Family funders ordered to pay costs after insolvent contractor loses £3 million claim

The Technology and Construction Court has ordered family members who funded litigation brought by an insolvent construction company to pay the successful defendant’s costs, finding they were the real parties to the case and had pursued the litigation for their own financial benefit.

The claim was brought by Thomas Barnes & Sons, a construction company already in administration, against Blackburn with Darwen Borough Council in connection with the alleged wrongful termination of a 2014 contract for the construction of a new bus station in Blackburn. The claim was rejected after an 11-day trial in 2022.

In this judgment, the Court granted a non-party costs under under section 51 of the Senior Courts Act 1981 against Thomas Barnes and the executors of his late brother’s estate (both of whom were directors and shareholders in the company), finding that the Barnes family had funded the proceedings, provided substantial security for costs, stood to benefit directly from any recovery, and exercised real control over the litigation, even though the claim was formally pursued by the company’s administrators. HHJ Stephen Davies held that the case could not have proceeded without the family’s financial backing and involvement, and that it was therefore just that they bear the shortfall in the council’s recoverable costs after security was exhausted.

The Court rejected arguments that the family members were merely supporting the administrators or facilitating access to justice, noting that the litigation carried little downside for them while exposing the council to nearly £1 million in defence costs. While acknowledging the public interest in allowing officeholders to pursue claims on behalf of insolvent companies, the Court held that this interest did not extend to shielding funders who stood to gain personally and who effectively drove the litigation.

Read the decision here.

Martyn Griffiths of Gatehouse Chambers (instructed by Blake Morgan) acted for Blackburn with Darwen Borough Council.

Lisa Walmisley of Kings Chambers (instructed by Leonard Curtis Legal) acted for Thomas Barnes, while Alfred Weiss of Exchange Chambers and Three Stone (instructed by JMW Solicitors) for the other respondents.