Court Grants Non-Party Costs Order Against Secured Creditors Who Funded Failed Construction Claim

Secured creditors who fund an insolvent company’s failed litigation for their own substantial financial benefit may be held jointly and severally liable for the successful defendant’s unrecovered costs, even where administrators retained formal control of the proceedings.

THOMAS BARNES & SONS PLC v BLACKBURN WITH DARWEN BOROUGH COUNCIL [2026] EWHC 24 (TCC)

In Thomas Barnes & Sons PLC (In Administration) v Blackburn with Darwen Borough Council the Technology and Construction Court granted a non-party costs order against secured creditors who had funded an insolvent company’s failed construction claim. The Respondents — a former director/shareholder and the widow and executors of his late brother — were debenture holders who funded the litigation and stood to benefit as primary secured creditors. Applying Dymocks and Goknur, the court found they were “real parties” to the litigation: they funded it, had a direct financial interest, and (in the lead Respondent’s case) exercised a real degree of control alongside the administrators. The provision of £583,000 in security did not preclude a further order. The Respondents were held jointly and severally liable for the defendant’s unrecovered costs, with the executors’ liability limited to the estate. The decision confirms that secured creditors funding administration litigation primarily for their own financial benefit assume the costs risks ordinarily borne by litigants.

In my judgment they were all, therefore, as it was put in Dymocks, the funders of the litigation and persons who were substantially to benefit from them. In Thomas' case he was also someone who substantially controlled the proceedings. Here, therefore, they are in my judgment properly to be treated as the real parties to the proceedings in very important and critical respects. On the face of it, therefore, it is just that they, rather than BBC as the successful defending party, should have to pay the costs of the successful defendant.

Citations

Blackburn v Barnes [2022] EWHC 2598 (TCC) Confirmed that the claimant’s case for breach of contract and resulting financial loss failed in full, resulting in dismissal of the claim and leading to the present application for a non-party costs order against those who funded and controlled the failed litigation. Deutsche Bank v Sebastian Holdings [2016] EWCA Civ 23 Stated that the only immutable principle in relation to non-party costs orders is that discretion must be exercised justly, with prior warnings and provision of security for costs being relevant but not determinative factors. Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs) [2004] UKPC 39; [2004] 1 W.L.R. 2807 Set out the leading principles for non-party costs orders, including that such orders may be made where a non-party funds and/or controls litigation and stands to benefit, making them a real party in very important and critical respects. Goknur Gida Maddaleri Enerji Imalet Ithalat Ihracat Ticaret ve Sanati AS v Aytacli [2021] EWCA Civ 1037 Emphasised that a director of a company may be liable for costs where they are the real party behind a claim, particularly if personally benefitting or controlling the litigation, even if the company was formally the claimant. Metalloy Supplies v M.A. (UK) Ltd [1996] 1 W.L.R. 1613 Highlighted the public interest in allowing creditors to fund officeholders’ claims in insolvency, though such public interest does not bar non-party costs orders where personal benefit and control are evident. Eastglen Ltd v Grafton (1996) BCC 900 Considered the importance of facilitating access to justice for officeholders through creditor funding, which remains a relevant but not overriding factor in deciding whether to impose a non-party costs order. Dolphin Quays Developments Ltd v Mills [2008] 1 WLR 1829 Affirmed that the absence of a warning about a potential non-party costs order is a relevant factor but not decisive in whether such an order should be made.

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Key Points

A non-party costs order under section 51 of the Senior Courts Act 1981 may be made where, on a fact-specific assessment, a person who is not a named party can fairly be regarded as the “real party” to the litigation, having regard to factors such as funding, control or influence, and personal benefit, which are guides rather than a checklist to the ultimate question of justice. [29, 30(iii), 34, 42]
The fact that a non-party is a creditor funding an officeholder’s claim on behalf of an insolvent company does not automatically immunise them from a costs order. Where such funding is provided substantially for the funder’s own financial benefit, justice will ordinarily require them to pay the successful opponent’s costs if the claim fails. [30(iv), 33, 44]
The degree of control exercised by a non-party is a critical, fact-specific inquiry. Control may be found even where an officeholder retains formal decision-making power, if the non-party’s provision of essential funding and substantive assistance gives them a significant and influential role in the conduct of the litigation. [14, 15, 33, 41]
The absence of a specific, post-commencement warning that a non-party costs order will be sought is a relevant but not determinative factor. Its significance must be weighed in the context of the overall circumstances, including any earlier warnings and the funder’s apparent willingness to assume substantial financial risk. [26, 37, 43]
Where security for costs has been provided by a non-party, a court may still make a non-party costs order to cover any shortfall between the security and the successful party’s assessed recoverable costs. The provision of security does not act as a cap on liability or preclude a further order being made. [3, 25, 37, 38, 45]

"I do not accept a submission that any creditor who is minded to fund a claim in similar circumstances would be dissuaded by the knowledge that, in addition to having to fund the costs of the claim and provide security, they would also be at risk of having to make up the shortfall between the amount provided by way of security and the other party's reasonable costs of its successful defence of the proceedings. In short, I do not accept that making a NPCO in these circumstances would have a chilling effect on the ability of officeholders in similar situations being able to fund justified claims against third party debtors of the company in question."

Key Findings In The Case

The Respondents, though not named parties, funded the litigation brought by the insolvent company (Barnes), stood to benefit personally if it succeeded, and, in the case of Thomas Barnes, exercised significant control over its conduct—these factors rendered them the real parties to the litigation for the purposes of a non-party costs order under s.51 of the Senior Courts Act 1981 [14, 15, 33, 41–42].
The provision by the Respondents of substantial security for costs—£583,000 in total—did not preclude the making of a non-party costs order in respect of the outstanding balance of Blackburn’s assessed costs, which approached £995,000. Security provided does not act as a cap on liability [25, 38, 45].
Prior to commencement of proceedings, the prospective risk of a non-party costs order was raised by Blackburn in its correspondence with the administrators, and this early warning—although not reiterated post-commencement—was relevant in assessing the Respondents’ assumption of financial risk and did not weigh against the making of the order [9–10, 26, 43].
By the point of trial, the Respondents knew that the probable recovery available to meet all stakeholders’ claims—after legal fees, administrators’ costs, and preferential debts—would primarily benefit themselves as secured creditors. Despite diminishing prospects of a surplus for unsecured creditors, they chose to continue funding the proceedings, indicating that their personal financial return was a primary motivation [22–24, 40].
The judge found no evidence of improper conduct by the Respondents, but concluded that their close financial interest, coupled with their role in funding and—in Thomas’s case—controlling the litigation, meant it was just to require them to bear the successful defendant’s unrecovered costs on a joint and several basis (as executors, only to the extent of the estate, in Craig and Scott’s case) [33, 42, 45].

"...whilst I am prepared to accept that Mr Watson did not abdicate the control of the litigation to him, because it is obvious that the administrators also had an interest in and a responsibility for the claim and there is no evidence that they did abdicate it to Thomas, I have no doubt that it was a case where they both exercised a significant element of control in real terms over the litigation. Put bluntly, since the litigation could not have continued but for the willingness of Thomas to provide significant input in relation to the substance of the claim, both as to liability and quantum, and also but for the Respondents' willingness to finance the legal and expert fees and disbursements, and to provide security for BBC's costs, it would have been extremely surprising if there had not been this dual control."

The Technology and Construction Court’s decision in Thomas Barnes & Sons PLC (In Administration) v Blackburn with Darwen Borough Council [2026] EWHC 24 (TCC) confirms that secured creditors who fund, benefit from, and exercise real control over administration litigation are properly treated as “real parties” for non-party costs purposes.

Background

The dispute originated from a contract for the construction of a bus station in Blackburn, entered into in 2014 between Blackburn with Darwen Borough Council (BBC) and Thomas Barnes & Sons Plc (Barnes). BBC terminated the contract in 2015. Barnes, by then in administration, subsequently issued proceedings in the Technology and Construction Court in 2020, claiming damages in excess of £3 million for alleged wrongful termination [§2].

The claim proceeded to an 11-day trial in July 2022. In a judgment handed down in October 2022, the claim was dismissed in its entirety [§2]. BBC, as the successful defendant, was entitled to its costs. The company in administration had no means to meet this costs liability.

The Respondents to the present application are Mr Thomas Barnes (Thomas), a former director and shareholder of Barnes, and Mrs Pamela Barnes, Mr Craig Barnes, and Mr Scott Barnes. The latter three are, respectively, the widow and the executors of the estate of Brian Barnes (Brian), Thomas’s late brother and co-owner of the company [§5]. The company’s administrators had been appointed in November 2015 by the Respondents in their capacity as debenture holders, to whom the company owed approximately £684,714.66 [§7].

From the outset of the litigation pursued in administration, the Respondents provided the funding for the company’s legal costs and disbursements [§11]. They also, following an application by BBC, provided security for BBC’s costs totalling approximately £583,000, comprising a payment into court of around £138,000 and charges over properties valued at around £445,000 [§24-25]. BBC’s incurred and budgeted costs at the time were around £995,000 [§25].

Following the dismissal of the claim, BBC sought to recover the shortfall in its costs by making an application under section 51 of the Senior Courts Act 1981 for a non-party costs order (NPCO) against the Respondents [§1, §3]. The application was heard on 12 December 2025.

Costs Issues Before the Court

The ultimate issue was whether it was just to make a NPCO against the Respondents, requiring them to pay BBC’s recoverable costs of successfully defending the claim, to the extent those costs were not satisfied by the security already provided. This required the court to determine several factual and legal sub-issues, including the degree of funding, control, and personal financial benefit derived from the proceedings [§29-36, §38-39].

The Parties’ Positions

BBC’s Position: BBC submitted that the Respondents were the real parties to the litigation. They had funded the claim entirely, thereby enabling it to be brought. They had a direct and substantial financial interest in its outcome as the primary secured creditors, standing to recover their debt from any successful award [§3]. Thomas, in particular, was alleged to have exercised a significant degree of control over the litigation, including introducing the solicitor (Ms Morrison) whom the administrators then instructed, attending the pre-action meeting where he was referred to as Ms Morrison’s “client,” and being intimately involved in its substance [§8, §14]. BBC argued it was just that those who stood to gain personally from the claim should bear the costs of its failure, rather than the public purse [§39].

The Respondents’ Position: The Respondents resisted the order. Thomas asserted that he did not control the litigation; his involvement was limited to providing necessary assistance to the administrators in his capacity as a former director [§12]. He stated that all decisions were made by the joint administrators. The Respondents acknowledged funding the claim and having a financial interest, but argued this was consistent with creditors funding an officeholder to realise assets for the benefit of the estate [§32]. They emphasised there was no evidence of impropriety or bad faith. They also pointed to the absence of any specific warning, after the 2016 and 2017 correspondence, that a NPCO would be sought, and noted they had already provided substantial security for costs, suffering significant personal loss [§26].

The Court’s Decision

The court granted the application and made a NPCO against the Respondents, jointly and severally liable for BBC’s recoverable costs, subject to the security already provided. The liability of Craig and Scott Barnes was limited to their capacity as executors of Brian’s estate [§45].

In reaching its decision, the court applied the principles from Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39 and Goknur Gida v Aytacli [2021] EWCA Civ 1037 [§28-36].

The key findings were:

Funding and Financial Interest: It was conceded and found as a fact that the Respondents funded the litigation and stood to benefit personally from its success [§40]. Although other creditors might have benefited if the claim succeeded spectacularly, the Respondents were the only guaranteed substantial beneficiaries [§40]. By the May 2022 progress report, payments of around £328,000 had already been made to them from other realisations, leaving around £357,000 due [§23]. Despite the reduced claim valuation — Barnes’s own quantity surveyor had by then assessed the maximum claim at only £1.789m against BBC’s valuation of around £604,000 [§22] — they continued to fund a costly trial.

Control of the Litigation: The court rejected Thomas’s assertion that he was merely assisting the administrators. Considering his introduction of the solicitor to the administrators [§14], his passionate belief in the claim [§8, §14], his attendance at every day of trial during which he “undertook active investigations” [§14], and the administrators’ reliance on his knowledge and funding, the court found he exercised “a real degree of control” alongside the administrators [§15, §41]. The court observed that the litigation “could not have continued” without Thomas’s substantial input on the claim’s substance and the Respondents’ willingness to finance it [§15]. For the other Respondents, while they did not themselves control the litigation, their willingness to fund it meant they supported Thomas’s pursuit of the claim [§16, §41].

“Real Party” Analysis: The court concluded the Respondents were “the real parties to the proceedings in very important and critical respects” [§42]. They were not pure funders but persons who funded, benefited from, and (in Thomas’s case) controlled the litigation for their own purposes. The court did not find impropriety or bad faith, but held that this was not required where funding, benefit, and control justified the order [§30-31, §42]. The court distinguished cases where a NPCO might discourage legitimate funding by officeholders, finding the Respondents’ position was fundamentally that of risk-taking litigants with a primary eye on their own financial recovery [§44]. The court expressly rejected the submission that making an NPCO in these circumstances would have a “chilling effect” on the ability of officeholders to fund justified claims [§44].

Other Factors: The court considered but attached limited weight to the lack of a specific post-2017 warning. It noted that as early as December 2016 and May 2017, BBC’s solicitors had written to the administrators’ consultants and then the administrators themselves, referring to the possibility of a NPCO and citing Deutsche Bank [§9-10]. The court found there was no compelling reason to believe this was not communicated to the Respondents, especially as they had not addressed these letters in their evidence [§10, §26]. The provision of security was a relevant but not determinative factor, and the negotiated amount did not preclude a further order [§43].

The court held that, in all the circumstances, justice required that the Respondents, who had sought to gain access to justice for their own substantial benefit, should bear the cost of the defendant’s successful defence, rather than the defendant (and ultimately the public) bearing the unrecovered shortfall [§39, §42].

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