James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The Technology & Construction Court has recently refused an application that the sole director of the defendant company should pay the successful claimant’s costs.
The defendant was a small company with one director who had made substantial loans to it and had also funded some 25% of the company’s costs of defending a claim. The successful claimant argued that those facts, when taken with the fact that the director was also the sole shareholder, coupled with the way he had conducted the case for the defendant meant that this was an “exceptional” case which allowed the Judge to exercise his discretion and make the director pay the claimant’s costs personally.
The Judge refused the application. The Judge took the view that the director was not the real defendant in the proceedings, albeit he was the sole director and shareholder in the company, nor did the Judge think that he had funded the case solely for his own benefit. The Judge focused on who was the “real” party to the litigation and whether this was one of those cases where a non-party funds an impecunious company in an effort to advance his own financial position.
Overall, the Judge thought that the real question was whether it was just and fair to make an order against the director. The Judge accepted the director’s evidence that he had defended the case in an effort to preserve money to pay other creditors and also that the company’s defence had good prospects of success. Although not all of the director’s evidence had been accepted at trial, the Judge thought that was “standard fair in litigation” and in all the circumstances declined to make an order.
The case shows that when dealing with corporate limited liability the Court will carefully consider the factors used to justify piercing the corporate veil to make a costs order against a director.
Please contact James Staton, a Partner in our Dispute Resolution team if you require further details.