29th Oct 2013
LIABILITY OF OWNER OF COMPANY FOR COSTS AND PIERCING THE VEIL – IMPORTANT VICTORY IN THE COURT OF APPEAL
LIABILITY OF OWNER OF COMPANY FOR COSTS AND PIERCING THE VEIL – COST ORDERS LOOK TO ‘THE ECONOMIC REALITIES’
Clive Freedman QC and Sam Neaman, instructed by Penningtons Manches LLP, have secured an important victory in the Court of Appeal for the above Claimant. The court below had ordered costs only against a defendant company (“the Corporate Defendant”) on the basis that liability was only against it. It refused to award costs against the 100% owner and controller of the company (“the Individual Defendant”) on the basis that he was not liable substantively to the claimant and was a nominal defendant only. Shortly thereafter, the Corporate Defendant went into insolvent liquidation. The Claimant said that costs should have been ordered also against the Individual Defendant.
The Court of Appeal held, by way of analogy with the non-party costs jurisdiction (CPR 48.2 and Section 51(3) of the Senior Courts Act 1981), if the Individual Defendant would have been liable to such an order if not a party, he should be in no better a position simply because was a party.
The most interesting feature of the judgment is the way in which the Court of Appeal (Lewison LJ, giving the principal judgment) dealt with a submission that the Individual Defendant’s ownership and control of the Corporate Defendant could not give rise to substantive liability (following recent Supreme Court cases of VTB v Nutritek  2 WLR 398 and Prest v Petrodel  3 WLR 1). Thus, it was submitted, there could be no scope for personal liability for costs, since this too would be piercing the veil.
Rejecting this submission, the Court of Appeal held that the concept of piercing the veil affected substantive liability, but the costs jurisdiction depended upon doing what was just in the circumstances. Lewison LJ said ‘in deciding whether or not to make such an order, the court is not fettered by the legal realities. It is entitled to look to the economic realities.’ Where a party controlled and/or financed litigation and derived such a benefit from the litigation such that he was a real party to the case, then it might be just to order costs against such a person. In each case, the discretion must be exercised in order to do justice between the parties.
In this case, in addition to the elements of control and benefit, the Judge’s findings about the Defendant’s evidence being ‘incredible’ and ‘resiling’ from a bargain because ‘the financial implications of so doing were damaging to him personally’ showed that his evidence had been in bad faith. He had caused the Corporate Defendant to advance a false defence. In all the circumstances, costs should have been ordered also against the Individual Defendant.
To view the judgment please click here.