Thomas Barnes & Sons v Blackburn Council: Non-party costs orders against litigation funders

The High Court's recent decision in Thomas Barnes & Sons Plc (In Administration) v Blackburn with Darwen Borough Council provides important guidance on when non-party costs orders (NPCOs) may be imposed against those who fund litigation brought by insolvent companies.

HHJ Stephen Davies, sitting as a High Court Judge in the Technology and Construction Court, granted Blackburn with Darwen Borough Council's (BBC) application for an NPCO against the family members who funded Barnes' unsuccessful £3 million claim for wrongful termination of a construction contract.

Background and funding arrangements

Barnes, a family construction company, entered administration in November 2015 owing £684,714.66 to family members who held a debenture as security. The company's managing director, Thomas Barnes, remained convinced that BBC and its advisers were responsible for the contract termination and the company's subsequent insolvency.

The administrators pursued the claim with funding provided by Thomas Barnes and his late brother Brian's estate. This informal arrangement involved the family members paying Hill Dickinson's legal fees as required. By May 2022, legal costs and disbursements had reached approximately £743,000, whilst the administrators' time costs stood at around £200,000.

BBC sought and obtained security for costs totalling approximately £583,000, comprising £138,000 paid into court and charges over properties valued at £445,000. This represented roughly 65% of BBC's incurred and budgeted costs of £995,000.

The claim proceeded to an 11-day trial in July 2022, where Barnes failed entirely. BBC subsequently sought an NPCO to recover the shortfall of approximately £412,000 between the security provided and their reasonable costs.

The court's analysis

The judge applied established principles from Dymocks Franchise Systems v Todd and the more recent Court of Appeal decision in Goknur Gida v Aytacli. The central question was whether the respondents could fairly be described as "the real party to the litigation" despite not being named parties.

The court found that Thomas Barnes exercised significant control over the proceedings, notwithstanding the administrators' professional oversight. His involvement extended beyond merely assisting as a former director—he attended every day of trial, actively investigated matters, and maintained strong views about BBC's conduct throughout.

Crucially, all respondents funded the claim and stood to benefit personally from its success. Whilst preferential creditors might have received modest returns, the family members were the only parties guaranteed substantial recovery unless the claim succeeded comprehensively on both liability and quantum.

The judge rejected arguments that the public interest in facilitating creditor-funded claims should preclude the order. BBC had given early warnings about potential NPCOs as far back as December 2016, and the provision of substantial security demonstrated the respondents' commitment despite the risks.

The decision

The court ordered the respondents to pay, jointly and severally, BBC's outstanding costs beyond the security already provided. Craig and Scott Barnes' liability was limited to their capacity as executors of their late father's estate.

This decision reinforces that creditors funding litigation through insolvent companies cannot treat such arrangements as risk-free. Where funders exercise control, stand to benefit personally, and effectively become the real parties in important respects, justice ordinarily requires them to bear the successful defendant's costs if the claim fails.

The judgement emphasises the need for a practical, fact-specific approach rather than rigid application of checklists when determining whether NPCOs should be made.

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