Briefing Note: Third Parties and Adverse Costs Orders

In many jurisdictions, awards of costs are not limited to those who are parties to the legal proceedings, and the UK is one of them. Dymocks Franchise Systems v Todd [2004] UKPC 39, a decision of the Privy Council, the distinction was drawn between merely funding court proceedings and control the course of the proceedings or obtain a benefit from the litigation. The Privy Council set out the principles that courts must take into account when making such orders.

As a matter of of public policy, access to courts should be available and the Privy Council was reluctant to displace the position that funders of legal proceedings, who do not have a stake or interest in the outcome of the proceedings and do not control its course should be made to pay costs.

The Privy Council decided that a court will take into account the difference at law between the liability of the company as opposed to that of a separate legal entity: where the funder however pursues the litigation unreasonably for for a purpose other than the assertion of genuinely contested legal rights the funder renders themselves susceptible to an adverse costs order and paying the costs of the litigation.

The relevant distinction is where the funder is the real party to the proceedings, rather than the bona fide interests of the company or person who is the party to the proceedings. Third party funders of litigation should be aware that adverse costs may be made against them and the circumstances in which they may be made.