Raiders of the director’s wallet*
(*a cautionary tale for directors about non-party costs awards in litigation)
Housemaker Services Limited & another v Cole & another  EWHC 924 (Ch)
Mr Wayne Williams ran a building company – he was the sole director. Over the period 2010 to 2011 his company sent three invoices to some customers for work carried out. The customers disputed the invoices and did not pay them. Nothing much unusual in this. Sometime later Mr Williams got his solicitors to start the process of recovering the invoiced costs from the customers, but unbeknownst to him and the solicitors, the company had been struck off the companies register in November 2014 and no longer existed. That is unusual, but not the main point of the story.
Once Mr Williams had become aware that his company had been struck off, he applied for it to be brought back from the dead and restored to the register. After that he had to apply to Court for an order to vary the limitation period (i.e. the time period by which a claim must be brought, or else it expires) to enable the company to be able to sue for its invoiced costs as by that time the claims for the unpaid invoices were very old. The company failed in that attempt and so the customers did not have to pay the invoices.
The customers also got an award of costs against the company, but were worried that it was unable to pay them. As a result they asked the Court to join Mr Williams to the case (which it did) so that the Court could then be asked to consider whether Mr Williams should also be made to pay costs to the customers.
Most people are unaware that a Court has the power to make an award of costs in litigation against anyone, but for company directors especially this can be a very unwelcome surprise as they can find themselves in the firing line without realising it. This wide power to award costs is used only in exceptional circumstances and there are various factors which will be considered by a Court before any such order is made – these factors vary in their importance from case to case and they are whether and to what extent the director:
- controls the conduct of the litigation;
- stands to benefit personally from the litigation;
- has acted improperly in the course of the litigation (e.g. by giving false evidence); and
- has helped to fund the costs of the litigation.
In addition, a view will also be taken on the following factors:
- whether the litigation was brought or defended in good faith; and
- the extent to which the position adopted by the company in the litigation was of any benefit to it.
In the case of Mr Williams, while his company did not get the customers to pay up on the invoices, there was a marginally happy outcome for him in as much as the Court declined to make him pay any of the legal costs incurred in the case by the customers. Instead the Court stressed that the mere fact that a director controls a company’s litigation (or even funds it) is not enough by itself to normally render a director liable for costs. Instead the Court looks for something more blameworthy. As long as directors do not stray into such territory by conducting the litigation improperly, or for a collateral purpose or acting in bad faith, then the director’s wallet is unlikely to be raided by the winning side if the company’s case fails.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.