Non-party v "real party": third-party costs orders and liquidators

16 July 2021

The recent case of Official Receiver v Deuss [2021] EWHC 1842 (Ch) provides legal and insolvency practitioners with guidance as to the test to be applied when considering whether a third-party costs order should be made against a liquidator who takes steps against an alleged de facto director of the company in liquidation. In this case, the step concerned was an application for public examination pursuant to section 133(2) of the Insolvency Act 1986 (the Section 133 Application).

At the hearing of the Section 133 Application (in December 2020), the Court refused to order a public examination of the alleged de facto director of the company in liquidation (Mr Deuss, who – aged 78 – would have had to leave Bermuda in a pandemic to travel to the UK and face cross-examination). Following the judgment in the Section 133 Application, Mr Deuss made an application for a third-party costs order against the liquidator in his personal capacity on the basis that he was the "real party" who brought the Section 133 Application (the Third-Party Costs Order Application).

The Third-Party Costs Order Application was heard by Mr Justice Briggs on 18 June 2021. Drawing on the principles set out by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others [2004] UKPC 39 and the conclusion by HHJ Matthews in Housemaker Services Ltd v Cole [2017] EWHC 924 (Ch), namely that "funding and controlling [is] insufficient and something more [is] required" to be a "real party" to litigation, Mr Justice Briggs dismissed the Third-Party Costs Order Application and held that the liquidator should not be subject to a third-party costs order in a personal capacity on the basis that whilst he was a non-party, "he cannot be described as the ‘real party'". The reasons for this can be summarised as follows.

  1. Capacity: The liquidator did not request that the Official Receiver bring the Section 133 Application in his personal capacity, but in his capacity as liquidator of one of the company’s creditors, Owl Limited. Furthermore, it was not the liquidator but the Official Receiver who made the Section 133 Application.
  2. Benefit: There was no evidence to support the view that the liquidator had instigated the Section 133 Application to be made for his own personal benefit and it was agreed by all that, as the liquidator of Owl Limited, he was entitled to remuneration.
  3. Control: The uncontested evidence was that it was the Official Receiver (and not the liquidator) who not only made, but controlled the Section 133 Application.
  4. Funding: It was not suggested that the liquidator, either in his personal capacity or in his capacity as a liquidator, funded the Section 133 Application.
  5. Impropriety: It was not said that the liquidator acted in any way other than in good faith and without any impropriety.

Applications made pursuant to Section 133 are unusual, but the test set out in the judgment can be applied in circumstances where a non-party costs order is sought in relation to failed applications for more common information gathering mechanisms available under the Insolvency Act. As such, this case provides some general comfort to liquidators on the risk of third-party costs orders being made against them in a personal capacity in response to failed applications under the Insolvency Act. 

As this case makes evident, the Court will take into account a wide range of factors when determining whether a third-party costs order is suitable in such circumstances and it will be difficult to demonstrate that a liquidator in a personal capacity is, in fact, the "real party" such that a third-party costs order should be made.