Factual and Procedural Background
The Plaintiff company, which had been struck off and dissolved, brought a claim under CPR Part 8 seeking a limitation direction under section 1028 of the Companies Act 2006 concerning three disputed invoices rendered to the Defendants. The court dismissed the claim as the Plaintiff company failed to demonstrate that its dissolution caused the claim not to be brought and it was not just to grant the limitation direction. The court ordered the Plaintiff company to pay the Defendants' costs on the standard basis.
The Defendants applied to join the sole director of the Plaintiff company as a second claimant for the purpose of seeking an order that he pay the costs the Plaintiff was ordered to pay but was unlikely to satisfy due to lack of assets. The court joined the director as second claimant and directed the application against him to be dealt with on paper, receiving written submissions from both parties before delivering this judgment.
Legal Issues Presented
- Whether the court should make a nonparty costs order against the director of the dissolved company for costs ordered against the company.
- The circumstances under which a director of a limited company may be held personally liable for costs of unsuccessful company litigation.
- The relevance of good faith, benefit to the company, and conduct of proceedings in deciding whether to impose costs on a nonparty director.
Arguments of the Parties
Defendants' Arguments
- The Plaintiff company was merely a legal construct for the director’s business with no practical distinction between them.
- The director’s actions caused the company’s dissolution.
- The director would benefit from any successful claim by the company.
- The director instructed and funded the proceedings.
- The Plaintiff company had no assets and was unlikely to satisfy a costs order.
- The director had demonstrated a willingness to avoid liabilities owed by the company.
Second Claimant's Arguments
- Nonparty costs orders are exceptional and even more so when the nonparty could have been joined to the original proceedings.
- The Defendants could have joined the director to the original proceedings but did not.
- The nonparty should be warned at the earliest opportunity about possible costs orders against him; here, the first warning came only one business day before the hearing.
- The proceedings were brought in good faith, without improper motive, for the benefit of the company.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Aiden Shipping Co v Interbulk [1986] AC 965, HL |
Established principles on nonparty costs orders and judicial discretion. |
Confirmed that nonparty costs orders are exceptional but justified where nonparties fund, control, or benefit from proceedings. |
| Symphony Group v Hodgson [1994] QB 179, CA |
Reinforced the exceptional nature of nonparty costs orders and relevant factors. |
Supported the discretionary and fact-specific nature of such orders. |
| Gardiner v FX Music Ltd (unreported, 27 March 2000, Ch D) |
Nonparty costs order against a director justified where there was false evidence and fabricated documents. |
Used as an example of conduct justifying costs orders against directors personally. |
| Barndeal v Richmond LBC [2005] EWHC 1377 (QB) |
This precedent was cited but specific principles were not detailed in the opinion. |
The court acknowledged the case as part of the legal context but did not elaborate on its application. |
| Deutsche Bank v Sebastian Holdings Inc [2016] 4 WLR 17, CA |
Nonparty costs order against director justified in cases of improper conduct such as false evidence. |
Reinforced that directors funding unsuccessful company claims are not liable unless misconduct is shown. |
Court's Reasoning and Analysis
The court recognised its jurisdiction under section 51 of the Senior Courts Act 1981 and CPR rule 46.2 to make nonparty costs orders, exercising discretion justly and on a fact-specific basis. It acknowledged the exceptional nature of such orders but noted that where a nonparty funds, controls, or benefits from proceedings, it is ordinarily just to order them to pay costs if unsuccessful.
However, the court emphasised the special position of company directors. It is not an abuse of process for a limited company with no assets to bring a claim in good faith, and the mere fact that a director funds the claim is insufficient to justify a costs order against him personally unless there is bad faith, improper conduct, or the claim is not for the benefit of the company.
The court rejected the Defendants’ argument that the director could have been joined to the original proceedings because the underlying claim had never been issued and the Part 8 claim concerned only the company. The failure by the Defendants to seek security for costs was noted but not given much weight.
The court considered the late notice given to the director about the costs application but found it unimportant since the director was fully aware of the litigation from the outset, as he was the sole director and shareholder who instructed the lawyers.
Although the director was negligent in failing to comply with company law requirements leading to dissolution, this negligence was not reckless or fraudulent and did not amount to improper conduct in the litigation. The failure to disclose assets properly was also noted but did not involve impropriety.
Overall, the court found that the director’s conduct did not go beyond the ordinary case of a director pursuing a claim in good faith for the company’s benefit and dismissed the application for a costs order against him personally.
Holding and Implications
The court DISMISSED the application for an order that the director (second claimant) pay the costs ordered against the company (first claimant) to the Defendants.
The decision means that the director will not be personally liable for the costs of the unsuccessful company claim in the absence of bad faith or improper conduct. No new precedent was established; the ruling reaffirmed existing legal principles protecting directors from personal liability for company litigation costs unless exceptional circumstances apply.