Gary John Fielding and Another v Stephen Hunt (acting as Liquidator of the Burnden Group Ltd)
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Stephen Davies |
| Judgment Date | 02 March 2017 |
| Neutral Citation | [2017] EWHC 406 (Ch) |
| Docket Number | Case No: 2541 of 2010 |
| Court | Chancery Division |
| Date | 02 March 2017 |
[2017] EWHC 406 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
IN THE MATTER OF THE BURNDEN GROUP LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Manchester Civil Justice Centre,
1 Bridge Street West, Manchester M60 9DJ
His Honour Judge Stephen Davies
SITTING AS A JUDGE OF THE HIGH COURT
Case No: 2541 of 2010
John Briggs (instructed by Addleshaw Goddard LLP, Manchester) for the Applicants
James Pickering (instructed by Mills & Reeve LLP, Cambridge) for the Respondent
Hearing date: 15 February 2017
JUDGMENT IN RELATION TO COSTS APPROVED
Introduction
This is my judgment on the costs of the appeal against the rejection of a proof of debt. The substantive judgment is at [2017] EWHC 247 (CH). The issue of costs is particularly important in this case because the Applicants, the Fieldings, are seeking an order that the Respondent, the liquidator of the Burnden Group Limited ("BGL"), pays their costs personally, in circumstances where: (i) as matters stand the company has no assets to pay the costs; (ii) the Fieldings' incurred costs are in excess of £290,000 inclusive of VAT.
There is no doubt that the Fieldings have been the successful party in this matter. Hence, if the general rule in CPR Part 44.2(2)(b) was to be applied, there is no doubt but that the Fieldings as the successful party would be entitled to an order for costs against the liquidator as the unsuccessful party.
However, because this matter has involved an appeal by the Fieldings against the rejection by the liquidator of their proof of debt, brought under rule 4.83 of the Insolvency Rules 1986 ("the Rules"), the liquidator's potential liability for their costs is governed by rule 4.83(6), which provides that:
"The official receiver is not personally liable for costs incurred by any person in respect of an application under this Rule; and the liquidator (if other than the official receiver) is not so liable unless the court makes an order to that effect."
Thus, the Fieldings are inviting me to make an order to that effect, whereas the liquidator is contending that the default position of no personal liability should apply.
I should identify why the Fieldings contend that the default position under rule 4.83(6) should not apply. As I said in [1.4] of the introductory section of my substantive judgment:
"This application is in substance, if not in form, a precursor to two misfeasance applications brought by the liquidator against the Fieldings and the former administrators of BGL, challenging a payment of £1.3 million made by the administrators to the Fieldings. If I am satisfied that the Fieldings have a valid proof of debt in excess of that £1.3 million then the misfeasance applications will effectively fall away, because the liquidator will be unable to establish any resultant loss suffered by BGL as a result of that payment being made, even if he can establish breach. It is therefore very much in the interests of the Fieldings, both directly and because they gave an indemnity to the former administrators, to establish that they have a claim in excess of £1.3 million, even if they have no real prospect of receiving any actual dividend."
In short, Mr Briggs contends on behalf of the Fieldings that the reason why the liquidator rejected the Fieldings' proof of debt and why he has so fiercely contested this appeal was not because he was exercising his quasi-judicial rule of adjudicating upon the validity of the proof in order to determine what dividend should be paid to those claiming to be creditors of an insolvent company where there are assets for distribution, but because it was a necessary pre-condition to the success of the misfeasance applications against the Fieldings and the administrators. He submits that the liquidator's conduct shows that he has been determined to pursue the misfeasance applications from the outset and that this desire has influenced and coloured his approach to the Fieldings' proof of debt. He submits that the liquidator would be personally liable for the costs of an unsuccessful misfeasance application and therefore, by parity of approach, he should be liable for the costs of his unsuccessful resistance to this appeal.
Mr Pickering's response, in short, is that the liquidator acted entirely properly in rejecting the Fieldings' proof of debt, and in resisting the appeal and that, in so doing, he was performing his statutory role in a perfectly proper manner. He submits that it is irrelevant that the reason why both parties have contested the proof of debt is because it is a precursor to the misfeasance applications, which if successful would produce an asset recovery for the company, as opposed to because there are already assets of the company available for dividend. Accordingly, he submits, there is no good reason for not applying the default position under rule 4.83(6).
If I decide that it is not appropriate to order that the liquidator should be personally liable for the Fieldings' costs, the Fieldings contend that there should be an order that their costs be treated as expenses in the liquidation, whereas the liquidator contends that there should simply be no order as to costs.
If I decide that the Fieldings' costs should be treated as expenses in the liquidation, there may be a dispute as to what order of priority those costs should have as against the liquidator's own costs and/or the liquidator's remuneration. However, since the parties had not come prepared to argue this on 15 February 2017, it was agreed that this would have to be the subject of a further application and argument in the event that a dispute as to this point became a live issue.
The law
The researches of counsel have not uncovered any authority which bears directly on the circumstances in which a court should make an order under rule 4.83(6) that the liquidator should be personally liable for the successful applicant's costs.
I have however been referred to a number of authorities which provide some assistance, and to which I shall refer.
The first case I was referred to is that of In re Arthur Williams & Co [1913] 2 KB 88, a decision of the Court of Appeal. The facts of that case were very different to the facts of the present case, since the question was whether or not the official receiver ought to be personally liable for the costs incurred in unsuccessfully seeking to make an individual bankrupt on the basis that he was a partner of a firm against which a receiving order had been made. The Court of Appeal held that he should be personally liable for those costs, since in bringing the claim against the individual he was acting not in discharge of his statutory duty but in the exercise of his power.
Mr Briggs referred me to the submission of counsel for the official receiver, who is recorded as submitting that:
"The official receiver in dealing with this matter was acting as an officer of the Court, and in the absence of any misconduct on his part, or of any attempt to reap a private advantage, there was no jurisdiction to order him personally to pay costs. It is a fallacy to say that because, from some points of view, he may be regarded as a party to litigation, therefore he may be ordered to pay costs."
Mr Briggs submitted that counsel was right to submit that the jurisdiction to order the official receiver to pay costs should be exercised when the official receiver was attempting to reap a private advantage, and that by parity of approach the liquidator in this case ought to pay the costs personally because he was acting for his personal advantage in using the proof of debt procedure to promote the misfeasance applications.
Although not expressly endorsed by the Court of Appeal, I am prepared to accept – and I do not think that Mr Pickering would dispute – that a finding that a liquidator had been acting for his personal advantage in relation to an appeal against a proof of debt ought to lead to the liquidator being ordered personally liable to pay the costs of unsuccessfully resisting the appeal.
Mr Briggs also referred me to the observation of Cozens-Hardy M.R. at p. 93 of the judgment where, in the course of considering the difference between the performance of a duty and the exercise of a power, he said this:
"One of the duties of the official receiver is, of course, to admit or reject proofs: that is quite clear. If he rejects a proof and a creditor successfully appeals, it seems to me that prima facie he would be liable to pay the costs, if it were not for the statutory provision that in that case he shall not be so liable. Rule 231 says: "The official receiver shall in no case be personally liable for costs in relation to an appeal from his decision rejecting any proof wholly or in part."
I accept that it follows from this passage that a liquidator who unsuccessfully opposes an appeal against a rejection of a proof of debt would also be regarded as exercising a power as opposed to performing a duty. But, of course, rule 4.83(6) must be read in the context that this is the position but nonetheless provides that the default position is that in such circumstances a liquidator will not be personally liable for the costs of the successful appellant unless the court so orders. It follows, as Mr Pickering submits and I agree, that something more than merely unsuccessfully resisting an appeal is needed for the court to make an order for personal liability.
I have been referred to the general position as regards a liquidator's personal liability for costs, which in summary is that:
(a) Where a liquidator unsuccessfully pursues a...
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