Non-parties paying the cost

Ordinarily, litigation is a matter between the parties themselves with the parties being responsible for the costs of the litigation.

Recently however, the courts have showed an increased willingness to order that third parties, i.e. non-parties to the litigation, personally pay costs which may have arisen due to either their direct or indirect involvement in the proceedings.

In the case of Chantrey Vellacott –v- The Convergence Group & Others (2007), Chantrey Vellacott (“CV”), a firm of chartered accountants, applied for non-party costs orders against Mr and Mrs Robinson, who were directors of two of the Defendant companies, Convergence Group Plc and Convergence Group International SA (“Convergence”). CV had sued Convergence for unpaid professional fees with Convergence submitting a significant counterclaim for alleged professional negligence.

During the course of the trial, it was discovered that Mr Robinson had given false evidence and that the counterclaim was purely peculative and stood no real chance of success. As a result, the court took the unusual step of ordering that Mr Robinson (himself a non-party) should pay CV’s costs.

The reasons the court took these steps were because it had discovered that Mr Robinson had controlled and funded the litigation personally, and he also stood to benefit personally from the litigation if it had succeeded (being the main beneficiary of a family trust who owned the Convergence group).

This personal interest had been reflected in the fact that Mr Robinson had both directly, with his own money, and indirectly, through his own company, Amador Limited, funded some of the litigation.

The claim had also been advanced dishonestly by Mr Robinson with the court finding that he had known from the outset that there was no factual basis upon which the counterclaim would succeed. Despite this however, he had chosen to pursue the counterclaim.

Although this is a fairly unusual case, it is a salutary lesson and should nevertheless be borne in mind where company directors are contemplating bringing claims on behalf of their companies. If there is any prospect of the company directors personally benefiting from the litigation, or the claim is being dishonestly pursued, those directors need to be aware of the possibility of personally facing a costs order if the litigation fails.

The case is a stark reminder that company directors can no longer simply hide behind the corporate identity (the “corporate veil”) of their companies when deciding to pursue reckless litigation. They must consider not only whether litigation is in the interest of the company, but also whether they can justify the litigation and the costs and financial risk which they may personally face.

Importantly, the case also means that there is also now a further potential source of recourse for a party who may find itself on the receiving end of reckless litigation as envisaged by the CV case. Not only can costs be paid by the company itself, but those costs could now be payable by the individual directors personally.

For more information, please contact Andrew Wilkinson on andrew.wilkinson@harveyingram.com or call 0116 257 6125.