This case involved a claim brought by a company in administration against the Blackburn and Darwen Borough Council seeking substantial damages in relation to an alleged wrongful termination of contract by the council. The claim was lost and the council sought a third-party costs order against the respondents who were secured creditors of the company, its directors/shareholders, and who had funded and at least to some extent controlled the litigation.
The court reminded itself of the relevant principles for third-party costs orders and noted that a case such as the instant one, where the third parties were previously involved in the company as director and/or shareholder but also as secured creditor, was one of the most difficult to decide in practice as: the third parties (a) will be funding the litigation, in circumstances where neither the officeholders nor anyone else have the resources to do so; (b) have a real personal financial interest in the proceedings, albeit that, depending on the circumstances, there will probably also be a benefit to preferential creditors and, possibly, to unsecured creditors; (c) have a considerable amount of control over the proceedings, given their position as funders, even though the officeholders will not, acting professionally, delegate their ultimate control over the proceedings to them; and (d) have intimate involvement in and knowledge of the underlying issues, so that, without their close involvement in and assistance with the substantive proceedings, they could not be carried on to a successful conclusion.
The court noted that the respondents had all funded the claim and all stood to benefit personally from it: they were not the only prospective beneficiaries but – apart from the modest amount due to the preferential creditors – they were the only ones who were guaranteed to recover a substantial amount unless the claim succeeded in all respects in relation to liability and very substantially in relation to quantum.
The court concluded that it was satisfied that one of the third parties (Thomas) had exercised a real degree of control over the proceedings from start to finish, albeit that the administrators also exercised a real degree of control as was appropriate to their position as officeholders. The other third parties in effect left it to Thomas, the administrators and the lawyers to resolve, but were prepared to back up Thomas' determination to pursue the claim by providing funding for the claim. They were all, therefore, properly to be treated as the real parties to the proceedings in very important and critical respects. In all of the circumstances the court concluded that there should be a non-party costs order made against all of the respondents.
Barnes & Sons v Blackburn with Darwen Borough Council [2026] EWHC 24 (TCC)
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