Steven Anthony Pearson and Others v Lehman Brothers Finance Sa and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BRIGGS,Mr Justice Briggs |
| Judgment Date | 23 November 2010 |
| Neutral Citation | [2010] EWHC 3044 (Ch) |
| Docket Number | Case No: 7942 of 2008 |
| Court | Chancery Division |
| Date | 23 November 2010 |
[2010] EWHC 3044 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Before:MR JUSTICE BRIGGS
Case No: 7942 of 2008
IN THE MATTER OF LEHMAN BROTHERS INTERNATIONAL (EUROPE) (IN ADMINISTRATION) AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Mr Iain Milligan QC, Mr Guy Morpuss QC, Mr Daniel Bayfield & Mr Socrates Papadopoulos (instructed by Linklaters LLP) for the Joint Administrators
Mr Gabriel Moss QC & Mr William Willson (instructed by Herbert Smith LLP)
for Lehman Brothers Finance SA
Mr Robin Dicker QC & Mr Tom Smith (instructed by Mayer Brown International LLP) for Lehman Brothers Commercial Corporation Asia Limited and Lehman Brothers Asia Holdings Limited
Mr Michael Brindle QC & Mr Nik Yeo (instructed by Norton Rose LLP) for Lehman Brothers Inc
Mr Philip Jones QC & Mr Giles Richardson (instructed by Weil, Gotshal & Manges LLP)
for Lehman Brothers Special Financing Inc
Hearing dates: 19 th November 2010
Approved Judgment
I direct that pursuant to CPR PD 39A paragraph 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
APPEARANCES
Mr Justice Briggs:
INTRODUCTION
I must now deal with the costs of this application. I do so in a reserved judgment because the submissions which have been made give rise to a question of potentially wide application upon which there is little direct authority.
This application was, in form, an application by Administrators for directions. In paragraph 25 of my main judgment I describe the trial of the application as having taken the form of a “straight adversarial fight” between LBIE and five of its affiliates, in relation to the beneficial ownership of certain classes of securities (“Rascalled securities”) held by LBIE in house depot accounts for the books of those affiliates.
There is a sharp divergence between counsel as to how these proceedings should be categorised for the purpose of the exercise of the court's jurisdiction as to costs. For the Administrators, Mr Milligan QC described it as, in substance, commercial litigation between rival claimants to beneficial ownership of specific property (i.e. the Rascalled securities), in relation to which costs should follow the event, as in any other commercial litigation. Counsel for the affiliates all described it as being, in substance, a joint application by the various office-holders of insolvent companies within a common group to the appropriate forum for the resolution of difficult issues affecting them all, and standing in the way of the realisation and disposal of assets to creditors, or to other persons entitled to them. It was adversarial litigation only in the sense that, for the assistance of the court, the alternative solutions to the complex common problems were advanced by counsel, including counsel for the Administrators, on an adversarial basis. The result in terms of costs was, it was submitted, either that all the parties’ costs should be borne by LBIE, or that each insolvent estate should bear its own costs. Reference was made to established Chancery authority, including Mitchell v. Gard (1863) 3 SW & TR 275 and Spiers v. English [1907] P 122, and ending with Parmalat Capital Finance Limited & ors v. Food Holdings Limited (In Liquidation) & ors [2008] UKPC 23.
There is considerable force in both those competing analyses, and it is neither necessary nor appropriate to make a stark choice between them. In favour of what I will call the commercial litigation analysis are the following factors. First, the casus belli for the application was, in a sense, the fact that LBIE invited each respondent affiliate to state whether it wished to assert a claim to beneficial ownership of the Rascalled securities, and each respondent replied that it did. Secondly, the dispute lies entirely between LBIE and a specific affiliate (or in the case of LBCCA and LBAH affiliates) in relation to each class of Rascalled securities, there being no wider class of potentially interested parties requiring representation. Thirdly, although each office-holder is, quoad the claim of his affiliate, acting in substance as a fiduciary for underlying stakeholders, there is no doubt that the office-holder is dominus litis, so as to be able to pursue or compromise claims on behalf of his insolvent estate, even though from time to time he may for that purpose have to obtain approval from creditors’ committees, or from the relevant foreign court having jurisdiction in relation to the insolvency of that affiliate (here the courts of Switzerland, Hong Kong or New York).
In favour of what I shall call the ‘joint application for directions’ analysis there are the following factors. First, the problems which led to this application arose from the carrying on by LBIE and its affiliates as associated companies of a business pursued on a Group basis, applying a common global settlement practice, Rascals processes decided on by the Group, using common form contractual documentation and a unified Group accounting system. Secondly, although the relevant insolvencies are primarily regulated by the courts of four different countries, all the foreign insolvency processes have been recognised here so that, pursuant to the Cross-Border Insolvency Regulations, all the relevant office-holders can seek the assistance of this court, as appropriate. Thirdly, as responsible office-holders, all the individuals responsible for the conduct of each affiliate's part in the litigation may fairly be thought of as fiduciaries, in analogous positions to trustees seeking a court's directions in relation to the administration of a trust.
A fourth factor relied upon by the affiliates, by way of analogy with the determination of issues arising in connection with a deceased's estate, is that all the parties to this application have, to varying degrees, had their tasks made more difficult by limited access to historical documentation, and their perception of their respective cases, and those of their opponents, has therefore developed and changed over time, both before and indeed during the hearing of this application, by contrast with what it is suggested is typical of ordinary commercial litigation, where all the parties know where they stand on day one, and are therefore sufficiently informed to be able to decide whether to fight or settle. While it is true that difficulties of that type did lead to numerous changes and developments in the parties’ respective positions both before and during the hearing, I am not persuaded that this feature is unique to litigation about deceased or insolvent estates. It is by no means uncommon for ordinary commercial litigation to involve similar features, where the processes of disclosure and the search for evidence, not to mention developments which occur at trial, for example during cross-examination, give rise to a constant need for the parties to re-appraise the strengths and weaknesses of their respective cases, and to alter them by amendment.
The costs consequences of those competing analyses may be summarised as follows. First, CPR Part 44.3(2) prescribes a general rule that the unsuccessful party will be ordered to pay the costs of the successful party, which is fully applicable to commercial litigation. But even there, the ‘costs follow the event’ principle is itself only the starting point, and the court may make a different order, having regard to all relevant circumstances.
Secondly, that general rule is not in terms disapplied merely because the litigation concerns a deceased's or insolvent's estate. Part 44.3(3) specifically disapplies the general rule to two other types of proceedings, but not to proceedings about estates. Nonetheless, certain common features about proceedings in relation to estates have, since at least the mid-19 th century, been taken to justify a departure from the general rule. In relation to deceased's estates, the following two features may (if present) justify a ready departure from the general rule. The first is where the issue for determination arises due to the fault of the deceased, for example where as testator he makes a confusing will which calls for construction by the court, or where because of issues about the validity of a will, the court's task in deciding whether or not to grant probate calls for the assistance of the parties to contentious proceedings, in effect as contributors to a necessary judicial inquiry: see Mitchell v. Gard (supra), at 277–278, and Spiers v English (supra) at 123.
That these principles have survived the CPR, and been implemented after their introduction, is apparent from Kostic v. Chaplin & ors [2007] EWHC 2909(Ch). But Henderson J noted, at paragraph 21, that there has been a change of emphasis in the extent to which those principles may justify a departure from the general rule. He gave two reasons for that change:
“First, less importance is attached today than it was in Victorian times to the independent duty of the court to investigate the circumstances in which a will was executed and to satisfy itself as to its validity. Secondly, 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...
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