England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		1 December 1999

This is an application by Claimant insurance brokers, SBJ Stephenson Ltd, for an order that Robert Elkins and Richard Alexander, the partners in Amilcroft Insurance Brokers, pay part or all of the costs of SBJ's successful action for injunctions and damages against Keith Anthony Mandy who was employed by SBJ until 4 January 1999 when he went to work for Amilcroft.

The application is made under section 51(1)(b) of the Supreme Court Act 1981 which provides, so far as is material, that: "Subject to the provisions of this or any other enactment and to rules of court, the costs and incidental to all proceedings in ..... the High Court .... shall be in the discretion of the court."

Section 51(3) provides:

"The court shall have full power to determine by whom and to what extent the costs are to be paid."

SBJ's proceedings were against Mr Mandy as sole Defendant. They sought injunctions and damages for alleged breaches of covenants in his contract of employment. The proceedings were expeditiously conducted but hard fought throughout interlocutory stages and a six day trial, on a number of issues which included whether the covenants which purported to restrain Mr Mandy from soliciting SBJ's clients for twelve months after termination of his contract of employment and from using confidential information at all, were enforceable; whether SBJ had been guilty of a repudiatory breach of Mr Mandy's contract of employment, which he was entitled to accept as termination of his contract, and whether this discharged him from further performance of otherwise valid obligations in his contract; whether there was sufficient evidence of breach of valid obligations to justify the making of injunctions continuing until 4 January 2000, so far as non-solicitation was concerned, and thereafter so far as confidentiality was concerned, whether SBJ was entitled to damages for breach of contract by Mr Mandy, and, if so, in what amount.

On 30 July 1999 I handed down a judgment which resolved those issues in favour of SBJ and I made injunctions restraining solicitation of SBJ clients until 4 January 2000 and disclosure of confidential information until 4 January 2001. I awarded SBJ damages of £89,424.50 against Mr Mandy. I ordered that Mr Mandy pay SBJ's costs of the action, but directed that the issue of whether those costs were to be assessed summarily or in detail should be adjourned to be heard with SBJ's proposed application for its costs to be paid by Amilcroft.

Mr Mandy is a relatively young man, with a good but not particularly large salary. His wife was still working for SBJ at the time of the trial. There is no reason, and never was any reason to believe that he has any capital beyond a share in his home and the usual family assets. In my judgment Mr Mandy, SBJ, the partners, and the solicitors on both sides in the action must have realised from a relatively early stage that if SBJ's action was fought by him to the finish of a contested trial and judgment was given in favour of SBJ, he would be financially ruined, at least unless Amilcroft met his bills. Save to a limited extent, they did not do so. SBJ's "Statement of Costs up to 29th July 1999, produced when judgment was handed down, totals £170,603.94. Although I cannot say what those costs will be judged to be on detailed assessment, they will clearly be very substantial. On 7 September 1999, Mr Mandy went into voluntary bankruptcy.

SBJ proceeded with this proposed application. The basis for it as expressed by Mr Simon Browne-Wilkinson Q.C. who appears for SBJ as he did at the trial of the action, is that Mr Mandy's defence of SBJ's action was funded by Amilcroft, the trading embodiment of Mr Elkins' and Mr Alexander's partnership. The main point of the partners' resistance to the application, as expressed by Miss Linden Ife, is that it would be unjust to award any costs of the action against the partners who were not made Defendants to the action against Mr Mandy, although SBJ could have joined them as parties.

Before coming to the principles which apply to the application, it is convenient to set out the history of the action and the facts which are material to the application, in more detail. Many of the relevant facts are common ground, but some are in issue. For the specific purpose of the application I read affidavits of Ian Jeffrey Hargreaves (solicitor with Theodore Goddard who have acted for SBJ throughout), Mr Mandy, Andrew Charles Herbert (a business consultant employed by Amilcroft as its business manger), Mr Elkins, and Mr David James Shore Greene (a partner in Charles Russell, the solicitors for Mr Mandy and Amilcroft from the beginning of the dispute, but not for the purpose of this application). Because some important matters were in issue I granted Mr Browne-Wilkinson's application for leave to cross-examine Mr Mandy, Mr Herbert, Mr Elkins and Mr Greene. In my judgment in the main action I found Mr Mandy to be an unimpressive witness. He was no more impressive in his evidence on this application, even making due allowance for the depressing effect of his financial problems for which he entirely blames SBJ, without any thought that he may have brought misfortune upon himself. I did not find it easy to judge Mr Herbert's evidence.

He made a reasonable impression but his affidavit omitted to mention an important discussion on about 5 July 1999 about counsel's fees for the imminent trial. On the other hand he was open about that discussion in his oral evidence. Mr Elkins was implausibly vague about a number of relevant matters. I judge him to be an essentially decent man whose apprehension about the possible adverse outcome of this application led him to be unforthcoming when he must have been able to remember more than he said. Happily, Mr Greene was an impressive witness whose evidence I have no hesitation in accepting. I bear in mind Miss Ife's argument that disputed facts found in my judgment after a trial at which the partners did not appear and were not represented, as parties or at all, are not admissible against them in this application. See Symphony Group plc v. Hodgson [1993] 4 All E.R. 143. In the light of what was said in Symphony, a rather different case in this particular respect, I propose to treat what Mr Mandy said about funding, during the trial of the action, as inadmissible on this application. But the common ground, documentation, and evidence adduced on this application lead me to the following facts, in addition to those which I have already set out.

Mr Mandy started work for SBJ as an insurance broker at its Gravesend office in April 1997. Insurance broking is a very competitive business. In June 1994, Mr Mandy signed a service agreement with non-solicitation and confidentiality clauses. The non-solicitation clauses were expressed to run during his employment by SBJ and for twelve months after its termination. The contract provided for termination on six months notice.

By letter dated 19 October 1998, Mr Elkins offered Mr Mandy employment with Amilcroft in Tunbridge Wells for a six month probationary period, expressing the hope that he would generate between £30,000 and £50,000 brokerage/fee income during that period. He offered prospects of considerable advancement, even to an equity stake in the business. That offer was accepted by Mr Mandy on 31 October 1998 but the date for commencement of his employment by Amilcroft was left open. Mr Mandy first informed SBJ of his decision to leave on 11 December 1998, when he gave "notice to terminate [his] employment with SBJ with immediate effect."

There was discussions between Mr Mandy and Mr Brian Wyeth, the managing director of SBJ's Gravesend office. Mr Mandy refused to identify his new employer. Correspondence was exchanged.

On or about 17 December 1998 Mr Herbert telephoned Mr Greene on Amilcroft's behalf. He had known Mr Green and Charles Russell for some time, through business interests, although the firm had not acted for Amilcroft before. Mr Greene gave Mr Herbert advice, and he spoke to Mr Mandy. The result was a letter dated 24 December 1999, signed by Mr Mandy, saying that he had taken legal advice and had been informed that SBJ had breached its contract of employment by, he contended, putting him on garden leave. He said that he accepted SBJ's breach and that the result was that he was not bound by the restrictions set out in his service agreement, but only by his duty of confidentiality.

SBJ requested that Mr Mandy return to work on 4 January 1999. It took the stand that Mr Mandy was bound by the covenants in his contract, and Mr Wyeth wrote to him threatening to enforce them and to take legal action and make a claim for damages against him if he did not abide by the covenants.

On 30 December 1998, Mr Mandy wrote to Mr Elkins speaking of the threat of legal action and saying that he wanted to take comfort from confirmation that Amilcroft would provide an indemnity should it be necessary. Mr Elkins denies that any indemnity was given. I have reservations about his evidence, but there is no basis upon which I can find that an indemnity was given.

Mr Mandy did not return to work for SBJ on 4 January 1999. He started work for Amilcroft on that day instead, and on 5 January Mr Wyeth wrote to him accepting this as repudiatory breach of his contract of employment, and terminating it.

In essence the stands of SBJ and Mr Mandy on the legal effect of events from 11 December 1998 to 5 January 1999 remained the same throughout the correspondence and litigation which followed.

Whether or not Mr Mandy had solicited SBJ clients for Amilcroft before 5 January 1999, he certainly did so thereafter with some success, during January and February, 1999.

On 12 March 1999, Theodore Goddard, for SBJ, wrote to Mr Mandy informing him that they were instructed to make an application for injunctive relief forthwith, "coupled with the issue of a writ to which your present employer may be joined, on the basis that it has induced the said breach [of service agreement]." A copy of the letter was sent to Amilcroft, and both Mr Mandy and Amilcroft were advised by Theodore Goddard to take immediate legal advice as to their respective positions.

On 15 March 1999, Mr Greene received further instructions from Amilcroft to advise in relation to potential proceedings against Mr Mandy and Amilcroft. At the time he anticipated that Amilcroft would be joined as second defendant to any proceedings brought against Mr Mandy. This must have been as a result of the 12 March letters.

A writ was issued on 19 March 1999, naming Mr Mandy as sole Defendant. Up to that date Mr Greene thought that he had been instructed to advise Amilcroft, but when proceedings were issued against Mr Mandy alone, Mr Mandy became the client, in his view, and Charles Russell was acting for Mr Mandy. I accept this in respect of Mr Mandy's defence of the action, but it is clear that Charles Russell still continued to act for Amilcroft as well because its invoice for professional charges of £1,200 plus VAT from 17 December 1998 to 16 April 1999, dated 22 April 1994 and addressed to Amilcroft, refers not only to taking Amilcroft's initial instructions and advising it in respect of the employment of Mr Mandy and on his departure from SBJ, but also to advising Amilcroft on the impact for Amilcroft of proceedings instigated by SBJ against Mr Mandy and of the possibility of Amilcroft being joined to such proceedings and keeping Amilcroft informed at all times.

SBJ sought interim injunctions against Mr Mandy, and these were granted by Judge Coningsby Q.C. on 30 March 1999 after a full day's contested hearing, of which both parties were represented by counsel.

The judge also ordered that Mr Mandy swear and serve an affidavit informing SBJ's solicitors of any soliciting of SBJ clients and of any confidential information which was divulged to Amilcroft or any other third party. On 1 April Mr Mandy disclosed by affidavit that he had approached twenty-seven clients of SBJ and one of another company in the same group, and that eight of the SBJ clients had appointed Amilcroft as brokers in place of SBJ. The annual commissions or brokerage fees of those eight clients amounted to more than £40,000 according to SBJ, and this figure was accepted by Mr Mandy during the trial of the action, although he suggested that it was nearer £30,000 during his evidence in this application.

Also on 1 April 1999, Mr Mandy, represented by counsel, applied to stay parts of the 30 March order, but Eady J rejected this application.

On 6, 14 and 19 April 1999, Theodore Goddard made faxed requests to Charles Russell to confirm whether Mr Mandy was paying his own legal fees in the proceedings or whether a third party including Amilcroft had agreed to underwrite and/or pay any fees incurred by Mr Mandy of defending the proceedings. Theodore Goddard called for openness in the matter and referred to the case of Singh v. The Observer [1989] 2 All E.R. 751 where McPherson J. had made an order under section 51 for the disclosure of the identity of someone who was thought to be funding the Plaintiff in his action. To each request Charles Russell replied that SBJ was not entitled to the information requested. The last reply was dated 21 April 1999, the day before the 22 April fee invoice to Amilcroft, to which I have already referred.

Also on the 22 April 1999, Charles Russell presented a fee invoice to Mr Mandy for £19,324.71 including disbursements and VAT. The description of services starts with the taking of Mr Mandy's initial instructions on a threatened injunction and covers the 30 March order and advice generally. Leading and junior counsel's fees totalling £2,900 plus VAT were included.

Until the writ was served in mid March 1999 Mr Greene understood that although both Mr Mandy and Amilcroft were his clients, Amilcroft was responsible for Charles Russell's fees. He candidly said that between 15 March and his receipt of Theodore Goddard's letter of 6 April, he probably was not addressing the question of who would pay the costs of defending the proceedings because he had expected Amilcroft to be joined. As a result of the correspondence between 6 and 21 April he had discussions with Mr Mandy and Amilcroft (by which he must have meant Mr Herbert or Mr Elkins or both) and he understood that Amilcroft would meet Charles Russell's fees, including disbursement, by way of loan to Mr Mandy. He was not made aware of any cap on the loan until 28 June 1999, in circumstances to which I will come.

Mr Elkins' case was that he never agreed an open ended, unlimited loan for Mr Mandy's costs, but in my judgment he or Mr Herbert must, until 28 June, have led Mr Greene to believe that the loan would extend to Charles Russell's reasonable costs.

On 27 April 1999, Mr Elkins attended a meeting between Theodore Goddard and Charles Russell, which Mr Mandy also attended, and which involved negotiations to settle SBJ's claim. Obviously I was not told the content of the negotiations, but Mr Elkins' evidence was that he only attended because SBJ had asked that he be there, and that he told SBJ's representative that the proceedings were nothing to do with Amilcroft. If Mr Elkins did say that it was not, in my view, strictly true. I can not accept that Amilcroft had no commercial interest in the outcome of the proceedings, covering as it did the question of whether Mr Mandy should be allowed to solicit certain clients of SBJ on Amilcroft's behalf. Mr Elkins also told me that SBJ's representative at the meeting told him that if necessary SBJ would make Mr Mandy bankrupt. I accept this. It must have highlighted by the end of April, what everyone must have known, namely that Mr Mandy could not meet his own costs out of his own pocket, and that meeting SBJ's costs, if he lost the action, was out of the question.

On 30 April 1999, Theodore Goddard sent a fax to Charles Russell referring to its three earlier faxes concerning funding of the defence to SBJ's proceedings, and continuing:

"We should be grateful if you would confirm whether Amilcroft Insurance Brokers or any other equity has agreed to underwrite and/or pay any damages that may be awarded against your client in this matter.

We believe that Amilcroft Insurance Brokers are funding your client's legal fees in this matter and that this is not an unreasonable assumption. We also believe that there is an agreement between Amilcroft Insurance Brokers and your client regarding the payment of any damages and/or costs awarded against your client in favour of our clients. We put you on notice that our client will not only seek to recover such costs and/or damages from Mr Mandy but will seek the recovery of such monies from each partner in Amilcroft Insurance Brokers.

We suggest that you take this opportunity to give us the information requested above which we believe is in the interests of justice and is reasonable so that all parties concerned can consider this action in the light of the information provided which we believe can only resolving this litigation as soon as possible."

Neither this fax nor a chaser on 7 May 1999 brought the information which SBJ wanted. Mr Elkins told me that he had not seen the 30 April fax, but he accepted that he was probably told of its contents shortly after Charles Russell received it. Mr Greene said that he did not see it but it was the recollection of someone in his firm that Amilcroft was made aware that SBJ would seek recovery of its costs from Amilcroft. Miss Ife rightly pointed out that this was hearsay, but in my view the contents of such an important message must have been brought promptly to Mr Elkins attention. Mr Greene told me that he was aware that Amilcroft could ask to be joined as a party to the proceedings but he took the view that it was for SBJ to join Amilcroft. In the light of that evidence I accept Mr Elkins' evidence that he was advised by Charles Russell that Amilcroft would not be liable for costs until they were brought into the action.

On 12 May 1999, Mr Elkins, Mr Alexander and Mr Herbert met to consider the proceedings against Mr Mandy. The note of the meeting records that they agreed to make a loan to Mr Mandy in respect of some of his legal costs. An "initial loan of £6,000" was mentioned, although further allowances might be necessary. In my judgment this note could not have been an accurate record, because Mr Herbert, at least, must have known that Charles Russell had already billed Mr Mandy for over £19,000 which he had not paid, and the £6,000 which was later paid was not paid in respect of costs.

On 14 May 1999, Mr Mandy served notice of appeal against the interim order made on 30 March.

On 1 June 1999, Amilcroft paid £2,000 costs summarily assessed to be paid by Mr Mandy as a result of one of the earlier hearings.

On 4 June 1999, Charles Russell invoiced Amilcroft for £500 plus VAT for advice on the impact of the ongoing litigation against Mandy, including the disclosure of documents by Amilcroft.

On 14 June 1999, Amilcroft left Mr Mandy £6,000 to pay into court with a view to encouraging settlement of the proceedings. This figure was calculated by Mr Herbert with the assistance of advice from Charles Russell.

On 17 June 1999, Charles Russell invoiced Mr Mandy for a further £16,301.19 including VAT, including £4,810 plus VAT for leading and junior counsel's fees.

On 18 June 1999 a summons was issued to Mr Elkins to produce any documentation relating to funding of Mr Mandy's costs.

On 21 June 1999, according to a manuscript note on the note of the 12 May meeting, Mr Alexander suggested that Amilcroft wrote to Mr Mandy about advances in respect of costs.

On 28 June 1999, after a contested hearing, Judge Chapman ordered Mr Elkins to produce documents. Both SBJ and Mr Elkins were represented by counsel.

On about 28 June 1999 Charles Russell were shown a letter drafted by Mr Elkins and addressed to Mr Mandy on the question of costs. Charles Russell suggested amendments and the letter, dated 30 June, was sent. The letter referred to Amilcroft having provided Mr Mandy with an unsecured loan of £6,000, repayable on demand. It continued:

"We have agreed with you, pending your hearing from your insurers as to whether you will be covered by them, to allow further loans in respect of some on-going costs of defending this legal action. What we are proposing is to establish additional loans of £3,000 per month, subject to review in July. We will inform you shortly with regard to the appropriate interest rate once we have spoken to our accountants. I should mention that in any event the loans in total cannot exceed £20,000".

The letter went on to say that the loan had to be on a commercial basis and that interest rates would apply, although it went on to say that Amilcroft realised that it was a difficult time and would look to support Mr Mandy as best it could.

On 30 June 1999, the Court of Appeal dismissed Mr Mandy's appeal against the order of 30 March 1999, essentially because the speedy trial which had then been ordered was fixed for 13 July 1999. Both Mr Mandy and SBJ were represented by leading counsel on the appeal.

Mr Elkins told me that he would not have thought that the letter of 30 June 1999, including the cap of £20,000, was a surprise. I cannot accept that because I accept that it was the first that Mr Greene knew of a limit on what Amilcroft was prepared to lend Mr Mandy in respect of costs. When the letter made him aware of a cap of £20,000 on lending by Amilcroft towards Mr Mandy's costs, he was also aware that trial was near and that the settlement he had hoped for would not be realised. Mr Greene wanted some comfort that counsel's fees, at least, for the trial would be covered, and fees had already exceeded the £20,000 cap.

On or about 5 July 1999, Mr Greene met Mr Herbert, with Mr Mandy, to discuss choice of counsel for trial. The cost of a leader was canvassed in comparison with the cost of a junior. Mr Herbert told Mr Greene and Mr Mandy that if it made the difference between Mr Mandy going on with the trial, or not doing so, Amilcroft would meet the cost of junior counsel for trial, but not a leader, in addition to the £20,000 which it had previously expressed willingness to pay.

Mr Herbert told me that he was only aware of the fee invoice for £19,000 and he did not know whether the cap of £20,000 had been reached by the beginning of July 1999. He "did not know how much of the £20,000 had been earmarked." But he said that Mr Mandy brought his fee invoices into SBJ's offices when or after he got them and he, Mr Herbert, saw the first two, which must have been the £19,000 and £16,000 invoices, when Mr Mandy brought them in. Although Mr Herbert was anxious to point out that the 5 July discussion was about whether to have leading counsel for trial, it was Mr Herbert who volunteered the evidence that Amilcroft would meet the cost of junior counsel in addition to the £20,000 if it made the difference of Mr Mandy going on. In my judgment Mr Herbert must have known that Mr Mandy's costs were already in excess of £20,000 although he may not have known the exact amount. The £16,000 invoice ran only to 21 May 1999.

As a result of the 5 July meeting, Mr Greene understood that even if Mr Mandy lost at trial and went bankrupt, Charles Russell would receive £3,000 per month from Amilcroft under a standing order until £20,000 plus trial counsel's fees were paid.

At some stage after 7 July 1999, Charles Russell sent Amilcroft an amended fee note for £3,818.75 including VAT for professional services from 22 June to 7 July 1999, in advising it on the ongoing litigation against Mr Mandy and for advising and representing Mr Elkins on the witness summons issued against him.

The trial was hard fought over six days between 13 and 20 July 1999, Mr Mandy being ably represented by a senior member of the Junior Bar, who is very experienced in employment work. His fees for the trial ran out at £12,250.

As I have already indicated SBJ obtained the relief which it claimed; Mr Mandy lost. Miss Ife suggested on the partners' behalf, that there was no evidence that they were kept informed of the trial as it progressed. It is true that there was no direct evidence to this effect. However, it was Mr Elkins' evidence that he attended some meetings with Mr Mandy at Charles Russell as the dispute with SBJ developed and unfolded and I cannot accept that he was only "broadly informed as to what was going on", as his affidavit says. In his oral evidence Mr Elkins said that "there were so many times that Mr Mandy would come into [his] office" to talk over the dispute with SBJ. I bear in mind that Mr Mandy was just one of thirteen or fourteen insurance brokers in Amilcroft, including Mr Elkins himself, but Mr Elkins' and Mr Herbert's interest in the dispute from the start, the not inconsiderable investment by loan for Mr Mandy's costs, Mr Mandy's tendency to consult and inform Mr Mandy, and the fact that Charles Russell still acted for Mr Mandy and Amilcroft, all point conclusively to Mr Elkins being kept in touch with events in court (about which he could tell Mr Alexander if he chose) or making a point of purposefully keeping out of the way, in my view.

A standing order in favour of Charles Russell for £3,000 per month had been set up by Amilcroft at about the beginning of the trial, but it was cancelled before a second payment became due. That £3,000 plus the £2,000 paid on 1 June 1999 is all that has been paid towards Mr Mandy's costs. With the £6,000 paid into court, Amilcroft has paid a total of £11,000 for Mr Mandy's benefit. Mr Mandy has paid nothing at all towards Charles Russell's costs, although on 3 August 1999 they invoiced him for a further £50,848.58 inclusive of VAT, including a further £16,530 plus VAT for counsel's fees which the fees of counsel at trial. That invoice meant that Charles Russell's fees invoiced to Mr Mandy, including counsel's fees, came to £86,474.48 including VAT.

SBJ has not reserved any damages or costs from anyone, save for the £2,000 summary assessment, unless it has taken £6,000 out of court. (I have not been asked to direct any payment out).

On 13 August 1999, SBJ gave notice of this application.

On 27 August 1999, Amilcroft opened a "K Mandy Loan Account" with entries of £2,000, £6,000 and £3,000 making £11,000 in all.

I have already referred to Mr Mandy's voluntary bankruptcy on 7 September 1999. He listed Amilcroft as a creditor for £20,000. Charles Russell has proved for its costs.

Mr Elkins' affidavit states that: "The costs of this matter seemed to have escalated beyond all proportion to what was at stake, and there is absolutely no way that Amilcroft would have allowed this to happen had it been a party." I accept that Mr Elkins believes this now, but whether he could have brought the proceedings to an economically acceptable settlement if he had been a defendant, must be doubtful. No doubt suitable undertakings could have been given on behalf of Amilcroft, but Mr Mandy's case that SBJ's conduct had left him free of the restrictions of this service contract was promoted with apparent confidence. Moreover, SBJ was claiming extensive damages, and Mr Elkins' own evidence portrayed SBJ as uncompromising.

Finally, SBJ adduced no evidence of its reason for not joining Amilcroft or its partners as defendants to the proceedings. Mr Browne-Wilkinson's instructions were that SBJ did not think it had enough evidence that Amilcroft induced Mr Mandy's breach of contract until, after a battle, it obtained discovery from Mr Elkins by the 28 June court order. Only then was Amilcroft's involvement in Mr Mandy's breach of contract shown. By then SBJ was faced with an appeal against the 30 March order, and an imminent trial. Speculative litigation is never a good thing, especially if one has a remedy elsewhere, in this case against Mr Mandy. Only at the hearing of this application had Amilcroft accepted, through Miss Ife's submissions, that SBJ had a cause of action against the partners.

I now turn to the principles which, in my judgment, bear on this application.

I take these largely from Symphony Group plc v. Hodgson [1993] 4 All ER 143 where the Court of Appeal accepted the invitation of Lord Goff in Aiden Shipping Co. Ltd v. Interbulk Ltd, The Vineira [1986] AC 965, to lay down some principles for the guidance of judges of first instance when they are asked to make an order for costs against a non-party. The Symphony case has factual similarities to the present case. The Plaintiff employer successfully sued the Defendant employee who had gone to work for a competitor, Halvanto. However, the Defendant was legally aided and the Plaintiff, Symphony, sought and obtained an order for costs against Halvanto. The basis of Symphony's successful claim for costs differed from SBJ's claim against the partners, however. Symphony sought costs against Halvanto primarily on the basis that it employed Mr Hodgson with knowledge of binding restrictive covenants, which could have been raised against Halvanto if it had been joined as a party to the action, as well on the basis of an inference that Halvanto paid for legal advice for Mr Hodgson before he obtained legal aid. In the present case SBJ's claim for costs against the partners is put solely upon the basis of their funding, in part at least of Mr Mandy's defence.

In the leading judgment Balcombe L.J., at page 151j to 152f summarised the decisions to order a non-party to pay costs. These included: "Where a person has maintained or financed the action". Balcombe L.J. went on to say that the categories of case where an order could be made were neither rigid nor closed; that there were no immutable rules as to costs, and that he was aware of observations warning against laying down rules for exercise of a discretion in relation to costs generally. Nevertheless, in his judgment the following considerations which bear on the present case were material considerations to take into account, although he did not suggest that there might not be others which were relevant. Using Balcombe L.J.'s numbering from page 152j to page 154c:

"(1) An order for payment of costs by a non-party will always be exceptional ... The judges should treat any application for such an order with considerable caution.

(2) It will be even more exceptional for an order that 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, e.g. the framing of the issues by pleadings, discovery of documents, the opportunity to pay into court or to make a Calderbank offer ..... 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 under Ord 15, r6(2)(b)(i) or (ii).

Principles (2) and (3) require no further justification on my party; they are an obvious application of the basic principles of natural justice.

..............

(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."

Mr Mandy was not, of course, legally aided, but his lack of funds made him as immune from an effective order as a legally aided party.

In Cooper v. Maxwell, 20 March 1992, unreported, the Court of Appeal refused to make an order against Mrs Maxwell who had funded her son Kevin's defence of an application. Dillon L.J. said:

".......... I am unable to see that it is required by justice that Mrs Maxwell, having elected to provide money for her son's costs and legal expenses, should be required also to pay the costs of the other side which has been successful against her son in the litigation for which the funds were used.

The development of the authorities has not been that there will automatically be an order for costs against a person who is not a party to the proceedings if that party has funded the litigation. More is required. It is not suggested that a bank which funded litigation by providing an overdraft for a party to litigation on commercial terms would automatically be ordered to pay the other side's costs if the litigation was unsuccessful. The position could be different with a trade union which has an interest in funding the litigation of a member of the industrial field and habitually does pay the costs if the litigation fails. I do not see that there is anything in the circumstances of Mrs Maxwell in the present case which makes it right that the court should make an order against her to pay the costs of Mrs Kevin Maxwell's unsuccessful appeal."

This quote is taken from Thisleton v. Hendricks (1992) 32 Con LR 123 at page 136, a case where Judge John Hicks Q.C. awarded the defendant part of his costs against the mother of the Plaintiff, who had funded her son's claim by loans. Judge Hicks Q.C. drew a distinction between funding a Plaintiff and funding a Defendant. Neither Cooper nor Thistleton was referred to in Symphony, but both were referred to in Murphy v. Young & Co.s Brewery [1997] 1 WLR 1591, where Phillips L.J. at page 1603B to 1604A took the decision in Cooper to demonstrate a proposition that:

"Funding alone will not justify an order against the funder under section 51. I do not consider that an order under section 51 will normally be appropriate where a disinterested relative has, out of natural affection, funded costs of a claim or a defence that is reasonably advanced."

In Globe Equities Ltd v. Globe Legal Services Ltd and Others which I have only in The Times Law Reports, April 14, 1999, Morritt L.J. is reported as saying that:

" "Exceptional circumstances" had not been elevated by the authorities into a pre-condition to the exercise of the power; nor should they be.

Ultimately the test was whether in all the circumstances it was just to exercise the power conferred by the Act to make a non-party pay the costs of the proceedings.

Plainly, in the ordinary run of cases where the party was pursuing or defending the claim for his own benefit through solicitors acting as such, there was not usually any justification for making someone else pay the costs.

But there would be cases where either or both these two features were absent. In such cases it would be a matter for judgment and the exercise by the judge of his discretion to decide whether the circumstances relied on were such as to make it just to order a non-party to pay the costs.

Thus the exceptional case was one to be recognised by comparison with the ordinary run of cases not defined in advance by reference to any further characteristic."

Mr Browne-Wilkinson quoted this case as authority for the proposition that it was not a prerequisite of an order for costs against a non-party that the case should be exceptional in some respect. But on the one hand the Court of Appeal did in fact find that case exceptional; on the other hand it was an application which relied upon the fact that the litigation had been carried on for the benefit of a non-party - it was not an application which relied on funding by the non-party.

Mr Browne-Wilkinson argued that the present case was clearly one of illegal maintenance on the part of Amilcroft, which was a factor which I could take into account. I am not satisfied that what occurred, funding of a defendant by way of loan, amounted to illegal maintenance; in any event the mere fact of a label of illegality would not weigh heavily with me, among all the other factors in this case.

I was referred to a number of other cases. None detract from the principle that in an application such as this it is for the judge to do what is just in the particular circumstances of the case.

In this particular case the matters which carry most weight with me are as follows:

I am not satisfied that Amilcroft (by which I mean the partners) agreed to indemnify Mr Mandy against any costs which he might be ordered to pay SBJ, let alone any damages, which was a large part of the basis upon which this application was originally made.

I am, however, satisfied that Amilcroft was in fact and financially responsible for taking the initial legal advice which set off the dispute with SBJ, and for continuing legal advice until the commencement of proceedings. I am satisfied that thereafter Mr Mandy was enabled and encouraged to fight SBJ as long and hard as he did by Amilcroft's promise of a loan to meet his legal costs upon which no cap was placed until the end of June 1999, when a contested trial was imminent. Even though Amilcroft then placed a unilateral limit on its loan to Mr Mandy, it extended the loan to enable him to contest the trial with the benefit of counsel, which it rightly feared he would be unable to do without its financial help.

I do not see any effective difference between a gift for costs and a loan, in this case where Mr Mandy's ability to repay the loan if he lost, with the burden of a costs order and damages in favour of SBJ, was patently non-existent.

Amilcroft's agreement to fund Mr Mandy's legal representation initially, and later by loan, arose primarily out of its own commercial interest in him defeating SBJ by demonstrating that he was not bound by the covenants in his service agreement with SBJ. This was not simply a matter of concern for an employee's interest, although there may have been an element of that in Mr Elkins' attitude.

SBJ could have joined Amilcroft as a party to the proceedings from their commencement without any risk of their case against Amilcroft being struck out; there was enough material to infer an element of inducement by Amilcroft to Mr Mandy to break is contract, if valid, with SBJ. Joining Amilcroft would have meant there could be no argument as to the discovery of relevant documentation in the possession of Amilcroft. If this exculpated Amilcroft the action against it could have been dropped; if the documentation showed that Amilcroft was party to Mr Mandy's alleged breach of contract the action could be continued against Amilcroft as well Mr Mandy at little additional expense, in my view, with Amilcroft transparently vulnerable to orders for costs and damages.

Nevertheless, I understand an employer's wish to move as quickly as possible for effective, injunctive relief against the employee who, it contends, is clearly liable on his contractual covenants, without joining his new employer against whom its case, certainly for prompt interlocutory relief, is more doubtful. In this case, after obtaining interlocutory relief on 30 March against Mr Mandy, SBJ set about trying to find out if Amilcroft was funding Mr Mandy, and on 30 April it gave Amilcroft clear notice, which Amilcroft must have received, that it would seek its costs of the proceedings from Amilcroft.


SBJ can not be responsible for the advice which Amilcroft was given with regard to its costs liability if it was not a party. I understand any firm's reluctance to join itself voluntarily to proceedings, but Amilcroft went further than desisting from doing that. It lay positively low on the request about funding; it resisted the claim for discovery; on the evidence of Charles Russell's last fee note to Amilcroft it must have been well versed on the appeal against the 30 March 1999 injunctive order, and it ensured that Mr Mandy would be able to contest the trial by agreeing a further loan to cover counsel's fees for the trial in which, in my judgment it retained an interest.

I have no doubt that there is resentment in SBJ at its inability to obtain its costs from Mr Mandy, but I would expect that, in the circumstances of this case, and I do not consider it to be a persuasive factor. I know that SBJ is larger than Amilcroft, but I have no evidence that Amilcroft is financially vulnerable.

Although the general form of the main proceedings was unexceptional, the particular features which I have set out, and the overall factor of Amilcroft's funding in its own interest of a Defendant who, as the partners must have known, could never pay SBJ's costs if SBJ won, make this case, in my judgment, sufficiently exceptional to justify an order for costs in SBJ's favour against the partners.

I do not, however, consider that it would be just to order the partners to pay all SBJ's costs of the action. To do so would be to put SBJ in the position as to costs which it would have been in had it taken the risk of joining Amilcroft in a fight to the finish, yet without having taken that risk in fact. This is a powerful point.

In my judgment, taking account of all the relevant circumstances of this particular case into account, it is just to order Mr Elkins and Mr Alexander to pay half SBJ's costs of the action from 1 May 1999 (the day after the 30 April 1999 fax) to 30 July 1999 (when judgment was handed down) inclusive. Credit should be given for any sums paid, for instance the £2,000 payment if it forms part of SBJ's costs between those dates and has been paid to SBJ, before the dividing exercise is applied.

Unless I am persuaded to the contrary by counsel, there should be a detailed assessment of SBJ's costs payable by Mr Mandy and of SBJ's costs payable by Mr Elkins and Mr Alexander.

I will hear argument as to the costs of and relating to this application when this judgment is handed down.