- Litigation Futures - https://www.litigationfutures.com -

Appeal judges refuse to order assessment of costs agreed by administrators


Arden LJ: liquidators could bring “misfeasance proceedings”

The Court of Appeal has refused a request by the liquidators of a company for a detailed assessment of costs agreed by the firm’s administrators.

The costs involved were legal fees of €2.76m agreed between Slaughter and May and the administrators of a Luxembourg-based telecommunications company.

“In my judgment, the administrators could agree to pay and pay the fees of Slaughter and May both before and after the end of the administration,” Lady Justice Arden said.

“If the liquidators do not agree with the fees that have been paid, they can bring misfeasance proceedings against the administrators.”

Arden LJ said the Insolvency Act 1986 and the Insolvency Rules (IR) provided ways in which liquidators could challenge the decision of an administrator to pay legal fees, but “do not provide a means by which liquidators can require the assessment of costs paid in an earlier administration”.

Delivering judgment in Joint Liquidators of Hellas Telecommunications (Luxembourg) II SCA v Slaughter and May [2016] EWCA Civ 474 [1], Lady Justice Arden said the issue was whether, where a law firm advised a company in administration and the amount of fees was agreed with the administrators, subsequently appointed liquidators could ask the court to assess the costs.

Arden LJ said the liquidators sought a ruling either under rule 7.34 of the IR or under the inherent jurisdiction of the Companies Court.

The court heard that administrators were appointed for Hellas Communications under the Insolvency Act in November 2009. The administrators sold the business, and one of the terms of the sale was that €10m would be placed in an account to be used to pay the costs and expenses of the administration. The company was ordered to be wound up in December 2011.

At the High Court, HHJ David Cooke agreed with the registrar that because the fees had been agreed there was neither power under IR 7.34 nor the inherent jurisdiction for the Companies Court to order a detailed assessment.

By the time of the High Court appeal, the parties agreed that IR 7.34 applied, so the judge did not reconsider the question.

However, he ruled that Slaughter and May’s final invoice, dated December 2011 and for £830,935, was not governed by IR 7.34, nor had it been validly agreed by the administrators.

Lady Justice Arden ruled that, despite the common ground between the parties, administrators “are not within” IR 7.34.

She said this was because administrators are not included unless words are added to IR 7.34(1) and it “works perfectly well” without reading in words. It would be “contrary to well-established principles of construction”, she said, to rewrite the rule so that it included administration.

However, she ruled that during the administration, the administrators could agree and pay Slaughter and May’s fees without the need for any authority to do so under IR 7.34.

“If they had wished to do this, the administrators (while in office) could have initiated an assessment of the bills presented by Slaughter and May under the Solicitors Act 1974. Moreover, if they had considered it appropriate to do so, they could have applied to the court for directions as to whether they should pay those bills.”

On the inherent jurisdiction of the court to direct a costs assessment, Arden LJ said “no such jurisdiction can exist” in the circumstances of the case.

“IR 7.34 makes it clear that the persons who may proceed to such an assessment are in the case of an administration the administrators. The liquidators have other remedies against the administrators if they fail to proceed to a detailed assessment when they ought to have done so.”

Arden LJ dismissed the liquidators’ appeal and allowed Slaughter and May’s appeal in relation to the December invoice.

Lord Justices Jackson and Kitchin agreed.