U.K.: Costs Awarded Against Non-Party – Personal Costs Liability for EU Domiciliaries

(Sea Venture Volume 19)

It is not always appreciated by overseas litigants using the English Courts that by Section 51 of the Supreme Court Act 1981 the English Courts have a broad and unfettered discretion in respect of costs. The Section provides:

''… the costs of and incidental to all proceedings in the civil division of the Court of Appeal and in the High Court…shall be in the discretion of the Court. 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 the House of Lords held that this section conferred jurisdiction to order non-parties to pay the costs of litigation where justice so required. Since that decision the English Courts have on numerous occasions ordered that an individual having either the management of a case or who has maintained or financed an action shall be liable for the costs of the action even though the individual concerned was not a party in the action. The test applied is whether it was just and reasonable to make a costs order against a non-party. However, until recently, the position of an individual domiciled overseas in the European Union had not been considered by the appellate courts.

In the ''Ikarian Reefer'' Shipowners sued Hull and Machinery Underwriters to recover the insured value of the vessel on the basis that the vessel was a constructive total loss following grounding and fire. The Shipowners were successful at first instance. The Underwriters appealed to the Court of Appeal where, following an extraordinary 31 day hearing, the Court of Appeal in effect retried the case, reversed the judgment at first instance and rejected the Shipowners' claim. The costs of these proceedings were very substantial. The Underwriters sought to recover costs against Mr. Comninos, who by the time of the trial, had become the 100% shareholder of the shipowning company. The Underwriters asked the Court to infer from this and other indications that Mr. Comninos was involved in the direction of the action and that it was he who instituted, controlled and financed the litigation.

Mr. Comninos is domiciled in Greece, an EU State. He was not a party to the original proceedings. The Underwriters proceeded against him personally for recovery of costs. Mr. Comninos challenged the jurisdiction of the English Courts on the basis of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (implemented in English law by the Civil Jurisdiction and Judgments Act 1982): He argued that the Convention required that any proceedings against him should be brought where he is domiciled, i.e. Greece.

The relevant provisions of the Brussels Convention are:-

Article 2

Subject to the provisions of this Convention, persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that State.

Article 6

A person domiciled in a Contracting State may also be sued:-

1. where he is one of a number of defendants, in the courts for the place where any one of them is domiciled;

2. as a third party in an action on a warranty or guarantee or in any third party proceedings, in the court seised of the original proceedings;

3. on a counterclaim arising from the same contract or facts on which the original claim was based, in the court in which the original claim is pending.

The main argument made on behalf of Mr. Comninos was that an application pursuant to Section 51 must be considered as distinct and separate from the main action and that none of the exceptions under Article 6 of the Brussels Convention applied. In response the Underwriters contended that the application was merely incidental to the Shipowners' action and did not constitute a separate action or alternatively that jurisdiction could be established under Article 6.

At first instance Mr. Justice Rix drew a distinction between substantive and procedural matters and held that the Brussels Convention does not apply to a procedural claim such as an application pursuant to section 51 which was incidental to the Court's substantive jurisdiction over its own process. Accordingly he held that the English Courts had jurisdiction over Mr. Comninos. He also observed that if he was wrong and the Brussels Convention did apply the English Courts did not have jurisdiction under Articles 6(1) or 6 (3) but arguably there was jurisdiction under Article 6(2).

The Court of Appeal also found that the English Courts had jurisdiction, but by a different route. They concluded that the English procedure whereby a non-party may be held liable for the costs of an action does not involve ''suing'' the party so that the Brussels Convention was not triggered. ''Suing'' did not arise in the making of orders ancillary to substantive proceedings pending before a Court. In the alternative, the Court of Appeal held that if they were wrong and the English procedure did involve ''suing'' the non-party such proceedings are third party proceedings within the Article 6(2) exception. The Court of Appeal declined to order a reference to the European Court. The House of Lords also refused leave to appeal or for a reference to the European Court.

For the time being therefore, principals standing behind shipowning companies are potentially liable for the costs of a failed action, wherever they may be domiciled.

With thanks to John Hicks and Adrian Chadwick of Waterson Hicks for preparing this article. Waterson Hicks¹.

¹Waterson Hicks acted on behalf of Mr. Comninos in the action by the Underwriters to recover costs but did not act for the Shipowners in the main proceedings. This article was published on the Steamship website in April 2000