England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Claim No. 8618 of 2013 Civil Justice Centre The Priory Courts 33 Bull Street Birmingham B4 6DS
		18th December 2013

1. THE JUDGE: A question arises in respect of the company's legal costs incurred in responding to the two applications that I heard, on an ex parte basis, on 9^th December and which have come back before me today. On 9^th December, I made a freezing injunction in respect of the company's assets designed to preserve the position pending consideration of the application for an administration order, which I have indicated I will grant today. The terms of the freezing order, as is conventional, contained an exception for a reasonable amount to be spent by the person injuncted, in this case the company, on legal representation. As is not uncommon, it has turned out to be the case that, although the applicant was prepared to agree that a reasonable sum for such legal fees was £5,000, the bank, in whose name the only asset of the company is held, refused to release any part of it. That, as I say, is not an uncommon occurrence. It results quite often in further costs being incurred in reference back to the court for an explicit order authorising or even requiring release of funds by a bank, which is concerned not to be caught in the position that there is otherwise an allegation that what it has paid out is not a reasonable amount.
2. The position we are in today is that the company has incurred liabilities to its solicitors and counsel in respect of representation in those two applications, which it has been unable to pay and which, if the company goes into administration, would, on the face of it, be unsecured obligations to be claimed in the administration and any subsequent liquidation of the company. It seems to me there is a potential injustice there in that the clear purpose of the freezing order was to permit the company to spend its own money to the limited extent necessary to enable it to present its position properly in relation to the two applications made. It has sought to do that, but been prevented from doing so by the effect of the court's own order, coupled, of course, with the perhaps overcautious response of the bank to it.
3. Mr Dean invites me to approach the matter in one of two ways. One is to make an order in effect directing a payment of funds out of the bank account to the solicitors prior to the administration order taking effect. The other is to make an order permitting the company's costs in the applications to be paid as expenses of the administration. The second alternative, it seems to me, would not be appropriate. This is not the equivalent of an order being made inter partes in favour of a party who has been successful in an application. Insofar as the company has been involved in and represented in these applications, it has not been successful. The administration order I have indicated I will make. There have been no proper grounds shown on which the freezing order could be said to have been wrongly made. Therefore, it would not be right in principle, it seems to me, to direct that those costs be paid as an expense of the administration. It would be, I think, a somewhat unattractive work round to direct the costs be paid in that way in order to get round the problem that has been caused by the existence of the freezing injunction.
4. It does seem to me right, if it is possible to do so, to try and rectify the prejudice that the company's solicitors have suffered through being willing to provide their services on credit for purposes for which it was anticipated the company would need to give them instructions and for which they have not been able to be paid for as a consequence of the court's order itself. Therefore, I think that the right way of dealing with it is to adopt Mr Dean's first suggestion, which is that I should make an order today that, in effect, transfers part of the sums held in the bank account to the solicitors in satisfaction of the company's reasonable legal costs in responding to the two applications.
5. As to what that amount should be, I have been presented with a schedule of costs coming to £8,280 in total, including VAT. It is accepted that VAT should be deducted from that on the grounds that the company is VAT registered and so the VAT would be recoverable. Quite how that will operate in the circumstances of the insolvency I am not sure because it seems to me that the company is not going to be in a position to pay that amount of VAT to the solicitors and it is possible, therefore, that the VAT may never be paid or at least never be paid to the solicitors. However, looking in slightly broader terms at the amount that I ought order to be transferred, it seems to me that the costs of the company, which are to be regarded as reasonable costs for the purposes of releasing funds that are otherwise frozen, are those which are the proper costs of the company in considering the administration order and whether the company can properly respond to or resist the administration order. Secondly, the proper costs to the company of complying with the terms of the freezing injunction and, again, considering whether the company can properly respond to the freezing injunction or seek to resist it or to argue that it should not have been made.
6. The proper costs of the company, it seems to me, are to be distinguished from any costs that might be incurred in considering the impact on other parties, particularly individuals, whether they are directors of the company or otherwise, and the costs of the third parties, such as those to whom funds have been paid who would otherwise be creditors in the administration. It is not possible to say from the breakdown of the costs that I have whether any of those interests have been considered or taken any part of the time that is comprised in this schedule. However, I am bound to say that it seems to me that, given the limited costs of the company that would properly be deductible, the total amount in that schedule seems to me to be somewhat excessive. Doing the best I can with the figures, I propose to allow the figure of £5,000, which the applicant was prepared to agree would be the reasonable costs to be paid to the solicitors for providing this advice. I should say that had I been making my own assessment on a broad-brush basis out of the total in this schedule it would not have been higher than that amount.

THE JUDGE: I will hear from counsel about the wording. I propose that it should be to the effect that £5,000 of the amount held in the bank account be treated as having been transferred to the solicitors prior to the making of the administration order and, therefore, that upon the making of the administration order the assets of the company do not include that £5,000.

MR WEAVER: My lord, as to my contribution to the drafting of the ruling you have just made, may I propose that there will have to be a form of order that terminates or that deals with the freezing injunction that existed on 9^th December. So, the ruling that you have just put forward in the form of words there could be part of an order that says the application to adjourn the return date of the freezing injunction is dismissed and it could be provided for there so it is not on the face of the administration order, or it could be in sort of part 1, as it were, of the administration order and the rest of part 2 is to do with the administration process. So, there is a timing for that order being made and then part 2 of this proposed administration order would then have the timing at the bottom. That may well make it clear to anybody else who was looking at the order the sequence of events.

THE JUDGE: I think it would be better if it was all on the face of one order and the wording can reflect the fact that the transfer is treated as having taken place immediately prior to the administration.

MR WEAVER: Very well.

MR DEAN: Yes, if it assists, my lord, it seems to me that the wording that your lordship targeted is really not for the eyes of the bank necessarily, it is for the eyes of the administrator—

THE JUDGE: Yes.

MR DEAN: —so that they know that the assets within that bank account are—

THE JUDGE: The bank will pay the whole amount to the administrators, I anticipate.

MR DEAN: Yes, but £5,000 of that is to be held for the solicitors for the company as it is excluded from the company's assets and it is that sort of wording that I would imagine would go into the order in the [early part?]

THE JUDGE: I agree. In terms of what happens to the freezing injunction, as you say it is limited to today and so I do not need to say anything about it expiring.

MR WEAVER: I agree.

THE JUDGE: We can record that the application to adjourn for further consideration is refused, if you think that achieves anything, but we should simultaneously, I think, record that the freezing order expires in accordance with its terms today in any event.

MR WEAVER: Very well.

THE JUDGE: Thank you.

MR DEAN: My lord, I had, as your lordship will recall, sought an amendment to the order for costs in terms of the applicant's costs to include the costs of the freezing injunction.

THE JUDGE: Yes, Mr Dean, I was perhaps distracted from dealing with that. Is there anything you wish to say about that?

MR WEAVER: May I just turn my back a moment, my lord? My lord, as I understand it, it was an application for the costs of the freezing injunction to be paid as an expense of the administration.

THE JUDGE: Yes.

MR WEAVER: If I am right, there is no opposition—

MR DEAN: I am grateful.

MR WEAVER: —to such an order.

THE JUDGE: All right, thank you.

MR DEAN: Then I think, unless your lordship has any other observations, simply a time for the appointment to take effect.

THE JUDGE: Yes. I over-ambitiously scribbled in a time when you first addressed the order, but it will now be 4:35.

MR DEAN: 4:31, I am grateful.

THE JUDGE: 4:35.

MR DEAN: 4:35, I am grateful.

THE JUDGE: I am not sure anything is achieved by being over-precise with these things.

MR DEAN: My lord, can I undertake to produce a clean copy of that order, which I will obviously circulate to my learned friend, and then, if we are in agreement, I will send it on to the court?

THE JUDGE: I would be very grateful. Thank you both very much.

[Court adjourns]