RUSHBROOKE UK LTD v 4 DESIGNS CONCEPT LTD

A director who unauthorisedly causes company proceedings to be brought must indemnify the company for its resulting costs, but that does not ordinarily make him directly liable to the opposing party.

A non-party costs order against a company director is exceptional. Control or funding of litigation is relevant, but the court must principally ask whether the director was the real party and whether he sought a personal benefit, or acted with serious impropriety or bad faith causally linked to unnecessary costs. A mistake about legal authority is insufficient.

Costs may be summarily assessed on a broadbrush basis. Guideline rates and appropriate delegation remain relevant to reasonableness.

The applicant company’s application to restrain presentation of a winding-up petition had previously been struck out because one of its two directors lacked authority to instruct solicitors on the company’s behalf: [2022] EWHC 1110 (Ch). The court then considered consequential costs issues.

The respondent sought costs against the company and the director jointly and severally, including on the basis that the director was a non-party real party to the litigation. It also sought indemnity costs. The issues were the basis and amount of the company’s costs liability, whether the director should be directly liable, and the effect of the procedural requirements for a non-party costs order.

1. Costs basis. Following Smith v Butler, the director was required, as between himself and the company, to indemnify the company for the costs which it had to pay. That did not establish that the company owed the respondent costs on the indemnity basis. The applicant’s conduct was not shown to be out of the norm, so the respondent’s application for indemnity costs against the applicant was refused.
2. Assessment. The application lasted less than one day, so summary assessment was appropriate under the Civil Procedure Rules 1998. Although the updated costs schedule was served late, the applicant had sufficient time to consider it and suffered no prejudice. Both schedules were therefore considered.
3. The guideline hourly rates were guides rather than rigid tariffs, but the work was ordinary business work and did not justify the claimed rate substantially above the guideline. The failure to delegate appropriate work to less expensive fee-earners also affected reasonableness. Applying a broadbrush assessment, the respondent’s costs were reduced to £6,600 plus VAT, totalling £7,920.
4. Non-party costs. Under section 51 of the Senior Courts Act 1981 and CPR rule 46.2, an order against a non-party is exceptional and must be just in all the circumstances. Control and funding are indicia, not a mandatory checklist. In director cases, the applicant will ordinarily need to show either a personal benefit from the litigation or serious impropriety or bad faith, ordinarily causally linked to unnecessary costs.
5. The director controlled the application, but there was no evidence of personal benefit beyond his shareholding or of bad faith. His mistaken belief that he had authority was not itself impropriety. The company remained the real party. Further, he had not been joined for costs purposes as required by CPR rule 46.2. No non-party costs order was made.
6. The applicant was ordered to pay the respondent £7,920 by 4 pm on 29 June 2022. The director was not made jointly liable.