Costs - Non-party costs

Learning Outcomes

This article explains the legal framework for non-party costs orders in civil litigation, when a non-party may be liable for costs, and the procedural requirements for seeking such orders. It discusses how to apply the relevant principles to SQE1-style scenarios and how to distinguish non-party costs orders from other types of costs liability. It examines typical categories of potential respondents (such as directors, controlling shareholders, commercial funders, and insurers), how control, funding, and benefit affect liability, and how fairness, timing, access to justice, and conduct shape the court’s discretion. It also reviews how non-party costs orders interact with Part 36 consequences, the basis of assessment (standard vs indemnity), and related mechanisms including wasted costs, QOCS, and security for costs. It outlines how the Arkin cap may operate in practice for professional funders, when the court may depart from it, and how this affects risk assessment. It further highlights recurring exam triggers, such as insolvent companies, insurer-controlled litigation, and passive vs active funders, so you can identify the “real party in interest”, predict likely orders, and eliminate distractor options in SQE1 multiple-choice questions.

SQE1 Syllabus

For SQE1, you are required to understand the rules and principles relating to non-party costs orders in civil litigation, with a focus on the following syllabus points:

• the statutory and procedural basis for non-party costs orders
• the circumstances in which a non-party may be liable for costs
• the key factors the court considers when deciding whether to make a non-party costs order
• the procedural steps for applying for a non-party costs order
• the relationship between non-party costs orders and other costs mechanisms
• typical categories of non-parties (company officers, litigation funders, insurers) and how liability may arise
• how the court may apportion costs (full or partial, and from particular dates) and choose the basis of assessment
• how principles such as the “Arkin cap” can feature for professional funders and why it is not a rigid rule

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the statutory basis for a non-party costs order in civil litigation?
2. Name two key factors the court will consider before making a non-party costs order.
3. True or false? A non-party who simply funds litigation as a passive lender is always liable for costs.
4. What procedural step must be taken before the court can make a non-party costs order?

Introduction

Non-party costs orders allow the court to require someone who is not a formal party to litigation to pay some or all of the legal costs. This power is used sparingly and only where it is fair and just. Understanding when and how a non-party may be made liable for costs is important for SQE1, especially in cases involving third-party funders, company directors, or others who control or benefit from litigation. Although these orders are described as “exceptional”, that means they are outside the usual rule that only parties are liable; it does not mean they are never made. The court’s focus remains whether, in all the circumstances, it is just to depart from the norm.

Legal Basis for Non-party Costs Orders

The court’s power to order a non-party to pay costs is found in statute and the Civil Procedure Rules. The wide statutory discretion means the court may determine by whom and to what extent costs are to be paid; CPR then ensures due process by requiring the non-party be joined and heard.

Key Term: non-party costs order
An order requiring a person who is not a party to litigation to pay some or all of the legal costs, usually because of their involvement or interest in the case.

Key Term: Section 51 Senior Courts Act 1981
The statutory provision giving the court broad discretion to determine by whom and to what extent costs are to be paid, including by non-parties.

Key Term: CPR 46.2
The Civil Procedure Rule that sets out the procedure for applying for a non-party costs order, including the requirement to join the non-party for costs purposes and give them a chance to be heard.

Key Term: Arkin cap
A guidance principle sometimes applied to professional litigation funders that may limit their liability for adverse costs to the amount they funded. It is not a rigid rule and the court may depart from it depending on the funder’s control, benefit, and conduct.

The court may act on an application by a party or, exceptionally, of its own initiative. Whatever the route, the non-party must be joined for costs purposes and given a reasonable opportunity to make representations before any order is made.

When Can a Non-party Be Liable for Costs?

The court will only make a non-party costs order in exceptional circumstances. The main situations where such an order may be considered are:

• Where a non-party funds and controls the litigation and stands to benefit from its outcome
• Where a company director or shareholder controls litigation brought in the company’s name
• Where a non-party uses a party as a “puppet” to pursue their own interests

The court will not make a non-party costs order simply because someone has provided financial support or is interested in the case. There must be a real connection between the non-party’s conduct and the litigation.

A wider set of situations regularly seen in practice include:

• Commercial litigation funders who finance claims on a contingent basis: liability turns on the degree of control (strategy, settlement decisions) and the funder’s expected benefit.
• Insurers who effectively direct and conduct a defence in their own interests: potential liability may be limited to specific periods or issues, reflecting fairness and the insurer’s role.
• Controlling shareholders or directors of insolvent companies: where the company is used as a vehicle and the individual is the real party interested in the outcome, liability can follow.
• Trade unions or associations supporting litigation for collective benefit: generally protected if their involvement is limited, but risk increases if they control the litigation and benefit in their own right.

Key Term: control of litigation
The extent to which a non-party directs, manages, or influences the conduct of a case, including legal strategy, funding, or decision-making.

Key Term: real interest in outcome
A substantial financial or personal stake in the result of the litigation, beyond mere support or sympathy.

The court pays close attention to whether the non-party is the real party in interest. That is, whether they were the moving force behind the proceedings and stand to gain from them, rather than a peripheral supporter. Improper conduct is not a prerequisite, but it can be relevant to both liability and the basis of assessment (for instance, indemnity costs where disapproval of conduct is marked).

Key Principles for Non-party Costs Orders

The court’s discretion is guided by established principles:

• Control and Funding: The more a non-party funds and directs the litigation, the more likely they may be liable for costs. Financial support alone is not enough; decision-making power and strategic influence increase risk.
• Benefit: If the non-party stands to gain directly from a successful outcome, this supports an order. The benefit may be financial or practical (for example, protection of the funder’s own commercial interests).
• Justice and Fairness: The overriding question is whether it is just to make the order in all the circumstances. The court considers causation (did the non-party’s involvement cause the costs to be incurred?), proportionality, and whether liability should be for all or only part of the costs.
• Access to Justice: The court is careful not to discourage legitimate third-party funding that enables access to the courts. Professional funders who act responsibly may have liability tailored or limited, for example by reference to the Arkin cap where appropriate.
• Foreseeability and Warning: A non-party’s awareness that they might face costs liability, and whether they were warned in advance, can be relevant. Where a party has put a funder or director on notice, it strengthens the case for an order if the litigation proceeds unsuccessfully with their continued involvement.
• Timing and Apportionment: Liability can be confined to particular periods or issues (for instance, costs incurred after the non-party assumed control), reflecting fairness and causation. The court can order a proportion of costs or costs from a certain date only.
• Conduct: There is no requirement to find improper conduct. However, oppressive or unreasonable behaviour (for example, prolonging hopeless litigation or refusing reasonable settlement) may justify broader liability and an indemnity basis.

A non-party who is only a passive funder, such as a relative helping with legal fees, is unlikely to be liable unless they also control the case or benefit directly. By contrast, commercial funders or insurers who closely direct proceedings and expect significant benefit are at greater risk.

Where professional funders are involved, the Arkin cap may be considered. It is not a rule of law, but a pragmatic approach that can limit a responsible funder’s exposure to the amount they invested. The court may depart from it if, for example, the funder exercised extensive control, stood to benefit substantially, or their conduct merits a different outcome.

Worked Example 1.1

Scenario:
A company brings a claim against a competitor. The company is insolvent, but its sole director funds the litigation, instructs the solicitors, and expects to benefit if the claim succeeds. The company loses at trial and cannot pay the costs order.

Answer:
The court may make a non-party costs order against the director, as they controlled the litigation and stood to benefit directly.

Worked Example 1.2

Scenario:
A friend lends money to help a claimant pay legal fees but has no involvement in the case and no expectation of benefit.

Answer:
The court is unlikely to make a non-party costs order against the friend, as they did not control the litigation or benefit from it.

Worked Example 1.3

Scenario:
A professional funder provides £500,000 to finance a claimant’s expert evidence and trial costs. The funding agreement leaves conduct decisions with the claimant and their lawyers, but the funder receives regular updates and has a veto over settlement below a floor. The claim fails and the defendant seeks a non-party costs order for £1.2 million.

Answer:
Liability is possible given funding plus some control through the settlement veto and the funder’s expected benefit. The court may consider limiting exposure to the amount funded (applying the Arkin cap) if the funder acted responsibly and did not closely control conduct. However, the cap is not automatic; if the funder’s involvement amounted to significant control or if conduct merits disapproval, liability could exceed the amount funded.

Worked Example 1.4

Scenario:
An insurer defends a product liability claim brought against its insured. The insurer appoints solicitors, sets strategy, and rejects settlement in pursuit of a wider precedent beneficial to its portfolio. The claimants succeed against the insured but the insured is insolvent. The claimants seek a non-party costs order against the insurer.

Answer:
The court may make a non-party costs order where the insurer effectively controlled the defence for its own benefit. Liability can be tailored, for example to costs incurred after the insurer assumed control or to specific issues. The court will assess fair apportionment, bearing in mind the insurer’s role as the real party in interest.

Procedure for Seeking a Non-party Costs Order

The application for a non-party costs order is usually made after judgment. The steps are:

1. The non-party must be joined to the proceedings for costs purposes only.
2. The non-party must be given notice of the application and a reasonable opportunity to attend a hearing and make representations.
3. The applicant must provide evidence of the non-party’s involvement, such as funding, control, or benefit.
4. The court will consider all the circumstances and decide whether it is just to make the order.

Key Term: joinder for costs
The process of formally adding a non-party to the proceedings for the limited purpose of determining liability for costs.

Practical points for applications:

• The application is made under Part 23 with supporting witness evidence. Typical materials include funding agreements (or evidence of funding), correspondence showing the non-party’s involvement in strategy or settlement decisions, and any warnings given that a costs order would be sought.
• Timing matters. Applications are generally brought promptly after judgment to avoid prejudice and satellite disputes. Delay can undermine the discretionary relief.
• The court can make orders for part of the costs, limit liability to costs from a particular date, or award interest on those costs. The court also chooses the basis of assessment (standard or indemnity), applying the proportionality and conduct tests under Part 44.
• If a non-party order is made, the amount payable is assessed in the same way as inter-partes costs (summary assessment where appropriate; otherwise detailed assessment, with the usual points of dispute procedure and potential provisional assessment below £75,000).
• The court can direct a payment on account of costs. That ensures cashflow pending detailed assessment, consistent with general practice in costs orders.
• Non-parties added for costs only do not become full litigants on liability or merits. Their role at the hearing is confined to the costs question.

Relationship to Other Costs Orders

Non-party costs orders are distinct from:

• Wasted costs orders: Made against legal representatives for improper conduct causing loss. The focus is on the lawyer’s behaviour, not funding or control by a third party.
• Security for costs: An order requiring a claimant to provide security for the defendant’s costs (for example, where the claimant is an impecunious company or resident outside the jurisdiction). Security is against the claimant, not against a non-party funder, though funding arrangements may be relevant to whether security is just.
• Third-party funding agreements: The court looks at substance not labels. If a funder effectively controls and benefits from the litigation, costs liability can arise notwithstanding the contractual terms.
• Part 36 consequences: Where a defendant’s Part 36 offer is not beaten, split costs orders may apply. A non-party costs order will generally follow the pattern of costs that would have been payable between the parties, adjusted to the court’s view of what is just in the non-party context.
• QOCS: Qualified one-way costs shifting applies to claimants in personal injury claims. QOCS does not protect non-parties (for example, insurers or funders) from costs liability under a non-party order; its effect is confined to enforcement against claimants.

Exam Warning

Non-party costs orders are exceptional. The court will not make such an order simply because a non-party is interested in the case or provides some funding. There must be clear evidence of control, benefit, or improper conduct. Impropriety is not required, but if present it may justify an indemnity basis and wider liability. Where professional funders are involved, the Arkin cap may be considered but is not guaranteed.

Policy Considerations

The court balances the need to ensure fairness and prevent abuse with the importance of not discouraging legitimate support for litigation. Orders are made only where the non-party’s involvement justifies departure from the general rule that only parties are liable for costs. The court seeks to deter the use of insolvent or shell vehicles to shield those who are the real parties in interest, while recognising that responsible third-party funding can facilitate access to justice. Tailored orders—limited to particular periods, issues, or proportions—can achieve fairness and maintain funding incentives.

The court also weighs proportionality and the overriding objective. Imposing liability on those who substantially control or benefit from litigation aligns with making litigants bear the true costs. At the same time, the court resists imposing chilling effects on support provided without control or direct benefit.

Key Point Checklist

This article has covered the following key knowledge points:

• The court can order a non-party to pay costs under Section 51 Senior Courts Act 1981 and CPR 46.2.
• A non-party costs order may be made where a non-party funds, controls, and benefits from litigation.
• The court considers control, funding, benefit, fairness, causation, conduct, and access-to-justice impacts when deciding whether to make an order.
• Liability can be tailored to parts of the costs or periods when the non-party was involved; the court chooses the basis of assessment and may award interest.
• The non-party must be joined for costs purposes and given a chance to be heard, with evidence of involvement provided by the applicant.
• For professional funders, the Arkin cap may be applied as guidance but is not a rigid rule; the court may depart from it depending on control and conduct.
• Non-party costs orders are distinct from wasted costs orders, security for costs, Part 36 consequences, and QOCS protection for claimants.
• Passive funders without control or direct benefit are unlikely to be liable.

Key Terms and Concepts

• non-party costs order
• Section 51 Senior Courts Act 1981
• CPR 46.2
• control of litigation
• real interest in outcome
• joinder for costs
• Arkin cap