Offshore Litigation

Blog

Offshore Litigation

Contributors

Jonathan Addo
Jonathan Addo
  • Jonathan Addo

  • Partner
  • British Virgin Islands
Jeremy Child
Jeremy Child
  • Jeremy Child

  • Partner
  • London
Julie Engwirda
Julie Engwirda
  • Julie Engwirda

  • Partner
  • Hong Kong
Peter Ferrer
Peter Ferrer
  • Peter Ferrer

  • Partner
  • British Virgin Islands
Claire Goldstein
Claire Goldstein
  • Claire Goldstein

  • Partner
  • British Virgin Islands
Hazel-Ann Hannaway
Hazel-Ann Hannaway
  • Hazel-Ann Hannaway

  • Partner
  • British Virgin Islands
Nick Hoffman
Nick Hoffman
  • Nick Hoffman

  • Partner
  • Cayman Islands
Andrew Johnstone
Andrew Johnstone
  • Andrew Johnstone

  • Partner
  • Hong Kong
Paula Kay
Paula Kay
  • Paula Kay

  • Partner
  • Hong Kong
Phillip Kite
Phillip Kite
  • Phillip Kite

  • Partner
  • London
Vicky Lord
Vicky Lord
  • Vicky Lord

  • Partner
  • Shanghai
Paul Madden
Paul Madden
  • Paul Madden

  • Partner
  • Cayman Islands
Henry Mander
Henry Mander
  • Henry Mander

  • Partner
  • Cayman Islands
Ian Mann
Ian Mann
  • Ian Mann

  • Partner
  • Hong Kong
William Peake
William Peake
  • William Peake

  • Partner
  • London
Lorinda Peasland
Lorinda Peasland
  • Lorinda Peasland

  • Consultant
  • Hong Kong
Chai Ridgers
Chai Ridgers
  • Chai Ridgers

  • Partner
  • Hong Kong
Nicola Roberts
Nicola Roberts
  • Nicola Roberts

  • Partner
  • Hong Kong
  • Singapore
Paul Smith
Paul Smith
  • Paul Smith

  • Partner
  • Cayman Islands
Andrew Thorp
Andrew Thorp
  • Andrew Thorp

  • Partner
  • British Virgin Islands
Jessica Williams
Jessica Williams
  • Jessica Williams

  • Partner
  • Cayman Islands
Jayson Wood
Jayson Wood
  • Jayson Wood

  • Partner
  • Cayman Islands

When will a director or shareholder of an insolvent company be held personally liable for costs liabilities incurred by the company in unsuccessful litigation?

The English Court of Appeal, in an important decision in Goknur Gida Maddeleri Enerji Imalet Ithalat Ithracat ve Sanayi AS v Aytacli (2021) EWCA Civ 1037 of 13 July 2021 which will be relevant to other jurisdictions with a regime for imposing liability for litigation costs on non-parties to the litigation (third party costs orders), has identified the guidelines in considering whether such an order should be made against directors (or shareholders) of an insolvent company.

Those factors are that:

  1. a non-party costs order is exceptional and will only be made where just in all the circumstances;
  2. the touchstone is whether the non-party can fairly be described as the real party to the litigation;
  3. in the case of an insolvent company involved in litigation which has resulted in a costs liability that it cannot pay, a director may be made the subject of a non-party order. Such an order may be made to avoid the injustice of a director hiding behind a corporate entity so as to engage in risk-free litigation for his own purposes;
  4. in assessing whether the director is the real party, the court may consider whether the director controlled or funded the company’s pursuit or defence of the litigation. Of most importance, is likely to be whether the director was seeking to benefit personally from the litigation. If the company’s stance in the litigation was dictated by the real or perceived benefit to the director, whether financial, reputational or otherwise, it might be said that the director was the real party. These are mere indicia as to whether it would be just to make an order, not a checklist; and
  5. if the litigation was for the benefit of the company, the applicant for the order will need to show some other reason why it would be just to make the order. This will commonly be some form of serious bad faith or impropriety on the part of the director, causatively linked to the applicant unnecessarily incurring costs in the litigation.
When will a director or shareholder of an insolvent company be held personally liable for costs liabilities incurred by the company in unsuccessful litigation?

Leave A Comment