The Winning Side Wants You Personally to Pay the Costs of Your Company's Failed DIFC Case

Possibly, but not simply because you ran the company. The DIFC Courts can make a non-party costs order against a director, shareholder or funder who was never a party to the claim, and Rule 38.67 of the Rules of the DIFC Courts requires that person to be added as a party for the purposes of costs only and given a reasonable opportunity to attend a hearing first. The Court of Appeal's decision in Vegie Bar LLC v Alkalajleh and Emirates National Bank of Dubai Properties PJSC [2020] DIFC CA 001 shows what tips the balance: the director had caused the company's claim to be brought, controlled it and paid for it, while the company was impecunious and success would have benefited him personally. Being a director or major shareholder of the company that lost is not, on its own, enough.

The orders, issued on 17 March 2021 and re-issued on 31 March 2021, answer five separate questions.

Can you be ordered to pay costs in a DIFC case you were never a party to?

Yes, once the joinder and the hearing that Rule 38.67 requires have taken place. The Rules say nothing about how the power is exercised, the Court of Appeal noted, so it rests on the general discretion in Rule 38.6, informed by the circumstances in Rule 38.8, including the parties' conduct, and the general law.

In Vegie Bar the winning defendant applied three weeks after the appeal was dismissed, under liberty the Court had reserved. The director was heard on joinder and liability at one hearing in January 2021, and joinder was ordered without opposition. The re-issue of 31 March 2021 added the joinder to the operative order.

The decision was made under Dubai Law No. 12 of 2004, the Judicial Authority Law, which Dubai Law No. 2 of 2025 has superseded (Article 43(A)). Nothing in it turned on the old Law. The current Law lets the DIFC Courts join any party to a proceeding (Article 24(E)(2)), lets the Court of Appeal make an order with respect to costs (Article 17(E)(10)) and leaves procedure to the Rules of the Courts (Article 25), and Rule 38.67, as published by the DIFC Courts on 15 October 2026, still requires both steps.

When will the DIFC Courts make a non-party costs order against a director?

When it is just, and the Court of Appeal set out what that means at reasons 31 to 33. Such orders are exceptional only in the sense that they fall outside the ordinary run of cases, where parties litigate for their own benefit and at their own expense, and the jurisdiction is fact-specific, with considerations pointing both ways.

The principles it applied mark both ends. A pure funder, with no personal interest in the litigation, no expected benefit, no business in funding it and no control over its course, will generally not be ordered to pay, because access to justice for the funded party comes first. A non-party who funds the case and also substantially controls it or stands to benefit will ordinarily pay if it fails, as the real party gaining access to justice for their own purposes. The director sits between. A major shareholding and a dominant directorship do not by themselves justify an order, something more is normally needed, often fresh money put in for the known purpose of funding the case, and an order is less likely where the director can realistically be seen as acting for the company, its shareholders and its creditors rather than for himself.

Running the company that lost is not the test. In Vegie Bar the order rested on funding, control and personal benefit together, each proved by evidence about that company and that director, and the same three questions organise the evidence on both sides.

What did the Court of Appeal find against the director in Vegie Bar?

Findings about one company and one director. The company's complaint was that it had been denied the lease of premises for a restaurant and bar, so it had never traded. It had been struck off the register for a considerable period, and it was common ground that it was impecunious. Its claim failed on immediate judgment, and its appeal was dismissed in October 2020.

On control, the director had been a shareholder and director at all material times, the company's manager and authorised signatory, and the person who caused the litigation to be brought and controlled it. He gave eleven witness statements and called the lease in issue "my lease". On funding, he had borrowed the USD 86,864.50 paid into court as security and had been paying for the company's legal representation. On benefit, it was highly unlikely, and not suggested, that creditors from the company's start-up years would gain, the company would never trade, and success would have benefited him as substantial shareholder, with no realistic other reason for his efforts. At first sight, the Court said, it was a paradigm case for an order.

None of this makes directors liable as a class. A company with creditors or other shareholders who stood to gain, a board that genuinely decided the litigation, or a claim the company funded itself could point the other way.

What arguments can a director make, and why did they fail in Vegie Bar?

The director accepted the governing principles and made four submissions. Each failed.

First, that the claim was pursued for the company and its business, not for himself, relying on the older view that the controlling director of an insolvent one-person company should not ordinarily be personally liable for its costs. Had the company traded profitably, the Court said, the benefit would in economic reality have gone through it to him, and this was not a director causing a company to sue for other shareholders to whom he owed a fiduciary duty. There was much more here than a director of an insolvent company bringing proceedings, and the law had moved on: a director who is the real party may be liable even if he acted in good faith. A director who genuinely sued for others needs evidence that shows it.

Second, that the company's problems were not of his making, its inability to pay was always plain, its case was arguable and impecunious claimants need access to justice. The Court found an air of unreality in this. The source of the problem was beside the point, a case on which immediate judgment was given and upheld was not arguable, and there was no public interest in letting him pursue his own purposes without bearing the costs of failure.

Third, that an order would strip away the corporate veil, leaving little point in limited liability companies. Fourth, causation: he relied on the principle that a non-party is not ordinarily liable for costs that would have been incurred anyway without his involvement. The Court held that point not well founded, because the proceedings would not have been brought or continued without his doing or his funding.

Common mistake. Treating a non-party costs order as lifting the corporate veil. The Court of Appeal called the third submission quite misconceived: the order is a discretionary costs order, not a finding that you are liable on the company's cause of action, and it leaves legal rights and obligations where they are while the Court looks at economic reality.

Why were the appeal costs ordered on the indemnity basis?

Not because the appeal failed, but because the Court found it unreasonably brought, to a high degree and not just in hindsight, and run in a way that wasted costs. Indemnity assessment resolves doubts about reasonableness for the receiving party, making recovery of actual costs more likely, as the related guide on an opponent's bill explains. Practice Direction No. 5 of 2014 lists the factors the Court quoted: conduct taking the case away from the norm, inappropriate conduct before or during the litigation, and abuse of process.

Two limits help a paying party. The question was the costs of the appeal, so the earlier history played a limited part, and an appeal does not leave the norm merely by failing, since many do. The findings were specific to that appeal. It was speculative at best: the pleaded case had no prospect of success, and a lease starting on a date the Court was asked to fix was void for uncertainty, which should have been recognised, if not before, once the first-instance judgment was given. The submissions ranged into evidence often unrelated to the pleading, grounds on applications abandoned below were appealed and then not argued, and an allegation of judicial bias had no proper basis, which the Court called at the least highly irresponsible.

One argument for the winner failed. Its point that unproven fraud allegations start the analysis at indemnity costs did not apply, because no trial had made a finding either way, and a gratuitous allegation of attempted fraud gave only small support. Indemnity costs were sought for the appeal only.

How much must be paid now, and what happens to the security in court?

Usually a percentage of the claimed costs, here 75 per cent at both levels. Rule 38.13 permits a payment on account once costs are ordered, and the practice direction sets 50 per cent of the amount claimed unless the Court orders otherwise. The Court of Appeal called the discretion unfettered, the parties' finances included, and the 50 per cent a safe least figure, open to increase.

The paying side's lack of money pushed the figure up. Where the paying party has limited funds, the winner should not be forced to spend unrecoverable money on an assessment before receiving anything, so the Court held that a higher percentage had to be considered. The company had accepted that indemnity costs would justify the higher percentage sought, and the Court said the claimed costs of a long and tortuous case did not seem excessive.

The statements of costs were AED 1,841,882.73 below and AED 639,907.60 on appeal, and 75 per cent of a further AED 294,522 for the costs applications was added. The reasons total AED 2,082,234.24 but the operative order states AED 2,080,234.24, so check any order against the arithmetic. The joint and several liability expressly covered the payment on account, so either could be pursued for the whole sum. The security was paid out to the defendant forthwith, unopposed.

Deadline warning. Unless the Court fixes a later date, RDC 38.40 requires an order for costs that states the amount to be paid within 14 days. If you took part in the proceedings and are directly liable under the costs order, the winner must serve you with its notice of commencement and bill, you become a party to the detailed assessment, and you have 21 days from service of that notice to serve points of dispute (RDC 40.5, 40.6, 40.9, 40.14 and 40.15).

The orders in Vegie Bar, side by side:

How should you respond if you are joined for costs?

As your own case, because it now is. In Vegie Bar the director had the same legal representative as the company, and the Court treated the company's submissions on indemnity costs and the payment on account as his. Once the company has nothing left, its exposure and yours are no longer the same, so decide on representation at the outset. The evidence goes to three questions: who paid, who decided and who stood to gain.

1. List each order sought and the stages and amounts it covers.
2. Assemble the funding trail: who paid the lawyers, the court fees and any security, on what terms and when, and whether anyone else contributed.
3. Assemble the control evidence: board approvals, who instructed the lawyers, who signed the witness statements, and what part other directors and shareholders played.
4. Show whose interests the claim served, with documents on the shareholders, creditors and business that stood to gain.
5. Identify the costs that would have been incurred without your involvement or your money.
6. Answer the conduct case stage by stage, especially for any appeal: the advice on prospects, why each ground was run, and the basis for any allegation of fraud or bias.
7. Make a reasoned submission on the percentage on account, and check the arithmetic of any order made.
8. After an order, diarise the 14 days for payment and the assessment timetable.

Where the Court of Appeal decides the application itself, as it did here, Article 18 of the 2025 Law makes its judgment final and conclusive, and under Article 24(H) an amount ordered for costs may be recovered as a debt due and payable. Article 18 does not reach an order made at first instance, and appeals from it under Part 44 of the Rules are not covered here.

Can you limit the exposure before the company sues or appeals?

Partly, by being clear about the role you are taking. If you will fund the company's claim, run it and take the benefit of success, plan on failure becoming your costs bill. Take independent advice on prospects before an appeal, since the indemnity order here attached to the appeal. Drop grounds you will not argue before the other side prepares for them, make no allegation of bias or fraud without a proper basis, let the records show the part played by others with a genuine interest in the claim, and treat security you put up as already at risk. Searches on 15 October 2026 of the DIFC Courts' published judgments and the Conflicts of Jurisdiction Tribunal's decisions found no later appeal, order or referral in this claim and no decision departing from it, a bounded search rather than a court-file certificate.

Frequently Asked Questions

Does being the majority shareholder make me liable for my company's DIFC costs? Not by itself. The principles the Court of Appeal applied in Vegie Bar treat a major shareholding and a dominant directorship as insufficient alone. Something more is normally needed, such as funding the case and controlling it for your own benefit, and an order is less likely where you can realistically be seen as acting for the company, its shareholders and its creditors.

Is someone who only paid for the case treated the same as a director who ran it? No. A pure funder, with no personal interest in the litigation, no expected benefit, no business in funding it and no control over it, will generally not be ordered to pay. A funder who also substantially controls the case or stands to benefit from it is treated as a real party and will ordinarily pay if it fails.

Will acting in good faith protect me from a non-party costs order? Not on its own. In Vegie Bar the Court of Appeal noted that a director who is the real party, seeking his own benefit and controlling or funding the litigation, may be liable even where he acted in good faith and without impropriety. It also referred back to its indemnity findings, including that the appeal was speculative at best, when it rejected the argument that the company's case had been arguable.

Is a non-party costs order the same as lifting the corporate veil? No. The Court of Appeal called that argument quite misconceived. The order is a discretionary costs order, not a finding that you are liable on the company's cause of action, and it leaves legal rights and obligations where they are while the Court looks at the economic reality of who brought the case and why.

Can I be ordered to pay the first-instance costs as well as the appeal costs? Yes. In Vegie Bar the director was made jointly and severally liable for the costs of the appeal and of the proceedings below, and the Court saw no reason to distinguish between them. The order expressly applied to the payment on account too.

Does the indemnity basis mean the winner recovers everything it spent? No. Under RDC 38.17 the Court will not allow costs that were unreasonably incurred or unreasonable in amount on either basis, and Practice Direction No. 5 of 2014 says an indemnity order does not let a party recover more than it incurred. What changes is that doubts about reasonableness are resolved for the receiving party.

Why was 75 per cent ordered on account when the practice direction says 50 per cent? Because the Court of Appeal treated 50 per cent as a safe least figure, open to increase. For the appeal, indemnity costs and the company's own concession made 75 per cent compelling. For the proceedings below, any assessment would cost the winner money it would almost certainly never recover from an impecunious payer, so the Court set 75 per cent as the least it was likely to recover on assessment.

Can I appeal if the DIFC Court of Appeal makes the order against me? No. Article 18 of Dubai Law No. 2 of 2025 makes the Court of Appeal's judgments final and conclusive, and they cannot be appealed in any way. An order made by the Court of First Instance is outside Article 18, and appeals from it under Part 44 of the Rules are not covered here. In Vegie Bar the order reserved liberty to apply only for a further or different order about the costs of the applications themselves.

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

Our DIFC Court disputes page covers jurisdiction, service, default judgment and setting aside, immediate judgment, disclosure, costs and appeals under the Rules of the DIFC Courts.

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