastian] is so close that he could not possibly be said to suffer any injustice as a result of the findings in the judgment against [Sebastian] being admissible against him personally.
The nature of the proceedings
"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—
(a) . . .
(b) the High Court;
. . .
shall be in the discretion of the court.
. . .
(3) The court shall have full power to determine by whom and to what extent the costs are to be paid."
"(1) An order for the payment of costs by a non-party will always be exceptional: see per Lord Goff in Aiden Shipping Co. Ltd v Interbulk Ltd  A.C. 965, 980F. The judge should treat any application for such an order with considerable caution.
(2) It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer (Calderbank v Calderbank  Fam. 93); and the knowledge of what the issues are before giving evidence.
(3) Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord. 15, r.6(2)(b)(i) or (ii).
Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice.
(4) An application for payment of costs by a non-party should normally be determined by the trial judge: see Bahai v Rashidian  1 W.L.R.1337.
(5) The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party constitutes neither bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v Rashidian  1 W.L.R.1337, 1342H, 1346F.
(6) The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F. Hewthorne & Co. Ltd  K.B. 587; Cross on Evidence, 7th ed. (1990), pp. 100-101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v Spiro  1 K.B. 176, 192, cited with approval by this court in Bahai v. Rashidian  1 W.L.R. 1337, 1343D, 1345H. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule.
(7) Again, the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v Durnford  Q.B. 483, 487. In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle.
(8) The fact that an employee, or even a director or the managing director, of a company gives evidence in an action does not normally mean that the company is taking part in that action, in so far as that is an allegation relied upon by the party who applies for an order for costs against a non-party company: see Gleeson v J. Wippell & Co. Ltd  1 W.L.R. 510, 513.
(9) The judge should be alert to the possibility that an application against a non-party is motivated by resentment of an inability to obtain an effective order for costs against a legally aided litigant. The courts are well aware of the financial difficulties faced by parties who are facing legally aided litigants at first instance, where the opportunity of a claim against the Legal Aid Board under section 18 of the Legal Aid Act 1988 is very limited. Nevertheless the Civil Legal Aid (General) Regulations 1989 (S.I. 1989 No. 339/89, and in particular regulations 67, 69, and 70, lay down conditions designed to ensure that there is no abuse of legal aid by a legally assisted person and these are designed to protect the other party to the litigation as well as the Legal Aid Fund. The court will be very reluctant to infer that solicitors to a legally aided party have failed to discharge their duties under the regulations – see Orchard v South Eastern Electricity Board  Q.B. 565 - and in my judgment this principle extends to a reluctance to infer that any maintenance by a non-party has occurred."
"Neither Mr. Bramley nor Halvanto had any warning that questions which would tend to make out such a case would be asked. Neither had reason to obtain professional advice on the topic before Mr. Bramley gave evidence. Neither was represented by counsel at the trial, who might, for example, have asked further questions in re-examination. The main purpose of pleadings is to inform one party of the case which the other will seek to make against him. That is an essential feature of justice, and was entirely absent here.
Nevertheless, there are cases, as Balcombe L.J. has shown, where a person may be ordered to pay costs on the basis of evidence given and facts found at a trial to which he was not a party. Before such an order is made, it must be just and fair that the stranger should be bound by that evidence and those findings. In my judgment that is not the case here.
My second reason is that the deputy judge's findings were reached without the assistance of submissions from counsel representing Halvanto, or of any further evidence that Halvanto might have called."
"25. A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows. (1) Although costs orders against non-parties are to be regarded as "exceptional", exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such "exceptional" case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. (2) Generally speaking the discretion will not be exercised against "pure funders", described in para 40 of Hamilton v Al Fayed (No. 2)  QB 1175, 1194 as "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 in no way seek to control its course". In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. (3) Where, however, the non-party not merely funds the proceedings but substantially also controls 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. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation, a concept repeatedly invoked throughout the jurisprudence-see, for example, the judgments of the High Court of Australia in the Knight case 174 CLR 178 and Millett LJ's judgment in Metalloy Supplies Ltd v MA (UK) Ltd  1 WLR 1613. Consistently with this approach, Phillips LJ described the non-party underwriters in T G A Chapman Ltd v Christopher  1 WLR 12, 22 as "the defendants in all but name"."
"29. In the light of these authorities their Lordships would hold that, generally speaking, 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 defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests."
Mr. Vik's involvement in the main action
(i) that Sebastian was entirely under the control of Mr. Vik, who was its sole director and shareholder;
(ii) that Mr. Vik treated Sebastian as his personal trading vehicle to hold and dispose of funds on his behalf as he thought fit;
(iii) that Mr. Vik ran Sebastian's affairs without troubling with any corporate formalities, such as resolutions, minutes or the filing of company accounts;
(iv) that funds were transferred into and out of its accounts in accordance with his directions given by email or text as and when it suited him;
(v) that between 9th and 22nd October 2008 US$890 million in liquid funds and shares worth US$92 million were transferred out of Sebastian in accordance with Mr. Vik's instructions, and that as a result Sebastian was unable to meet the judgment against it;
(vi) that Mr. Vik controlled Sebastian's conduct of the litigation and was the principal witness called on its behalf;
(vii) that parts of his evidence were false and that the counterclaim was based on documents which had been partly fabricated by him;
(viii) that Mr. Vik and members of his family stood to benefit very substantially if the counterclaim succeeded.
Security for costs
"13. If a non-party costs order is made against a company director, it is quite wrong to characterise it as piercing or lifting the corporate veil; or to say that the company and the director are one and the same. As Mr Shaw has demonstrated, the separate personality of a corporation, even a single-member corporation, is deeply embedded in our law. But its purpose is to deal with legal rights and obligations. By contrast, the exercise of discretion to make a non-party costs order leaves rights and obligations where they are. The very fact that the making of such an order is discretionary demonstrates that the question is not one of rights and obligations of a non-party, for no obligations exist unless and until the court exercises its discretion. Moreover the fact that the discretion, if exercised, is exercised against a non-party underlines the proposition that the non-party has no substantive liability in respect of the cause of action in question."
Article 6 of the Convention