Cresta Estates Limited & Ors v MPB Developments Limited & Ors

The court determined a costs application following a creditor’s winding up petition that resulted in the compulsory winding up of MPB Developments Limited. Applying the principles governing non-party costs orders (including Senior Courts Act 1981, s.51 and CPR 46.2), the judge found that the two director-respondents, Mr Hilton and Mr Welsh, effectively controlled the company’s defence and were the real parties to the litigation. Their conduct was held to be improper in that they pursued a speculative defence while personally benefitting (continuing to draw salaries and engaging in settlement negotiations that envisaged personal payments and releases), failed to serve expert valuation and accounting evidence and withheld up-to-date subsidiary financial information.

Because the directors acted in their own interests and conducted the defence in a way that caused substantial unnecessary costs, the court ordered Mr Hilton and Mr Welsh to pay the Petitioners’ costs of the Petition (and related petitions adjourned pending its outcome) and the Company’s costs of the Petition. The court declined to make a primary back-up order for recovery from the Company’s assets, leaving any such step to the liquidators.

Background and procedural posture: This is a first-instance costs ruling arising from a creditor’s winding up petition by Cresta Estates Limited and others, which led to the compulsory winding up of MPB Developments Limited by order dated 28 January 2025. The present hearing determined the Petitioners’ application for an order that two directors, Mr Paul Hilton and Mr Matthew Welsh, personally pay the Petitioners’ costs of the Petition and related petitions that had been adjourned pending the outcome of the creditor’s petition.

Nature of the application: The Petitioners sought non-party style costs orders against the directors on the basis that they were the real parties to the litigation and had behaved improperly in conducting the defence. Relief sought included payment of the Petitioners’ costs and a provision (contested) as to recovery from the Company’s assets in the event of non-payment.

Issues framed:

• Whether Mr Hilton and Mr Welsh were the real parties to the litigation and/or had acted with such impropriety or bad faith as to justify a costs order against them personally;
• Whether they had a genuine, honest belief in the Company’s solvency such that their conduct should not attract personal costs liability;
• Whether it was appropriate to make ancillary orders for recovery from the Company’s assets.

Court’s reasoning and findings: The judge applied the established discretionary principles for non-party costs orders, including those set out in authorities referenced in the judgment. The court found that the directors (i) controlled the Company’s defence (instructing solicitors, filing points of defence and providing the only trial witness evidence), (ii) personally benefited from continuation of the defence (continued directors’ salaries and alleged funding links), and (iii) engaged in settlement negotiations which repeatedly envisaged personal gains and releases. The primary factual and evidential bases included a contemporaneous meeting transcript indicating personal motivation, the speculative and out-of-date Business Plans relied upon in the defence (which the judge found were prepared to stave off the Petition and did not provide a realistic basis for future asset values), a failure to serve valuation and accounting expert evidence, failure to disclose up-to-date subsidiary financial information, and continued pursuit of the defence until the first day of trial when the defence was withdrawn.

The judge rejected the directors’ assertion of an honest belief in solvency, concluding that their conduct was at best a highly speculative defence intended to leverage settlement for personal advantage and that the defence was not in the Company’s best interests. Consequently, the judge ordered the directors to pay the Petitioners’ costs of the Petition and the other petitions adjourned pending it, and to pay the Company’s costs of the Petition. The judge declined to make a detailed secondary order for recovery from the Company’s assets, noting that the Company was neutral and that liquidators should address any such recovery.

Wider comments: The court noted the exceptional and fact-specific nature of non-party costs jurisdiction and emphasised that it must be exercised justly in light of the particular facts of the case.

The court made the costs orders sought: Mr Hilton and Mr Welsh were ordered to pay the Petitioners’ costs of the creditor’s winding up petition (and of the contributory’s and unfair prejudice petitions adjourned pending its outcome) and to pay the Company’s costs of the Petition. The order was made because the directors controlled the Company’s defence, acted in their own interests and pursued a speculative defence without genuine belief in solvency, causing substantial unnecessary costs. The court declined to make a primary secondary order for recovery from the Company’s assets, leaving that to the liquidators.