Jonathan Robert Lloyd Parkins v Timothy Francis Lage Hayes & Anor (Costs)

This is my judgment on costs, and on a related consequential issue as to the recoverability of Mr Duffy’s costs and expenses as supervisor of a Voluntary Arrangement, following my earlier judgment (my ‘FirstJudgment’) the neutral citation number for which is [2025] EWCC 45, handed down on 8 April 2025, on an application (the ‘Application’) brought by Mr Parkins under s.262 of the Insolvency Act 1986 and Rule 15.35 of the Insolvency Rules 2016 to challenge an Individual Voluntary Arrangement (the ‘Arrangement’) which was approved at a meeting of the creditors of Timothy Francis Lage Hayes (‘Mr Hayes’) held on 16 May 2023.

I found that there had been a material irregularity in the conduct of the meeting of creditors because the French & Co Debt, which at £631,799.94 had been determinative of the outcome of the vote on the Arrangement, had not been established on the balance of probabilities.

The outcome of the Application was that I ordered that the approval of the Arrangement by Mr Hayes’ creditors be revoked. For a full understanding of the background to the Application, and the remarkable arguments advanced in support of the disputed Debt, this further judgment should be read together with my First Judgment.

At a hearing to deal with costs and consequential matters I rejected a submission advanced on behalf of Mr Hayes that I should, on the basis of a ‘material change of position since the hearing’, direct the holding of a further meeting of creditors in order that his creditors might vote on a revised IVA proposal.

As the IVA was sought and approved at a time when there was a pending bankruptcy petition against Mr Hayes, which has not been disposed of and remains on the Court file, that petition will have to be listed for further hearing.

At the consequentials hearing, beyond the substantive relief to be ordered on the Application, the remaining issues were (1) who should pay the various parties’ costs of the Application, and (2) could and should any part of Mr Duffy’s costs and expenses be recoverable by him from some monies that have recently been transferred to him by Mr Hayes? In the circumstances of this case these questions raise complex issues. As before, Mr Parkins acts in person, so I have not had the benefit of submissions from a legally qualified advocate on his behalf.

The parties filed written submissions and further authorities prior to the consequentials hearing. A possible additional relevant authority was identified in the course of the hearing so that, particularly bearing in mind that Mr Parkins is acting in person, I gave all parties permission to file further written submissions, which they all did. Mr Parkins’ written submissions went into great detail on that and other authorities.

It is appropriate to summarise first the findings I made in my First Judgment, together with some of the procedural steps taken, or not taken, in the course of the Application.

In addition to the dispute as to the French & Co Debt there were many other grounds relied upon by Mr Parkins in his challenge to the Arrangement. His Application also raised allegations that he was unfairly prejudiced by the terms of the IVA, and he was highly critical of Mr Duffy and his firm, in particular of their failure, as he saw it, adequately to investigate many of the representations made in the Proposal: see paras 23 – 27 of my First Judgment.

I found that that Mr Duffy had been right to value another claim, the Marckita Claim, at £1: see paras 95-97 of my First Judgment.

I found it unnecessary (in view of my conclusion on the Debt), and indeed impossible on the available evidence, to reach a final conclusion on the contention of unfair prejudice, but indicated that there was some strength in the contention on behalf of Mr Duffy that the matters relied upon by Mr Parkins as demonstrating unfair prejudice to him affected all creditors equally.

So far as the conduct of Mr Duffy was concerned, I indicated that I would hear further submissions when I came to consider costs and other consequential matters, but that my initial view was that Mr Parkins had been overly critical of Mr Duffy.

The disputed creditor French & Co supplied evidence relating to its claimed Debt by two statements (Hale 1 and Hale 2) of one of its partners, Ian Hale, but was not joined to the Application by Mr Parkins either at the outset or later, and did not itself take up an opportunity to seek to be joined.

The terms of the IVA Proposal were relatively simple in that Mr Hayes said that his only significant asset was an estimated sum of £400,000 which he said was likely to be paid to him following the sale of his former matrimonial home. Of this sum, he said that £100,000 would represent ‘pain and suffering’. That sum of £100,000 was thus to be excluded from the Arrangement, and retained by Mr Hayes. The balance of £300,000 (the ‘Lump Sum Contribution’) would therefore be Mr Hayes’ only contribution to the Arrangement. All other assets, which Mr Hayes said were in any case of negligible value, were to be excluded.

The stated duration of the Arrangement was 12 months, and the Arrangement expressly provided:

By the time of the consequentials hearing Mr Hayes had received payment from his former wife in the rather lesser total sum of £178,379.67 (comprising payments of £17,559.01 and £160,819.66). There is no suggestion that he will receive any further payments. Of this sum Mr Hayes retained £100,000 ‘in accordance with the terms of the IVA’ and paid the balance of £79,368.67 (the ‘Fund’) over to Mr Duffy, in whose hands it remains.

Mr Duffy was the nominee and became the supervisor of the Arrangement. Some of Mr Parkins’ criticisms of the events supporting the approval of the IVA are directed at members of Mr Duffy’s firm other than Mr Duffy himself. When I refer to Mr Duffy I do so as a shorthand for Mr Duffy and the other members of his firm involved in the Proposal, in the responses to Mr Parkins’ correspondence, and in the holding of the meeting of creditors. The chairman of the meeting adjourned it for an hour in order to discuss with Mr Duffy how to respond to some of Mr Parkins’ complaints.

As to the costs of the Application, all parties submitted that I have an unfettered discretion as to what order for costs I should make, although one authority relied upon for different reasons by all parties casts some doubt on this.

Mr Parkins seeks an order for his costs against both Mr Hayes and Mr Duffy, and resists any suggestion that either of them should recover any costs against him.

Mr Hayes argued that he should not be liable for Mr Parkins’ costs of the Application, alternatively should not be liable for his entire costs of the Application. Mr Hayes also argued that he should not be liable for Mr Duffy’s costs of the Application, there having been no dispute between him and Mr Duffy, so that Mr Duffy could not be said to be a successful party as between the two of them.

Mr Duffy sought costs against Mr Parkins and also against Mr Hayes, and submitted that any attempt by Mr Parkins to seek costs against him (Mr Duffy) would be ‘entirely misconceived’.

By his post-hearing written submissions Mr Parkins suggested that if any costs are awarded in favour of Mr Duffy, they should be awarded against French & Co, who are not a party to the Application.

In addition to seeking his costs as above, Mr Duffy’s position was that, in any event – but particularly should I decide that some or all of his costs should not be paid by Mr Parkins or by Mr Hayes – I should order that he may recover them out of ‘Mr Hayes’ estate’, i.e. the Fund.

The usual principles relating to costs of litigation, with their emphasis on identifying the successful party, will not always fit easily with applications under s 262 IA 1986 and r. 15.35 IR 2016 where the nominee / supervisor will be drawn into the application and will have to decide whether to take a neutral or an active role in it. Exactly where the material disputes are to be found, who the true protagonists are, and where the burden of proof lies, will not necessarily be readily apparent, especially at the time of commencement of such an application.

In Elser v Sands [2022] EWHC 1419 (Ch); [2022] BPIR 1193, a case where the approval of an arrangement was revoked, Chief ICC Judge Briggs adopted a useful summary in the decision of Gloster J (as she then was) in HLB Kidsons (A Firm) v Lloyds Underwriters [2007] EWHC 2699; [2008] 3 Costs LR 427 at [10] – [11]:

Mr Hayes resisted the submission that he should be liable for Mr Parkins’ costs on the basis that the point on which Mr Parkins’ Application succeeded, the French & Co Debt, was only a ‘small part’ of the matters argued in support of the Application, and was a dispute not between Mr Parkins and Mr Hayes, but rather between Mr Parkins and French & Co (who Mr Parkins did not join as a party to the Application, despite the possibility of him doing so being drawn to his attention, especially when the matter was raised by DJ Revere at one of the early hearings). It was argued that Mr Hayes, not being the relevant creditor, ‘was not in a position to adduce all the evidence required [to meet the points made about the French & Co Debt] and had in any event no burden to do so’. It was not made clear however what evidence Mr Hayes considered himself to have been unable to adduce.

Even though French & Co were neither joined by Mr Parkins nor themselves sought to be joined, evidence was provided by that firm and relied upon extensively by Mr Hayes in his vigorous opposition to the Application:

Even making allowance for the convention that a witness statement provided by a non-party witness will often state that it is provided ‘in support of’ the position of the party who puts it forward, these written statements by Mr Hale reflect the reality that:

In particular, the arguments set out in paragraphs 5 – 7 of Hale 2 (see paragraph 50 of my First Judgment) as to French & Co’s supposed ability to recover against their own client Mr Hayes costs for which he had been legally aided, and/or which might be owed to predecessor firms, were relied upon in the skeleton argument submitted by Ms Delgado before the third hearing (see paragraphs 51-54 of my First Judgment), in oral argument, and in her later written submissions (see paragraphs 55 – 57 of my First Judgment).

For the reasons set out in paragraphs 68 – 94 of my First Judgment I rejected the arguments that:

By his extensive written submissions provided after the consequentials hearing, Mr Parkins also contended that he should be awarded costs against French & Co. I cannot consider making any order against French & Co when it had not been joined to the Application, even for the purposes of costs. As between Mr Parkins and Mr Hayes however, it is wholly unrealistic for Mr Hayes to suggest that the only dispute was between Mr Parkins and French & Co. Further, even though Mr Parkins did not succeed on all the grounds that he relied upon in support of the Application, the reality is that the point on which he did succeed turned out to be the decisive point, the very large French & Co Debt, which was always obviously going to be determinative of the vote at the meeting of creditors.

In the exercise of my discretion, given Mr Hayes’ heavy reliance in opposition to the Application upon the evidence of, and arguments advanced by, Mr Hale, and the fundamental importance of the French & Co Debt to the approval or otherwise of the Arrangement:

Liability for costs as between Mr Parkins and Mr Duffy raises much more difficult issues. They each seek costs against the other.

Mr Parkins submits that the Court has power to orders costs against a nominee / supervisor under r.15.35 IR 2016 and s.262 IA 1986, whereas Mr Kingston-Splatt draws my attention to r.15.35(6) which provides, in relation to appeals:

Mr Parkins renewed, at the costs stage, his extensive criticisms of Mr Duffy’s conduct, although he focused them more narrowly on the lack of scrutiny of the French & Co Debt. Mr Parkins said at para 38 of his written submissions that:

Indeed, despite my preliminary indication, when I circulated my First Judgment in draft, that I considered that he had been unduly critical of Mr Duffy, Mr Parkins referred me to the observations of Henderson J in Mourant & Co Trustees Ltd v Sixty UK Ltd [2010] EWHC 18980 (Ch); [2010] BCC 882 and submitted that there was a prima facie case of misconduct, so that I should report Mr Duffy to his professional body. This, I make clear, I shall not do.

Mr Kingston-Splatt submitted that there is no basis for criticism at all of Mr Duffy in relation to the admission of French & Co’s Debt, let alone a basis for suggesting that Mr Duffy fell so far short of what could reasonably be expected of a professional in such circumstances that a costs order should be made against him. He reminded me that:

In paragraphs 23 - 26 and 112 of my First Judgment I addressed the role of the supervisor when considering the admission of debts for voting purposes, referring in this context to AB Agri Limited [2016] BPIR 1297 and subsequent authorities.

I note that in Elser v Sands Chief ICCJ Briggs cited with approval the following passage in Insolvency Practitioners - Appointment, Duties, Powers and Liability, Sims KC et al (Elgar) on the role of a nominee:

There is arguably some tension between that description of the duties of a nominee, especially the degree of investigation that might need to be undertaken by a nominee, and the somewhat ‘light-touch’ approach to the admission of debts for voting purposes as explained in AB Agri Limited [2016] BPIR 1297, Power v Petrus Estates [2008] EWHC 2607 (Ch) and Re a Debtor (No 222 of 1990) ex p the Bank of Ireland [1992] BCLC 137, 444). It will not always be easy to see where the line should be drawn.

Mr Kingston-Splatt submitted that Mr Parkins’ complaints were, in effect, that Mr Duffy did not undertake a forensic examination of Mr Hayes’ financial position and that this revealed a misunderstanding of the nature of a nominee’s role. He referred to Watson on Individual Voluntary Arrangements at 8.06:

He submitted that it is was ‘clear and obvious’ that a nominee’s powers to compel the production of further information need only be invoked where there are doubts and questions about the information provided by the debtor but that, as Mr Duffy explained in his evidence, in the present case ‘no such doubts existed as to that information’.

Mr Parkins referred me to Elser v Sands [2022] EWHC 32 (Ch) at [66] and Tradition (UK) Ltd v Ahmed [2008 EWHC 2946 (Ch); [2009] BPIR 626, and to the summary of the latter case given in the looseleaf work ‘Individual Voluntary Arrangements’:

I therefore need to return to Mr Parkins’ criticisms of Mr Duffy’s conduct in more detail. In the days prior to the meeting of creditors Mr Parkins engaged in correspondence with Mr Duffy’s office. In particular, on 26 April 2023 he submitted a detailed 11-page document entitled ‘Issues on the Proposed IVA of Timothy Francis Hayes’.

The contentions or issues raised included that Mr Hayes’ debts and assets were by their nature unsuitable for an IVA. In addition, that email raised or made:

Of greatest relevance is that Mr Parkins’ email of 26 April 2023 stated that in previous proceedings Mr Hayes had referred to money apparently owed to the legal aid authority which was not detailed in the IVA, and had referred to sums owed under a CFA with solicitors which was not mentioned in the IVA. Further, it pointed out that while the Proposal claimed that £573,529 was owed to French & Co, in a witness statement given by Mr Hale of French & Co just the previous year in other proceedings he had stated that Mr Hayes was indebted to his firm for only about £100,000. Mr Parkins questioned whether the discrepancy might be explained by sums owed to the legal aid authority.

Mr Peoples of Mr Duffy’s office responded to Mr Parkins’ email of 26 April 2023 by an email dated 12 May 2023 which responded to the many questions raised by Mr Parkins. He addressed issues relating to Marckita Limited, Quinjo Limited, Mr Hayes’ income, an error in the proposal in omitting to refer to a previous bankruptcy, other errors in terminology used (relating to ‘divorce equity’), and the sums said to be owed to counsel previously instructed by Mr Hayes. He further commented on other matters, including the French & Co Debt, as follows (emphasis added):

As I understood Mr Duffy’s witness statement, neither he nor Mr Peoples of his firm took any steps to raise any questions directly with French & Co, even though their claimed Debt (stated at £573,529 in the proposal, but increased to £631,799.94 by the time of the meeting of creditors) was clearly going to be determinative of the vote. It was, he said, Mr Hayes who had provided the list of creditors together ‘with various statements going back many years’, and ‘He [being a reference to Mr Hayes] had spoken with creditors to ascertain the level of their debts and the nominee had no reason to disbelieve [Mr Hayes’] figures’ (my emphasis).

The statement that Mr Duffy had no reason to question claims when they came from a firm of solicitors is criticised by Mr Parkins as ‘naive’. I have, with the benefit of hindsight, considerable sympathy with that observation. Further, with an eye to the criteria identified by Lindsay J in Re a Debtor (No 140 IO of 1995) (Greystoke v Hamilton-Smith) [1996] 2 BCLC 429:

As I made clear in para 113 of my First Judgment, considering whether French & Co’s claimed Debt was established on the balance of probabilities ultimately proved to be a highly complex exercise, even with the benefit of further information and argument. The question is whether Mr Duffy should have realised that before or at the meeting of creditors, and rejected the Debt outright for voting purposes.

The information provided to Mr Duffy prior to the meeting of creditors in support of the French & Co Debt was that subsequently put before the Court as exhibits to Hale 1: see paras 35-37 of my First Judgment. It consisted of a four page ‘Proof of Debt’ consisting of the three Schedules I referred to in para 35 of my First Judgment (under cover of a one page summary of those Schedules), together with various orders made in the litigation between Mr Hayes and his former wife, various Statements of Costs in Form N260 prepared on behalf of Mr Hayes for the purpose of summary assessments in the course of that litigation, a legal aid assessment certificate dating from 2017, and a draft bills of costs apparently prepared by another previously instructed firm, Reynolds Williams/RWPS.

What it did not include, notably, was any retainer letters, invoices or fee notes from French & Co to support their Debt. Although Schedule 2, if read carefully, revealed that some of the fees referred to had in fact been incurred with other solicitors (Ginn & Co and RWPS) the Schedules did not reveal that some of the fees claimed were ones for which Mr Hayes had been legally aided, there being no breakdown between fees supposedly covered by legal aid, and those the subject of some later ‘commercial’ arrangement.

The absence of retainer letters and straightforward invoices are, to a lawyer, again with the benefit of hindsight, and in the context of the challenge later brought by Mr Parkins, striking omissions, but nominees are not (usually) trained lawyers. I have to consider what might have been different had the absence of retainer letters and invoices, and the lack of breakdown between legally aided and non-legally aided work, been investigated further by Mr Duffy prior to the meeting of creditors, especially once Mr Parkins had drawn questions regarding such matters to his attention.

Given the potentially determinative size of the French & Co Debt, it clearly called for some scrutiny. In view however of the comments in the authorities addressing the role of the supervisor when considering the admission of debts for voting purposes (Re a Debtor (No 222 of 1990) ex p the Bank of Ireland [1992] BCLC 137, 444 and the other authorities referred to above), and the practical limitations on what a nominee can be expected to investigate and resolve prior to a meeting of creditors, I have come, after some hesitation, to the conclusion that even if he had undertaken further investigation of the French & Co Debt Mr Duffy would still, properly, have come to broadly the same conclusion. Even had he been provided then with, say, the further information and explanation later provided in Hale 2, and had endeavoured to analyse it, he would, rather than being sure he should reject the French Co Debt outright, likely have ended up in a position where he regarded it as doubtful, and so, in accordance with r. 15.33(3), would have admitted it for voting purposes, but would have marked it as disputed, so that a later debate about its validity might play out. As I said in para 116 of my First Judgment, the challenge to French & Co’s Debt which has been the subject of the Application would have been inevitable, albeit arrived at by a different route.

While I was not referred to it, the most recent decision on the issue on what conduct by a supervisor might justify an adverse order for costs would appear to be that of Adam Johnson J in Brian Burke, Sean Bucknall, Andrew Andronikou (In Their Capacity as Joint Supervisors of the CVA of Mizen Design/Build Ltd) v Peabody Construction Limited [2024] EWHC 392 (Ch); [2024] BPIR 460, where he review the authorities concluding (emphasis added):

The emphasis remains on misconduct, and I do not, in the circumstances, think Mr Duffy’s conduct fell so far below the standard required as to amount to misconduct. I do not therefore make any costs order against him in favour of Mr Parkins. Whether I should make any order for costs in Mr Duffy’s favour, and against whom, are however separate questions that I address below.

Mr Duffy seeks, in the first instance, an order for his costs of the Application against Mr Parkins. He seeks also, or alternatively, his costs against Mr Hayes. By his post-hearing written submissions Mr Kingston-Splatt put it thus:

Mr Kingston-Splatt argues that many of the complaints relied upon by Mr Parkins (e.g. those regarding the Marckita Debt, the sums owed to Mr Hayes’ former counsel, and the misleading information set out in the Proposal) did not succeed, in that I did not find them to be material irregularities, and that many of the criticisms of Mr Duffy have not been successful, so that costs should follow those events.

Mr Kingston-Splatt referred me to the decision of Chief ICC Judge Briggs in Elser v Sands [2022] EWHC 32 (Ch) where the judge rejected at [42] – [46] what he described as ‘aggressive criticisms’ of a nominee. A later decision in the same matter, reported at [2022] EWHC 1419 (Ch); [2022] BPIR 1193, reveals in passing at [17] that an order for costs was made in favour of the nominee against the applicant, even though the applicant had succeeded in obtaining the revocation of the approval of the arrangement by the meeting of creditors. There is no discussion of the reasons for this decision, but one can infer that it was as a result of the applicant’s unnecessarily aggressive criticism of the nominee, and indeed his initial stance, later abandoned, that he would seek costs against the nominee.

Mr Parkins also referred me to the second decision in Elser v Sands, where Chief ICC Judge Briggs declined, after further reflection, to make an order for costs in favour of the nominee either against the debtor or against the creditor whose debt had successfully been challenged, and observed at [23], as part of his reasoning for refusing such an order for costs, as follows:

I have not ordered that Mr Duffy should be liable for Mr Parkins’ costs, and the key reason for that was that I considered that had Mr Duffy investigated the concerns raised by Mr Parkins with regard to the French & Co Debt, he would probably, and properly, have come to the decision that the vote should be allowed, but marked as disputed. It does not follow however that Mr Parkins should be liable for any of Mr Duffy’s costs.

This is a case where I consider that Chief ICC Judge Briggs’ observations in Elser v Sands at [47] as to the ability of a nominee to factor in the risk of involvement in a challenge brought by a dissatisfied creditor are of relevance. Had Mr Duffy marked the French & Co Debt as disputed Mr Parkins’ subsequent Application might well have been simpler and much more focused. I consider that Mr Duffy’s decision not to investigate the specific questions raised by Mr Parkins about the French & Co Debt, which turned out to be well-founded, and to allow the vote probably led Mr Parkins to cast his Application as widely as he did.

While the grounds for Mr Parkins’ Application were wide-ranging, and not all of them succeeded, his complaints regarding the French & Co Debt, which occupied the majority of court time, did succeed, and against that background it would be inappropriate for any order to be made against Mr Parkins in favour of Mr Duffy.

Mr Parkins opposes any order that Mr Duffy should have an order for costs against Mr Hayes or be entitled to claim them from ‘the estate’ as either of these outcomes would, he says, in effect punish Mr Hayes’ creditors, including himself, for the material irregularity that occurred under Mr Duffy’s supervision.

Ms Delgado ‘vehemently’ opposed that there should be any order for costs against Mr Hayes in favour of Mr Duffy. She also referred to the decision of Chief ICC Judge Briggs in Elser v Sands [2022] EWHC 1419 (Ch); [2022] BPIR 1193. She submitted that Mr Hayes was however neutral as to whether Mr Duffy should recover his expenses qua supervisor from the Fund.

The report of the decision on costs in Elser v Sands is short and not entirely clear, needing to be read together with an earlier decision reported at [2022] EWHC 32 (Ch). The report of the later decision needs to be read with some care because although the headnote states, correctly I think, that costs were being sought by the First Respondent nominee against the Third and Fifth Respondents (there were seven respondents in total), the judgment states in [1] and [17] – [22] that the order was being sought against the Second and Fifth Respondents. Further, several references in the report to CPR 42.2 are clearly intended to be references to CPR 44.2. (Footnote: ²)

InElser v Sands the nominee had obtained, as mentioned above, an order for costs against the successful applicant (see [17]). What the nominee was seeking in addition was an order for costs against both the debtor (the Third Respondent) and the challenged creditor (the Fifth Respondent), effectively on a joint and several basis with the applicant.

Judge Briggs referred to and adopted the useful summary of CPR 44.2 and the principles relating to costs in the decision of Gloster J in HLB Kidsons (A Firm) v Lloyds Underwriters [2007] EWHC 2699 (Comm), paras [10]- [11] of which I set out above, stating that:

Chief ICC Judge Briggs said at [10]-[12]:

The judge held that the chairman (the First Respondent) was not a ‘successful party’ vis-à-vis those other parties (the Third and Fifth Respondents) for the purposes of making such an order for costs, and declined to make the orders sought against them.

He explained his conclusion thus:

As I understand his judgment it is clear that Chief ICC Judge Briggs greatly doubted, on the facts of that case, that he had a discretion to make an order as between respondents, but he did not entirely rule out that he had such a discretion. His decision as to costs was clearly influenced by the fact that the respondents in question had not in any sense entered into the fray. Their involvement in the application had been passive, and their conduct appeared to have had no adverse bearing on the way in which the hearing of the application progressed.

On the specific facts of the present case I respectfully differ from the approach adopted by Judge Briggs, and consider that I do have a discretion to exercise, for the following reasons. French & Co were not joined as a party, but Mr Hayes relied on the evidence provided by Mr Hale, and Ms Delgado made detailed submissions, and with extensive reference to authorities regarding the basis of a solicitor’s ability to claim costs awarded against other parties from its own legally-aided client, which arguments I rejected. The very unsatisfactory nature of the evidence as to French & Co’s alleged Debt, and the nature of some of the legal propositions advanced on behalf of Mr Hayes, led to an additional hearing and to an increase in the overall costs of all parties, including Mr Duffy, even though he was neutral on the validity of the Debt.

Mr Hayes is clearly an unsuccessful party vis-à-vis Mr Parkins. Whether or not he is strictly an unsuccessful party vis-à-vis Mr Duffy, I consider that his conduct, and active participation in defending the French & Co Debt, is conduct that caused additional costs to all parties and, in accordance with CPR 44(4) and (5), justifies the making of ‘a different order’. Although the normal approach to costs focuses on who is a successful party in the context of parties between whom there is a dispute, I remind myself in this context that s.51 of the Senior Courts Act 1981 states that costs of all proceedings are, subject to the rule of court, ‘in the discretion of the court’ and that the breadth of that discretion permits the court in some circumstances to make an order even against a non-party: see Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965 HL.

The summary by Gloster LJ in HLB Kidsons (A Firm) v Lloyds Underwriters quoted above emphasises that ‘[t]he aim always is to “make an order that reflects the overall justice of the case”’, and that ‘[t]he question of who is the successful party “is a matter for the exercise of common sense”’. Applying that approach I consider that Mr Duffy’s costs of participating in the Application were plainly increased by Mr Hayes’ conduct, such that I should make an order in his favour against Mr Hayes. Mr Hayes should be liable for 50% of Mr Duffy’s costs.

Mr Kingston-Splatt’s further submission was that regardless of any costs order made in Mr Duffy’s favour his costs should be paid ‘as an expense of the IVA’ from the Fund (save that this should not lead to any double recovery by him). This issue was raised at the consequentials hearing, but developed further in written submissions provided post-hearing. It has led to a blurring of the distinction between Mr Duffy’s costs of the Application, and his expenses incurred as supervisor of the Arrangement.

It is surprising that this point has not been considered in any authority of which counsel are aware, and is apparently not the subject of any textbook commentary. I was not referred to any statutory provision or authority directly supporting this submission, but Mr Kingston-Splatt relied upon a combination of the following:

As far as the Standard Conditions are concerned, Mr Kingston-Splatt referred me to paragraphs 11, 13, 14, 17, 28 and 57. It is helpful to address them in the following order:

Mr Kingston-Splatt submitted that there had been no termination of the Arrangement in the present case, despite Mr Hayes’s breach in failing to pay anything into the Arrangement within 12 months of its commencement, and the express term of the Arrangement:

Mr Kingston-Splatt’s submission was that if a supervisor’s claim to recover costs and expenses from Arrangement assets held upon trust would, in accordance with Standard Condition 28, survive the termination of an IVA, it would be perverse if it did not survive the revocation of the IVA on an application pursuant to s. 262.

Mr Kingston-Splatt relied also upon Statement of Insolvency Practice 9. SIP 9 relates to Insolvency Office Holders generally, and assumes that there will be payments made to such office holders from the relevant estate. It does not however specifically address nominees/supervisors, let alone make any provision for payment of costs and expenses in the case of revocation of an IVA.

Mr Kingston-Splatt also referred to several provisions of the Insolvency Rules 2016, namely rule 8.30(c)(ii) which provides:

In support of his submission that Mr Duffy should be entitled to recover his costs from the Fund, Mr Kingston-Splatt referred me to comments of Hoffman J (as he then was) in Re Mohammed Naeem (A Bankrupt) (No. 18 of 1988) [1990] 1 WLR 48 in the context of a challenge pursuant to s. 262:

As I explored this issue in the course of counsel’s oral submissions I raised the question of the orders that might be made in the event of the annulment of a bankruptcy order that ought not to have been made. Mr Kingston-Splatt’s pupil helpfully identified online an authority of possible relevance: Oraki v Dean & Dean and Defty [2013] EWCA Civ 1629. It was clear that the hearing was going to overrun, yet again, so I permitted all parties to provide further written submissions, on this point generally and in relation to Oraki.

Oraki was case where bankruptcy orders were made against a husband and wife on petitions based on a judgment obtained against them by their former solicitor. A trustee was appointed. A Deputy Registrar refused to annul the Orakis’ bankruptcies on the grounds that they ought never to have been made. On appeal, following the admission of fresh evidence, Mr Robert Ham QC sitting as a Deputy High Court Judge allowed their appeal on the grounds that there had been fraud, collusion or a miscarriage of justice, which allowed the bankruptcy court to go behind the original judgment upon which the petition and bankruptcy order were based. He ordered that the bankruptcies should be annulled.  But he did so conditional upon the payment by the Orakis of the costs of the trustee in bankruptcy.  Those costs were very substantial due to the length and complexity of the bankruptcy proceedings which had lasted more than six years.

It is important to note that by the time of the annulment application the former solicitor had been struck off, and it was clear that it was most unlikely that anyone would recover any costs against him.

The deputy judge ordered that, without prejudice to any application against the solicitors’ firm, and without prejudice to any dispute about the trustee's remuneration and conduct, the costs of the Official Receiver and the trustee should be paid by the Orakis, saying:

Dr and Mrs Oraki appealed on two grounds, the first being that the annulments should not have been made conditional upon the payment by them of the trustee’s costs where they were completely innocent in every aspect of the matter; before the court could make such an order some degree of culpability on the part of a bankrupt needed to be shown.

The Court of Appeal (Arden, Davis and Floyd LJJ) dismissed the appeal, Floyd LJ observing:

In Oraki Arden LJ said at [62] - [63] (emphasis added):

Mr Kingston Splatt summarised his position as follows:

Mr Parkins strongly opposed any suggestion that Mr Duffy should have his costs from the Fund. His extensive further written submissions focused, as ever, on Mr Duffy’s conduct, submitting in great detail that while the trustee in Oraki was wholly unconnected with the misconduct of the petitioning creditor that caused the making of the bankruptcy orders, Mr Duffy had failed in his duty properly to scrutinise the Proposal and the French & Co Debt, leaving him with no alternative but to bring on his Application.

He also pointed to a distinction between Arrangements and bankruptcies:

I do not consider that the decision of Hoffmann J Re Mohammed Naeem is in point. It is a short report, and no authorities were cited in argument or referred to in the judgment. It is correct that the case concerned the revocation of the approval of an arrangement, but the arrangement was one that had been proposed by a debtor who was already bankrupt. When the arrangement was approved further proceedings in the bankruptcy were stayed. The approval of the arrangement was later revoked on the grounds that it unfairly prejudiced the applicant. Presumably the stay of the bankruptcy proceedings was lifted. The registrar also ordered the nominee to pay the costs of the successful applicant. That order was overturned on appeal. The case did not deal with any claim by the nominee / supervisor to recover his costs from the ‘estate’, but there was a continuing bankruptcy, pursuant to an order of the court, a matter of which the court was seised, and thus an estate in bankruptcy subject to the jurisdiction and supervision of the court, from which the applicant could recover his costs as an expense.

Similarly, in Oraki bankruptcy orders had been made, albeit quite wrongly, and the court was seised of the matter: see paras [28] and [30] quoted above. There were estates in bankruptcy to which recourse could be had. The court was faced with the difficult task of protecting the position of the trustee in bankruptcy, who had no involvement in the wrongful conduct that led to the making of the bankruptcy orders, in circumstances where it was clear that no party was likely to recover any costs or expenses against the petitioning creditor.

The position in the present case is quite different. There is no bankruptcy estate. There is at best a sum of money which has been paid to Mr Duffy for the purposes of the Arrangement (even though the Arrangement had expired by effluxion of time before it was paid), and the approval of the Arrangement has been revoked.

I have not had the benefit of argument on behalf of Mr Parkins from a legally qualified representative, so the argument was somewhat one-sided. In addressing this point in such circumstances I have inevitably considered authorities beyond those that I was referred to by the parties.

In my judgment it is important not to lose sight of the fact that an Arrangement, unlike a bankruptcy, is rooted in contract. The point is explained thus (albeit obiter) by Chadwick LJ in Johnson v Davies [1999] Ch 117 (CA) where he said at p.131:

An Arrangement is fundamentally a multilateral contract: see Raja v Rubin [1999] 1 BCLC 621 (CA), esp at 630g – 631d, and Mann J in Tanner v Everitt [2004] EWHC 1130 (Ch), [2004] BPIR 1026 at [75]:

In The Co-Operative Bank plc v Phillips [2017] EWHC 1320 (Ch); [2017] BPIR 1156 HH Judge Paul Matthews, sitting as a Judge of the High Court, considered, among other things, whether the approval of an Arrangement suspended the running of a limitation period. He considered, applying Tanner v Everitt, that an agreement to suspend the running of time could be implied into the Arrangement. His analysis and conclusion reflected the contractual nature of an Arrangement.

He also addressed the distinction between completion and termination of an Arrangement, and also its possible expiry by effluxion of time. He noted (at [45]) that in his explanation of the basic structure of an Arrangement in Green v Wright [2017] EWCA Civ 111, [2015] BPIR 806, [5]- [6], [8]-[10], David Richards LJ (as he then was, and with whom Irwin LJ agreed) had drawn a distinction between the completion of an IVA and the termination of an IVA. In the former case the debtor is released from the debts that are the subject of the Arrangement. In the latter case, where no certificate of completion has been issued, he is not. He explained further at [50] – [51]:

In the present case there was no termination of the Arrangement in the sense contemplated by the Standard Conditions. Rather, Mr Kingston-Splatt submits, the Arrangement expired through effluxion of time. By the orders made subsequent to my First Judgment I revoked the approval of the Arrangement. What, in those circumstances, is the status of the Fund?

Although I did not receive any submissions on the point, I have, given Mr Kingston-Splatt’s reliance on the trust created by Standard Condition 28, considered also whether any useful analogy might be drawn from the authorities on the claims to assets that have been paid into an Arrangement in the event of a subsequent bankruptcy or liquidation. There is no guidance in the legislation. The natural home for such a provision would be s.263 of the 1986 Act. Sealy & Milman’s Annotated Guide to the Insolvency Legislation (28^th ed.) states, in its commentary on that section:

Re N.T. Gallagher & Son Ltd [2002] 1 WLR 2380 was a case where a company continued to trade subject to a CVA which required the payment of contributions to the supervisors. The company later put itself into voluntary liquidation before the arrangement completed. Its liquidators applied to court for directions as to whether the contributions previously paid to the supervisors, and certain other assets expressed to be subject to the Arrangement, were held on trust for the creditors bound by the Arrangement, or available for the purposes of the liquidation including distribution to all creditors (not just those bound by the Arrangement).

The Court of Appeal considered the authorities, noting:

Peter Gibson LJ summarised the Court’s conclusions at [54]:

The Court’s conclusions in N.T.Gallagher that:

I would not consider this to be the correct analysis. In my judgment there is a distinction between the termination of an Arrangement and its revocation by order pursuant to s. 262. Termination is a possible outcome contemplated by the agreement that is the Arrangement, whereas revocation of the approval given to the Proposal by the Court means that the agreement by which the creditors were bound under the statutory hypothesis falls away in all respects. In my judgment it follows that any trust of Arrangement assets ceases to exist. Any assets once subject to that trust cease to be subject to it for any purpose, including meeting any claim by the former supervisor for expenses or costs. Section 31 of the Trustee Act 2000 is of no application.

The provisions of the Insolvency Rules, and the ‘parity’ with bankruptcy relied upon by Mr Kingston-Splatt, do not lead to any different conclusion. Once the approval of the Arrangement has been revoked any parity falls away. The analogy with bankruptcy to which Mr Kingston-Splatt points is a false one. There is, and never was, any equivalent ‘estate’ subject to the supervision and jurisdiction of the Court.

In my judgment there is, following revocation of the Arrangement, no basis upon which I can order that Mr Duffy should have his costs (or indeed his expenses) from the Fund.

No party took this point, and it is not essential to my decision, but I am reinforced in this conclusion by the fact that the Arrangement, and in my view any trust of ‘Arrangement assets’, had in any case expired by effluxion of time before the Fund was paid to Mr Duffy.

In summary therefore I order that:

It was accepted by all parties that if I make any order for costs, I should assess the costs payable, and I have been provided with schedules. I invite written submissions on Mr Parkins’ and on Mr Duffy’s schedules, following which I shall assess those costs.