Majuro Costs Ruling – Indemnity and third party costs orders

Majuro Costs Ruling – Indemnity and third party costs orders

The Court recently set out an interesting ruling on costs relating to an application for indemnity costs and a third party costs order. The First Defendant (the “Defendant”) applied to have the Plaintiff and any third parties who may have caused, controlled or funded the Plaintiff’s claim, pay the Defendant’s costs on an indemnity basis and an order for the third party funder to be liable for costs. In the present case, the Plaintiff had commenced a derivative claim against the Defendant in January 2015 but the Ex Parte Order granted on 21 January 2015 for injunctive relief and leave to serve out of the jurisdiction (the “Ex Parte Order”) was subsequently set aside in the Chief Justice’s ruling on 4 December 2015. In this ruling, the Judge held that the Plaintiff lacked standing to commence a derivative claim as the Plaintiff was not the registered shareholder and had failed to establish that there was a serious issue to be tried against the anchor defendant company as it no longer was in the control of the wrongdoer.

The Judge found the Defendant’s argument persuasive, namely that the Plaintiff Company was judgment proof as it had no assets to pay any costs order, and had been incorporated specifically to avoid such adverse costs orders. The Plaintiff had also confirmed to the court that it currently did not have funding available to meet the Defendant’s costs. The Chief Justice held that in these particular circumstances he was persuaded that the Plaintiff had obtained and defended the Ex Parte Order “in a way which was manifestly abusive”. Specifically the Judge cited that the Plaintiff’s case was unmeritorious and that the Plaintiff company had been specifically formed to pursue the litigation and the Plaintiff continued to engage in the litigation knowing that it was immune from the costs regime.

The Judge further held that a third party, whether a third party funder or not, of the litigation would also be liable for the Defendant’s costs. Interestingly, the Judge stated that it could not be suggested that a third party costs order could only be granted if proof was given that the third party actually provided the funding. The Judge noted that it was sufficient for the Court to hold the third party responsible for costs in circumstances where the proceedings were being brought for the benefit of a particular third party and that the third party had effectively been controlling the proceedings. In the present case the third party in question denied funding the claim but gave a clear indication of express interest in the claim and the fact that he was the sole shareholder of the Plaintiff and thereby was effectively the individual commencing the proceedings.

A question was also raised as to if the third party needed to be joined to the proceedings for the purposes of making the costs order against him. The Judge held that this was not necessary to join the third party to the proceedings and cited Justice Bell’s ruling in Phoenix Global Fund Ltd. v Citigroup Fund Services (Bermuda) Ltd. [2007] Bda LR 61. Phoenix held that the Rules of the Supreme Court 1985 read along with the Supreme Court Act 1905 contained wording that defined a party as a person that had been served with notice of, or attending any proceeding, whether or not named on the record. The third party in Majuro had given evidence he was a party to the proceedings already even though he was not named on the record. Phoenix further held that the legislation read together also signified that “any person who is directly affected by any proceeding, as signified by either appearing or having been given an opportunity to appear, may be treated as a party for costs purposes.”

The Judge subsequently awarded an indemnity costs order against the Plaintiff and the third party and ordered the Plaintiff and the third party to disclose the identity of such other persons (if any) who had been actually funding the present litigation. This case shows the Court’s far reaching jurisdiction in awarding costs orders and demonstrates the Court’s willingness to include the party that stood to benefit from the litigation.