Non-Party Costs Order Against Secured Creditors

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.

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]