(Written for the Practical Law Dispute Resolution Blog, 3rd Feb 2016)
The Court of Appeal’s recent decision in Deutsche Bank v Sebastian Holdings gives pause for thought for individuals embarking on litigation under the cover of a company.
Proceedings had involved a substantial claim by Deutsche Bank for nearly US$250 million owed by Sebastian Holdings as the result of closing various trading positions. A huge US$8 billion counterclaim and a 44-day trial followed. At first instance, Cooke J was unimpressed with company’s case, dismissing the claim and ordering the company to pay 85% of the bank’s costs on the indemnity basis. The company failed to pay up, leading the bank to obtain an order under section 51 of the Senior Courts Act 1981 joining the sole director and shareholder, Alexander Vik, to proceedings and ordering him to pay the costs instead. Mr Vik appealed.
The Court of Appeal upheld the decision, finding that it was not wrong in principle to hold that a director was bound by a judge’s findings against the company; it was not “unjust” for Mr Vik to be bound by the judgment. This may surprise many a sole company director, who might have assumed that they are protected against the company’s liabilities. Perhaps more radically from a legal standpoint, the court found that there was no need to warn the non-party, one of the guideline criteria suggested by the court for non-party costs orders in Symphony Group Plc v Hodgson; Symphony provided guidelines only as to the kind of factors a court might take into account.
It has to be said that the court emphasised that each case had to be considered on its merits, and the facts in Deutsche Bank were extreme. Mr Vik had used the company “as his personal trading vehicle to hold and dispose of funds on his behalf as he saw fit”. He hadn’t bothered with the corporate formalities such as resolutions, minutes or filing company accounts. Large sums were transferred out of the company to Mr Vik shortly before proceedings were commenced, leaving the company unable to satisfy the judgment. Mr Vik had controlled the litigation for the company, and then had given evidence that was false, supported by partly fabricated documents; the first instance judge had described the conduct of the case by the company as “reprehensible”.
It’s perhaps difficult to see a more deserving case for a non-party costs order. Certainly, there will be few cases where the argument is so clear-cut. However, it reminds us that there is tool in the costs armoury when chasing a company for sums owed where the real beneficiary of the litigation is not a party, and the court may have left the door ajar for a greater use of non-party costs orders. I suspect we will see a few more attempts in the near future to see how far that door will open.