Kerry Underwood

NON-PARTY COSTS ORDERS: TWO NEW CASES

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In two recent cases involving directors of limited companies the courts have refused to make non-party Costs Orders against those directors.

In JAS Financial Products LLP v ICAP PLC [2017] EWHC 1172 (Comm)

the Commercial Division of the High Court refused to make a Non-Party Costs Order against a former director of the Claimant Company where the company had entered into liquidation after its claim against the Defendants failed and where the company could not meet the order for costs.

The court referred to it as being a difficult case which came very close to the line.

The court considered and applied the principles set out in Deutsche Bank A.G. v Sabastian Holdings Inc [2016] EWCA Civ 23 and discusses and distinguishes the decision in Creative Foundation v Dreamland Leisure Limited [2016] EWCA 859 (Ch).

In the Dreamland case it was accepted that pursuing litigation with the view to obtaining money for a charity in which an individual had a strong interest could be regarded as a relevant financial benefit in the context of Non-Party Costs Orders.

However in that case most of the potential benefit was to be derived by the relevant non-party personally, whereas here there was no direct financial benefit to the director and the fact that any recoveries would have benefitted a charitable cause which he believed in, did not give rise to the very close connection necessary between a Non-Party and the litigation to justify a Non-Party Costs Order.

The court also accepted the director’s evidence that in pursuing the litigation he had been acting in what he saw as the company’s best interest.

The court also took into account the fact that the Defendant had not warned the director that he might be pursued personally for costs by way of Non-Party Costs Order.

Neither had the Defendants sought security for costs against the Claimant.

Overall these factors led the judge in a case that he referred to as being “very close to the line” not to make a Non-Party Costs Order.

In Spartafield Ltd v Penten Group Ltd and another [2017] EWHC 1121 (TCC).

the Technology and Construction Court, part of the High Court, refused to make a non-party costs order under section 51 of the Senior Courts Act 1981 (SCA 1981) against the sole director of a Defendant company Penten Group Limited.

The sole director was in no sense the real Defendant to the proceedings, nor could it sensibly be said that he was funding them solely or substantially for his own benefit.

This case demonstrates how, given the principle of corporate limited liability, the court will look closely and critically at the factors alleged to justify a non-party costs order against a company director.

The deputy judge had regard to the principles in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39, focusing on who was the real party to the litigation, and on whether the case fell into the category where non-parties fund financially insecure companies in litigation designed to advance their own financial interests.

However, he held that there was really only one question to consider, namely whether it was just to make a non-party costs order (Systemcare (UK) Ltd v Services Design Technology and Sharif [2011] EWCA Civ 546).

The sole director had made substantial loans to Penten Group Limited and had personally funded around 25% of Penten Group Limited’s litigation costs.

The Claimant contended that these factors, together with the sole director’s role as sole shareholder and director and his conduct during and after trial, made the case “exceptional” for the purposes of the court exercising its discretion under section 51 of the SCA 1981.

The deputy judge accepted the sole director’s evidence that the proceedings were defended to recover monies to pay Penten Group Limited’s other creditors, not to procure repayment of the loans.

The sole director genuinely believed that the litigation had good prospects of success, and the fact that not all of his evidence was accepted at trial was “standard fare in litigation”.

In the circumstances, it was not just to make the order sought.

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Written by kerryunderwood

July 7, 2017 at 9:02 am

Posted in Uncategorized

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