McKay Norwell

It is fairly common knowledge that if you win a court case you are entitled to an award of expenses which will refund you most, if not all, of your legal bills.  However, many people every year find themselves being sued by somebody who has little or no money.  This can lead to an awkward situation if you are the unfortunate person being sued.  If you lose the case you have to pay everything the victorious party has sued for plus legal expenses, but if you win the award of expenses in your favour is valueless, so you are left with all your own legal bills to pay.

One of our clients was caught in this situation recently.  It was particularly infuriating since the person behind the action in fact had plenty of money, but had set up a limited company and had sold the right of action to that company.  The company, which had no assets at all, then raised the action.  Accordingly, if our client won he would have to go after the company for his money, and needless to say would have no chance of receiving any.  The person standing behind the company was therefore trying to litigate in a completely safe place, taking all the gain if he won, and incurring no risk if he lost.

The situation was clearly unfair, so we made an application to the court under section 726 of the Companies Act 1985.  This section gives the court the power to order a company which has raised an action to pay a sum into court as security for the other side’s expenses if it appears that the company will be unable to pay those expenses if it loses.  We produced the company’s accounts which showed that it had no money at all, and it was clear that it was simply being used as a puppet of the person who had set it up.  The court ordered it to pay £30,000 into court as security within one month.  It then failed to do so, and as a consequence the court dismissed the action altogether.

S726 is therefore a useful provision, and gives the community some protection against this sort of abuse.