BFS Investments Plc v Manches Plc [2007] EWHC 90082 (Costs)

[2007] EWHC 90082 (Costs)Case No 07/P8/1004IN THE HIGH COURT OF JUSTICESUPREME COURT COSTS OFFICEVenue Clifford’s Inn, Fetter LaneLondon, EC4A 1DQDate 29 th August 2007
Before
MASTER GORDON-SAKER
Between
BFS INVESTMENTS PLC (IN LIQUIDATION)ClaimantMANCHES PLCDefendant
Mr Philip Bowden (of Oakwell CDC) for ClaimantMr Simon P Browne (instructed by Manches LLP) for DefendantHearing Hearing dates: 13th August 2007
JudgmentMaster Gordon-Saker :The background
[1]By the Part 8 Claim Form as originally framed the Claimant, BFS Investments PLC, a company in liquidation, sought an order for the detailed assessment of 13 bills issued by the Defendants. Each of those bills had been paid by 25th April 2007, the date on which the Claim Form was issued. By an amendment made on 18th May 2007, another bill was added. That bill has not been paid.[2]The 14 bills amount in total to £631,938.78. As listed on the Claim Form, they relate to two matters. Nine bills, totalling £298,219.71, and dated between April 2006 and November 2006 (“the schedule 1 bills”) relate to investigations into the affairs of the Claimant, the conduct of the directors and potential legal claims which the liquidators of the Claimant might pursue. The remainder, totalling £333,719.07, and dated between November 2006 and April 2007 (“the schedule 2 bills”) relate to the issue of proceedings against BFS Investment Group Limited and, in particular, the obtaining of a freezing order. In those proceedings the Claimant seeks the recovery of about £6m in relation to the allegedly wrongful distribution of dividends.[3]It is common ground that the bills were issued under two retainers. The first is evidenced in writing by a letter from the Defendants to Mr Solomons, one of the joint liquidators of the Claimant, dated 8th March 2006. The nature of the work to be undertaken by the Defendants was described as:
“To assist in connection with your appointment as joint liquidator of BFS Investments plc.”
[4]The second retainer is evidenced in writing by a letter from the Defendants to Mr Wood, the other joint liquidator, dated 19th October 2006. That letter begins:
“Thank you for instructing Manches LLP in connection with advising on the preparation on both issuing at Court a Freezing Injunction and a claim in the High Court for the recoveries of monies owed to BFS. We previously were advising Mike Solomons only in his personal capacity on the investigations and the merits and preparation of a legal action.”
[5]Mr Solomons resigned as joint liquidator of the Claimant on 2nd May 2007. As I understand it Mr Wood continues as sole liquidator.[6]The schedule 1 bills were all addressed to Mr Solomons’ firm, SPW Poppleton & Appleby. The schedule 2 bills were all addressed jointly to Mr Solomons’ firm and to Mr Wood’s firm, Grant Thornton.[7]It is asserted by Mr Wood in a witness statement dated 7th August 2007 and filed on behalf of the Claimant that all of the paid bills “were paid from the assets of BFS”. That evidence was not challenged or denied.

These proceedings

[8]As the claim for an order for detailed assessment was opposed, on the first hearing I gave directions for evidence to be filed on both sides. Both parties have availed themselves of that opportunity with enthusiasm.[9]My reading of the witness statements before the hearing suggested to me that this was a heavily contested application with two fundamental issues to be determined:(1) Whether the Claimant, a company in liquidation, had the standing to seek detailed assessment of bills chargeable to the liquidators of the Claimant.(2) Whether the Claimant could establish any special circumstances such as to enable the Court to order the assessment of the 13 bills which had been paid before these proceedings were issued.[10]In fact at the outset of the hearing I was told that, as a result of last minute discussions, the Defendants had agreed that the schedule 2 bills (including the last, unpaid, bill) should go forward for detailed assessment. I was also told, by Mr Bowden on behalf of the Claimant, that the Claimant was not now seeking detailed assessment of the first 5 of the schedule 1 bills.[11]That left, as the battlefield, the last 4 of the schedule 1 bills (numbers 178841, 179514, 180672 and 181012); although the last of those, in the sum of £7,714.21 appears to be the source of some confusion as to precisely what it represents.[12]The issues though, in relation to those 4 bills, remain the same.

Whether the Claimant has the standing to seek the order

[13]The Claim Form is silent as to the statutory provision under which the claim is made. There was obviously some concern on the Claimant’s side as to whether it had the right to seek the order sought for there is, on the Court file, a draft amended Claim Form in which Mr Solomons and Mr Wood are shown as claimants together with the Claimant. And indeed Mr Wood, in the final paragraph of his witness statement, states that he is prepared to be joined as claimant if necessary.[14]However in his skeleton argument Mr Bowden nailed the Claimant’s colours firmly to the mast of section 71 of the Solicitors Act 1974. That provides:
“(1) Where a person other than the party chargeable with the bill for the purposes of section 70 has paid, or is or was liable to pay, a bill either to the solicitor or to the party chargeable with the bill, that person or his executors, administrators or assignees may apply to the High Court for an order for the taxation of the bill as if he were the party chargeable with it, and the court may make the same order (if any) as it might have made if the application had been made by the party chargeable with the bill.”
[15]It is not apparently in dispute that, in relation to the schedule 1 bills, Mr Solomons was the party chargeable and, in relation to the schedule 2 bills, Mr Solomons and Mr Wood were the parties chargeable. Nor is it apparently in dispute that the Claimant is not the party chargeable for any of the bills and therefore cannot seek an order under section 70. It is clear that the Defendants were retained by the liquidators of the company, albeit with the apparent blessing of the creditors’ committee.[16]It seems to me that the Company was not liable to pay the bills whether to the Defendants or to the liquidators. Accordingly the Claimant could only fall within section 71 if it “has paid” the bills to the Defendants.[17]To my mind the unchallenged evidence that all of the paid bills were paid by the liquidators with money belonging to the Claimant means that the bills were paid by the Claimant. That the payments may have been made by cheques or bank transfers in the name of the liquidators is hardly surprising. The Claimant can only act through those controlling it – presently, the liquidators. It seems to me that it must have been known to the Defendants that they would be paid out of the assets of the Claimant rather than from the personal pockets of the liquidators and that this would have been the intention both of the Defendants and of the controlling minds of the Claimant.[18]Accordingly, in my judgment, in relation to all of the paid bills the Claimant does fall within the class of person who can seek a detailed assessment under section 71. It is not necessary for the liquidators – or either of them – to be joined.

Special circumstances

[19]Section 70 of the 1974 Act provides: “(1) Where before the expiration of one month from the delivery of a solicitor’s bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be taxed and that no action be commenced on the bill until the taxation is completed. (2) Where no such application is made before the expiration of the period mentioned in subsection (1) then, on an application being made by the solicitor or, subject to subsections (3) and (4), by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit (not being terms as to the costs of the taxation) order … that the bill be taxed … (3) Where an application under subsection (2) is made by the party chargeable with the bill – … (c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill, no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the taxation as the court may think fit.” (c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill,[20]All of the bills remaining in contention have been paid and accordingly it is incumbent on the Claimant to show that there are special circumstances.[21]Section 71(2) provides:
“Where the court has no power to make an order by virtue of subsection (1) except in special circumstances it may, in considering whether there are special circumstances sufficient to justify the making of an order, take into account circumstances which affect the applicant but do not affect the party chargeable with the bill.”
[22]In his skeleton argument Mr Bowden identifies 4 matters which he submits amount to special circumstances: i) That there was an agreement between the liquidators and the Defendant that the bills could be assessed by the Court after payment. ii) That the costs claimed by the Defendants exceed the estimates that had been given. iii) That the work done to analyse the potential claims open to the Claimant was of no or little value. iv) That it was not necessary to obtain a freezing order, as the subject of the order was willing to give undertakings.[23]The alleged agreement is to be found in correspondence exhibited as “APSF 5” to the second witness statement of Mr Fox, the partner in the defendant firm with overall responsibility for the work done on behalf of the Claimant.[24]By way of background to that correspondence, as at February 2007 the Defendants had billed but had not been paid fees of £191,513.57. The breakdown of that sum is helpfully set out in Mr Fox’s second witness statement at paragraph 42. It consisted of £104,000 odd outstanding under the schedule 2 invoices and about £86,000 outstanding under the schedule 1 invoices.[25]On 11th January 2007 Mr Fox sent a long email to Mr Solomons and Mr Wood:
“I gather from our recent conversations that the Creditors’ Committee remain concerned over the level of fees incurred by the professional advisers in relation to BFS’ liquidation. In particular, I understand that Mr Harris has raised the proposition that Manches’ legal fees are assessed by the Court and that he takes over the conduct of the litigation concerning BFS Group on a day to day basis. In the meantime, as you are aware, £176,717.97 of Manches’ fees … remain outstanding. I confirm that Manches require payment of these outstanding fees ideally by the end of this week … We will of course agree to engage in any application made by you for the detailed assessment by the Court of any of our fees which the Creditors’ Committee consider remain open to justifiable criticism. We ask that our outstanding fees are paid first. We are confident that no substantial reduction will be made upon detailed assessment and draw to your attention two of the features of assessment: 1. If the Court considers that detailed assessment is appropriate, then generally they are assessed by the Judge on an indemnity basis. … A view will need to be taken by you as to the actual benefits of such a process and if you decide upon detailed assessment as an option, I recommend you seek independent legal advice in this regard. We are not shying away from being subjected to this and any appropriate legal process in that regard. …”
[26]On 2nd February 2007 Mr Fox sent a further email to Mr Wood: “I understand from a conversation that you had with Matthew Martin that Manches have not been instructed to continue litigating/settling the BFS matter with the other side on an ongoing basis. … I gather from Matthew that the creditors have decided that Manches will now not be receiving £190,000 plus VAT in connection with our outstanding fees. We note that any proposal to be agreed will be in full and final settlement and as Matthew said, we will need to discuss this internally given the nature of the proposal. …[27]On 7th February 2007 the Defendants sent a “final demand” for the outstanding fees of £191,513.57. Mr Wood replied on 14th February 2007 indicating that the fees would be paid on 2 conditions. The first was that the Defendants would hand over their files. The second:
“Payment of the fees as referred to in paragraph 1 above does not mean that your fees charged in this matter, being costs, charges and expenses as contemplated in rule 7.34(1) of the Insolvency Rules, 1986, are agreed. To the contrary, I expressly reserve my right to serve notice requiring Manches to commence detailed assessment proceedings of its fees. I require from Manches an undertaking to repay immediately any money which may, when detailed assessment is made, prove to have been overpaid, with interest at the prescribed rate for the period from the date of payment to that of repayment.”
[28]Following some further correspondence about the wording of the undertaking, the fees were paid on or about 22nd February 2007. Mr Harris took over the conduct of the BFS litigation and these proceedings for detailed assessment were commenced on 25th April 2007.[29]Mr Browne, on behalf of the Defendants, submits that this correspondence does not amount to a binding agreement that the Defendants waived their statutory rights. He relies on the evidence of Mr Fox and Mr Martin. At paragraph 46 of his second witness statement Mr Fox explained the words used in the email dated 11th January 2007:
“By this email, Manches LLP also agreed to “engage” in any application made by Mr Solomons and Mr Wood for a detailed assessment of any of Manches LLP’s fees which the Creditors’ Committee considered remained open to justifiable criticism. The key word here is “engage”
. What was stated amounted to no more than an agreement by Manches LLP to engage in the statutory process of considering whether assessment is appropriate.”[30]I have considerable difficulty in accepting that. It seems to me that the purpose of the email was to elicit payment from the Claimant in circumstances where it was known – and indeed expressly acknowledged – that the creditors’ committee were concerned about the size of the Defendants’ fees and were suggesting that those fees be assessed by the Court. It is difficult to reach any conclusion other than that the email was designed to secure payment by providing an assurance by the Defendants that, following payment, the fees would be assessed if the creditors’ committee required it.[31]The limited meaning of “engage” suggested by Mr Fox would render meaningless the paragraph in which it is contained. Any solicitor served with an application for an order for the detailed assessment of his fees would have “to engage in the statutory process of considering whether assessment is appropriate”. If that was all that the Defendants were offering, what was the consideration for the request: “We ask that our outstanding fees are paid first”?[32]Nor can I accept the Defendants’ argument that the words “If the Court considers that detailed assessment is appropriate” were intended to allow the Defendants to argue that detailed assessment was inappropriate. It seems to me that the two numbered paragraphs in the relevant part of the email were simply setting out the two “features of assessment” to which Mr Fox wished to draw attention – presumably with a view to dissuading the liquidators from seeking an assessment.[33]In my judgment the e mail dated 11th January 2007 contained a clear representation by the Defendants that if the outstanding fees were paid the Defendants would take part in the detailed assessment of any of its fees which the creditors’ committee wished to challenge. “Any of our fees” to my mind must mean any of the bills raised by the Defendants and not just those which were then outstanding.[34]Although the offer or representation made in this email was not expressly accepted or even referred to subsequently, the correspondence which followed (as contained in “APSF 5”) – the reservation by Mr Wood of the right to seek assessment and the formulation of the undertaking – reveals an understanding that there would be a detailed assessment if that was required even though all of the bills had been paid. That understanding must have been founded on the email of the 11th January and the Defendants’ offer “to engage”.[35]That offer – designed to secure payment – and the consequent understanding that there could be a detailed assessment after payment of the bills in my judgment amounts to special circumstances sufficient to justify the making of an order for assessment of the paid bills.[36]There has been no real delay here. The application was made within a couple of months of the determination of the Defendants’ retainer. All of the bills were rendered and virtually all of the work was done within the 12 months before the issue of these proceedings. There would be no prejudice to the Defendants caused by the fact that the bills had been paid before an order for detailed assessment was made.[37]Had the bills not been paid the Claimant would not have had to show special circumstances. In view of my conclusion that the final payment was obtained by a representation that any of the bills would be assessed if that was required, it would be wholly inequitable to deny the Claimant a detailed assessment.[38]I can perhaps explain my decisions in relation to the other special circumstances asserted by the Claimant rather more succinctly.[39]I am not persuaded on the evidence that I was shown that the need for judicial investigation of whether any costs estimates were exceeded amounts to a special circumstance. It is clear that throughout the retainer the liquidators were given a fairly consistent estimate of £1.4m for the whole of the litigation against BFS Investment Group Limited. The impressive analysis by Mr Browne of the costs information that had been given to the liquidators (tabulated under paragraph 24 of his skeleton argument but with oral accretions) did not leave me with the immediate impression that an estimate had been exceeded or that inadequate information had been given such as to amount to special circumstances as justification for a detailed assessment that would not otherwise happen.[40]The other two matters relied on – the value of the claims analysis and the value of the freezing order application – were articulated fairly shortly. It seems to me that I would need to know considerably more about the work that was undertaken before I could reach the conclusion (if appropriate) that a large amount of unnecessary work had been undertaken. On the basis of the evidence put before me, I could not reach that conclusion.[41]That does not of course prevent the Claimant from raising these matters on the detailed assessment.