We Can Work It Out

6th September 2018

After a hard day’s fight in the Court of Appeal, SMB’s Litigation team helps client overturn six-figure costs order following dispute about infringement of copyright in songs by The Beatles.

Experienced entrepreneur and SMB client David Bailey has succeeded in overturning a Non-Party Costs Order in the Court of Appeal, having initially been found liable for hundreds of thousands of pounds of costs incurred by Sony/ATV Music Publishing in proceedings against his former company.

Mr Bailey was the sole director and majority shareholder of a company called WPMC Limited which was sued by Sony/ATV Music Publishing LLC and Sony/ATV Music Publishing (UK) Limited, who alleged that his company had infringed their copyrights in various songs by The Beatles.

Sony succeeded at trial in July 2015 and WPMC was ordered to pay Sony’s costs of the proceedings. The company did not have the funds to do so and was placed in liquidation shortly after judgment was handed down. As a consequence, Sony did not recover any of its costs.

A year later, Sony wrote to Mr Bailey putting him on notice for the first time that they intended to apply to court seeking an order making him personally liable for their costs. Mr Bailey, who was not a party to the original proceedings, contested the application and it was heard by the trial judge Mr Justice Arnold in February 2017.

The judge held that Mr Bailey, not WPMC, was the real party since “he controlled and partly funded the defence of WPMC’s claim with a view to his own benefit, and therefore it is right that he should pay the costs which [Sony] incurred as a result”. The judgment at first instance can be found here. As a result, Mr Bailey was ordered to pay hundreds of thousands of pounds to Sony and their lawyers.

Mr Bailey obtained permission to appeal from the Court of Appeal and his appeal was heard by Lord Justice Kitchin and Lord Justice Floyd on 19 July 2018. Lord Justice Floyd, giving the leading judgment, held that the judge at first instance “fell into error” by attaching no weight to Mr Bailey’s evidence that he would have conducted the defence of the copyright claim differently or protected his position had he been warned at the earliest opportunity, as the court held he should have been, of the possibility that Sony may seek a costs order against him.

The absence of any form of warning was, in the court’s judgment, fatal to Sony’s application for a non-party costs order and the appeal was allowed. The Court of Appeal also held that the judge had failed to take into consideration that Mr Bailey was acting in the interests of a substantial creditor of WPMC when he caused the company to defend the proceedings.

The judgment will come as comfort to directors of companies faced with litigation who are concerned about their potential personal exposure to costs.

It will also serve as a salutary lesson to any parties to litigation considering seeking a non-party costs order that they must warn the non-party as soon as possible of their potential liability, in the absence of which any subsequent application is likely to fail if the non-party can show that a warning would have materially influenced their conduct and they had been unfairly deprived of realistic opportunities to settle the litigation or to protect themselves against the adverse effects of a non-party costs order e.g. by taking out insurance.

Razi Mireskandari and Gordon Clough together with Ben Williams QC of 4 New Square acted for Mr Bailey in the non-party costs order proceedings before the High Court and Court of Appeal.