England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		17 May 2007

The Chancellor :

Introduction
1. By an agreement in writing dated 21st August 2001 made between Orb Estates plc (1) and the first defendant Peter Mills (2) the former agreed to sell to the latter a long lease of flat 78 at Dolphin Quays, Poole, Dorset, then in course of development, for £650,000. It had also been agreed between them that the purchase price should be paid by set-off against the debt of £1.85m due by Orb Estates plc to Mr Mills but this was not recorded in the written agreement. On 16th August 2002 Orb Estates plc sold its interest in Dolphin Quays, together with the benefit of the agreement with Mr Mills, to the claimant Dolphin Quays Developments Ltd ("the Company"). On the same day the Company charged all the property so acquired to Royal Bank of Scotland International Ltd ("the Bank") as security for all liabilities of any kind and in any currency due by the Company to the Bank. The Charge provided, in the terms of s.109(2) Law of Property Act 1925, that the Bank might, in certain events, appoint a receiver of the charged property

"but any Receiver shall be deemed to be the agent of the Company and the Company shall be solely responsible for the Receiver's acts defaults and remuneration."

2. On 13th June 2003 the Bank appointed the second and third defendants, Messrs Birchall and Gilbertson ("the Receivers"), as LPA receivers of the property subject to the Charge and Messrs Birchall and Lomas as joint administrative receivers under a debenture given by the Company to the Bank. All three were partners in PwC. Mr Mills was the sole director of the Company, had executed the Charge and the debenture on its behalf and sworn the affidavit verifying the statement of affairs as at the date of the appointment of the administrative receivers.
3. On 23rd November 2004 the Company, by the Receivers, instituted these proceedings against Mr Mills for specific performance of the contract for the sale of the long lease of flat 78. Mr Mills was quite prepared to complete on the basis of the agreement as to payment of the price by set-off, but this was not acceptable to the Receivers. In due course the Receivers accepted Mr Mills refusal to complete except on that basis as discharging them from further performance and sold flat 78 for £495,000. Accordingly the claim, when it came before Mr Peter Leaver QC, sitting as a deputy High Court judge of the Chancery Division, on 28th March 2006, was for damages for breach of contract equal to the balance of the purchase price, namely £155,000. In his judgment handed down on 12th April 2006 Mr Leaver rejected this claim. He concluded that the set-off agreement had been an integral part of the contract for the sale of the lease and, not having been included in that document, the contract was unenforcible under s.2 Law of Property (Miscellaneous Provisions) Act 1989.
4. The application before me, issued by Mr Mills on 28th January 2007, seeks an order that the Receivers, who were, by consent, joined as additional defendants by Lightman J on 16th February 2007, do pay to Mr Mills under s.51 Supreme Court Act 1981 his costs of the unsuccessful claim brought against him by the Company. The grounds on which such an order is sought are stated to be that (1) the Receivers brought the claim at the request of the Bank, (2) the Bank alone had any financial interest in the claim, (3) the Bank had funded and directed the proceedings throughout and (4) it would be a grave injustice to Mr Mills, a man of modest means, if he had to bear his own costs, especially as he is a substantial creditor of Orb Estates plc, the parent of the Company.
The Evidence
5. The evidence before me consists of witness statements made by Mr Mills on 31st January 2007 and his solicitor, Mr Hershkorn on 29th January and 26th March 2007 and by Mr Birchall on 12th March 2007 and the exhibits thereto. There has been no cross-examination of any of them. In paragraphs 13, 14 and 22 of his witness statement Mr Birchall specifically denied the allegations made in the Application notice which I have summarised in paragraphs (1) and (3) of paragraph 4 above. There is no evidence to support those allegations and I reject them.
6. The evidence from Mr Mills and his solicitor emphasise a number of other matters on which Mr Mills relies. First, it is accepted that Mr Mills could have applied for security for costs pursuant to CPR Rule 25.13 at any time after the proceedings issued on 23rd November 2004 had been served on him. Mr Mills explains his failure to do so by his belief that if he were successful his costs would be paid out of the funds held by the Receivers and the fact that he had not been advised otherwise. His solicitor admits that it did not occur to him or to counsel instructed by him from time to time to advise that such an application should be made because he believed that the real parties were the Receivers and, because of their standing and reputation, they would honour any order for costs made against the Company. There is no suggestion that the Receivers or the Bank gave any express or implied assurance to that effect.
7. Second, Mr Mills relies on the fact that after Mr Leaver handed down his judgment in draft counsel for the Company sought time to consider applying for leave to appeal and disputing its liability as the loser for all Mr Mills costs. In the event, neither course was pursued and by his order, as drawn up on 27th April 2006, Mr Leaver dismissed the action with costs to be subject to a detailed assessment on the standard basis. The Receivers do not suggest that they suffered any prejudice from this delay. Mr Mills does not contend that the Receivers thereby accepted a liability for his costs in whole or in part.
8. On 3rd May 2006 the solicitors for Mr Mills indicated that he would accept a little over £60,000 in respect of his costs. After obtaining instructions from their clients the solicitors for the Company indicated that in their view there was no point in seeking to agree Mr Mills' costs or proceeding to a detailed assessment because "our client is in Receivership and as such your client is an unsecured creditor". This gave rise to extensive correspondence in which the solicitors for Mr Mills contended that in their view there was no ground to distinguish between the Receivers and the Bank because the former could recover any costs they might be ordered to pay as an expense in the receivership. They continued:

"If that is not the case, please let us know and we will consider joining the Bank as a party (either in addition to or instead of the Receivers)."

This proposition was repeated in a letter from the solicitors for Mr Mills dated 27th July 2006. Ultimately the Receivers responded on 17th August 2006:

"The receivers acted at all times as agents of the Company and have a statutory right of indemnity from the Company's assets in respect of costs incurred."

9. In the event the advisers of Mr Mills did not decide to join the Bank as a respondent to this application whether in addition to or instead of the Receivers. The third matter arises from this correspondence. Counsel for Mr Mills submits that this correspondence entitles him on behalf of Mr Mills to conflate the Receivers and the Bank so as to aggregate their rights, obligations, acts and omissions. I do not accept that this correspondence or any other communication entitles him to do so. Thus it must be accepted that the litigation against Mr Mills was instituted and prosecuted by the Receivers and paid for by funds subject to their control as such Receivers. They had no beneficial or personal interest in those funds or in the outcome of the action.
The case for Mr Mills
10. The jurisdiction to make the order Mr Mills seeks is conferred by s.51(3) Supreme Court Act 1981. That subsection provides that:

"The court shall have full power to determine by whom and to what extent the costs [of and incidental to all proceedings] are to be paid."

As is well known it was established by the decision of the House of Lords in Aiden Shipping Company Ltd v Interbulk Ltd [1986] AC 965 that the wide discretionary power thereby conferred was not subject to an implied limitation restricting its exercise to the parties to the proceedings in question. Lord Goff of Chieveley, with whom the other members of the Appellate Committee of the House of Lords agreed, considered (p.975G) that it was for:

"the rule-making authority to control the exercise of discretion (if it thinks it right to do so) by the making of rules of court and [for] the appellate courts to establish principles upon which the discretionary power may, within the framework of the statute and the applicable rules of court, be exercised."

11. The only relevant rule of court (CPR 48.2) relates to the procedural aspects of an application for a third party costs order but there have been a number of decisions of the appellate courts indicating the principles on which the court should act in the exercise of its discretion conferred by s.51(3). Counsel for Mr Mills has referred me to some of them. In chronological order they are Knight v F.P.Special Assets Ltd (1992) 174 CLR 178; Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613; Dymocks Franchise Systems (NSW) Pty v Todd [2004] 1 WLR 2807; Goodwood Recoveries Ltd v Breen [2006] 1 WLR 2723 and Petromec Inc v Petroleo Brasilieros SA [2006] EWCA Civ 1038. In addition he referred me to the decision of Evans-Lombe J in B.E.Studios Ltd v Smith & Williamson [2006] 2 AER 811. In deference to the argument of counsel for Mr Mills I will refer to them in that order.
12. Knight v F.P.Special Assets Ltd (1992) 174 CLR 178 is a decision of the High Court of Australia. Though the relevant statutory provision was in different terms the reasoning and conclusion of the House of Lords in Aiden Shipping was applied. The relevant facts are to be found in the dissenting judgment of McHugh J at pages 205 to 207. In essence two orders for the payment of costs had been made against the receivers and managers of the claimant in the action, Forest Pty Ltd, and the defendant to a counterclaim brought by the defendants to the action, Howe Corporation Pty Ltd. An order for security for costs had been made against Forest but proved to be insufficient. Judgments were entered by the defendants against both Forest and Howe. McHugh J recorded (p.206) that the solicitors on the record for both Forest and Howe were the solicitors who acted for the creditors secured by the charges under which the receivers and managers were appointed. He added:

"The solicitors received their instructions in respect of the action and counterclaim from the banks and the [receivers and managers]"

In those circumstances applications that the costs of the claim and the counterclaim should be paid by the respective receivers and managers were successful.

13. On appeal to the Supreme Court of Queensland that court concluded that the judges who made those orders had had jurisdiction to do so and, by a majority, that the discretion conferred by the relevant legislation had been properly exercised. The appeal to the High Court of Australia related only to the question of jurisdiction. The majority, Mason CJ, Deane, Dawson, Gaudron JJ, dismissed the appeal on the footing that there was jurisdiction to make orders for costs against non-parties. In so concluding Mason CJ and Deane J, with whom Dawson and Gaudron JJ agreed, stated (p.192/3):

"Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made.

For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made."

14. Both Mason CJ and Deane J, and separately, Dawson J considered the relevance of the remedy of security for costs. The former stated (p.190/191):

"No doubt it is an appropriate remedy in many cases but there are limitations attaching to the availability of security for costs. These limitations are such that security for costs is not a remedy in all cases in which justice calls for an order for the award of costs against a non-party. Security cannot be ordered against a defendant or a plaintiff who is an individual and who resides in the jurisdiction. The amount awarded as security is no more than an estimate of the future costs and it is not reasonable to expect a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient. And the availability of the remedy is scarcely a reason for denying the existence of jurisdiction to make an order for costs against the "real party" at the end of the trial of an action.

The availability of an order for security for costs at an earlier stage of the litigation would, in many situations, be a strong argument for refusing to exercise a discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction."

In this connection Dawson J added (p.204):

"Having regard to the limited nature of the appeal, I should do no more than observe that an order for security for costs must ordinarily be the appropriate remedy where a receiver and manager conducts litigation through a company which will be unable to pay the costs of the defendant if the defendant is successful in his defence."

15. Counsel for Mr Mills submits that the passage I have quoted from the judgments of Mason CJ and Deane J in paragraph 13 above precisely describes the circumstances of the instant case. He accepts that Mr Mills could have applied for security for costs but maintains, as indicated in the passages I have quoted in paragraph 14 above, that his failure to do so is no bar to the order he seeks.
16. In Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613 a company in liquidation, by its liquidator, had commenced proceedings claiming the balance of the price of goods sold and delivered. It failed to comply with an order for security for costs and the action was dismissed with costs to be paid by the liquidator personally. The Court of Appeal allowed the liquidator's appeal. Waller LJ referred to Knight v F.P.Special Assets Ltd (1992) 174 CLR 178. He suggested that there might be a distinction between the case of a receiver and that of a liquidator and continued (p.1618):

"Certainly, as it seems to me, the primary remedy of a Defendant facing a company in liquidation should be security for costs, and I can perhaps summarise my view on the authorities so far as the proper approach to the question whether a liquidator should be made personally liable for costs in the following way. I think (as the Judge decided and as I read the notes the District Judge also decided) that there is jurisdiction to order a liquidator as a non-party to pay the costs personally; but it will only be in exceptional cases that the jurisdiction will be exercised, and impropriety will be a necessary ingredient, particularly having regard to the fact that the normal remedy of obtaining an order for security for costs is available; the caution necessary in all cases where an attempt is being made to render a non-party liable for costs will be the greater in the case of a liquidator having regard to the public policy considerations."

17. Millett LJ was of the same view. He said (p.1620):

"Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings. If he does so in his own name, he is personally liable for the costs in the ordinary way, though he may be entitled to an indemnity out of the assets of the company. If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not. He is under no obligation to the defendant to protect his interests by ensuring that he has sufficient funds in hand to pay his costs as well as his own if the proceedings fail. It may be commercially unwise to institute proceedings without the means to provide any security for costs which may be ordered, since this will only lead to the dismissal of the proceedings; but it is not improper to do so. Nor (if he considers only the interests of the company, as he is entitled to do) is it necessarily unreasonable. The defendant may offer to settle; he may not apply for security; and if he does the Court may not order it to be given, particularly if such an order would stifle a meritorious claim."

18. Thus, in the case of claims brought by a company in liquidation to justify a costs order against the liquidator an extra ingredient is required. That extra ingredient is described by Waller LJ as "impropriety" and by Millett LJ as "unreasonableness". Counsel for Mr Mills submitted that any such requirements have, in effect, been removed by the later cases to which he referred me.
19. In Dymocks Franchise Systems (NSW) Pty v Todd [2004] 1 WLR 2807 the underlying dispute concerned the question which of Dymocks or the Todds had repudiated a franchise agreement. At first instance Dymocks were successful. The appeal of Todd to the New Zealand Court of Appeal, which succeeded, and its opposition to the subsequent appeal of Dymocks to the Privy Council, which did not, were financed by a secured loan from Associated Industrial Finance Pty Ltd, a company connected with the Todds. The relevant question was whether the costs of Dymocks in the New Zealand Court of Appeal and the Privy Council should be paid by Associated. The Privy Council considered that they should. In paragraph 25 Lord Brown of Eaton-under-Heywood, giving the advice, sought to summarise the position as indicated by the authorities to which reference had been made. In sub-paragraph (1) he pointed out that reference in the authorities to third party costs orders being made only in 'exceptional' cases meant no more than that such a case was outside the ordinary run of cases where a party seeks to enforce his own right or defence for his benefit and at his own expense. In sub-paragraph (2) he observed that no such order would be made against 'pure funders' as explained by him. In sub-paragraph (3) he continued:

"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 Knight and Millett LJ's judgment in Metalloy Supplies Ltd (in liquidation) v MA (UK) Ltd [1997] 1 WLR 1613."

20. In sub-paragraph (4) and paragraphs 26 to 28 Lord Brown considered the cases of receivers, liquidators and financially insecure companies generally in the light of the decisions in the New Zealand cases of Carborundum Abrasives Ltd v Bank of New Zealand (No. 2) [1992] 3 NZLR 757 and Arklow Investments Ltd v MacLean (unreported, 19 May 2000, the High Court of Australia in Knight v F.P.Special Assets Ltd (1992) 174 CLR 178 and the Court of Appeal in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613. He concluded in paragraph 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."

21. On the facts of that case the Privy Council concluded that Dymocks costs of the appeals should be paid by Associated. As Lord Brown put it in paragraph 30:

"Their Lordships have no doubt that at first blush Associated would be liable under the approach just explained. Plainly they funded the appeals, both before the Court of Appeal and the Privy Council. No less plainly it was principally if not exclusively Associated who stood to benefit from success on the appeals and in whose interest the appeal to the Court of Appeal was brought and the further appeal to the Privy Council was defended. True it is that Associated played little if any role in the actual conduct of the appeals. That, however, is hardly surprising. Litigants generally have no useful role to play with regard to appeals: they are in the hands of the lawyers and their only real decisions are whether to proceed and who is to pay. Associated here took the all-important decision to fund and thereby promote the appeal."

22. The various counter-arguments put by counsel for Associated were rejected. In paragraph 33 Lord Brown added:

"Thirdly, Associated submit that there was no impropriety involved in their promoting this appeal; on the contrary, they and the Todds had independently received encouraging advice from leading counsel. This cannot, however, avail them. The authorities establish that, whilst any impropriety or the pursuit of speculative litigation may of itself support the making of an order against a non-party, its absence does not preclude the making of such an order.

23. Counsel for Mr Mills relies strongly on this advice of the Privy Council. He submits that in the passage I have quoted in paragraph 22 above the Privy Council effectively disapproved the requirements of an additional ingredient of 'impropriety' or 'unreasonableness' to which Millett and Waller LJJ had referred in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613, 1620 and 1618. By conflating the Receivers and the Bank he asserts that all these conditions are satisfied in this case.
24. In Goodwood Recoveries Ltd v Breen [2006] 1 WLR 2723 a claim against the defendant owed to another had been bought by the claimant of which Slater, a solicitor, was a director and shareholder. The claim was pursued in the name of the claimant by Slater as its solicitor and principal witness pursuant to a conditional fee agreement. The claim failed and Slater's honesty was seriously impugned by the judge. An application that the costs of the defendant should be paid by Slater personally on an indemnity basis succeeded. Slater appealed. The two issues on which Slater relied were that (1) the case was not 'exceptional' and (2) the costs sought to be recovered were not caused by the exceptional conduct on which the defendant relied. Counsel for Mr Mills relies on a general statement of principle expressed by Rix LJ in paragraph 59 of his judgment after a consideration of the authorities in these terms:

"In my judgment, it is clear from these passages that 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. It may also be noted that in Lord Brown's comments at para 33 of his opinion "the pursuit of speculative litigation" is put into the same category as "impropriety"."

I do not consider that this decision advances the argument in any way relevant to this application.

25. In Petromec Inc v Petroleo Brasilieros SA [2006] EWCA Civ 1038 Mr Efremovich was the third party ordered to pay the costs of Petrobras and Brasoil which on the failure of its claim against them had been ordered to be paid by Petromec. As Longmore LJ explained in paragraph 3 of his judgment:

"The judge found that Mr Efromovich controlled the proceedings brought by Petromec, funded those proceedings and would have benefited from them if they had been successful. He therefore thought it right that Mr Efromovich should pay the successful parties their costs, to be assessed, of defending themselves against the unsuccessful claims."

26. There were three grounds of appeal, namely, (1) there was no evidence to support the judge's finding that Mr Efromovich controlled the proceedings brought by Petromec, (2) it was a condition of jurisdiction under s.51(3) that Mr Efromovich had funded the proceedings but he had not and (3) in the exercise of his discretion the judge had failed to take into account the fact that the defendant Petrobras had been entitled to and did obtain some security for its costs. Longmore LJ, with whom Laws and Ward LJJ agreed, rejected all three grounds. In relation to the second he observed (paragraph 10) that:

"...although funding took place in most of the reported cases, it is not, in my view, essential, in the sense of being a jurisdictional pre-requisite to the exercise of the court's discretion. If the evidence is that a respondent (whether director or shareholder or controller of a relevant company) has effectively controlled the proceedings and has sought to derive potential benefit from them, that will be enough to establish the jurisdiction. Whether such jurisdiction should be exercised is, of course, another matter entirely and the extent to which a respondent has, in fact, funded any proceedings may be very relevant to the exercise of discretion."

In relation to the third, he considered (paragraph 14) that:

"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"."

Both Longmore and Laws LJJ deplored the tendency for applications such as this to become over-complicated by reference to authority. Save in this last respect I do not think that this case adds anything to the earlier ones.

27. Finally I refer to the decision of Evans-Lombe J in B.E.Studios Ltd v Smith & Williamson [2006] 2 AER 811. In that case the claim brought by B.E.Studios failed and it was ordered to pay three quarters of the defendant's costs of the action. The defendant then applied for an order that a Mr Dickins, a director, shareholder and loan creditor of B.E.Studios should pay those costs. The issue before Evans-Lombe J was the correct approach of the court in the exercise of its discretion. Evans-Lombe J referred to Dymocks Franchise Systems (NSW) Pty v Todd [2004] 1 WLR 2807 and the cases to which Lord Brown there considered. In the light of those considerations he concluded in paragraph 18:

"In my judgment, in the light of the Privy Council's decision in the Dymocks case as interpreted and applied by the Court of Appeal in the Goodwood case I have to reject Mr Irvin's first submission. It is not a requirement for the making of a non-party costs order against a director who has funded and controlled litigation consequent on a claim brought by his company at his instance, that impropriety must be shown in the way that the claim was prosecuted."

In the event he made the order sought.

28. Counsel for Mr Mills relies on this decision as establishing that the advice of the Privy Council in Dymocks, as applied by the Court of Appeal in Goodwood Recoveries Ltd v Breen [2006] 1 WLR 2723, are authorities for the proposition that there is now no requirement for the additional ingredient to which Millett and Waller LJJ referred in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613, 1620 and 1618. As a judge at first instance I ought to follow the decision of Evans-Lombe J, if otherwise applicable, unless I am convinced that it is wrong. I would not do so in this case for a number of reasons. First, Metalloy was concerned with an application against a liquidator, not, as in Goodwood, with a controlling shareholder or director. Second, I do not understand it to be open to the Privy Council to overrule a decision of the Court of Appeal in England, see Re Spectrum Plus Ltd [2004] Ch.337, 374 para 58 and [2005] 2 AC 680, 715 para 93, 734 para 153. Third, this case concerns a receiver acting as such and must be determined in accordance with its own facts.
29. The case for Mr Mills is encapsulated in paragraph 3 of the written argument of his counsel where he wrote:

"In summary Mr Mills' case is that the Receivers are the real parties and have throughout conducted these proceedings for their benefit and the benefit of The Royal Bank of Scotland International Limited ("RBSI") which appointed them (not for the benefit of the Company, its creditors or shareholders). If this application succeeds, Mr Mills' costs will be payable from funds realised by the Receivers in the course of the receivership in the same way as the Receivers' own costs have been met. The financial effect on the receivership, let alone on RBSI, will be minimal."

In his closing submissions counsel for Mr Mills reiterated his contentions that the Company was merely a nominal claimant, that the real claimants were the Receivers/the Bank, there is no need to draw any distinction between them and that they were not pursuing the claim for the benefit of the Company or its members but for the benefit of the Bank. He accepted that there was no impropriety but contended that such an element is unnecessary.

The case for the Receivers
30. Counsel for the Receivers pointed out that they were agents for the Company and that the Company was solely responsible for their acts and defaults by force of s.109(2) Law of Property Act 1925 and the terms of clause 5.3 of the Charge. He drew my attention to the dissenting judgment of Rigby LJ in Gaskell v Gosling [1896] 1 QBD 669, upheld by the House of Lords in Gosling v Gaskell [1897] AC 575, to the effect that one result of that provision is:

"that a receiver and manager appointed by a mortgagee under an agreement that he shall be the agent of the mortgagor is in the same position as if appointed by the mortgagor himself, and as if every direction given to him emanated from the mortgagor himself."

The fact that such agency may be terminated by the winding up of the company does not affect the position before the commencement of the winding up. Similarly the fact that s.37(1) Insolvency Act 1986 provides that a receiver is now liable on contracts made by him, except insofar as the contract otherwise provides, is of little moment given that the general practice is to exclude personal liability.

31. Counsel for the Receivers drew my attention to the only reported cases, other than Knight v F.P.Special Assets Ltd (1992) 174 CLR 178, in which third party costs orders had been made against receivers. They are Bacal Contracting Ltd v Modern Engineering (Bristol) Ltd [1980] 2 AER 655 and Anderson v Hyde [1996] 2 BCLC 144. In the former costs were sought against the receivers as from the commencement of the winding up of the plaintiff and were granted on the basis that if the claim had been continued by the liquidator the applicant would have been a secured creditor. In the latter the defendant company was wound up after the receiver had been appointed and the liquidator declined to take over the defence to the action. The judge in Northern Ireland had refused an application for a third party costs order against the receivers. The Court of Appeal took a different view on two grounds. The first was that had the defence been taken over by the liquidator the costs of the claimant would have ranked in priority to the claims of ordinary unsecured creditors. The second was that it would not be just and equitable for a receiver to be able to defend the action without any liability for costs whatever the outcome.
32. Counsel for the Receivers did not dispute that there was jurisdiction to make the orders sought. Rather he contended that it should not be exercised. He contended that the proceedings were in no sense 'exceptional', there was no element of impropriety or unreasonableness and the separate functions and acts or omissions of the Receivers and the Bank could not be aggregated so as to satisfy the broad principle recognised in Dymocks Franchise Systems (NSW) Pty v Todd [2004] 1 WLR 2807. He suggested that it could not in these circumstances be just and equitable to order the Receivers to pay the costs when Mr Mills could have had the protection of an order for security for costs but failed, for whatever reason, to exercise it.
Conclusion
33. I shall not make the order sought for a number of, largely cumulative, reasons. First it has been recognised from the beginning that the making of a third party costs order requires some 'exceptional' circumstance. What is 'exceptional' has to be ascertained by reference to the ordinary range of litigation which comes before the courts, see Globe Equities Ltd v Globe Legal Services Ltd [1999] BLR 232, 239 para 21 and Dymocks Franchise Systems (NSW) Pty v Todd [2004] 1 WLR 2807, 2815 para 25(1). This case was an entirely normal case of receivers seeking to enforce a contractual right forming part of the security. There was nothing speculative about it in that they obtained the advice of counsel no fewer than three times. The fact that the claim failed may be unusual but can hardly be classified as 'exceptional'. If an order is made in this case then it should be made in all such cases.
34. Second, it is not alleged that there was any element of impropriety or unreasonableness in the initiation and prosecution of the claim. Not only does such absence confirm that the claim was in no sense 'exceptional' but it underlines the fact that that is not an alternative justification for making the order sought.
35. Thus, third, the only available justification, and that relied on by counsel for Mr Mills, is the broad principle enunciated in Dymocks Franchise Systems (NSW) Pty v Todd [2004] 1 WLR 2807 para 25(3) quoted in paragraph 19 above. But that principle did not embrace the wider proposition in relation to receivers expressed Knight v F.P.Special Assets Ltd (1992) 174 CLR 178, 192/193, quoted in paragraph 13 above, nor can it apply to the Receivers. They did not fund the proceedings in any sense relevant to the exercise of this jurisdiction. Nor did they benefit from them in any such sense. The receivers were not the 'real' party in that sense. Nor can that principle be applied to the Bank. It did not fund the proceedings in the sense of granting any further facilities for that purpose. It did not initiate or control them. It was not guilty of any impropriety or unreasonableness in their conduct.
36. Fourth, in the absence of any winding up of the Company, s.109(2) and clause 5.3 of the Charge both provided that the Receivers were the agents of the Company and that the Company was solely responsible for their acts or defaults. In those circumstances I do not consider that it is possible to identify either the Receivers or the Bank as the 'real' party. The party was the Company. The proceedings were commenced and prosecuted by its agents on its behalf for the benefit and at the expense of those claiming under it by virtue of the charge or the equity of redemption.
37. Fifth, the hardship caused to Mr Mills by his inability to recover his costs from the Company could have been avoided if he had pursued his remedy of security for costs from the Company promptly or at all. Given the absence of any exceptional features or of any impropriety or unreasonableness on the part of the Receivers or the Bank I do not consider that justice requires that an order in his favour should now be made against the Receivers. Who knows how differently events might have turned out if Mr Mills had taken the steps commonly taken by a normally prudent litigant? The fact that the Receivers were unwilling to consider a 'without prejudice' offer from Mr Mills is no indication of the answer to that question.
38. Whilst I share the views of Longmore and Laws LJJ in Petromec Inc v Petroleo Brasilieros SA [2006] EWCA Civ 1038 that these cases are commonly over-complicated by reference to authority when in truth they are exercises of a very wide discretion on the facts of the instant case, I should make some further reference to the three cases cited to me in which orders have been made against receivers. In the first, Bacal Contracting Ltd v Modern Engineering (Bristol) Ltd [1980] 2 AER 655, HH Judge Fay QC considered (p. 659h) that the Receiver was the 'real' party and the company plaintiff a nominee plaintiff because the receiver could not be the agent of either the company or the secured creditor after the winding up had commenced. That reasoning cannot apply to this case because in the absence of any winding up of the Company the Receivers continue to be agents for the Company.
39. Chronologically the second case is Knight v F.P.Special Assets Ltd (1992) 174 CLR 178. That decided that the jurisdiction to award costs against non-parties existed in Australia. The circumstances in which it should be exercised was not in issue on the appeal. Thus it was the reverse of this case in which the jurisdiction is not in issue but whether it should be exercised is. In any event it appears from the judgment of McHugh J (p.206) that the secured creditor did control and participate in the proceedings in circumstances in which it might well be appropriate to conflate the receivers and the secured creditor. That impression is confirmed by an examination of the report of the judgments of the Supreme Court of Queensland, see Forest Pty Ltd v Keen Bay Pty Ltd (1991) 4 ACSR 107 at pp. 110 and 119.
40. In Anderson v Hyde [1996] 2 BCLC 144 the Court of Appeal of Northern Ireland made an order for costs against the receiver in circumstances similar to those in Bacal. There had been a winding up order against the defendant. Its defence had been pursued by the receiver rather than the liquidator. The Court of Appeal considered that in those circumstances the plaintiff should get its costs from the receiver because:

"..if the receiver elected to carry on with the defence of the action, it cannot be regarded as just and equitable that he should be able to do so at other person's expense."

But that was said in the context of a case in which the defendant had been wound up and the remedy of an order for security for costs was not available to the plaintiff.

41. I do not regard any of those cases as indicating any different conclusion to that expressed in paragraph 33 above. Accordingly I dismiss the application of Mr Mills.