Housemaker Services Ltd v Cole

This case concerns an application for a non-party costs order against the sole director and shareholder of a dissolved claimant company after the company was ordered to pay the defendants' costs. The court applied the established principles that jurisdiction to order a non-party to pay costs derives from section 51 of the Senior Courts Act 1981 and CPR rule 46.2, and that such orders are exceptional.

The judge emphasised the special position of a director of a limited company: where proceedings are brought in good faith for the benefit of the company, the company is ordinarily the real party and a non-party costs order against the director will not follow merely because the director funded or controlled the litigation. A non-party order is justified only where there is something more, for example bad faith, misuse of process or improper conduct.

The application against the director was dismissed because the judge found the director's failures were negligent rather than fraudulent or reckless, the proceedings had been pursued in good faith for the company's benefit, and there was no impropriety in how the litigation was conducted. The judge also noted factors such as the failure to apply for security for costs and the timing of notice of the application, but treated them as of limited weight in the circumstances.

Background and parties:

• The underlying dispute concerned three disputed invoices rendered to the defendants by Housemaker Services Ltd (the 1st claimant), a company which had been struck off and dissolved. The 1st claimant brought a Part 8 claim seeking a limitation direction under section 1028 of the Companies Act 2006. That Part 8 claim was dismissed by the judge in an earlier handed-down decision ([2017] EWHC 753 (Ch) on 7 April 2017) and the company was ordered to pay the defendants' costs.
• After that decision the defendants sought an order that Mr Wayne Williams, the sole director and shareholder, be joined as 2nd claimant and ordered to pay the costs which the company had been ordered to pay, on the basis that he had funded, controlled and would benefit from the claim.

Nature of the application:

• The present judgment deals with the application against the 2nd claimant for a non-party costs order, made under the court's jurisdiction in section 51 of the Senior Courts Act 1981 and CPR rule 46.2. The joinder had been made and the application was decided on paper.

Issues framed by the court:

• Whether it was just to make a non-party costs order against the director given his control, funding and potential benefit from the company’s claim.
• Whether the director's conduct in causing the company to be dissolved, in failing to keep Companies House informed, and in the conduct of the proceedings, amounted to the sort of impropriety or misuse of the process that would justify piercing the company’s separate legal personality for costs purposes.

Court's reasoning and decision:

• The judge reviewed authorities establishing that non-party costs orders are exceptional and that directors occupy a special position: it is not enough simply that a director funds or controls litigation for a company to justify ordering him to pay the company's costs if the company acted in good faith for its own benefit.
• The court concluded the director had been negligent in failing to comply with company law formalities and in failing to ensure communications from Companies House reached him after he moved house, but that this conduct was negligent rather than reckless or fraudulent. There was no finding of bad faith, collateral motive or improper conduct of the proceedings.
• The judge also noted that the defendants had not applied for security for costs and that notice of their intention to seek non-party relief was late, but treated those matters as of limited weight because the director had been aware of and involved in the litigation from the outset.
• Accordingly the application for a non-party costs order against the director was dismissed and the parties were invited to agree an order giving effect to the judgment or to make brief written submissions if they could not agree.

Application dismissed. The court held that although the director had failed in aspects of company administration and the company’s claim had failed, the director's conduct did not amount to bad faith, fraud or impropriety sufficient to justify a non-party costs order; his failings were negligent rather than fraudulent and the proceedings were brought in good faith for the company's benefit.