Court Costs: Recovery from potentially insolvent Claimant: Piercing the corporate veil

[jeanpaulsmith]

A claim is being brought against me by a subsidiary of a large corporate group.

The Claimant, a corporate entity with limited liability, ceased doing business 4 years ago, it has no assets and has no bank accounts (it has no capital to put in a bank account and neither does it have any cash flow since it is no longer doing business). The legal action of the Claimant is being funded by the parent of the group and/or another part of the group.

My concern is that if judgement is given in my favour and the Court orders that the Claimant pay my legal costs then I will be unable to enforce that order against an insolvent Claimant.

Moreover, I would not be able to enforce that costs order against the entity funding the Claimant's litigation since that entity is not a party to the Claim. It is clear that this corporate group is shielding itself behind the veil of corporate limited liability of its defunct subsidiary.

Proceedings have been issued, the first CMC has been held and we are awaiting further directions from the Court together with a date for the hearing.

So far I have been representing myself, fearful that any legal costs that I incur will not be capable of being recovered against the Claimant. However, I need legal representation but I am mindful that my legal costs may amount to hundreds of thousands of pounds in the High Court and you will understand that I do not want to commit to such costs if I have no prospect of recovering them in future. What action can I take to protect myself?

Can the Court order the Claimant to identify the party funding its action and order the Claimant to post money with it to cover a costs order against it should its action fail? If I ask for such an order against the Claimant then is it likely that the Court would order me to make such a deposit with the Court should a costs order be made against me?

Please advise me in relation to how I should deal with this situation.

[steampowered]

This is a valid concern. As this is High Court litigation there is very likely to be a costs order one way or another. What you want is an order for "security for costs". Have a read of the relevant CPR at http://www.justice.gov.uk/courts/procedure-rules/civil/rules/part25. This should normally be done before the first CMC but hopefully you will have some leeway as you are a litigant in person. You'll need an application form, draft order and a witness statement explaining why you want the order and why the grounds specified in the CPR for granting such an order are met.

 

I don't see why the court would order you to pay a deposit too. This is very unlikely. The CPR only provides for security for costs orders to be made against claimants, not against defendants.

 

As this case is probably worth more than £50,000 it would be sensible to engage a solicitor immediately. You have presumably already filed a defence so you could try direct access to a barrister. Also make sure you read up on the costs recoverable by Litigants in Person and keep a diary of all the time you spend on the case, CAG have a helpful sticky on this.

[AndyOrch]

Hi Jean and welcome to CAG

 

Is the claimant a dissolved Ltd Company?

 

Regards

 

Andy

[jeanpaulsmith]

AndyThe Claimant has not been dissolved. The entity still exists, but is is essentially a dormant company: nothing more than an empty shell.Jean Paul

[AndyOrch]

Here i the relevant CPR Steampowerd refers to:-

 

Security for costs other than from the claimant

 

CPR25.14

 

(1) The defendant may seek an order against someone other than the claimant, and the court may make an order for security for costs against that person if –

(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and

(b) one or more of the conditions in paragraph (2) applies.

(2) The conditions are that the person –

(a) has assigned the right to the claim to the claimant with a view to avoiding the possibility of a costs order being made against him; or

(b) has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings; and

is a person against whom a costs order may be made.

(Rule 48.2 makes provision for costs orders against non-parties)

 

Regards

 

Andy

[jeanpaulsmith]

Dear Steampowered,

thank you for your advice. I shall take a look at CPR 25.

I am intrigued by your suggestion to engage a barrister directly (I thought that barristers could only be instructed via a solicitor. Have the rules changed?

I am also concerned about instructing either a solicitor or a barrister becasuse of the cost implications should I lose the case ... legal costs in addition to damages would bankrupt me. Is it possible to achieve legal representation for a defence on a contingency fee basis based on an assessment by Counsel of the claim and the defence? I had hoped that it may be possible that a legal representative would assess the matter as being very defensible and so take the claim with a view to being paid by way of a costs order if he is successful in defending the claim. Do you know if this is possible and if so, which lawyers offer such a service?

Jean Paul

[steampowered]

Hi,

 

It is now possible to engage a barrister directly through the public access scheme. This means you can approach some barristers directly if they are accredited with the bar council. You can find information about this on the bar council's website. Remember that barristers are advocacy specialists and are not always equipped to deal with the general conduct of litigation like solicitors are. I would only recommend this route if you want something very specific, e.g. advocacy at a particular hearing or drafting a particular application and witness statement. If you need someone to deal with the claim generally (particularly if there will be much disclosure of documents) I would recommend doing it through a solicitor. It is difficult to say whether public access is a viable option for you because we don't really know what your claim is actually about.

 

In theory, it is possible for solicitors and barristers to take cases on a "conditional fee" basis where they only get paid if they win. This is normally used by claimants in personal injury-type cases. Unfortunately I think you might struggle to get someone to take a conditional fee on the defendant side. Otherwise, you would need to rely on winning the case and getting your costs.

 

I don't know how much the case is for, but as you are in the High Court I'm assuming it is very substantial. A little professional advice now could save you an awful lot of heartache later. I think you should see a solicitor immediately. Remember that just because you consult a solicitor does not mean you have to use them all the way, solicitors generally charge an hourly rate. You could always just approach them for a bit of general advice and help with a security for costs protection in the first instance, you don't necessarily have to instruct them to do the main trial. It is also worth thinking about making a settlement offer, there are tactical advantages to doing this in High Court litigation (if you make a "Part 36" settlement offer that gives you a lot of costs protection if you do better than your offer at trial).

 

If you want to go for security for costs (i.e. the claimants have to pay a sum into court held in case you win) you need to do it fast. The application should normally be made before the first CMC, the closer it gets to trial the most difficult it will be for you to get it.

[jeanpaulsmith]

Is it possible to make a Part 36 Settlement Offer subject to contingencies, i.e. on a without liability basis and subject to a consent order including a term that no further action will be brought by the Claimant or its affiliates at any time against the Defendant or against any third party in relation to the facts set out in its claim?

[steampowered]

Yes. See http://www.justice.gov.uk/courts/procedure-rules/civil/rules/part36 although it is a bit legalistic. Part 36 offers need to comply exactly with the proper formalities so you need to be careful about this (regular settlement offers are still fine, but complying with the formalities does provide you with an advantage as beating your Part 36 offer gets you indemnity costs rather than standard costs, which is a more generous way of assessing your costs).

[jeanpaulsmith]

In relation to CPR part 36 I have been doing some Google research. There are some lawyers online that suggest that making a common law offer to settle without prejudice save as to costs is preferable to using the new CPR36 procedure. Of course I would have to ask the Court to exercise its costs discretion in my favour under CPR44.3 if I beat my offer if I take the common law approach. However, I cannot seem to ascertain why some lawyers support this view. What are the advantages and disadvantages both ways? Under CPR44 would I still be entitled to indemnity costs and enhanced interest either way? Your advice and guidance is appreciated.

 

Additionally, in relation to costs upto the date of acceptance of either a Part 36 offer or a common law offer to settle, if the offer states that the Defendant accepts that he contributed to 10% of the claimed loss but that the other 90% of the loss was caused by the Claimant, is the Claimant still entitled to 100% of the costs of proceedings upto the date of acceptance of the offer or are costs allocated on a pro-rata basis by virtue of acceptance by the parties of their contribution to the claimed loss?

Edited January 7, 2013 by jeanpaulsmith

[steampowered]

CPR36 letters are more powerful than non-part 36 offers for the following reasons:

1) The costs provisions of CPR 36 are stronger. This is more important for claimants than defendants (as Part 36 can give claimants costs on an indemnity basis rather than the standard basis). For you on the defendant side, if the claimant doesn't beat your offer at trial you would be entitled to your costs and interest on those costs under Part 36. You wouldn't get interest under CPR 44.3.

 

2) The costs consequences of CPR 36 are automatic and simply depend on whether the claimant beats your offer. Outside Part 36 the general rule is that the winner pays the losers costs. The best way to illustrate why this is important is with an example. Imagine that the claim is for £1000. The defendant says he is not liable. The court decides that the defendant is liable but not for everything claimed and awards £300. The claimant has been successful in this claim so he would normally get his costs. If the defendant had made a settlement offer for £350 that probably wouldn't change much, the best you could hope for would be no order as to costs. However, if the defendant had made a Part 36 offer for £350 the defendant would get costs. I think it is also fair to say that, if you win the case but the court does not approve of your conduct, it is more likely to exercise its discretion to reduce your costs under CPR44.3 than it would be to do this under CPR36.

 

Until recently, there was a view that you didn't need to comply exactly with CPR36 to get its effects. The Court of Appeal had seemed to suggest that settlement offers which do not comply with the formalities of part 36 should nevertheless be given the effect of part 36 offers through the back-door of CPR44.3, because it would be inconsistent and unfair to give two offers hugely different effects just because one complied with the formalities and the other doesn't. This view is now discredited. The view of the courts now is that you have to comply with Part 36 if you want to get the benefits of Part 36. You need to bear this in mind when you do your research - many of the articles which you read will have been outdated, if they suggest that you can still get the benefits of CPR36 without making a Part 36 offer that is no longer good law.

 

The disadvantage of Part 36 for defendants is that, if the offer is accepted, you are liable for the claimant's costs. The general view is that defendants cannot make a Part 36 offer inclusive of costs. Probably best to stick to a regular settlement offer if you are worried about this.

 

"Additionally, in relation to costs upto the date of acceptance of either a Part 36 offer or a common law offer to settle, if the offer states that the Defendant accepts that he contributed to 10% of the claimed loss but that the other 90% of the loss was caused by the Claimant, is the Claimant still entitled to 100% of the costs of proceedings upto the date of acceptance of the offer or are costs allocated on a pro-rata basis by virtue of acceptance by the parties of their contribution to the claimed loss?"

 

Generally costs are not allocated pro-rata. In most cases there is just a winner and loser, and the loser pay the winner's costs. If the defendant offered £10 and the claimant was awarded £100, the claimant would get his costs as normal.

 

Remember that I know nothing about your particular case and am generalising about a fairly technical area of law. I hope it helps you get the gist of it but do take what I have said with a pinch of salt for that reason.

[jeanpaulsmith]

Your advice is incredibly helpful. Thank you.

 

I have one final issue to resolve in relation to a Part 36 offer to settle.

 

Let us assume that the Defendant offers to settle in the sum of £1,000 and that settlement is made subject to a number of conditions. One condition may be that the Defendant does not admit liability (the settlement is on a without liability basis). Another condition may be that the Claimant must accept this sum in full and final settlement of all claims in relation to the facts of the matter in all jurisdictions, both against the Defendant and against any third party.

 

My questions are as follows:

 

(1) If the Claimant refuses to accept the offer based not on the quantum but based on the conditionality and then fails to beat the quantum at the hearing can he argue against a Part 36 costs order on the grounds that he found the conditionality unacceptable?

 

(2) Is it likely that the Claimant will make a counter Part 36 offer for the same sum without the conditionality attached (or in the alternative suggest that he would accept the sum but without the conditionality attached) in order to manage this situation and, if so, and the Defendant refuses to accept the Claimant's terms, what would be the implication on a Part 36 costs order should the Claimant subsequently fail to beat the offer?

 

(3) A Part 36 offer is a statutory offer to settle rather than a contractual offer to settle as was previously the case under common law. It is clear that under the common law system an offer to settle with conditions attached resulted in those conditions taking contractual effect between the parties. However, under Part 36 how would the conditionality of an offer be dealt with and subsequently enforced if required?

 

Thank you once again for your guidance

[steampowered]

Let us assume that the Defendant offers to settle in the sum of £1,000 and that settlement is made subject to a number of conditions. One condition may be that the Defendant does not admit liability (the settlement is on a without liability basis). Another condition may be that the Claimant must accept this sum in full and final settlement of all claims in relation to the facts of the matter in all jurisdictions, both against the Defendant and against any third party.

 

Remember that a Part 36 offer must "specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted". If you don't have this provision about costs - i.e. you want to make an offer of £1,000 including the other side's costs - then technically it is not a Part 36 offer.

 

If this is the offer you want to make, I would still use a Part 36 template and "dress it up" as a Part 36 offer as far as you can, to have the best chance of a judge taking the view that you should get Part 36-like costs protection.

 

The claimants probably would not want to accept an offer which is less than the costs incurred by their solicitors. They won't want to lose money on the claim. If this is of concern, you could write a letter or email to the Claimant's solicitors headed "without prejudice save as to costs" asking them what level of costs they have incurred to date and what level of settlement their client would be prepared to accept (and of course you go back and offer less than what they are asking for). As long as this correspondence is restricted to settlement negotiations it will be covered by "without prejudice privilege" and won't get shown to the court until the claim has been decided and the court is looking at who should pay costs.

(1) If the Claimant refuses to accept the offer based not on the quantum but based on the conditionality and then fails to beat the quantum at the hearing can he argue against a Part 36 costs order on the grounds that he found the conditionality unacceptable?

 

The costs consequences of Part 36 are automatic. The court MUST grant costs unless it would be unjust to do so. It sounds quite discretionary but actually "unjust" has been given a very strict interpretation by the courts, the cases in which the courts have gone against the normal consequences of CPR 36 are actually quite exceptional (e.g. claimant tried to used forget evidence, deliberate misconduct at trial etc).

 

I don't think this argument about conditionality would hold any weight. Your conditions are pretty standard, I don't see why they would be a problem save in fairly exceptional circumstances.

 

(2) Is it likely that the Claimant will make a counter Part 36 offer for the same sum without the conditionality attached (or in the alternative suggest that he would accept the sum but without the conditionality attached) in order to manage this situation and, if so, and the Defendant refuses to accept the Claimant's terms, what would be the implication on a Part 36 costs order should the Claimant subsequently fail to beat the offer?

 

If the Claimant doesn't beat his Part 36 offer, then that offer has no effect. The Defendant's Part 36 would govern and the Defendant would get his costs with interest.

 

(3) A Part 36 offer is a statutory offer to settle rather than a contractual offer to settle as was previously the case under common law. It is clear that under the common law system an offer to settle with conditions attached resulted in those conditions taking contractual effect between the parties. However, under Part 36 how would the conditionality of an offer be dealt with and subsequently enforced if required?

 

A Part 36 offer is just a special type of settlement offer. Both regular offers and Part 36 offers are enforced in the same way - by an action for breach of contract, or by asking the court to strike out claims which have already been settled.

 

The costs consequences of both types of offer are set out in the CPR. There isn't really any common law about costs.

[jeanpaulsmith]

If I make a CPR Part 36 offer does then that then open the door for the Claimant to make a counter Part 36 offer which may result in increased pressure being applied to my Defence position because of the risk of Indemnity costs and interest awarded against me if I am unable to beat the Claimants counter offer?

 

Or is it the case that the Claimant may make a Part 36 offer whether or not I initiate the Part 36 process?

 

Thank you once again in anticipation for your invaluable guidance.

[Ganymede]

If I make a CPR Part 36 offer does then that then open the door for the Claimant to make a counter Part 36 offer which may result in increased pressure being applied to my Defence position because of the risk of Indemnity costs and interest awarded against me if I am unable to beat the Claimants counter offer?

 

Or is it the case that the Claimant may make a Part 36 offer whether or not I initiate the Part 36 process?

 

Thank you once again in anticipation for your invaluable guidance.

 

 

 

Either party may make one.

[steampowered]

No worries, glad the advice is helpful.

 

As Ganymede said, the Claimant can always make a counter offer. Realistically, making an offer yourself has a good chance of leading to a counter-offer, especially if your offer is low. But I wouldn't say that you are "opening the door": the door was always open, if the Claimant wants to secure Part 36 costs protection he could make a settlement offer regardless of what you do. The indemnity costs point means that it is almost always sensible for .

 

Do keep this in perspective. If the Claimant wins and beats their Part 36, they get indemnity costs. If they win without making an offer, they would get standard costs anyway. It depends on the circumstances but the difference between standard costs and indemnity costs might not be very much. On the other hand, if the claimant was awarded only a part of what they are claiming for, then they would get costs. But if you made a Part 36 above that part then you would get costs. The difference between paying costs and not paying costs is much greater than the difference between standard and indemnity. Not to mention the obvious point that you won't have to go through the stress of dealing with a claim or expense of finding a solicitor if you can settle before this gets to court.

 

Just to make sure you haven't forgotten, as I said above if you want to go for security for costs you should instruct a solicitor to make that application pretty quickly because the first CMC has already passed.

[jeanpaulsmith]

One new question in relation to legal costs and legal aid. Everyone has the right to legal representation. However, the threshold for legal aid in a civil action is low (gross income has to be less than £2,600 per month) regardless of outgoings. If the Defendant is divorced and paying maintenance for four children plus providing housing for his young children who are in the custody of his ex-wife, and he is also required to pay his own living and travel expenses then, after tax, there is no disposable income left. The Defendant has depleted all of his savings.

 

How is it possible for the Defendant to be represented?

Legal aid is not available.

The Defendant is unable to cover High Court legal costs himself.

A loan will not be available for such a purpose in the amount that may be required, particularly since a judgement against the Defendant would bankrupt him.

What does he do?

Surely he is not required to leave his job and to claim job seekers allowance in order to secure legal representation?

[steampowered]

You only have a right to legal representation in criminal cases, not civil or family cases. Legal aid has been cut to the bone by successive governments (especially this one) and is now very difficult to get - if you don't meet the eligibility criteria you won't get it. If you do meet the financial criteria, you will still have to pass a merits test (they won't fund you if they think the case has a bad chance of winning or the costs are not justified by the amount at stake). It can also be difficult to actually find a solicitor willing to take the case, a lot of them don't want to take legal aid these days because of delays and problems with getting paid. It is worth giving the Community Legal Advice helpline a call if you are in any doubt about eligibility. There is also some helpful guidance here: http://www.justice.gov.uk/legal-aid/assess-your-clients-eligibility

 

In theory you can get a private no-win-no-fee arrangement but this can also be difficult to get. By the way, if you left your job I think you might have a problem claiming JSA if you are deemed to have left voluntarily (I don't know much about benefits so this could be wrong, the guys on the benefits forum will know more).

 

If you can't get legal aid or afford legal advice then you will have to defend yourself. It can be done - hopefully you can get some help from the CAB, a local law centre and this website. Its possible (but unlikely) that you can get pro-bono representation from an organisation like bar pro bono unit, however this will need a referral from a law centre or the like first as you can't approach them direct. Do check your home insurance to see if you have some legal expenses insurance included.

Edited January 16, 2013 by steampowered