On 21 August 2020 the Court of Appeal handed down judgment in Glover v Barker  EWCA Civ 1112, overturning the decision of Morgan J. in Barker v Confiànce Ltd  EWHC 1401 (Ch) and giving comprehensive guidance as to the circumstances in which a defendant’s litigation friend might be liable for the costs of a successful claimant.
The facts in outline
Mr Iain Barker is a wealthy and successful businessman. In the late 1990s he decided to sell his shares in a group of companies which he had controlled, and sought tax planning advice so as to avoid paying what turned out in due course to be a tax liability of over £11 million. Mr Barker was also a fertile man. Between 2001 and 2006 he fathered five children by three different mothers. The tax planning advice which he received from Baxendale Walker Solicitors involved the creation of an employee benefit trust and a sub-trust, the principal beneficiaries of which included the five children.
In 2010 HMRC raised assessments on the basis that the trust arrangements were not effective a means of Mr Barker’s avoiding being taxed on income and gains arising via the trust and sub-trust. He settled with HMRC in April 2013 for about £11.3 million.
Mr Barker then brought proceedings seeking, in effect, to unravel the trust and sub-trust with a view to the proceeds of sale of the shares being restored to him. The proceedings were instituted against the trustee (Confiànce), one of the children (Euan, purportedly on behalf of all the children), a representative of the companies’ former employees, and certain other adult principal beneficiaries of the sub-trust. Those proceedings were in due course compromised on terms that £500,000 would be settled on discretionary trusts for the former employees and £1 million would be settled on discretionary trusts for the benefit of family beneficiaries (essentially the principal beneficiaries of the sub-trust). The balance, after payment of legal costs, was to be held on trust for Mr Barker absolutely. It was a term of the compromise that the family beneficiaries gave up any claims they might have against Confiànce.
The compromise was approved by the court – as it had to be, involving minors – in July 2014, and those proceedings were stayed. At that time the two oldest children, Tom and Freya (twins, then about thirteen), and their mother, Ms Susan Glover, knew nothing about the proceedings that Mr Barker had brought or about the compromise, and the court was not informed of their ignorance. (Morgan J. was subsequently deeply critical of the fact that those proceedings and compromise had been deliberately concealed from the twins and Ms Glover and that that information had been deliberately withheld from the court.)
In June 2017 the twins, with Ms Glover as their litigation friend, made an application to be added as defendants to the stayed proceedings, for such stay to be lifted, and for a declaration that the compromise was not binding on them. The motivation for this application appears to have been to free the twins from the release in the compromise so as to enable them to bring proceedings against Confiànce for breach of trust in parting with trust assets to Mr Barker. Morgan J. was to give judgment on that application in November 2018.
Meanwhile Mr Barker had in 2013 brought negligence proceedings against Baxendale Walker Solicitors. He finally succeeded in those proceedings in the Court of Appeal in December 2017. The Court of Appeal posited, obiter, an interpretation of section 28 of the Inheritance Tax Act 1984 (“IHTA 1984”) which gave the result that the trust (and so the sub-trust) was invalid. That interpretation of section 28 enabled Morgan J., in his judgment on the twins’ application which he gave in November 2018 ( EWHC 2965 (Ch)), to hold that Mr Barker would, had he sought to, have been entitled to rescission of the deeds putting in place the trust in the first place. That being so, the twins would not be able to show that they were beneficiaries under any valid trust binding Confiànce, they would have had no claim against Confiànce, and therefore they would gain nothing from a declaration that the compromise was not binding on them. Morgan J. went on to conclude that in those circumstances the twins were better off under the compromise than not, that it is likely that he too would have approved the compromise, and that the twins were bound by it.
The respondents to the twins’ application – principally Mr Barker, Confiànce and Euan’s litigation friend (his mother Mrs Barker) – then each made applications for their costs to be met by the twins’ litigation friend, Ms Glover. Some of the respondents also sought costs from the twins themselves. The costs applications were determined at first instance by Morgan J.
The first instance costs decision
The costs hearing before Morgan J. took something of an unusual course. Oral submissions focused mainly on the principles applicable to non-party costs orders under section 51 of the Senior Courts Act 1981. The judge was, however, more interested in the special position of a litigation friend as set out in CPR Part 21 and, accordingly, invited written submissions to follow the hearing. He recorded that he “found the written submissions to be of considerable assistance and, indeed, of greater assistance than the submissions made at the hearing as to non-party costs orders”.
The judge examined a long line of authority concerning “prochain amies”, “next friends”, “guardians ad litem” and “litigation friends” (as the nomenclature changed over the centuries) starting in 1727 and running through to more or less the present day. He concluded that the litigation friend of a child claimant would generally be responsible for the costs that would otherwise be ordered against the child if that party had been an adult. However, he rejected the submission – founded on the back of a citation in Halsbury’s Laws, vol. 10, para. 1420 – that it was not appropriate to make an order for costs against the litigation friend of the child defendant unless that litigation friend was guilty of gross misconduct, concluding that “although one has regard to all the circumstances of the case, claimants and defendants are generally treated in the same way”.
He went on to consider the position of the litigation friend of an unsuccessful child defendant in the absence of gross misconduct, in case he were wrong to have rejected the rule described in Halsbury. He expressed the view that, by issuing their application in June 2017, the twins had initiated the process whereby the case had come to him. However, he fell short of deciding that they were therefore claimants within the meaning of CPR 21.4(3)(c), concluding instead that even if there were a ‘gross misconduct’ rule as per Halsbury, he was still entitled to have regard to all the circumstances of the case in order to decide how to exercise his decision as to costs. He went on to exercise his discretion in favour of the respondents to the twins’ application on various grounds, including that the twins’ application had throughout been legally unsound and that, for the purposes of the jurisdiction under section 51 of the 1981 Act to award costs against a non-party, Ms Glover had controlled the proceedings and stood indirectly to benefit from them if successful. However he declined to make costs orders against the Twins themselves.
Accordingly, he awarded costs against Ms Glover.
The issues on appeal
Ms Glover appealed. Giving the leading judgment in the Court of Appeal Newey L.J. identified the issues as follows:
“i) Was the Judge wrong in his conclusions on the law as to the presumed general liability of litigation friends for costs, and in particular the liability of a defendant’s litigation friend?
ii) Should the Judge have concluded that [the twins] were (or should be treated as) “claimants” for the purposes of CPR 21.4(3) and so have proceeded on the basis that Ms Glover had given an undertaking in respect of the respondents’ costs?
iii) Was the Judge wrong to conclude that [the twins] should properly be treated as claimants so as to engage a principle that their litigation friend should be liable for costs?
iv) Was the Judge wrong to rely on unpaid costs orders in other proceedings when reaching his conclusions on costs?
v) Should the Judge anyway have held Ms Glover liable to pay the respondents’ costs under the general discretion as to costs conferred by section 51 of … the 1981 Act?”
The vast majority of Newey L.J.’s judgment concerned itself with issue (i), some the remaining issues falling away, as will be seen. On that issue, the core arguments made on behalf of Ms Glover were these: (a) the gross misconduct rule was right in law; (b) policy dictated that a general vulnerability to costs orders against defendants’ litigation friends would harm the administration of justice, being a deterrent against the protection of the rights of defendant children and protected parties; and (c) CPR Part 21 drew important distinctions between the position of claimants’ litigation friends as against that of defendants’ litigation friends. Against that the respondents argued that there was no such gross misconduct rule, there was a broad discretion as to costs under section 51 of the 1981 Act, the policy point was of limited significance as there was always the longstop of the Official Solicitor acting as litigation friend for a defendant child or protected party, and CPR Part 21 made provision for a defendant’s litigation friend being liable for costs.
The decision of the Court of Appeal
Reversing the first instance judge, the Court of Appeal (Newey L.J., Moylan and Patten L.JJ. concurring) held as follows:
- The jurisdiction to award costs against a non-party, including litigation friends, derives from section 51 of the 1981 Act ().
- Usually a claimant’s litigation friend will have had to give an undertaking to pay such costs as may be ordered against the child or protected party under CPR 21.4(3)(c) and 21.5. Accordingly, in such cases section 51 will not need to come into play (). But where the undertaking does not bite (e.g. if no costs are ordered against the child or protected party), then the common law position is that claimant’s litigation friend will remain liable for costs, subject to the “immutable principle” under section 51 that the court retains a discretion which must be exercised justly ().
- The position is different as regards a defendant’s litigation friend. The authorities do support the proposition that a defendant’s litigation friend will not be required to bear costs unless guilty of gross misconduct. CPR 21 does distinguish between claimants’ and defendants’ litigation friends, in that the former are required to give an undertaking as to costs whereas the latter are not. The policy point argued on Ms Glover’s behalf had force, and it was notable that in practice the Official Solicitor would not be willing to accept a case unless adequate provision was made for their costs (). Whether in fact an unsuccessful defendant’s litigation friend would be ordered to pay costs would be fact-specific and would depend on factors such as “bad faith, improper or unreasonable behaviour and prospect of personal benefit” ().
On the facts of the case the court held that Ms Glover was not guilty of bad faith, she did not stand to gain a substantial personal benefit from the twins’ application, and she had not acted improperly or unreasonably. In that lattermost regard Newey L.J., disagreeing with Morgan J., expressed the view that the twins’ application was not hopeless ab initio but was dealt a fatal blow only by the Court of Appeal’s obiter views on section 28 of IHTA 1984 handed down in December 2017, some six months after the twins’ application had been issued.
Accordingly the Court of Appeal disposed of issue (i) by rejecting the judge’s conclusions on the liability of a defendant’s litigation friend, and holding that should the twins have been viewed as defendants, costs orders against Ms Glover would be unjustified ().
Issue (ii) – deemed undertaking – was dealt with shortly. Ms Glover had not given any undertaking. She could not therefore be held liable on an undertaking that she had not given (). Moreover, the judge had expressly declined to make a costs order against the twins. Accordingly, even if Ms Glover had given an undertaking, under CPR 21.4(3)(c) it would only have been in respect of “any costs which the child or protected party may be ordered to pay”. Since the twins had not been ordered to pay any costs, there was nothing on to which the notional undertaking could bite.
Issue (iii) – the twins as claimants – was more nuanced, but the court made a decision from which, as has been seen, Morgan J. in fact recoiled. “On balance” the court held that the twins should be held to have been in the position of defendants, because although they had initiated the proceedings heard at first instance by Morgan J., those proceedings were premised on the basis that the twins should have been defendants to the original action commenced by Mr Barker to unravel the trust and sub-trust which resulted in the compromise of July 2014 (). That being so, for the reasons explained in the court’s judgment on issue (i), there was no sufficient justification for a costs order against Ms Glover.
Issue (iv) concerned a yet further set of proceedings brought by Mr Baxendale-Walker and another company (of which he and Ms Glover were directors), as assignees of the twins, against Mr Barker and Confiànce in 2016-2017. The company had lost, costs orders were made against Mr Baxendale-Walker personally, but he was adjudged bankrupt in 2018 and the costs orders were never met. Newey L.J. was not persuaded that such unpaid costs should form the basis for an order against Ms Glover in the current proceedings:  and .
Issue (v) – a free-standing jurisdiction under section 51 of the 1981 Act to award costs – was abandoned, the parties having agreed that any order against Ms Glover would, jurisdictionally, have had to have been made pursuant to section 51, and accordingly there was no independent basis under section 51 for imposing liability on Ms Glover.
The decision provides important clarification as to the distinction between the respective positions of a claimant’s litigation friend and a defendant’s litigation friend. It is now clear that the former will generally be liable for the costs of an unsuccessful pursuit of a claim, whether under an undertaking given pursuant to CPR Part 21 or at common law. By contrast, a defendant’s litigation friend will generally only be vulnerable to an order for costs in cases of gross misconduct, bad faith, personal benefit, impropriety or unreasonableness. The “gross misconduct” rule is the product of centuries-old authority. The personal benefit, impropriety or unreasonableness tests are the products of more recent authority on section 51 of the 1981 Act and non-party costs orders generally. It will be interesting to see the extent to which, if at all, courts will allow the gross misconduct rule to be watered down by considerations of personal benefit to, or impropriety or unreasonableness by, a defendant’s litigation friend.
What is also clear is that there is no independent basis for a costs award against a litigation friend under section 51 of the 1981 Act.
While generally it will be perfectly straightforward to determine whether a litigation friend is acting for a claimant or and defendant in proceedings, this case – on its unusual facts – illustrates that a court will, where there is some doubt, attempt to engage in a “substance over form” analysis to determine the true position of the child or protected party, and thus the litigation friend. Both Morgan J. at first instance and Newey L.J. on appeal attempted such an analysis. Morgan J. teetered on the brink of holding that the substance of the twins’ position was that they were claimants, though he ultimately declined to do so. Newey L.J., “on balance”, went the other way. Each case will, of course, be fact-specific and there can be no hard and fast rules. But it is likely that such cases will be very rare.
Finally, what of McKenzie Friends who have assisted unsuccessful (and impecunious) litigants in person? Cases such as Paragon Finance plc v Noueiri (Practice Note)  EWCA Civ 1402,  1 WLR 2357 demonstrate how manipulative and “what a menace … to the proper administration of justice” certain such unqualified persons can be. In Noueiri the Court of Appeal recoiled from making a costs order against the defendant’s McKenzie Friend because he was a bankrupt, and so such an order would be made in vain. In Laird v SoS for the Home Dept  EWHC 3880 (Admin) Simler J. recoiled from making what she described as “a wasted costs order” against the claimant’s McKenzie Friends (although the jurisdiction she sought to apply appears to have been that of non-party costs orders) because of “the impact such an order would have on them personally and the absence of any warning to them that their continued conduct might have the consequence of a costs order being visited on them personally”. But costs litigation is a growth industry, and the courts are seeing ever more ingenious bases of attempted recovery. It will be interesting to see whether the principles engaged in this case might encourage similar types of costs applications to be made analogously against such non-parties.
Disclaimer: this article is not to be relied on as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.
© Paul Parker, September 2020