Insolvency Litigation Funding: Non-party costs judgment - Femi Ogunshakin

The following is a quick review of the non-party costs judgment in Thomas Barnes & Sons PLC v Blackburn With Darwen Borough Council together with a summary of the key message that litigators should communicate to their clients regarding funding and control of litigation, and the risk of non-party costs orders.

Litigators should clearly advise clients who are considering funding or controlling litigation—especially where the client is not a formal party to the proceedings—of the following key points arising from the non-party costs order judgment:

Risk of Non-Party Costs Orders: Individuals or entities who fund litigation and stand to benefit from its outcome, and/or exercise real control over the proceedings, may be made liable for the other side’s costs if the claim is unsuccessful. This liability can be substantial and is not limited to sums provided as security for costs.
Careful Cost-Benefit Analysis Required: Funders should not assume that providing security for costs or funding the claimant’s legal fees will shield them from further liability. They must carefully weigh the potential costs against the likely recovery, as costs orders can far exceed any anticipated benefit.
No Automatic Protection for Officeholders or Creditors: The judgment makes clear that non-party costs orders can be made even where funders are officeholders or creditors, unless their personal interest and control over the litigation are minimal.
Transparency and Evidence: Courts will scrutinise the actual involvement and control exercised by funders. Lack of detailed evidence or attempts to minimise involvement may not protect against a costs order.
No Chilling Effect on Justified Claims: The judgment does not accept that the risk of a non-party costs order should deter justified claims, but it does mean funders must be fully aware of the risks before proceeding.

If you are considering funding or controlling litigation, you must be aware that you could be held personally liable for the other side’s legal costs if the claim fails—even if you are not a formal party. This liability can be significant and may go beyond any security for costs you provide. It is essential to undertake a thorough cost-benefit analysis and understand that courts will look at your actual involvement and interest in the case. Please discuss these risks with us in detail before making any commitment.

Femi offers a free 30-minute consultation to help you explore your options and protect your business. Reach out on 07867 795 439 or email [email protected] or [email protected]

Insolvency Litigation Funding: Non-party costs judgment – Femi Ogunshakin