High Court grants broad disclosure in support of non-party costs application against director / funders

The High Court has granted an order for disclosure of information relating to the funding of proceedings, in support of a potential non-party costs order against the claimant's director and majority shareholder, and potentially other funders: Topalsson GmbH v Rolls Royce Motor Cars Ltd [2024] EWHC 297 (TCC).

The decision illustrates the court's willingness to order parties to disclose funding information where there is reason to believe the litigation may have been supported by funders against whom a non-party costs application might properly be made. Such information might include the identity of the funders, the terms of the funding, and the nature and extent of the funders' involvement and interest in the litigation.

The court rejected the argument that it should refuse to order disclosure unless satisfied that a non-party costs application was likely to succeed. Disclosure might be refused if the prospective non-party costs application seemed weak or fanciful, or (conversely) overwhelmingly strong so that disclosure was unnecessary, but otherwise the court would not generally be concerned with the merits of the non-party costs application.

This decision is consistent with previous cases in which the court has ordered the disclosure of funding information so that defendants could consider whether to apply for security for costs against funders - see for example this blog post on the court's decision in the RBS Rights Issue Litigation.

The decision is also a reminder that the court can order disclosure of information or documents even if compliance would put a party at risk of a breach of foreign criminal law. The court will weigh the importance of disclosure against the actual (not theoretical) risk of prosecution in the foreign state. For another decision that illustrates this point, see this post on our Banking Litigation Notes blog.

Background

The claimant owed the defendant in excess of £1 million as the net result of costs orders in each party's favour following proceedings in the Technology and Construction Court.

The defendant applied for disclosure of certain information in support of its application for a non-party costs order against Mr Topal, the managing director and majority shareholder of the claimant, and potentially other funders, under s.51 of the Supreme Courts Act 1981.

The information sought included: the identify of any individual or entity which provided funding for the proceedings; any guarantees provided by Mr Topal in relation to any such funding arrangements; the amount and terms of the funding; the extent of each funder's involvement in the conduct of the action; and the nature and extent of each funder's interest in its outcome.

The claimant resisted the disclosure application, including on the basis that the non-party costs application was inherently unlikely to succeed and that the claimant would be at risk of criminal and civil sanctions in Germany if it complied with the order sought.

Decision

The High Court (Constable J) granted the disclosure application.

The judge noted that it was not in dispute that, as a matter of principle, where the court has power to grant a remedy, such as a non-party costs order, it has an inherent power to make ancillary orders to make the remedy effective. Whether an order should be made is a matter of the court's discretion and will turn on the particular facts of the case.

Relevance of merits of the non-party costs application

The judge referred to observations of Blake J in Thomson v Berkhamsted Collegiate School [2009] EWHC 2374 (QB), which were endorsed by the Court of Appeal in Flatman v Germany [2013] EWCA Civ 278. These included that the "inherent strength" of the non-party costs application is always a relevant factor in determining an application for ancillary disclosure.

However, Constable J rejected the claimant's submission that, in considering a disclosure application, the first stage is to consider whether the non-party costs application is "likely to succeed":

• As Blake J indicated in Thomson, if the future application is overwhelmingly likely to succeed there may be no need for disclosure at all. At the other end of the scale, a disclosure application might be refused if the impending non-party costs application seems inherently weak or fanciful. But provided that is not the case, the court will be slow to undertake any further assessment of the merits of the future application.
• In some cases the purpose of the disclosure application may be to determine the very existence of relevant funding, and thereby avoid the costs of making an application against a non-party which is doomed to fail. In such cases, it will generally be premature to consider whether there is a real prospect that a non-party costs application would succeed. Thomson was not a case of that sort, and so the reference in that case to the "inherent strength" of the future non-party costs application had to be considered in its context.

In the present case, the defendant made a non-party costs application against Mr Topal, but submitted there was reason to believe that the claimant may have had other funding sources. While the court should consider whether the application in relation to Mr Topal was inherently weak or fanciful, in relation to the other potential funders the focus was on whether there was a rational basis for the court to conclude that such funders might exist against whom a non-party costs application might properly be made.

Application to the facts 

Constable J was satisfied that the prospective application in relation to Mr Topal was not inherently weak or fanciful, though it was clear from the authorities that the fact that he was the founder, CEO and majority (previously sole) shareholder of the claimant was not necessarily sufficient to justify a non-party costs order.

The judge referred to the leading case of Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39 in which Lord Brown stated that although costs orders against non-parties are “exceptional”, this means no more than that they are outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question is whether in all the circumstances it is just to make the order.

"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."

Constable J referred to two other cases in which the courts have considered non-party costs applications against directors, DNA Productions (Europe) Ltd v Manoukian [2008] EWHC 2627 (Ch) and Goknur Gida Maddaleri Enerji Imalet Ithalat Ihracat Ticaret ve Sanati AS v Aytacli [2021] EWCA Civ 1037. In the latter case, Coulson LJ noted that the touchstone is whether, despite being a non-party, the director can fairly be described as "the real party to the litigation". In order to assess that:

"...the court may look to see if the director controlled or funded the company’s pursuit or defence of the litigation. But what will probably matter most in such a situation is whether it can be said that the individual director was seeking to benefit personally from the litigation. If the proceedings were pursued for the benefit of the company, then usually the company is the real party … . But if the company’s stance was dictated by the real or perceived benefit to the individual director (whether financial, reputational or otherwise), then it might be said that the director, not the company, was the ‘real party’...".

Here, although Constable J emphasised that he had formed no firm view, there was nothing inherently weak in the submission that Mr Topal had controlled the litigation in a manner which set him apart from the ordinary company director. It was likely to be correct that Mr Topal stood to benefit most from the proceedings, as the claimant's majority shareholder, and there were arguable grounds to consider that the claimant was "a vehicle for Mr Topal’s personal ambitions and his own perception of his reputation".

Further, there were reasonable grounds to consider that there were other funders on which the pursuit of the proceedings depended. There was no necessary inconsistency between the focus on Mr Topal and the concern to understand the extent of other funding, as there may be more than one "real party" to litigation. Accordingly, to the extent it was necessary to consider the merits of the non-party costs application, the defendant passed the relevant threshold.

Further, the judge was satisfied that the information sought on the disclosure application was likely to be highly relevant to the exercise of the court's discretion in considering the non-party costs application in due course.

Risk of criminal or civil sanctions

The judge noted that an English court can order disclosure regardless of whether compliance would put a party in breach of foreign criminal law in its own "home" country. In exercising its discretion, the court should weigh the actual risk of prosecution in the foreign state against the importance of the documents to the fair disposal of the English proceedings.

Confidentiality is not a reason for refusing to disclose documents or information where required as part of the legal process, but the court will accord protection to confidentiality interests to the extent that can be done without compromising the administration of justice.

In the present case, the judge said the evidence was wholly insufficient to establish that there was any actual, as opposed to theoretical, risk of either criminal or meaningful civil proceedings if disclosure was given. Any potential risk could be managed by the imposition of appropriate confidentiality provisions and restrictions on subsequent use of the information.