Funding Litigation - watch out for third party costs!

There have recently been further developments relating to Third Party Costs Orders (where a court can make a costs order against a non party to litigation who has been directly or indirectly involved in the case) in the case of Thomson v Collegiate School.

This case involved a claim for damages brought against a school alleging that they had failed to take proper measures to prevent Mr Thomson from being bullied. Two weeks into the trial the claim was discontinued and the school sought their substantial costs in defending the claim. Mr Thomson was unemployed, however, his parents had been funding the litigation.

The court said that third party costs orders are exceptional and secondly that 'pure funders' with no personal interest in litigation are unlikely to have a costs order made against them. The court also said that the conduct of the non-party in the course of the litigation was relevant and that in a family funding context, courts were reluctant to impose third party costs orders against those family members who assisted a party for philanthropic and disinterested reasons.

Mr Thomson's parents however, had played an active role in the litigation and it was doubtful that the claim would have commenced without their financial backing.

The case is notable because it was not a case of a commercial funder or an entity that was the "alter ego" of the claimant, being ordered to pay costs. The prospect of their son recovering substantial damages would not necessarily have directly benefited the parents financially, and the hoped for improvement in their son's mental state as a result of success in the proceedings might not be considered comparable to a financial benefit.

The judge concluded that benefit or control was a necessary factor before a third party costs order would be made and the defendant's prospects of success would depend on whether it could show evidence of such control and decision-making by the third parties. In this case, the judge's view was that the application for a third party costs order had a reasonable prospect of success.

It seems that although the third party costs orders are intended to be "exceptional", the courts are increasingly prepared to consider them.

For more information, please contact Emma Anderson on emma.anderson@harveyingram.com or call 0116 257 6141.