The Court of Appeal’s decision in Sony/ATV Music Publishing LLC v WPMC Ltd and another highlights the importance of warning a non-party at the earliest opportunity of the possibility that a costs application may be made against it. The sound of silence was fatal to such an application in Sony.
The litigation involved the copyright in a documentary about The Beatles. The claimants’ (together Sony) started proceedings against two defendants in 2012. One defendant quickly went into liquidation, the other (WPMC) defended the matter to trial. Mr B, a director and majority shareholder in WPMC from 2013, dealt with Sony’s solicitors directly for much of the proceedings. In mid-2014, he told Sony that WPMC had no assets of which to speak. Sony’s solicitors told Mr B that they were not convinced that WPMC would be able to meet any costs order a few months before trial. Sony won at trial in July 2015. WPMC was ordered to pay Sony’s costs and was given permission to appeal. However, WPMC went into liquidation in August 2015. It did not pay Sony’s costs and did not appeal.
The first time Sony told Mr B that it intended to seek a non-party costs order against him was in July 2016, over a year after the judgment had been handed down.
The importance of giving an early warning has been highlighted in case law since the 1990s. Plainly, the importance of a warning will vary from case to case. In Sony, the application failed as there was credible evidence from Mr B that he would have acted differently if he had been warned that Sony intended to seek an order for costs against him. Absent the delay, the matter was fairly evenly balanced, but the failure to warn Mr B was fatal. His evidence clearly showed that he had been deprived of a number of realistic opportunities to protect himself. He could have put WPMC into liquidation, accepted one of Sony’s pre-trial settlement offers, tried to pursue the appeal or obtained after the event (ATE) insurance. Mr B’s evidence was credible. He was an experienced entrepreneur used to assessing risk against reward. He had invested very little in the underlying project and only instructed solicitors when a full “no win, no fee” CFA was available.
So, if acting for a party who might seek such an order:
- Remember the importance of warning the non-party of the possibility of a costs application at the earliest opportunity.
- If you do not warn the non-party, consider what explanation you can give (Sony did not offer any explanation), and how you can persuade a judge that it is still in the interests of justice for such an order to be made.
- Consider applying to cross-examine the non-party on any evidence she or he gives as to the detriment caused by the failure to warn. The Court of Appeal noted Sony’s failure to make such an application.
If you are acting for the non-party faced with such an application:
- Establish what, if any, warnings were given of the possibility of seeking such an order and when each was given; was warning given at the “earliest opportunity”?
- If no warning was given, or was given late, consider with the non-party what she or he would have done differently.
- If you intend to rely on no warning or a late warning being given, prepare a clear and unambiguous statement spelling out what the non-party would have done differently so as to protect herself or himself, and the facts that show that such evidence is credible.
- Warn the third party that she or he may be cross-examined on such evidence.
As this case shows, there is one overriding principle when exercising this jurisdiction. It must be exercised in the interests of justice. Keeping the non-party in the dark is unlikely to be regarded as supporting the cause of fairness.
