Metalloy Supplies Ltd v MA (UK) Ltd

A personal costs order against a liquidator as a non-party is within the court’s jurisdiction, but it is exceptional. Where the liquidator brings bona fide and reasonably arguable proceedings in the company’s name, impropriety is a necessary ingredient before personal liability should be imposed.

An insolvent company’s inability to meet an opponent’s costs does not itself make the liquidator’s continuation of proceedings unreasonable or improper. The defendant’s ordinary protection is an application for security for costs. Particular caution is required because liquidators must be able to pursue the company’s assets without being exposed to personal costs liability merely for managing its litigation.

A company in liquidation sued for the unpaid balance of the price of goods. The defendant obtained leave to defend and counterclaim, then sought security for costs. Although security was initially refused, it was later ordered on appeal. The company could not provide it and the action was dismissed.

District Judge Peters refused to order the liquidator personally to pay the defendant’s costs. On the defendant’s appeal, Judge Hutton held that the liquidator had acted unreasonably in continuing the action from 30 March 1994 and made a personal costs order for the subsequent period. The liquidator appealed to the Court of Appeal.

The central issue was whether a liquidator who pursued bona fide company proceedings without funds to meet the defendant’s costs had acted so improperly that a non-party costs order was justified.

1. Appeal allowed. Waller LJ held that the judge had exercised the discretion on a wrong basis. Millett LJ gave concurring reasons and likewise concluded that the appeal should be allowed.

2. The court had jurisdiction to make a non-party costs order against a liquidator. But such orders are exceptional and require considerable caution. The principle in Symphony Group PLC v Hodgson [1994] QB 179 showed that a person whose role is merely to manage litigation should ordinarily incur liability only for improper prosecution or defence. In the case of a liquidator, impropriety was a necessary ingredient, with further caution justified by the public interest in enabling liquidators to perform their functions.

3. The judge had wrongly treated it as sufficient that it was unreasonable to continue an action when the company lacked funds to meet the defendant’s costs if it lost. An impecunious plaintiff may bring bona fide proceedings despite that risk. A defendant faced with an insolvent company has the ordinary remedy of security for costs. If security is refused, it cannot ordinarily be improper for the liquidator to continue a reasonably arguable claim in the hope of trial or settlement.

4. There was no suggestion that the claim had become hopeless, that the liquidator had acted other than bona fide, or that he had pursued an ulterior purpose. The liquidator was entitled to resist security and leave the court to decide whether an order would stifle a meritorious claim. Waller LJ also treated the absence of prior warning of a proposed personal costs order as a relevant discretionary consideration.

5. The liquidator’s conduct was neither exceptional nor improper. The order of District Judge Peters refusing personal liability was restored. The respondents were ordered to pay the appellant’s costs of the specified hearings.

• Court of Appeal — allowed the liquidator’s appeal and restored District Judge Peters’s order: [1996] EWCA Civ 671.

• High Court, Queen’s Bench Division — Judge Hutton allowed the defendant’s appeal from District Judge Peters and ordered the liquidator personally to pay the defendant’s costs from 30 March 1994.

• District Judge Peters — refused to make the liquidator personally liable for costs when the company’s action was dismissed for failure to provide ordered security for costs.