DIRECTORS PAY THE COSTS

NON-PARTY COSTS ORDER AGAINST THE COMPANY'S DIRECTORS

This was a hearing for a Non-Party Costs Order that formed part of the I-Design Construction Ltd litigation saga. The judgement should be of interest to directors tempted to use insolvent companies as a shield to pursue litigation for their own benefit and any persons with controlling interests in a company whom have given dishonest evidence as to its finances.

I-Design Construction Ltd, Mr Paul Archer (3), Mr James Hooker (4) & Mrs Clare Archer (5) - v - Mr David Renwick (Plymouth CC 23rd August 2022) (Non-Party Costs)

We acted for the successful Defendant/homeowner whom had been awarded £95'635.04 damages in the main litigation pursuant to a successful counterclaim against the Claimant company. Thereafter, the Managing Director (3rd Party) was made 100% liable for the costs of the litigation he had commenced while the Junior Director (4th Party) was made 50% liable for the costs.

WHAT ARE NON-PARTY COSTS ORDERS (NPCOs)?

The courts of England & Wales treat the limited liability of companies as sacrosanct and the exceptions where they will exercise their jurisdiction to lift 'the company veil' are extremally rare. Regretfully, this can lead to dangerous, dishonest or desperate people in the position of company director pursuing litigation for their own benefit behind the 'shield' of limited liability.

To counter this, pursuant to Section 51 of the Senior Courts Act 1981 the courts have the power to order that the costs of litigation be paid by non-parties. This procedure is governed by CPR r.46.2 and while there are various authorities which provide guidelines as to when this power should be exercised the only immutable principle is that the discretion should be exercised justly.

BACKGROUND

I-Design Construction Ltd (now in liquidation) was an alleged construction company operating in south Devon. The company advertised itself as being trusted by homeowners for 25 years but only operated for 4 years from the date of incorporation to being put into liquidation. It was its Managing Director Mr Archer's 4th company in 10 years. The 3rd & 4th Parties were the company's joint-owners and sole directors. The 5th Party took an active part in the running of the company but was neither a director nor an owner.

The parties had entered into a verbal contract for a loft conversion. However, instead of performing any contractual works, IDC took the elderly homeowners insulation and then abandoned site with his life savings leaving he and his wife in a home without central heating or hot water at the height of winter and which was at risk of structural collapse.

A surveyor found the front roof of the Property was at risk of collapse and/or windlift while the loft floor would have collapsed had anyone made use of it. Cladding was found to be dangerous and defective while the Fire Doors were non-compliant and life threatening.

After the final payment prior to retention had been made, IDC abandoned site and began frantically generating unscheduled invoices for work they had not done. The homeowner was then threatened with civil and criminal proceedings if he did not simply pay before being subjected to a campaign of harassment and malicious communications from Mr Archer whom mocked his mental health, age and wider family.

When the homeowner refused to be extorted, Mr Archer issued proceedings for the unscheduled invoices. Judgement was entered against IDC in April 2022 and the Defendant's Damages assessed July 2022. This subsequent hearing was to determine whether IDC's directors should be held liable for the costs of the litigation they had issued in the name of their company?

THE TEST & MATERIAL FACTS

The Court of Appeal laid down general guidelines for the exercise of the jurisdiction to make an NPCO setting out 6 categories in Symphongy Group Plc v Hodgson [1994] QB 179. Those guidelines have never been overruled. However, subsequent authorities have stressed they were only 'guidelines'. Subsequently, the Privy Council sought to summarise the many cases relating to NPCOs in Dymocks Franchise Systems (NSW) Pty Ltd -v- Todd and Others [2004] UKPC 39 which was thereafter, applied by the Court of Appeal in Arkin -v- Borchard Lines Ltd and Others [2005] EWCA Civ and so is now binding on the English Courts. Dymocks explains and interprets the Symphony guidelines but emphasises that the only immutable principle is that the courts discretion has to be exercised justly.

"I Design is fully insured ... I Design is able to meet any judgement! We do not require alternative insurance."

At the outset of the litigation we commenced investigations into the financial affairs of IDC. Their accounts showed the company had never made a profit >£5000 and the company appeared to be operated solely as a 'piggy bank' for its directors. Regretfully, Mr Archer's pre-contract assurance that the company enjoyed the benefit of a £500'000 loan facility had been exaggerated by £499'500. Consequently;

1. The financial accounts were referred to Mr Archer together with emails from the company complaining of cashflow problems. These he denounced as being an intimidation tactic and any suggestion that the company was suffering from financial problems denounced as 'lies' despite this information having come from IDC and Mrs Archer directly.

2. Accordingly, we sought assurances that that IDC had insurance protection and/or the capital in reserve to meet a judgement which we correctly estimated would be in excess of £50'000. In the event IDC did not have the insurance, we suggested that they acquire ATE Insurance to protect them from the costs of litigation and to ensure their was a paymaster in place. In response, Mr Archer as Managing Director assured us that the company was fully insured, could meet any judgement and didn't require any alternative insurance.

3. Nobody was falling for this, so we suggested that the parties agree a stay so ADR/adjudication could take place. A joint-expert was also offered and an interim payment requested. However, in the event that IDC chose to continue with the litigation, due warning was given that the Defendant would seek to make the company's directors liable for costs should the company be unable to satisfy a judgement.

4. Following service of the counterclaim and Mr Archer's refusal to confirm if he had notified the company's insurers, A copy of the pleadings were sent to them directly. They refused to indemnify IDC whom were again asked to seek alterative insurance. Which they rejected.

5. Two without prejudice-offers were made by the Defendant through the proceedings and one open cost-inclusive offer of £65'000. These were all rejected by Mr & Mrs Archer whom only responded that they wanted a trial. The Claimant never made any offers or served any evidence in support of its claim or defence to the counterclaim.

6. It was always obvious that IDC's claim would fail. The surveyor and only expert involved had found that IDC had left the Defendant's Property in a state of structural collapse. The roof was at risk of windlift, the loft floor supported by only 7 wood screws, they had broken the central heating and hot water system, the cladding was defective and the fire doors were non-compliant to name just a few of the defects. By contrast, IDC story regarding unscheduled invoices it was claiming for changed 7 times in the space of 1 year.

7. Following judgement against IDC, Mr Archer wrote a letter admitting that IDC had never had any insurance and/or capital to satisfy judgement. This seemed to be something of a boast as by this point there were 4 outstanding costs orders arising from interim judgements.

8. The civil and criminal conduct of Mr Archer himself that resulted in an 8 month campaign of harassment against 2 pensioners and he had falsely alleged that he was being molested by the Defendant's solicitor-advocate. This had resulted in further cost orders against him and the instruction of bailiffs.

JUDGEMENT

HHJ Mitchell sitting in the County Court at Plymouth having considered all parties submissions and whom the matter have been reserved for during the main litigation ordered as follows:

1. Mr Archer was made 100% liable for the costs of the litigation. The court referred in particular to Mr Archer's written assurances regarding IDC's finances, refusal to negotiate, refusal to seek alternative assurance and failure to take stock following service of the expert's report.

2. Mr Hooker was made 50% liable for the costs of the litigation. As a director, he was responsible for IDC's approach to the litigation. It was also material that it had been Mr Hooker on site whom was responsible for the dangerous and defective construction including the near-collapse of the loft floor, the front roof, the non-compliant fire doors and so he was best placed at the outset to know that the Counterclaim would succeed. However, he had a more restricted involvement in the litigation which had been handled almost entirely by Mr & Mrs Archer.

3. Mrs Archer was made 0% liable for the litigation. She was neither a Director nor a shareholder of IDC. She had been added into the proceedings as following service of the expert evidence, a company in her name 'M-IDesign Construction Ltd' had mysteriously been set up and it was suspected that the directors had transferred all assets and cash into it. However, this was a recent development and without the accounts to support this, there was no evidence against her denial. (The liquidators for IDC have since confirmed this was exactly what happened).

4. Costs Assessed at £5000 payable by the directors.

During the hearing, the Defendant was represented by Counsel James Pearce-Smith of St Johns Chambers Bristol whom took an excellent forensic approach to the issues raised. Mr and Mrs Archer represented themselves and Mr Hooker called in sick. A transcript of the Judgement has been requested.