I was successful in obtaining a non-party costs order against a company director in the case of Providence Web Services Ltd v R&K Giveaways Ltd and Elliott at Merthyr Tydfil County Court on 13 May.
Such orders are considered “exceptional”, and are not generally made against a director of a corporate litigant merely because the director is the “controlling mind” of the company, even if that company would not be able to pay the costs ordered against it. More is needed to show that the director, and not the company, is the “real party” to the litigation. The director must be controlling or funding the litigation for their own, rather than the company’s, benefit, or there must be some serious impropriety or bad faith on the part of the director.
There are risks associated with seeking such an order. The non-party must be given adequate notice of the proposal to add them as a party, and an opportunity to respond. There is a substantial risk that the person seeking such an order, who has been successful in the substantive proceedings, could fail and end up with a useless costs order against the company while being liable to its director for the costs of the application, thereby snatching defeat from the jaws of victory.
In this case the Claimant had issued a defective claim and discontinued on the eve of the Defendant’s application for strike-out and alternatively security for costs, but not before the Defendant had incurred the costs of all the advice and the application, which would otherwise have been borne by the innocent Defendants. I was able successfully to argue that the director, who was sole shareholder in the company, had been conducting business on his own account. Though the claim was issued through the company, it was all being done for the benefit of the director himself. The director did not help himself by changing the registered address of the company and incorporating two new companies during the course of the short-lived proceedings.
There was misconduct along the way. The claim was issued online in the Civil National Business Centre where, despite the Defendant’s timely strike-out Application, the Claimant was able, though an error in the court’s electronic systems, to obtain (irregular) judgment in default which it proceeded to enforce despite being told it was contrary to CPR 12.3. That necessitated an urgent application over Christmas to set aside the judgment.
The result was good for the Defendants whom I was representing, because it leaves them with a money judgment against a person with assets, rather than a shell company – thereby potentially considerably less out of pocket than they otherwise would be.
