Maranello Rosso Limited v Lohomij BV & Ors [2025] EWHC 1112 (Ch)

[2025] EWHC 1112 (Ch)Case No BL-2020-000765
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Venue Royal Courts of Justice, Rolls Building, Fetter Lane,Date 12 May 2025
London, EC4A 1NL
Before
HHJ PAUL MATTHEWS(sitting as a Judge of the High Court)
Between
MARANELLO ROSSO LIMITEDClaimant
Jamie Carpenter KC (instructed by Morrison & Foerster (UK) LLP and Reynolds Porter Chamberlain LLP) for First to Fourth and Sixth Defendants/ApplicantsSimon Mills (instructed by JPP Law LLP) for Respondent for The Claimant and the Fifth and Seventh Defendants did not appear for and were not representedHearing Hearing dates: 13 March 2025
This judgment was handed down remotely at 10:30 am on 12 May 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.HHJ Paul Matthews :

Introduction

[1]This is my judgment on two applications by notices, both dated 4 October 2024, for a non-party costs order against the respondent, Hamish Vans Agnew. They arise out of a failed claim by the claimant, a Guernsey company called Maranello Rosso Limited (“MRL”) against the defendants. One application is made by the first and fourth defendants to that claim, represented byMorrison & Foerster (UK) LLP. The other is made by the second, third and sixth defendants to that claim, represented by Reynolds Porter Chamberlain LLP. Each application is supported by witness statement from a partner in the law firm concerned. Both firms have instructed the same advocate, Jamie Carpenter KC. The applications are opposed by three witness statements, one from the respondent, one from his solicitor, and one from a third party witness. Simon Mills of counsel appeared for the respondent. The claimant and the fifth and seventh defendants have taken no part in these applications.

Background

[2]The claim was brought by MRL against the defendants arising out of a scheme to buy Stelabar SpA, a San Marino company which owned a collection of vintage cars, comprising 33 Ferraris and 38 Abbarths, and to sell the cars individually at auction, in order to realise a profit. In 2014 MRL entered into an agreement to buy Stelabar for €80 million. Unfortunately, the scheme was less successful than had been hoped. The main auction sale, in August 2014, realised far less than envisaged. Further cars were sold, but, by the end of March 2015, 25 remained unsold. In April 2015, MRL intimated claims against the defendants as having caused it loss. These claims were negotiated to a settlement entered into on 31 July 2015. However, the claimant subsequently made claims against the defendants in respect of causes of action which it said were not barred by the settlement agreement.[3]The claim form was issued on 20 May 2020. It alleged that the defendants were parties to a conspiracy to injure MRL by unlawful means. The particulars of claim were filed and served in September 2020. Over a period from October 2020 to February 2021, each of the defendants issued an application for an order striking out the claim or awarding reverse summary judgment. The claimant served draft amended particulars of claim on 4 May 2021. The applications were heard over four days from 18 May 2021. The judge, HHJ Keyser KC, on 6 September 2021 handed down judgment ([2021] EWHC 2452 (Ch)) summarily dismissing all the claims, holding that they were compromised by the settlement agreement, except for one claim in conversion by the fourth defendant. The judge ordered the claimant to pay the defendants’ costs. Permission was given for an appeal against that decision by Arnold LJ, who also ordered that security for the costs of the appeal (in the sum of about £703,000) be given by the claimant. The appeal was heard by the Court of Appeal in June 2022, and dismissed by a judgment handed down on 21 December 2022 ([2022] EWCA Civ 1667), which ordered the claimant/appellant to pay the defendants’/respondents’ costs of the appeal, and also refused permission to appeal to the Supreme Court.

These applications

[4]The appeal security in court was paid out to the defendants in respect of the costs of the appeal. But the applicant defendants recovered nothing from the claimant in respect of the costs at first instance. They claim to be owed a sum close to £3 million in total. On 31 August 2023 their solicitors wrote to the respondent, intimating a claim against him for a non-party costs order on the basis that he had provided commercial litigation funding to the claimant to enable the claim to be brought. A month later the respondent’s then solicitors, Druces, replied denying any liability. Just over a year later, on 4 October 2024, the present applications were issued, with evidence in support. The hearing was listed, and notice of hearing was given, on 14 October 2024. The hearing would be for one day, in a three-day window beginning on 11 March 2025. By reference to the Chancery Guide, para 14.46, in a heavy application such as this was, evidence in answer should have been filed and served within 28 days. None was. It is clear from costs schedules prepared for summary assessment of costs that leading counsel was instructed to and did advise the respondent in consultation in October 2024.[5]In February 2025 the respondent changed solicitors to his present firm. They were formally instructed on 11 February, and received a copy of Druces’ file on 12 February. Unfortunately, the solicitor concerned, after seeking the applicants’ consent to an adjournment of the listed hearing (which was refused), was then absent for a holiday abroad from 15-22 February. On her return she asked again, but was once more refused. She wrote a letter on 28 February 2025, saying it was abundantly clear that the respondent had not funded the litigation, and asking the applicants to withdraw their application. They did not. The respondent’s evidence was prepared and filed and served on 3 and 4 March 2025. It is clear from the costs schedule just how hard the respondent’s solicitor worked in this period to prepare the matter for hearing.[6]At the outset of the hearing before me on 13 March, the respondent applied, by a notice in Form N244 dated the previous day and supported by a witness statement from his solicitor, for an order to adjourn the hearing, on the basis that there had not been enough time to obtain further material evidence. The application was opposed. After hearing argument, I refused the application, for reasons given at the time.[7]I then proceeded to hear the applications. The hearing lasted for the whole day. As was made clear by Moore-Bick LJ (on behalf of himself, Lewison and Simon LJJ) in Deutsche Bank AG v Sebastian Holdings Inc [2016] 4 WLR 17, CA, the procedure for deciding whether to make a non-party costs order firstly “17. … should be summary in nature, in the sense that the judge would make an order based on the evidence given and the facts found at trial, together with his assessment of the behaviour of those involved in the proceedings. Second, in order to justify the adoption of a summary procedure the third party must have had a close connection of some kind with the proceedings … [T]he court should not make an order for costs against a third party unless it is just and fair that he should be bound by the evidence given at trial and the judge's findings of fact.”

The evidence

[8]The evidence before me in support of the applications was contained in the witness statements of the applicants’ respective solicitors, Jonathan Wheeler and Paul Bagon, both dated 4 October 2024. As I have already said, the evidence in opposition was set out in the witness statement of James Walmsley (the respondent’s solicitor) dated 3 March 2025, and those of Graham Sullivan and the respondent himself, both dated 4 March 2025. I record that there was no application for any witness to be cross-examined, and none was. That limits the extent to which I may disbelieve the word of a witness, though I must still weigh up the evidence and can, for example, conclude that a witness is honestly mistaken in some respect or respects.[9]In Coyne v DRC Distribution Limited [2008] EWCA Civ 488, Rimer LJ (with whom Ward and Jacob LJJ agreed) said:
“58. As regards the need for oral evidence, Mr Ashworth reminded us that it is well-settled practice that if a court finds itself faced with conflicting statements on affidavit evidence, it is usually in no position to resolve them, and to make findings as to the disputed facts, without first having the benefit of the cross-examination of the witnesses. Nor will it ordinarily attempt to do so. The basic principle is that, until there has been such cross-examination, it is ordinarily not possible for the court to disbelieve the word of the witness in his affidavit and it will not do so. This is not an inflexible principle: it may in certain circumstances be open to the court to reject an untested piece of such evidence on the basis that it is manifestly incredible, either because it is inherently so or because it is shown to be so by other facts that are admitted or by reliable documents.”

The facts

[10]I have already set out the background to this matter. I must now cover more ground, and give a little more detail. The two beneficial owners of the unsuccessful claimant MRL are Graham Sullivan and Roy Hilder. The respondent Mr Vans Agnew is a Formula One and general car enthusiast. Until September 2023, when he sold his shareholding, he was (with his brother Peter) a director and shareholder of Capital (Hair and Beauty) Ltd (“CHB”). This was a highly successful company. In 2013, the respondent and his brother caused CHB to lend a sum of about £2 million to MRL as part of the funds needed to enable it to buy Stelabar SpA. The agreement between the respondent and the owners of MRL was that, once the cars had all been sold, MRL would go into voluntary liquidation, and the respondent would be entitled to 10% of any remaining profit. As I have already said, some of the cars were sold, and MRL repaid the loan to CHB. But, because not all the cars were sold, MRL did not go into liquidation, and the respondent did not receive his 10%.[11]In June 2014, CHB lent £300,000 to MRL, to assist with the latter’s cashflow. In September 2015 and in May 2016 the respondent lent further sums to MRL, amounting to about £425,000. As I have already said, in July 2015 there was a settlement of claims intimated by MRL against the defendants. By 2019, MRL (through Mr Sullivan) was seeking legal advice from the law firm Mishcon de Reya on the effect of the settlement agreement, and the possibility of MRL’s issuing a claim for damages against the defendants. Mr Sullivan contributed about £50,000 to MRL’s costs at that time. But he also asked the respondent to lend MRL £27,000 to pay counsel’s fees for advice. The respondent did so, because he thought that in this way the money already lent to MRL would be repaid more quickly. It was agreed with Mr Sullivan that the respondent would be repaid out of the proceeds of sale of a Mercedes 710SS which had been entered in a Paris car auction fixed for 15 March 2020. Although the auction took place, the car did not sell, and the respondent was not repaid. The respondent asked for his money to be repaid as soon as possible.[12]In May 2020 Mr Hilder contributed £30,000 to MRL’s costs. The claim form was issued by MRL against the defendants. MRL had four months to serve it, expiring in September 2020. In August 2020, the respondent attended a meeting with Mr Sullivan and Mr Hilder, and another representative of CHB, at the offices of Mishcon de Reya. The meeting was intended to persuade the respondent to provide funding for the litigation. The respondent however was seeking security for the historic loans that had already been provided. The presentation at the meeting by Mishcon de Reya made the respondent more comfortable with the idea of funding the litigation. Mr Hilder contributed a further £100,000. But the respondent told Mr Sullivan that he required security for what he had already lent before considering doing so. The matter rested there.[13]By September 2020 MRL was in great need of funds to ensure that the claim form was served before its validity expired, and that its litigation bills were all met. It entered into a written agreement with the respondent referred to as a “vehicle sale agreement”. This was drafted by the respondent’s own solicitor. It recorded that MRL was the sole legal and beneficial owner of a 1953 Alfa Romeo 6C 3000 CM Colli Berlinetta motorcar, and that the respondent would purchase it for £566,000, comprising a payment for £495,000 to Mishcon de Reya’s client account and another payment for £71,000 to Jim Stokes Workshops Ltd (to pay a debt owed to that company for work done on the car). At the time of the transaction, the Alfa Romeo needed a lot more work to be done on it, but Mr Sullivan assured the respondent that it was worth at least £2.5 million even in its then condition. (In his own third witness statement of November 2021, Mr Sullivan indeed put the open market value at €5 million, and the “firesale” value at €4 million.)[14]Clause 5 of the agreement conferred on the respondent an option to exchange the Alfa Romeo for a Mercedes-Benz W125 replica by Crosthwaite and Gardner. The respondent would have preferred to have the latter, but it was not then currently in the possession of MRL though it might become so in future. Importantly, clause 6 conferred on MRL an option to buy back the Alfa Romeo (or the Mercedes-Benz if clause 5 had been operated) within the next 24 months for £566,000 plus any other sums which the respondent might have incurred in respect of the transaction and the vehicle. However, the buyback option could be exercised only “if all sums due and owing to [the respondent] and its associated parties pursuant to the Funding Agreement have been paid in full”. The sum of £486,766.20 was paid by the respondent to Mishcon de Reya on 11 September 2020.[15]The reference in the vehicle sale agreement to “the Funding Agreement” is a reference to a litigation funding agreement entered into on the same day, between the respondent, CHB, MRL, Mr Sullivan and Mr Hilder. In that agreement, the respondent and CHB are referred to as “the Lenders”, MRL is referred to as “the Borrower”, and Mr Sullivan and Mr Hilder are referred to as “the Guarantors”. The agreement recites the loan by CHB of June 2014, the loans by the respondent of September 2015 and May 2016, and the loan of £27,000 by the respondent in December 2019. Clause 2.2 contains a promise by MRL to repay those loans forthwith if the litigation was settled with a payment to MRL or the court awarded it damages. Clause 3 provides for a success fee to be paid to the respondent in “a sum equal to 10% … of the total of any monies received by Borrower as a result of it settling the litigation, or damages award (which ever [sic] is applicable)”. That clause also recites that “Borrower and/or the Guarantors have an option to buy a 1951 Ferrari 195S Vignale coupe”. It then conditionally binds them to exercise that option, in which event they will transfer the Ferrari to the respondent for the sum of £1. But the operation of clause 3 is not made conditional on the provision by the respondent of any further funds to MRL.[16]A further litigation funding agreement between the same parties was drafted in April 2021. This was however never executed, as the respondent first required the Alfa Romeo to be swapped for the Mercedes-Benz. Unfortunately, Mr Hilder (who then had physical possession of the Mercedes-Benz) refused to allow that to happen. The respondent made no further loans to MRL or Mr Sullivan. Scott Sullivan however contributed £410,000 to MRL’s costs on 6 May 2021, just before the summary judgment applications hearing. In relation to the vehicle sale agreement with the respondent, the buyback option was never exercised by MRL within the contractual 24 months, and so the respondent simply kept the Alfa Romeo. He has continued to spend money on restoring it.[17]As I have already said, the claim against the defendants was issued in May 2020, and was dismissed by way of summary judgment at first instance in September 2021. Thereafter, there was an appeal to the Court of Appeal against the decision at first instance, which itself was dismissed in December 2022. As I have said, the present applications are concerned only with the costs incurred at first instance, and not with those incurred on appeal (which were covered, to some extent at least, by the security for costs that had been ordered in the Court of Appeal). Of the costs incurred by MRL at first instance, Mr Graham Sullivan contributed just over £50,000, his son Scott £410,000, and Mr Hilder £130,000. The respondent lent MRL £27,000 to pay counsel’s fees in December 2019 (ie before the claim was issued), and paid some £487,000 under the “vehicle sale agreement” in September 2020, a total of just under £514,000.[18]Although the vehicle sale agreement is expressed in terms of a contract of sale, the reality is somewhat different. First of all, it is clear that the vehicle sale agreement was merely part of a wider transaction, including the litigation funding agreement of the same date, which conferred on the respondent an entitlement to a litigation “success fee”. Secondly, the buyback option retained by MRL meant that whether the vehicle apparently sold to the respondent remained his property in future depended entirely on the will of MRL in deciding to repay the “purchase price” (or not). The respondent had no choice in the matter. Thirdly, the respondent was paying £566,000 for a car which Mr Sullivan assured him was then worth £2.5 million. The economic reality of the transaction was one of a loan without interest, but upon security. And the money was urgently needed by MRL to meet its litigation costs. The law Statute

The law

[19]The law was not in dispute between the parties. Section 51 of the Senior Courts Act 1981 relevantly provides:
“(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in— (a) the civil division of the Court of Appeal; (b) the High Court; and [(ba) the family court;] (c) [the] county court, shall be in the discretion of the court. (2) Without prejudice to any general power to make rules of court, such rules may make provision for regulating matters relating to the costs of those proceedings including, in particular, prescribing scales of costs to be paid to legal or other representatives [or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs.]. (3) The court shall have full power to determine by whom and to what extent the costs are to be paid.”
In Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965, the House of Lords held that these provisions conferred on the court the power to make costs orders against non-parties.

(c) [the] county court,

[20]CPR rule 46.2 relevantly provides that “(1) Where the court is considering whether to exercise its power under section 51 of the Senior Courts Act 1981 (costs are in the discretion of the court) to make a costs order in favour of or against a person who is not a party to proceedings, that person must –(a) be added as a party to the proceedings for the purposes of costs only; and(b) be given a reasonable opportunity to attend a hearing at which the court will consider the matter further. [ … ]”. In accordance with this rule, I was asked to and did order that the respondent be joined to these proceedings for the purposes of these applications. (a) be added as a party to the proceedings for the purposes of costs only; and (b) be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.

Caselaw

[21]In an appeal from New Zealand, Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, the Judicial Committee of the Privy Council considered the jurisdiction to make non-party costs orders in some detail. Giving the advice of the Board, Lord Brown said: “20. Although the position may well be different when a number of non-parties act in concert, their Lordships are content to assume for the purposes of this application that a non-party could not ordinarily be made liable for costs if those costs would in any event have been incurred even without such non-party's involvement in the proceedings … [ … ] 25. A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows: 1) Although costs orders against non-parties are to be regarded as ‘exceptional’, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such ‘exceptional’ case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. 2) Generally speaking the discretion will not be exercised against ‘pure funders’, described in paragraph 40 of Hamilton v Al Fayed [(No 2) [2003] QB 1175, 1194] as ‘those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course’. In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. 3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is ‘the real party’ to the litigation, a concept repeatedly invoked throughout the jurisprudence … Nor, indeed, is it necessary that the non-party be ‘the only real party’ to the litigation … provided that he is ‘a real party in ... very important and critical respects’ … [ … ] 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 … ” 1) Although costs orders against non-parties are to be regarded as ‘exceptional’, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such ‘exceptional’ case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against. 2) Generally speaking the discretion will not be exercised against ‘pure funders’, described in paragraph 40 of Hamilton v Al Fayed [(No 2) [2003] QB 1175, 1194] as ‘those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course’. In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights. 3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is ‘the real party’ to the litigation, a concept repeatedly invoked throughout the jurisprudence … Nor, indeed, is it necessary that the non-party be ‘the only real party’ to the litigation … provided that he is ‘a real party in ... very important and critical respects’ …[22]It may be noted in passing that, in Hamilton v Al Fayed (No 2) [2003] QB 1175, referred to with approval by Lord Brown, a “pure funder” was described by Chadwick LJ (at [71]) as “a person who provides funds to meet the litigation costs of a claimant in circumstances in which he, himself, has no collateral interest in the outcome of the claim – other than as a source of reimbursement of the funds which he has provided.” On the other hand, a person may be a “commercial” funder without funding litigation frequently (Excalibur Ventures LLC v Texas Keystone Inc [2017] 1 WLR 2221, CA), and without in any way seeking to control the course of the litigation (Burnden Holdings (UK) Ltd v Fielding [2019] EWHC 2995 (Ch)).[23]In Arkin v Borchard Lines (Nos 2 and 3) [2005] 1 WLR 3055, the Court of Appeal held that a litigation funder who was not a pure funder but had an interest in the outcome beyond the hope of being reimbursed the costs laid out should be ordered to pay the successful party’s costs if the claim failed. But, as long as there was no champerty involved, such liability for costs should be limited to the amount of funding provided. This was referred to in subsequent cases as “the Arkin cap”. Lord Phillips MR, giving the judgment of the court (himself, Brooke and Dyson LJJ) put it this way:
“41. We consider that a professional funder, who finances part of a claimant's costs of litigation, should be potentially liable for the costs of the opposing party to the extent of the funding provided. The effect of this will, of course, be that, if the funding is provided on a contingency basis of recovery, the funder will require, as the price of the funding, a greater share of the recovery should the claim succeed. In the individual case, the net recovery of a successful claimant will be diminished. While this is unfortunate, it seems to us that it is a cost that the impecunious claimant can reasonably be expected to bear. Overall justice will be better served than leaving defendants in a position where they have no right to recover any costs from a professional funder whose intervention has permitted the continuation of a claim which has ultimately proved to be without merit.”
[24]However, in ChapelGate Credit Opportunity Master Fund Ltd v Money [2020] 1 WLR 1751, a different constitution of the Court of Appeal rowed back from this position, and held that Arkin did not establish a binding rule, and that the court retained a discretion. As Newey LJ (with whom Patten and Moylan LJJ agreed) put it, “38. … In the case of a funder who funded only a distinct part of a claimant's costs, a judge might well decide that it should pay no larger sum towards the defendant's costs. A judge could also, however, consider the funder's potential return significant. The more a funder had stood to gain, the closer he might be thought to be to the ‘real party’ ordinarily ordered to pay the successful party's costs in accordance with the guidance given in paragraph 25(3) of the Dymocks judgment … In the case of a funder who had funded the lion's share of a claimant's costs in return for the lion's share of the potential fruits of litigation against multiple parties, it would not be surprising if the judge ordered the funder to bear at least the lion's share of the winners' costs, regardless of whether the funder's outlay on the claimant's costs had been a lesser figure.”[25]In Excalibur Ventures LLC v Texas Keystone Inc [2014] EWHC 3436 (Comm), Christopher Clarke LJ (sitting at first instance) considered the position of costs incurred before the funder supplied funding. He said:
“139. The next question is whether, when different funders have contributed amounts at different times, they should be liable to the successful defendants only in respect of costs that the Defendants have incurred after they made their contribution. If four funders each make one, and only one, contribution of £100,000 on 1 January in one of four consecutive years and judgment is given at the end of year 4 is the contributor in year 4 responsible for any of the costs in years 1-3? 140. In my judgment the answer is ‘No’. In the example given the contributor in year 4 has not done anything which led to the defendants incurring costs in those years.”
[26]However, in Kazakhstan Kagazy plc v Zhunus [2019] EWHC 2630 (Comm), Jacobs J did not adopt that approach on the particular facts of that case:
“78. I consider, for the reasons that follow, that the justice of this case requires Mrs. Arip to pay the costs which the Claimants incurred in this litigation. I have considered whether such order should be limited to the costs incurred by the Claimants after 25 February 2014, which was the date of Mrs. Arip's first payment on account of costs. However, I do not consider that it should be so limited. Although the incurring of costs by the Claimants prior to that time cannot be said to be causally related to any conduct of Mrs. Arip, such causation is not a pre-condition to an order under s.51. Furthermore, the exercise of the discretion under s.51 can take into account conduct of a non-party who has taken steps to render it more difficult for a claimant to recover costs from a defendant.”
[27]In the opposite case, in Burnden Holdings (UK) Ltd v Fielding [2019] EWHC 2995 (Ch), insolvency practitioners (Griffins), who had earlier provided funding, had ceased to fund, and further costs had been incurred. They were held not liable to pay costs as a commercial funder in respect of the period after they had ceased to provide funding. Zacaroli J said:
“51. … The essential question (as demonstrated by the authorities I have cited above) is to what extent the costs incurred by the defendants were caused by Griffins' funding of BHUK. The fact that Griffins maintained after August 2017 their potential upside, in the event that the proceedings – now funded by others – succeeded did not cause either the continuation of the proceedings or the incurring of any further costs by the defendants. While it is true that the proceedings could not have continued after August 2017 if they had ceased to exist prior to that, and that Griffins' funding had ensured they remained in existence up to that point, I do not accept that a ‘but for’ test of causation is sufficient to fix a funder with liability. The predominant cause of the action continuing beyond August 2017 was the funding by Appledene and it is to Appledene that the defendants should look for the costs incurred in that period. If the defendants are still out of pocket in respect of the costs incurred after August 2017, that is a result of the settlement they have reached with Appledene, not the result of Griffins' funding during the earlier period.”
It is apparent that the judge concentrated on the extent to which the funders’ actions caused the incurring of further costs, and concluded that they did not. The parties’ submissions The applicants

The parties’ submissions

[28]The applicants say that the “vehicle sale agreement” and the litigation funding agreement of September 2020 are “inextricably linked” and to be treated “as one agreement”. By virtue of these agreements, the respondent provided funding to MRL for the litigation in return for a very substantial return if successful (10% of the net reward). In addition, he provided £27,000 for counsel’s fees. They say that he is to be treated as a commercial litigation funder, because of his significant interest in the outcome of the litigation over and above getting his money back. On that basis, they say that, as a matter of discretion, the respondent should pay the whole of the applicants’ first instance costs.[29]The reasons for that submission include the following. The respondent provided funds before the applicants incurred any costs, and at a time when he already had an interest in the litigation. In total he provided about 46.5% of MRL’s costs at first instance. The return to the respondent in the case of success could have amounted to £7 million, about 14 times the amount subscribed, whilst – unusually – at the same time the capital subscribed was protected by security. If funds had not been provided in September 2020, it is to be inferred that the litigation would have stopped there and then. The Arkin cap factors are not present in this case.

The respondent

[30]The respondent says that he paid £556,000 to acquire a valuable motorcar from MRL, but also to secure repayment of loans amounting to £925,000. He says that the only funding of the litigation was the short term loan of £27,000 in December 2019, which was supposed to be repaid in February 2020. Graham Sullivan, Scott Sullivan and Roy Hilder contributed significant sums for the payment of MRL’s litigation costs. The applicants’ costs would in any event have been incurred even without the involvement of the respondent. This is shown by the fact that in 2021 and 2022 MRL was able to raise £1.4 million from sources other than the respondent. It is to be inferred that, if the respondent had not paid £495,000 in September 2020, then MRL would have raised funds from alternative sources. In any event, much of the applicants’ costs would have been incurred before September 2020 when the respondent paid that sum.[31]Secondly, the respondent was not “a real party in … very important and critical respects”. He simply paid the price for the Alfa Romeo. The fact that the respondent knew that those monies would be used for litigation costs has no substantial weight. The primary commercial purpose of the September 2020 transaction was to provide security for earlier loans that had not been repaid, rather than to provide funds for the litigation. Moreover, the respondent did not seek to direct or control the litigation. Nor has he received the 10% profit share from the original deal to acquire and sell the car collection in 2014. Discussion In principle

Discussion

[32]Notwithstanding the labels put on the documents, the respondent did not buy a car. In substance, this was not a contract of purchase and sale. Instead, the respondent agreed to and did fund litigation. The car was just a form of security. If the money were repaid, the car would be returned. Moreover, the respondent was not a pure funder. He did not control or direct the litigation, but he was informed about it, and he had an interest in the outcome of the litigation beyond the repayment of the money laid out. That interest was significant, a 10% share of the profit, plus the Ferrari motorcar, amounting (in the case of success) to a return of up to 14 times his stake. His contributions (which were approximately three times the contributions made to that point by Mr Sullivan and Mr Hilder together) were made at the beginning of the litigation, before the proceedings were issued, and again before they were served on the defendants, and so caused the defendants to incur costs of their own from the outset.[33]Despite the submissions of the respondent, there is no sufficient material upon which I am willing to infer that, if he had not then done this, others would done so instead. I agree that, after September 2020, the respondent contributed no more funds, and that Scott Sullivan was ultimately persuaded in May 2021 to do so. But that does not show that anyone else would have done so at any earlier stage. For example, other funders may not have had the funds available earlier. For another, even if they had the funds, they may have been unwilling to put in their own funds earlier, until they saw how things were going. It is a different hypothesis.[34]The size of the respondent’s interest in this litigation, and his close relationship with Mr Sullivan, mean that it is inappropriate to apply the so-called Arkin cap. It also means that it is just and fair for the respondent to be bound by the findings of the court in the litigation. His own fortunes were closely bound up with those of MRL. He was a co-owner of the litigation, and a “real party” to it for his own purposes. In my judgment, the respondent should certainly pay the applicants’ costs up to the point when the next significant contribution was made, because in my judgment the respondent’s contributions caused the defendants to incur costs at least until then. That “next significant contribution” was the contribution of Scott Sullivan on 6 May 2021.[35]But I do not think that the effect of the respondent’s contribution to the costs was exhausted at that point. By that stage the litigation had a momentum of its own. The summary judgment hearing was fast approaching. It was likely that, one way or another, the litigation would continue at least until the result of the summary judgment application was known. Thus, after 6 May 2021, the respondent can fairly be described as still a co-funder, together with the Sullivans and Mr Hilder, of the litigation. He was certainly still a co-owner of it. In my judgment he should pay one third of the applicants’ costs at first instance incurred after 6 May 2021.

Basis of assessment

[36]Finally, there is the question of the basis of assessment of the costs. The applicants ask that the costs to be paid by the respondent be assessed on the indemnity basis. I begin with the fact that, after dismissing the claim, the judge ordered MRL to pay their costs on the indemnity basis. The appeal from his decision was also dismissed with costs on the indemnity basis. This must reflect the view of both the judge at first instance and the judges on appeal that this litigation had been conducted in a way that was “out of the norm”, and open to criticism, rather than simply that the defendants had had the better of the argument. Given that, as I have already said, “the court should not make an order for costs against a third party unless it is just and fair that he should be bound by the evidence given at trial and the judge's findings of fact”, the identification of the respondent in the present case with MRL means that, in practical terms, the burden is on the respondent to show why he should not pay the applicants’ costs on the indemnity basis.[37]In my judgment, far from doing this, the respondent’s conduct here shows every reason why he should pay the applicants’ costs on the indemnity basis. First, he was not a “pure” funder, but had a significant interest in the outcome of the litigation. In effect, he co-owned the claim, and was a “real party” to it, but, having security for his contribution to costs, was carrying little risk even of losing his own stake. Secondly, he indulged in a childish and ineffectual attempt at deceiving the court, by structuring his contribution as a “sale and purchase” agreement, and then arguing it in court as such. Such devices may pass muster in other countries, but not here. And, if you play with fire, you cannot complain if you get your fingers burned. In my judgment, the respondent must pay the costs of the applicants which I have ordered on the indemnity basis, to be the subject of detailed assessment if not agreed.

Conclusion

[38]For the reasons given above, I will order the respondent to pay the applicants’ costs at first instance incurred up to and including 6 May 2021, and one third of the applicants’ costs at first instance incurred thereafter on the indemnity basis, to be the subject of detailed assessment if not agreed.