Housemaker Services Ltd & Anor v Cole & Anor

A non-party costs order is exceptional, but the jurisdiction is fact-specific and must be exercised justly. Where a director funds and controls good-faith litigation brought for the benefit of a company, those facts alone ordinarily do not justify making the director personally liable for costs. The company remains the real claimant because its assets and claims belong to it, not its members. Something more is required, such as bad faith, a collateral purpose or improper conduct of the proceedings. The availability, and non-use, of security for costs is a relevant but potentially limited factor.

The court had previously dismissed a Housemaker Services Ltd claim under CPR Part 8 for a limitation direction under section 1028 of the Companies Act 2006. The first claimant had been struck off and dissolved. The defendants then applied for the second claimant, its sole director and shareholder, to pay the costs ordered against the company.

The application was dealt with on paper. The defendants relied on the claimant’s control, funding and expected benefit from the litigation, together with the company’s lack of assets. The second claimant relied on the exceptional nature of non-party costs orders, the late notice of the application and the absence of bad faith or improper conduct.

1. The application for an order that the second claimant pay the costs ordered against the first claimant was dismissed. The parties were invited to agree an order giving effect to the judgment, with written submissions to follow if agreement could not be reached.
2. Under section 51 of the Senior Courts Act 1981 and CPR rule 46.2, the court has jurisdiction to order a non-party to pay litigation costs. The jurisdiction involves a judicial discretion, must be exercised justly, is highly fact-specific and is summary in nature.
3. A non-party costs order is exceptional only in the sense that it lies outside the ordinary run of cases. A person who funds, controls or benefits from litigation will ordinarily be treated as the real party, making an order just where that litigation fails.
4. A director of a limited company occupies a special position. A company may properly bring a good-faith claim despite having no assets, and the director’s control and funding of the claim, together with the prospect of benefiting from success, do not ordinarily justify personal liability for costs. The company remains the real claimant because its assets and claims belong to it.
5. Something more is required before it is just to order the director to pay. Relevant examples include a claim brought otherwise than in good faith or for the company’s benefit, a collateral purpose, or improper conduct of the proceedings. The cases of Gardiner v FX Music Ltd and Deutsche Bank v Sebastian Holdings Inc illustrated this additional element, where false evidence and fabricated documents had been involved.
6. The defendants’ failure to seek security for costs and the lateness of their notice were relevant factors. They carried little weight here because the second claimant knew of and participated in the litigation from the outset and could have taken advice on his position. His failures concerning company communications and accounts were negligent or wrong, but did not amount to impropriety in conducting the proceedings.

The judgment itself records a prior first-instance judgment in the same proceedings, in which the claim for a limitation direction was dismissed: [2017] EWHC 753 (Ch). The present application concerned only whether the second claimant should be made personally liable for the first claimant’s costs.