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Liquidator liability to pay costs as a non-party to litigation

A recent decision of the English High Court considered whether a liquidator’s firm should be liable to pay costs as a non-party to the unsuccessful litigation pursued by the company in liquidation and the liquidator. The decision will be of interest to all Cayman Islands official liquidators, and particularly those who expend their own, and their firm’s, resources in asset-poor liquidations to get a recovery proceeding off the ground. 

In Burnden Holdings (UK) Limited and anor v Gary John Fielding and anor, the claimants to the action were the company and its liquidator. The action was initially struck out on limitation grounds, and the liquidator obtained funding from his firm to appeal the strike out. The firm advanced funding on terms that it would recover 2.25 x its outlay. The appeal was successful and the action proceeded with the benefit of funding from another external party. The action ultimately failed, and the defendants sought a non-party costs order against the firm on the basis that, although it had not funded the substantive litigation, its funding of the appeal of the strike out had enabled the substantive litigation to go ahead. 

The Grand Court has jurisdiction to order that a non-party pay some or all of the costs of a proceeding. While the ultimate question is whether it is just, in all the circumstances, to make such an order, generally an order will be made where the non-party has funded the proceeding and either substantially controlled it or stood to benefit from it. The rationale of such an approach is that the non-party is not facilitating access to justice, but rather gaining access to justice for its own purposes.

The Court concluded that the liquidator’s firm was a “real party” to the action in the circumstances, including that the firm would profit from the action if successful. A non-party costs order was awarded against the firm, albeit the Court applied the “Arkin Cap” (see our previous blog here) and capped liability at the amount of the funding the firm had advanced.

Notably, it was not contended, and the Court noted that there was no authority for the proposition, that the liquidator had personally funded the action only because he agreed that his remuneration would be paid from any recoveries made in the litigation. Accordingly, there is a welcome distinction between liquidators who perform professional work on spec (which is relatively common) and those who go further by expending their own resources (as was the case in this instance).

Liquidator liability to pay costs as a non-party to litigation

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