QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| (1) MERCHANTBRIDGE & CO LIMITED
(2) SAFRON ADVISORS LIMITED
|- and -
|(1) SAFRON GENERAL PARTNER 1 LIMITED
(2) H E MOHD AL ZUBAIR
(3) ZENT INTERNATIONAL LIMITED
(4) DEUTSCHE BANK (SUISSE) SA
(5) BANKERS TRUST INTERNATIONAL FINANCE (JERSEY) LIMITED
(6) ISLAY HOLDINGS LIMITED
(7) WICKLOW SECURITIES LIMITED
(8) SOLID INVESMENT HOLDINGS LIMITED (BVI)
(9) TELCOM VENTURES LLC
(10) DEUTSCHE BANK AG
Defendants (Costs Only)
Mr Matthew Collings QC (instructed by Farrer & Co) for the 2nd, 3rd,6th and 7th Defendants
Mr Stephen Midwinter (instructed by Osborne Clarke) for the 4th, 5th and 10th Defendants
Hearing dates: 18 and 19 April 2011
Crown Copyright ©
The Parties to this Application
The Action and the Trial
(i) Hamilton Al Fayed (No 2)  QB 1175 (May 2002);
(ii) Gulf Azov Shipping v Idisi  EWCA Civ 292 (March 2004);
(iii) Dymocks Franchise Systems v Todd  1 WLR2807 (July 2004);
(iv) Goodwood Recoveries Ltd v Breen  1 WLR 2723 (April 2005);
(v) Arkin v Borchard Lines Ltd (Nos 2 and 3)  1 WLR 3055 (May 2005);
(vi) Petromec Inc v Petroleo Brasileiro  2 Costs LR 212 (July 2006);
(vii) Sims v Hawkins  EWCA Civ 1175 (November 2007);
(viii) Dolphin Quays Developments Ltd v Mills  1 WLR 1829 (April 2008); and
(ix) Oriakhel v Vickers  EWCA Civ 748 (July 2008).
Secondly, the appellate guidance is contained in cases where the facts are often unusual and the relevant considerations diverse. Some observations relied upon by Counsel in this case are very specific to those facts and circumstances. A further factor is that in some respects "the law has moved a considerable distance" – see Petromec at paragraph 11 and the earlier cases are not always still as authoritative as they were. It seems to me that the aspects of the principles most relevant to this application are as follows.
'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.' Dymocks Franchise Systems (NSW) Pty Ltd v Todd  1 WLR 2807, 2815 per Lord Brown.
'Generally speaking the discretion will not be exercised against "pure funders".' Dymocks at 2815. Pure funders are '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'. Hamilton v Al Fayed (No 2)  QB 1175, 1194 per Simon Brown LJ. Pure funders are in a similar position to 'disinterested relatives' who might fund a litigant's case merely out of love or familial duty.
'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'.
'Nor, indeed, is it necessary that the non-party be "the only real party" to the litigation … provided that he is "a real party in … very important and critical respects".' Dymocks at 2815.
It will generally be relevant to the Court's exercise of discretion whether the non-party is responsible for the litigation taking place and has caused the successful litigant to incur costs which it would not otherwise have incurred. (In this case the funding has been of a Defence so the funders are not responsible for the case being brought.) A non-party's 'interest' in the outcome of the proceedings does not have to be financial but may be personal such as satisfaction derived from defeating an opponent. Latimer Management Consultants Ltd v Ellingham Investments Ltd  1 WLR 2569, 2581-2582, Bernard Livesey QC. An order may be appropriate against a non-party funder who has an interest in the outcome of the proceedings even if the non-party does not exercise any control over the proceedings. Phillips Electronics NC v Aventi Limited  EWHC 2589 (Pat).
"[It was] submitted that [the third party's] role, insofar as it went beyond that of a 'pure funder' was that of a 'pure assister'. We are not sure that the adjective 'pure' assists in the analysis. It is, we believe, designed to draw a distinction between those who assist a litigant without ulterior motive and those who do so because they have a personal interest in the outcome of the litigation. Public policy now recognises that it is desirable, in order to facilitate access to justice, that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation. Intervention to this end will not normally render the intervener liable to pay costs. If the intervener has agreed, or anticipates, some reward for his intervention, this will not necessarily expose him to liability for costs. Whether it does will depend upon what is just, having regard to the facts of the individual case. If the intervention is in bad faith, or for some ulterior motive, then the intervener will be at risk in relation to costs occasioned as a consequence of his intervention."
The importance of that right is illustrated by the following observation from Simon Brown LJ as he then was in Hamilton:-
"Although none of the authorities to my mind precisely dictates the result of this appeal, I conclude that on balance they clearly favour the respondents' argument and that the unfunded party's ability to recover his costs must yield to the funded party's right of access to the courts to litigate the dispute in the first place. That seems to me to be the essential policy underlying the cases."
Facts agreed or not greatly in dispute
'Our client's defence is being funded by a pure funder (Hamilton v Fayed (No 2) 2002) whose interest is to ensure that no judgment in default is entered against our client when our client believes there is a bona fide defence to the claim.'
SGP1 put forward a defence that the Claimants' claim had previously been compromised by agreement between the parties in 2001. SGP1 applied for summary judgment and this was granted by Morison J on 18 June 2004 but reversed by the Court of Appeal on 14 February 2005. As a result of that decision SGP1 agreed to make an interim payment toward the Claimants' costs of £16,262. The money was provided by the Defendants. On 21 July 2005 the Claimants applied for an order for disclosure of the identities of the funding parties. On 2 August 2005 Aikens J ordered SGP1 and Macfarlanes to "disclose the name and address of each person or entity who has provided funding to the defendant in this litigation, together with the dates and extent of such funding in each case". An application to join the funders as defendants was adjourned. On 12 August 2005 Macfarlanes disclosed the identities of the funders with the amounts and dates. The action was tried before me between 3 and 6 April 2006 and I gave judgment on 8 June having circulated a draft well in advance. Once I decided liability the parties set about preparing for a trial on quantum but in April 2007 Macfarlanes came off the record and Mr Jackson wrote to me saying that the funders were no longer willing to fund SGP1's defence. SGP1 took no further steps and on 22 May 2008 Andrew Smith J assessed quantum as being £784,405 plus interest of £239,705.56. The Judge also ordered that the Claimants write to each funder seeking payment of costs and gave them permission to restore the application to join the funders. No responses were received. A further application was made for permission to join the 2nd to 10th Defendants in the action and this was granted by Flaux J on 11 September 2009. Further delays seemed to have been largely due to difficulties in serving the Defendants (including, surprisingly, the Deutsche Bank parties) abroad.
"Even though SGPI has no assets and, most likely has done nothing that would merit the claim, if Basil wanted to spend a reasonable amount of money, he could have a liquidator appointed who would take over SGPI and attempt to find cash to pay the claim including the possible pursuit of the directors. It could be a nuisance."
Further emails in November and December sought decisions from the Defendants and from other shareholders and partners in Safron first about whether SGP1 should defend the claim and secondly, if so, confirmation that they would meet the legal fees. Mr Jackson appears to have sought instructions more from the Defendants than from the Directors of SGP1 or, at the least, drawn no distinction between these separate roles. Dr Koch expressed the view on 17 November 2003 that there was "no point in defending the claim" and his reluctance continued. In an internal email in December he expressed "my strong view: not defend. I have the impression Jackson wants to drag us into this further and further. He has his own agenda which is not the one of Deutsche Bank". On 18th December his colleague Mr Hoagland saw the decision as involving "a business judgment based on the costs of proceeding one way or another".
On 15th December 2003 when proposing a conference call Mr Jackson had said this: "Not defending is almost the same as pleading guilty so we will not have any chance to dispute the claim. Of course, we will be able to put up a strong defence if they try to attach partnership funds." On 22nd December 2003, seeking a decision within 48 hours he said: "We must decide whether to defend or not to defend. If we defend, there will be a discovery process and statements taken from directors of Safron General Partner I and an eventual trial before a judge. Our lawyers think we have a good case. The cost of defending, assuming no surprises, could be approximately £20,000-25,000. If we do not defend, there will be a default judgement against GPI and, provided Basil is willing to pay costs, a liquidator of Safron GPI will be appointed and will cause a nuisance by subpoenaing directors, files and attempting to find assets to pay the claim. While there is no cash available in either the Safron Corporation or GPI, there are assets available in Safron Partners (and successor partnerships) and the liquidator will most likely attempt to attach these by arguing the partnership is responsible for Safron GPI's debts. It should also be pointed out that the shareholders that participated in the convertible loan to GPI would be far larger creditors that Safron advisors. In summary, if we defend we more or less control the process. If we do not defend, we never get to make the arguments made in the Defence and we have no control over the process except we will be able to strongly defend any claim against the partnership's assets." It seems that Mr Jackson throughout underestimated the costs of the process. The Defendants agreed to provide funding and left it to Mr Jackson to supervise the application for summary judgment taking it through to the end of the appeal. The Defendants agreed to Mr Jackson's recommendation that funding continue up to a mediation. When this failed Mr Jackson informed the funders on 11 May 2005 of the outcome, outlined the costs until trial and asked for comments. Dr Koch stated that DB Suisse's view that the case should not be defended further and the other funders agreed.
"We believe it is now time for Basil to spend whatever he needs in order to attempt to get something from SGP1, which has no assets, and then perhaps the funders. It would cost us £200,000 to £250,000 to get to trial in September… We should be no worse off if we stop defending now compared to continuing to trial, and, going forward, Basil, will be the only one paying. If we need to defend ourselves against a costs order, we can decide on that at the time".
Submissions of 2nd, 3rd, 6th and 7th Defendants
Submissions of DB Suisse, BTI and DB AG
Decision of the Court
'In January 2002 Mr Richard Jackson… was appointed as a consultant of SGP1 and Safron Corporation... Mr Jackson was engaged as a consultant of SGP1 and Safron Corporation and various other funds of legacy investment."
However Mr Fynn does not exhibit a copy of the consultancy agreement or any other documents in support of what he says. If Mr Fynn were correct it would be necessary to examine the dealings between Mr Jackson wearing his SGP1 hat attending to the litigation and the funding defendants. However the evidence looked at as a whole established that Mr Jackson's role, which was not closely examined at the time, was rather different. Mr Moawalla describes Mr Jackson as a consultant for 'Safron Partners' which acted as a fiduciary on behalf of the investors in the Fund. Mr Jackson's fees and expenses were being paid by the Defendants not by SGP1 as emails of 31 May and 31 October 2005 make clear. In his witness statement dated 31 March 2004 Mr Jackson said:
'In January 2002 my employment with Safron Corporation was terminated and Safron Partners LLP hired me as a consultant.'
In cross-examination at the 2006 trial he made it clear that he was being paid by the investors, including the Bin Ladin family and Deutsche Bank. In addition the way in which Mr Jackson carried out his duties, seeking instructions from the Defendants, rather than dealing with the directors of SGP1 as such, points to his engagement being at the behest of the Defendants.
Although the sentiments were probably more those of Mr Jackson than the Defendants there is no sign that they disagreed.
For what period of the litigation should the order cover
Should the order be against the defendants jointly and severally?
"to cater for the commercial funder who is financing part of the costs of the litigation in a manner which facilitates access to justice and which is not otherwise objectionable.
Such funding will leave the claimant as the party primarily interested in the result of the litigation and the party in control of the conduct of the litigation"
In those circumstances the court considered that a professional funder should not be liable for the costs of the opposing party beyond the extent of the funding which he has provided. That approach makes it possible for people without money to obtain professional funding for part of their costs of conducting a case. The situation is very different from that in this case and is driven by more obvious policy considerations that do not apply here, except to the limited extent to which access to justice has been relied on. I therefore see no reason to limit the obligations of the Defendants in the manner proposed by Mr Midwinter.