Secretary Of State For Trade & Industry v Aurum Marketing Ltd & Anor

The discretionary power to order costs against a non-party is broad. It is exercisable whenever, in all the circumstances, it is just to do so. Bad faith, abuse of process, procedural manipulation and exceptional circumstances are not preconditions, although they may be relevant.

A controller who has operated a company’s dishonest scheme and caused it to resist a public-interest winding-up petition for personal benefit may be ordered personally to pay both sides’ costs. An unappealed winding-up order made after a merits hearing cannot be treated as a mere default order because the controller chose not to rely on evidence already filed. In an appropriate case, the company’s assets should be preserved for unsecured creditors rather than used to meet the costs of opposition.

The Secretary of State petitioned under Insolvency Act 1986 for the public-interest winding up of Aurum Marketing Ltd following an investigation. The company initially opposed the petition through its sole recorded director and shareholder, Michael Richards, but withdrew its defence immediately before the hearing. The deputy judge made a compulsory winding-up order after finding that the company’s scheme was a swindle.

The deputy judge later refused to order Mr Richards personally to pay either the Secretary of State’s or the company’s costs. He also refused a Bathampton-form order postponing payment of the company’s costs from its assets until unsecured creditors had been paid. He considered that there was insufficient evidence of mala fides, abuse of process or an improperly maintained defence. The Secretary of State appealed from both refusals.

Appeal allowed unanimously. Mummery LJ gave the leading judgment. Schiemann LJ and Simon Brown LJ agreed.

1. Under section 51 of the Supreme Court Act 1981, the court has a wide discretion to order a non-party to pay costs where justice requires it. The power is not confined to cases of bad faith, abuse, procedural manipulation or an improperly maintained defence. Nor are exceptional circumstances a statutory precondition. The question is whether the order is just on the actual circumstances of the case.

2. Public-interest winding-up proceedings may particularly justify scrutiny of the person controlling the respondent company. Their nature often means that a controller has opposed the petition for personal reasons, while the costs of the defence are effectively underwritten by that controller.

3. The deputy judge adopted the wrong approach. The winding-up order was made after a merits hearing on facts established by the Secretary of State’s evidence. It was not a default order. Mr Richards knew the allegations, had filed evidence, and voluntarily chose not to rely on it. As sole director and shareholder, and the company’s alter ego, he could not distance himself from the unappealed finding that the company’s scheme was a swindle.

4. Mr Richards had operated the scheme through the company and caused it to contest the petition for his own interests. It was therefore just that he personally pay the Secretary of State’s costs and the company’s costs. This included the costs of the petition, supporting evidence, provisional-liquidator application and first hearing, since those costs resulted from the operation of the swindle. The matter was sufficiently plain for summary determination.

5. None of the company’s assets were to be used, directly or indirectly, to pay the costs before unsecured creditors had been paid in full. No order had authorised the use of assets to fund opposition to the winding-up petition. The orders sought by the Secretary of State were made.

• Court of Appeal (Civil Division): Allowed the Secretary of State’s appeal in [2000] EWCA Civ 224. The court ordered Mr Richards personally to pay the Secretary of State’s and the company’s costs, and postponed payment of costs from company assets until unsecured creditors were paid in full. Permission to appeal to the House of Lords was refused.
• High Court, Chancery Division (Companies Court): The deputy judge made a public-interest compulsory winding-up order on 18 May 1999. On 15 July 1999 he refused the Secretary of State’s applications for personal costs orders against Mr Richards and for a Bathampton-form order.