LF2 Ltd v Mark Supperstone
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 11 July 2018 |
| Neutral Citation | [2018] EWHC 1776 (Ch) |
| Court | Chancery Division |
| Docket Number | Appeal Ref: CH-2018-000121 |
| Date | 11 July 2018 |
[2018] EWHC 1776 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS &
COMPANIES AND INSOLVENCY LIST
Royal Courts of Justice
7 Rolls Building, Fetter Lane,
London EC4A 1NL
Mr Justice Morgan
Appeal Ref: CH-2018-000121
Case No: CR-2018-001163
Philip Coppel QC (instructed by Ballinger Law Ltd) for the Appellant
Reuben Comiskey (instructed by Sprecher Grier LLP) for the Respondents
Hilary Stonefrost (instructed by Fieldfisher LLP) for Fieldfisher LLP
Hearing dates: 26 – 28 June 2018
Judgment Approved
Introduction
This is an appeal by LF2 Ltd (“LF2”) against the order dated 8 May 2018, made by Deputy ICC Judge Barnett, whereby he dismissed an application by LF2 for an order pursuant to paragraph 74 of schedule B1 to the Insolvency Act 1986 (“the 1986 Act”). LF2 was granted permission to appeal by Rose J on 18 May 2018. Rose J also ordered that the hearing of the appeal be expedited.
LF's application under paragraph 74 of schedule B1 to the 1986 Act was made on 12 February 2018. By that application, LF2 sought an order requiring Mr Supperstone and Mr Shinners as the joint administrators of Pennyfeathers Ltd (“the company”) to assign to LF2 the cause of action which the company allegedly had in relation to a claim against its former solicitors, Fieldfisher LLP (“Fieldfisher”). By his order, the judge dismissed the application and ordered LF2 to pay the costs of the administrators, summarily assessed at £26,000, and also to pay the costs of Fieldfisher, summarily assessed at £45,833.33.
In its appellants' notice, LF2 advanced a single ground of appeal against the order dismissing its application under paragraph 74 of schedule B1. That ground of appeal was that the judge was wrong to hold that the alleged claim was frivolous or vexatious. LF2 advanced a separate ground of appeal against the order that it pay to Fieldfisher its costs of resisting the application under paragraph 74 of schedule B1; that ground of appeal was that the judge was wrong to make an order for costs in favour of Fieldfisher when it had not been a party to the application and had not been made a party pursuant to CPR 46.2. Although LF2 appealed against the order for costs in favour of Fieldfisher, it did not name Fieldfisher as a respondent to the appeal.
The background
In 2012 and 2013, the company was one of three claimants which had brought a substantial claim in the Chancery Division. The other two claimants were Mr Steer and Mr Taylor, who were directors and shareholders in the company. Those three claimants sued Pennyfeathers Property Company Ltd and two former directors of the company, namely, Mr Attwell and Mr Bowdery. The claimants alleged, in particular, that Mr Attwell and Mr Bowdery had acted in breach of various fiduciary duties owed by them. The claim was tried by Rose J in October 2013 and she gave judgment on 19 November 2013; the neutral citation of her judgment is [2013] EWHC 3530 (Ch). She held that Mr Attwell and Mr Bowdery had committed breaches of fiduciary duty and she granted declarations that certain assets were held on trust for the company and other relief. She awarded the claimants their costs on the indemnity basis and ordered a payment to be made on account of those costs.
The company and Mr Steer and Mr Taylor had entered into various agreements in relation to their costs of the above litigation and its funding. On 7 March 2012, the company entered into a funding agreement with Managed Legal Solutions (“the Funder”). The company also obtained ATE insurance. On 14 March 2012, the company and Mr Steer and Mr Taylor also entered into a conditional fee agreement (a “CFA”) with Fieldfisher. The CFA contained detailed terms as to the payment of a basic fee and a success fee and included a definition of “Success”. On 22 March 2012, the company, Mr Steer and Mr Taylor entered into a priorities agreement with Managed Legal Solutions and with Fieldfisher. Under the priorities agreement, the parties agreed how “the Claim Receipts” would be divided up. The first party to be paid was the ATE insurer, next was to be the Funder, then Fieldfisher under its CFA and then the company, Mr Steer and Mr Taylor.
Fieldfisher delivered various invoices in relation to its fees. The invoices covered the period from 28 February 2013 to 14 February 2014. The last two of these invoices, following the judgment given in the claim, were for sums approaching £1 million and the total fees payable as at 14 February 2014 exceeded £1.45 million. The company, Mr Steer and Mr Taylor disputed their liability to pay these fees to Fieldfisher.
At some point in 2014, Fieldfisher referred to arbitration its claim in relation to fees. The respondents to the arbitration were Mr Steer and Mr Taylor but not the company. On 19 November 2014, the Law Society appointed Ms Bradford, a partner in Linklaters LLP, as arbitrator. On 17 December 2014, Fieldfisher served its Points of Claim in the arbitration. On 12 January 2015, Mr Steer and Mr Taylor served their Points of Defence which had been settled by counsel. The Points of Defence raised a large number of challenges to Fieldfisher's reliance on the CFA. In the course of the hearing before me, Mr Coppel QC for LF2 focussed on the part of the pleading which made the case that Fieldfisher had owed fiduciary duties to Mr Steer and Mr Taylor in relation to the negotiation of the CFA and had committed breaches of those fiduciary duties. Although the pleading sets out the allegation in detail, it can be summarised as follows:
(1) the CFA was in the interests of Fieldfisher but not in the interests of Mr Steer and Mr Taylor;
(2) the claims which were the subject of the CFA and the funding agreement would not of themselves result in a cash payment to Mr Steer and Mr Taylor;
(3) the only Claim Receipts which would be available to be paid out would be pursuant to any award of costs against the defendants to the claim;
(4) such an award of costs would probably be insufficient to pay the Funder and Fieldfisher's fees;
(5) Mr Steer and Mr Taylor would be immediately liable for Fieldfisher's fees, which they could not afford to pay;
(6) Mr Steer and Mr Taylor would thereby be exposed to the risk of bankruptcy.
I was told that at some point the arbitration was stayed as regards Mr Steer on the grounds of his ill health but continued as against Mr Taylor. At some stage, Mr Taylor ceased to be represented by solicitors and counsel and continued by representing himself. I was also told that Mr Taylor indicated at some point that he did not wish to rely on all of the matters which had been pleaded in the Points of Defence. I am not clear as to the extent to which Mr Taylor advanced the case that Fieldfisher had committed a breach of fiduciary duty in relation to the negotiation of the CFA. It seems from what I was shown that Mr Taylor did continue to allege that he had not been personally advised by Fieldfisher but he perhaps did not allege specific fiduciary duties in that respect.
I was shown a witness statement prepared by Mr Phillips of Fieldfisher. He explained that on 14 March 2012, just before the CFA was signed, he spoke to both Mr Steer and Mr Taylor. In that witness statement, Mr Phillips referred to the explanation which he gave to both of them as to specific clauses in the CFA. I was not shown any record of any cross-examination of Mr Phillips. In her award, the arbitrator referred to the evidence as to the conversation between Mr Phillips and Mr Taylor on 14 March 2012. She stated that Mr Taylor recalled little about this conversation and did not accept that it could have been comprehensive. The arbitrator referred to other parts of the evidence of Mr Taylor. She accepted that he was an honest witness but she considered that his recall of events was vague. She held that Fieldfisher had given appropriate advice on the risks and liabilities involved. Fieldfisher succeeded in its arbitration claim against Mr Taylor. I understand that, thereafter, Fieldfisher obtained a bankruptcy order against Mr Taylor.
Fieldfisher then applied for an administration order in relation to the company on the ground that it was unable to pay its debts. The debts relied upon by Fieldfisher in its application were the sums said to be due to it by way of fees. That application came before Nugee J, who dismissed it on 8 March 2016 on the ground that there was a dispute as to Fieldfisher's fees and that dispute was the subject of a compulsory arbitration clause in the CFA. The judge applied to this administration application the principle laid down in Salford Estates (No. 2) Ltd v Altomart Ltd [2015] Ch 589, in relation to a petition for the winding up of a company based on a disputed debt where the dispute was to be determined by arbitration, and held that it was not appropriate for the court to investigate the dispute as to the alleged debt as that would be contrary to the arbitration clause. That reasoning produced the result that the application was dismissed. Nugee J's judgment is reported at [2016] BCC 697.
Ten days later, on 18 March 2016, Nugee J rescinded his earlier order dismissing the administration application and he then made an administration order in relation to the company on the application of Fieldfisher. At this second hearing, the judge accepted that the company owed some £270,000 either to Fieldfisher or to HMRC. This sum related to VAT, on Fieldfisher's invoices for their fees, which the company had recovered from HMRC as input tax but which in the events which had happened was either payable by the company to Fieldfisher or repayable to HMRC. As administrators, the judge appointed Mr Supperstone...
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