Director ordered to pay company’s £35M and counting costs liability

The Australian Professional Liability Blog Director ordered to pay company’s £35M and counting costs liability Posted: 24 Jul 2014 06:14 PM PDT Deutsche Bank AG v Sebastian Holdings Incorporated [2014] EWHC 2073 (Comm) is big. Deutsche Bank sued a company in the English High Court and got a quarter of a billion American dollars judgment. Justice Cooke also ordered the company to pay costs and ordered an interim payment towards the company’s costs liability of about £35 million within a fortnight. The company, a special purpose shell company incorporated in the Turks & Caicos (a British territory in the Bahamas and offshore financial centre), didn’t pay. The plaintiff successfully applied ex parte to join the company’s sole shareholder and director and effect substituted service in the US. He is the Norwegian born, Swedish raised, Harvard educated, Monaco domiciled Alexander Vik, said to have been miraculously lucky in his path to billionnairedom. Until now… The plaintiff then succeeded in its non-party costs order against the director for the reasons set out below. It seems all the rage over in England; consider also Xhosa Office Rentals Ltd v Multi High Tech PCB Ltd [2014] EWHC 1286 (QB). (And see also this post about a similar decision in Victoria, Lillas and Loel Lawyers Pty Ltd v Celona [2014] VSCA 70. Even more recently, see JJES Pty Ltd v Sayan (No 2) [2014] NSWSC 475 in which the director of a corporate plaintiff which sued its solicitors for professional negligence was ordered to pay the solicitors’ costs personally on an indemnity basis. It refers to two more authorities directly on point: FPM Constructions v Council of City of Blue Mountains [2005] NSWCA 340, and May v Christodoulou [2011] NSWCA 75; (2011) 80 NSWLR 462)It was apparent from comments made by his lawyers during the case that the director minutely controlled tactical decision making in the case. He was the company’s principal factual witness. The judge had found him a liar and his company’s case dishonest. The Court held that the director was the company’s privy and as such he was estopped by litigation estoppels from denying in the application for costs against him the correctness of the findings of dishonesty or of the findings in the judgment on which the final orders necessarily rested more generally, as well as from adducing in the personal costs order hearing evidence which could have and should have been adduced by the company in relation to matters in issue in the main proceeding. Mind you, this was a fairly extreme case: ‘It would be hard to find a case where a person was more closely connected with a company than Mr Vik and SHI, whether consideration is given to their financial interrelationship, their management interrelationship or the conduct of the English litigation. The complete absence of any corporate formalities in the sense of resolutions, minutes of decisions, corporate books and records illustrate clearly the extent to which Mr Vik identified SHI as his “trading company” and Beatrice as his “savings company” where he could and did decide on the transfer of monies between them without regard to the financial obligations of each considered independently as a corporate entity.’ The application was based on the fact that the director stood to benefit from the litigation (having counterclaimed for about US$7 billion), had funded the company’s litigation, had improperly transferred nearly US$1 billion out of the company while maintaining effective control over those funds to hinder the plaintiff recovering on any judgment it might receive, and had caused the company to engage dishonestly in the litigation. The mere fact that he was the sole officer and shareholder would not, the judge said, have sufficed to attract personal liability. The director called in aid witness immunity to no avail; the immunity does not prevent a witness’s evidence being used against them in a non-party costs action. He argued that he should have been warned of the possibility of such an application before judgment, that the plaintiff should have sought security for costs or sought to join him earlier. ‘Bollocks!’, Justice Cooke effectively said, in a confident judgment. Apart from anything else, his Honour said, his own lawyers must in the course of charging the company £30 million have warned him themselves of the likelihood of a non-party costs application. (For the sake of their insurers, I hope the judge is right, and that there is a file note.) Justice Cooke found, by reference to authority, that the director had funded the litigation in the following way. The director treated the funds of his company and his other companies as his own and moved them about at will to his personal advantage and without observing formalities. He left some lazy millions in the defendant company to allow it to pay its legal fees when he could have taken the lot. In that sense, he funded the company’s litigation. But his Honour made it clear that the funding finding was not necessary to his ruling: I do not need to reach this conclusion in relation to funding because, in my judgment, the other elements which I have found are more than sufficient to justify making an order for costs against Mr Vik personally. Mr Vik deprived SHI of assets with a view to impeding recovery by DBAG of sums due to it thus contributing to SHI’s inability to pay the order for costs made against it. He controlled the conduct of SHI’s case in the litigation and acted improperly in numerous respects in so doing. It was his conduct of the litigation which caused DBAG to incur costs in pursuing the action and substantial areas of those costs resulted from Mr Vik’s pursuit of dishonest defences and claims or unreasonable pursuit of issues. It was Mr Vik who stood to benefit from the case run on SHI’s behalf and indeed he was the only person who ultimately stood to benefit at all, since he was the embodiment of SHI. Both English decisions referred to in this post were brought to my attention by Thomas Legal Costs‘ twitter feed. You are subscribed to email updates from The Australian Professional Liability Blog To stop receiving these emails, you may unsubscribe now. Email delivery powered by Google Google Inc., 20 West Kinzie, Chicago IL USA 60610