Anthony Victor Lomas v Burlington Loan Management Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 24 April 2018 |
| Neutral Citation | [2018] EWHC 924 (Ch) |
| Date | 24 April 2018 |
| Court | Chancery Division |
| Docket Number | Case No: CR-2008-000012 |
[2018] EWHC 924 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN THE MATTER OF LEHMAN BROTHERS INTERNATIONAL (EUROPE) (IN ADMINISTRATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
7 Rolls Building, Fetter Lane, London, EC4A 1NL
THE HONORABLE Mr Justice Hildyard
Case No: CR-2008-000012
Daniel Bayfield QC (instructed by Linklaters LLP) for the Applicants (1)–(5)
Robin Dicker QC and Henry Phillips (instructed by Freshfields Bruckhaus Deringer LLP) for the Respondents (1)–(3)
Antony Zacaroli QC, David AllisonQC andAdam Al-Attar (instructed by Kirkland & Ellis International LLP) for Respondent (4)
Robert Amey (instructed by Michelmores LLP) for Respondents (5)
David Foxton QC, and Craig Morrison (instructed by Cleary Gottlieb Steen & Hamilton LLP) for Respondent (6)
Subject matter of this judgment
This judgment deals with a question of costs in relation to the tranche of the Lehman Waterfall proceedings sometimes referred to as Waterfall IIC. Waterfall IIC concerned the construction and effect of various standardised pre-administration agreements (and especially two forms of ISDA Master Agreements) on creditors' entitlement to statutory interest. My main Judgment in Waterfall IIC is reported under the name Lomas & Ors v Burlington Loan Management Ltd & Ors [2016] EWHC 2417 (Ch).
Summary of the positions of the parties
In the event in Waterfall IIC, the arguments of the Fourth Respondent (“Wentworth”) to the application brought by the Joint Administrators of Lehman Brothers International (Europe) (in Administration) (“LBIE”) (“the Joint Administrators”) prevailed on most of the many issues decided. Wentworth contends that it should be entitled to its costs consistently with the usual rule that a successful party is entitled to its costs from the unsuccessful party. Wentworth opposes the applications made by the First, Second and Third Respondents (“the Senior Creditor Group” or “the SCG”) and the Sixth Respondent (“GSI”) for their costs to be paid out of the LBIE administration estate, contending (put briefly) that the proceedings were no different in substance from ordinary adversarial litigation.
The SCG and GSI, on the other hand, contend (again put briefly) that it would be unfair to characterise the process instigated by the Joint Administrators as adversarial litigation. They submit that the issues in the Waterfall IIC proceedings, as also the issues in the earlier proceedings before David Richards J (as he then was) in Waterfall IIA [2015] EWHC 2269 (Ch) and Waterfall IIB [2015] EWHC 2270 (Ch), should properly be characterised as necessarily brought for resolution by the court to enable the Joint Administrators to proceed further with the administration of the estate, and as on that footing being within a category of cases where, as a general proposition, the costs of all respondents should be paid as expenses of the administration of LBIE. They submitted that of course there was a contest, and of course alternative solutions to the issues were advanced on an adversarial basis, but the origin and purpose was the assistance necessary to enable the Joint Administrators properly to administer the estate.
The Joint Administrators, whose costs all parties are agreed should be paid as an expense of the administration of LBIE, have indicated their formal neutrality, but in their skeleton argument on the issue have signalled that they agree with the characterisation contended for by the SCG and GSI and, subject to one caveat, with the order they propose. In circumstances where the SCG is comprised of various parties instructing different legal firms, the caveat is that the SCG's costs should be limited to “such costs as would have been incurred had the [SCG] retained one firm of solicitors only”. (That wording having been approved in like circumstances in Waterfall IIA and B.)
These points have been comprehensively presented by Mr Daniel Bayfield QC (for the Joint Administrators), Mr Robin Dicker QC (leading Mr Henry Phillips) for the SCG, Mr David Foxton QC (leading Mr Craig Morrison) for GSI and Mr Antony Zacaroli QC (leading Mr David Allison QC and Mr Adam Al-Attar) for Wentworth. I am indebted to them and their respective teams for their assistance. In deference to their arguments, the references to authority, and the no doubt considerable amounts at stake, I reserved my judgment. I should like to acknowledge at the outset my regrettable delay in providing it, for which I must sincerely apologise to all concerned.
Overall view
There is no doubt that the general rule that costs should follow the event is a starting point from which the court may depart having regard to all the relevant circumstances (and see per Briggs J as he then was in earlier proceedings in the administration of LBIE, namely Pearson & Ors v Lehman Brothers Finance SA & Ors [2010] EWHC 3044 (Ch) (“the RASCALS case”) at paragraph [7]).
There is equally no doubt that, by analogy with developed practice in the context of litigation to resolve contested issues in a deceased's or insolvent's estate, where the proceedings have in effect been sponsored by the estate administrator, and the parties' involvement has in effect been as contributors to a necessary judicial inquiry (see again the RASCALS case at paragraph [8]), the court has been disposed to depart from the general ‘costs follow the event’ principle and allow costs as an expense in the relevant process of administration.
That disposition has been evident in the earlier Waterfall proceedings, where in every instance the court directed the payment of all parties' costs out of the administration estate, subject to percentage reductions where it perceived there had been unnecessary or excessive duplication or to confine costs to a single firm of solicitors for each party.
It is common ground, in these circumstances, that the question is ultimately one of discretion. However, it is plain that the exercise of discretion is to be guided according to the characterisation of the substance of the proceedings; though caution is in any event required, in that ( per Henderson J, as he then was, in Kostic v Chaplin & Ors [2007] EWHC 2909 (Ch)):
“…the courts are increasingly alert to the dangers of encouraging litigation, and discouraging settlement of doubtful claims at an early stage, if costs are allowed out of the estate to the unsuccessful party.”
In the RASCALS case, Briggs J added further:
“…although there are features of insolvency litigation which, by analogy with litigation about deceased's estates, may justify a departure from the general rule, the court should nonetheless approach any particular case for a departure with real caution, and litigants ought to expect to have to justify such a departure by reference to the facts about their alleged predicament, rather than merely by recourse to some supposed general principle.”
So the discretion is to be exercised with caution, according to the circumstances and context of the particular case.
Proper characterisation of the Waterfall IIC proceedings: competing contentions
I start with the question of characterisation.
Form of the proceedings and the genesis and formulation of the contested issues
At least in point of form, the Waterfall IIC proceedings (as all the Waterfall proceedings) were brought by the Joint Administrators seeking the directions of the court on issues which they considered had to be judicially determined in order to enable them to move forward to the eventual distribution of the (very considerable) surplus in the LBIE administration estate.
Although not appointed formally as representative respondents, each of the Respondents was intended and called upon to advance arguments from the point of view not just of itself, but of all creditors having a like interest. A corresponding role was played in the previous Waterfall proceedings (where no formal representation orders were made, nor representatives appointed either). In all such proceedings, and these proceedings, the Joint Administrators have described, and apparently regarded, the relevant respondents as “quasi-representatives”.
It is not disputed that in these and all the Waterfall proceedings, the creditors chosen as respondents worked iteratively with the Joint Administrators to develop and refine the issues to be determined, with a view to ensuring that as eventually formulated they (a) were framed in sufficiently general terms to enable the Joint Administrators to derive general guidance from their resolution; and (b) reflected a range of arguable positions advocated for (or identified as capable of being advocated for) by relevant creditors of LBIE, including, but not limited to, members of the Senior Creditor Group. In the event, and as recorded in my main Judgment at paragraph [148]ff., the Joint Administrators identified a further nine sub-questions shortly before the Part C hearing and invited the Respondents to address such issues, which they did.
As a further indication of the objective of resolution of issues in the interests of all creditors and the administration as a whole, the Joint Administrators filed and served two position papers identifying additional arguments that were not being pursued by any of the Respondents and making it clear that, if no Respondent advanced those arguments at trial,...
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