When are Your Directors Personally Liable for Litigation Costs?

One of the benefits of operating a limited company is that Directors are not generally at risk personally of having to pay the company’s debts. However, the High Court has held that where a Director was the “moving spirit” behind litigation and had in reality been the Claimant in all but name, the successful Defendant could claim their costs from the Director personally.

In the case of Xhosa Office Rentals Limited v Multi High Tech PCB Limited and Others [2014] EWHC 1286 (QB), the Claimant’s case was being personally funded by its Director who also provided all of the Claimant’s evidence. The Claimant’s case was weak and was eventually struck out when the Claimant failed to comply with a Court Order. The Defendants had spent in excess of £300,000.00 in costs and given the Claimant’s financial position had little chance of recovering this from the Claimant. They applied to have the Claimant’s Director added to the claim as a party for costs purposes, meaning that a costs order could be made against him personally. The High Court granted the order, in circumstances where the Director had been the driving force behind the litigation and, as the owner of the Claimant, was the individual who stood to benefit from it. The Court stated that it was difficult to see why the Defendants should be left out of pocket to a considerable extent where an identifiable person was so obviously the moving spirit behind the litigation.

Gavin Evans, Associate Solicitor in the Commercial Litigation Team at Wilkes LLP, comments:

“This case illustrates the dangers of Directors, particularly those in small or owner-managed businesses, pursuing claims with impunity because they believe they are personally safe from the consequences of failure. That was very likely in the mind of the Director in this case who personally funded a claim of very doubtful merit. In reality he had caused the Defendants to incur very considerable legal expenses and the Court clearly felt it was unjust to simply allow him to walk away without any liability. The power to add a Director to proceedings in this way will not often be used – the Court commented that it should be exercised “exceptionally” – but it is available in appropriate circumstances.”

The Commercial Litigation team at The Wilkes Partnership frequently advises companies and company directors in relation to a whole range of business disputes. For more information or to discuss any of these issues further, please contact Gavin Evans on 0121 233 4333.