Re Ralls Builders Ltd ((in Liquidation)); Grant and another v Ralls and Others
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Snowden |
| Judgment Date | 20 July 2016 |
| Neutral Citation | [2016] EWHC 1812 (Ch) |
| Docket Number | Case No: 0671 of 2012 |
| Court | Chancery Division |
| Date | 20 July 2016 |
[2016] EWHC 1812 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building
Fetter Lane, London,
EC4A 1NL
Mr. Justice Snowden
Case No: 0671 of 2012
In the Matter of Ralls Builders Limited (In Liquidation)
And in the Matter of the Insolvency Act 1986
Ms. Angharad Start (instructed by Pinsent Masons LLP) for the Applicants
Mr. Christopher Boardman and Mr. Christopher Lloyd (instructed by Verisona Law) for the Respondents
Hearing date: 3–4 March 2016
On 11 February 2016 I handed down a judgment on the main issues arising in this wrongful trading claim under section 214 of the Insolvency Act 1986: [2016] EWHC 243 (Ch). The claim was brought by the joint liquidators of Ralls Builders Limited against the three former directors of the company. I shall use the same abbreviations in this judgment as in that main judgment.
In the main judgment, I held that by 31 August 2010 the Directors ought to have concluded that there was no reasonable prospect of the Company avoiding insolvent liquidation. I rejected the contention that the Directors ought to have reached that conclusion by the earlier date of 31 July 2010. I also held that the Directors were not able to avail themselves of the defence under section 214(3) of the 1986 Act that they had taken every step after 31 August 2010 as they ought to have taken with a view to minimising the potential loss to creditors, because they had permitted new credit to be incurred which was not paid. However, I decided not to make a declaration under section 214(1) that the Directors should make a contribution to the assets of the Company in respect of any losses caused to the Company during the period after 31 August 2010 because I did not find it proven that the net deficiency of the Company increased during that period.
At the end of the main judgment I indicated that I would hear further argument upon two points that I had left outstanding during the trial until the issues arising in the main claim had been determined. The first point was the final element of the Joint Liquidators' claim under section 214, namely whether a contribution should be ordered to be made by the Directors to the assets of the Company in respect of the amount by which the costs and expenses of the administration and liquidation of the Company had been unnecessarily increased by the continued trading after 31 August 2010. The second point was whether, if I ordered a contribution to be made, I should also make a disqualification order under section 10 of the Company Directors Disqualification Act 1986.
The claim in respect of costs and expenses
As I recorded in paragraphs 281–282 of the main judgment, the Joint Liquidators originally claimed that in addition to any increase in the net deficiency of the Company attributable to the trading between 31 August 2010 and 13 October 2010 when the Company went into administration, the entirety of the costs and expenses of the administration and subsequent liquidation of the Company should be ordered to be contributed by the Directors to the assets of the Company. These costs and expenses, which were initially said to amount to £287,071, were claimed in addition to any costs of the proceedings that might be ordered to be paid by the Directors in the usual way under CPR Part 44 et seq.
However, at the commencement of the trial, and no doubt appreciating that this claim was too wide because it included costs and expenses that would have been incurred in the insolvency of the Company in any event, Ms. Start, who appeared for the Joint Liquidators, indicated that she wished to amend the pleadings to make a claim only for the amount by which the costs and expenses of the administration and liquidation had been unnecessarily increased by the continued trading after either 31 July 2010 or 31 August 2010.
The difficulty for the Joint Liquidators was that although the figure for the total costs and expenses of the administration and liquidation had been pleaded, no evidence had been adduced and no disclosure given of any of the underlying materials from which any determination could be made of the amount by which the costs and expenses had been unnecessarily increased by the continued trading after either date alleged. Further, although Ms. Start indicated that the Joint Liquidators could produce at the trial a box (or several boxes) of the documents from which she asserted that such matters could be investigated, that was a wholly impracticable suggestion for dealing with the matter. There was simply no time for appropriate disclosure to be given and assimilated, for the matters in dispute to be identified, witness statements to be filed dealing with any contentious items, and for cross-examination at the trial. As it was, the time allocated for the trial was barely adequate to resolve the main issues.
Ms. Start therefore suggested that if I was to find that there had been a period of wrongful trading, I could order a contribution to be made to the Company's assets equal to the unnecessary increase in the costs and expenses of the administration and liquidation caused thereby, and could direct an inquiry into the amount of such contribution to be heard by the Registrar.
For the Directors, whilst obviously welcoming the indication that the original claim for all of the costs and expenses was not being pursued against his clients at the trial, Mr. Boardman objected root and branch to this course. He protested that I should not entertain an amended claim, because it had been raised far too late to be included in the trial and that the claim was in any event misconceived in law.
Having regard to the practicalities, and since on any view the question of whether there could or should be a contribution in respect of any part of the costs and expenses of the administration and liquidation would depend (at least) upon whether I found that there was a date at which the Directors ought to have concluded that an insolvent liquidation could not be avoided, (and if so, what date), I decided not to deal with these questions until after I had decided the main issues.
After I had provided my main judgment to the parties in draft, the Joint Liquidators issued an application to adduce a witness statement of Mr. Grant which stated that the additional costs and expenses incurred by the Joint Liquidators in dealing with the wrongful trading claim amounted to £256,160.75. This was said to exclude any time costs and expenses that would have been incurred in the administration and liquidation in any event, and also to exclude any legal costs incurred.
Mr. Grant's witness statement was accompanied by a breakdown of the time costs of the two firms of accountants to which the two Joint Liquidators belonged (Wilkins Kennedy and Portland) and supporting schedules of those time costs. The total of £256,160.75 was divided up by the time periods from the date of liquidation as follows (the figures reading down each column are cumulative):
| £ | £ | £ | ||
| Liquidation to [date] | Wilkins K | Portland | Total | % of total |
| 08.07.11 (pre-action letter of claim) | 30,571.00 | 5,163.00 | 35,734.00 | 14 |
| 19.01.12 (liquidation committee sanction) | 37,859.25 | 7,980.50 | 45,839.75 | 18 |
| 08.06.15 (start of trial) | 125,721.75 | 43,519.00 | 185,643.25 * | 72 |
| 30 06.15 (end of trial) | 189,969.25 | 49,406.50 | 256,160.75 * | 100 |
It is, I think, readily apparent from these numbers that in broad terms, the overwhelming majority of the costs and expenses claimed do not relate to the initial investigation by Wilkins Kennedy. That investigation must have been largely concluded by the time sanction was sought from the liquidation committee for the claim to be brought. Until then, only about 18% of the total costs had been incurred. The bulk of the costs relate to the involvement of the Joint Liquidators' firms in the conduct of the claim until trial (54%) and during the trial (28%).
Mr. Grant did not seek to break down the costs further to differentiate, say, between the costs incurred in relation to the allegation that the Directors ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation by 31 July 2010 (which failed); the same allegation in relation to 31 August 2010 (which succeeded); and the attempt to show that the Company sustained a loss (an increase in its net deficiency) for either period (which failed).
The arguments
On the renewed application, the Joint Liquidators contended that as I had found that there was a date (31 August 2010) after which the Directors ought to have concluded that there was no reasonable prospect of avoiding an insolvent, I had the power to make an order in respect of their additional costs and expenses of investigating and pursuing the claim under section 214. They contended that because I had made a finding that trading had continued beyond 31 August 2010, there had been "wrongful trading" and that this gave me the power to order the costs incurred to be paid by the Directors under section 214 so as to avoid them increasing the net deficiency of the Company to the detriment of the unsecured creditors.
The Directors rejected these contentions and submitted that the sums claimed could not be ordered to be contributed as a matter of principle. On their behalf, Mr. Boardman submitted that as a general rule, expenses incurred by or on behalf of a litigant in investigating and bringing a claim are not recoverable by way of damages and that a claim under section 214 should be governed...
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