Can directors be held personally responsible for litigation costs?

The Court of Appeal has found a director personally liable for the legal costs of an action brought against his company. While the facts are unusual, it highlights a little-used but nonetheless powerful discretion of the court to make costs awards against non-parties to an action when it deems it just to do so.

Mr Threlfall had brought a largely successful High Court claim against his former employer, ECD, and ECD’s director and main shareholder, Mr Whitney. The claim was for breach of contract for failing to pay dividends and honour an agreement to share the equity in ECD. Mr Threlfall also asked the judge to find Mr Whitney jointly and severally liable for the costs of the action arguing by analogy that in the circumstances this was the kind of case in which a non-party costs order would have been made under the Senior Courts Act 1981 had Mr Whitney not been a party to the action. In the event, the judge decided the substantive claim against ECD, and concluded that there was no basis for a claim making Mr Whitney personally liable particularly as ECD was a solvent company. Further, ECD had accepted costs liability and the judge found no reason to make a costs order against Mr Whitney.

Unfortunately, ECD became insolvent after the judgment. Unable to recover his costs from ECD, Mr Threlfall appealed the judge’s decision not to hold Mr Whitney jointly and severally responsible for the litigation costs…

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