Jacob & Anor v UIC Insurance Company Ltd & Anor

This was the hearing of four appeals initially listed before me. The appeals in question were as follows:-

On the day before the hearing I was informed that Equitas which had led the opposition to the JPLs remuneration claims before the Registrar effectively on behalf of the body of the creditors as a whole had entered into an agreement with the JPLs which partially resolved the various appeals.

The reason for this was because on 25th September 2006 the creditors of UIC (of which Equitas represented 84) voted to approve a Scheme of Arrangement. The court sanctioned the Scheme the week before the appeal. That Scheme follows a settlement agreement between UIC and Lloyds TSB (“LTSB”) a share-holder in UIC. Under the terms of the settlement agreement the Scheme is required to become effective before 31st December 2006 and LTSB will ensure that there are £45,000,000 worth of liquid assets in UIC to transfer to the Scheme at the effective date of the Scheme (whenever that might be).

The result of the Scheme is that a return to Scheme creditors of approximately 145 pence in the £ is anticipated. The position is in effect that if the JPLs’ appeal is allowed before the Scheme becomes effective LTSB will simply be required to make up the deficiency to ensure the minimum amount is payable. Therefore the creditors of UIC have no interest in the outcome of the appeal whatever the result. LTSB do have an interest in the sense that they will suffer the burden of any increase and the shortfall required to achieve the minimum payment. They were aware of the proceedings but have taken no part. I understand that they were not notified of the decision that was made by Equitas shortly before the hearing of the appeal.

As a result of that Equitas withdrew its appeal with no order as to costs. The JPLs agreed to withdraw their appeal against certain costs orders made by the Registrar in respect of an issue concerning the capping of payments on account (“the Cap Application”).

Finally Equitas agreed that they would not present any argument at the appeal hearing in opposition to any of the appeals of the JPLs that remained to be determined after the withdrawal of the appeals.

In my view this was unsatisfactory. The issues raised in this appeal were of importance beyond this case. Equally whilst the creditors had not suffered any loss there would be a residual potential liability to LTSB and it would not be aware that Equitas’ stance would have an impact of removing opposition to appeals which would increase its liability. Accordingly I informed Miss Hilliard who appears for Equitas that I required her to assist the court in the hearing of the appeal. I did that on the basis that Equitas would in effect be instructing her as an amicus curiae or on behalf of the general body of creditors to present these arguments. I determined therefore that whatever the result of the appeal its costs would be met out of the funds. In this context also the JPLs made it clear that they no longer sought any costs against Equitas and their claim was limited to seeking to reverse Registrar Nicholls’ orders (see below) but seek their costs out of the funds and not against Equitas as a Respondent to a successful appeal.

The Appeals proceeded on that basis.

At the start of the appeal Mr Isaacs QC who (with Mr Lloyd Tamlyn) appeared for the JPLs sought permission to adduce fresh evidence being the second witness statement of Charles Gordon dated 16th August 2006, the 47th witness statement of Ipe Jacob dated 5th June 2006, his 48th witness statement dated 3rd October 2006 and a third witness statement of Paul Malcolm Johnson also dated 5th June 2006.

I determined at the commencement of the appeal as a preliminary issue that the JPLs could rely upon that evidence.

I also made an order by consent dealing with the matters which had been resolved as set out above and disposed of the appeal in respect of the conduct of the Informal Creditors’ Committee (“ICC”) meeting by making no order on that.

The JPLs were appointed Provisional Liquidators of UIC initially by an order of Robert Walker J made as long ago as 12th August 1996.

That order made provision for the remuneration of the JPLs and provided for it to be fixed by the Court on application from time to time “by reference to the work done by the [JPLs] and consultants and employees of Robson Rhodes under their control to the time spent by them on the basis of those firms usual rates for the type of work involved together with any expenses incurred in connection therewith and any applicable value added tax”.

The original JPLs were the first Appellant Ipe Jacob who at all material times had day to day conduct of the provisional liquidation and Neil Cooper. He was replaced by the second Appellant Nigel Ruddock on 26th January 1998. Both JPLs are licensed insolvency practitioners and partners in Grant Thornton. Prior to 1st January 2000 the JPLs were partners in the firm of Robson Rhodes.

The appeals are against the two extensive judgments of Registrar Nicholls. The first is dated 19th May 2006 (“the Main Order”) and the second dated 25th July 2006 (“the Costs Order”) referred to in paragraph 1.

Equitas who represented 40% of UIC’s creditors to be dealt with in the Scheme objected to the level of remuneration sought to be fixed and was joined to the Remuneration Application as Second Respondent by Order dated 10th March 2005.

On 28th July 2005 Registrar Nicholls ordered amongst other things that Mr Peter Horrocks (“the Assessor”) a retired solicitor be appointed by the Court as an assessor pursuant to section 70 of the Supreme Court Act 1981 and CPR 35.15. He was directed to report to the Court on certain issues raised by Equitas and by a second member of the ICC, a Mr David McGuigan who initially opposed the fixing of the remuneration in the sums sought by the JPLs. The Assessor produced a provisional report dated 20th October 2005 and after the JPLs and Equitas had made written submissions on the contents of that report a final report dated 5th December 2005.

The Final Report contained a number of recommendations for the reduction of the remuneration sought by the JPLs. The following are pertinent:-

At the hearing the JPLs’ position was that:-

Equitas’ position was that:-

The hearing of the Remuneration Application took place over 5 days between 28^th February and 9^th March 2006.

After the circulation of two draft judgments a final judgment (“the Judgment”) was handed down by Registrar Nicholls on 19^th May 2006. The relevant part of the careful comprehensive judgment of Registrar Nicholls was inter alia :-

Overall the deduction made by the Registrar amounted to £336,113.56 compared with a deduction of £235,882.56 as recommended by the Assessor. That sum is in addition to the potential consequences of re-opening the previous 8 years.

The costs issues arising from the Judgment and the Main Order were argued at a hearing on 9^th & 12^th June 2006 and the Registrar handed down the Costs Judgment on 25^th July 2006 (“the Costs Judgment”). As I have said both the JPLs and Equitas issued notices of appeal on aspects of the Costs Order but they had been reduced by virtue of the agreement referred to above.

Six statements were provided by the JPLs from members of the ICC who had been members during the Remuneration Period with the exception of Equitas. The statements also included criticisms of Equitas. At the start of the trial JPLs’ counsel made it clear that whilst reliance was placed on the views of the ICC members as to the effectiveness with which the JPLs appear to be carrying out their duties no reliance was placed on the passages in the statements criticising Equitas. Shortly before the start of the trial Equitas filed three witness statements in response. It is fair to say that the ICC members’ witness statements were supportive of the conduct of the JPLs but the Registrar paid no regard to them; indeed he commented adversely on the fact that other members had not provided witness statements.

In the Costs Judgment the Registrar held that the JPLs should be reimbursed their reasonable costs for preparing the application and providing the evidence for the Assessor and Equitas and dealing with the filing of evidence. He also held that it would be inconsistent and unjust to deny these costs in a case where they had been able to justify 80% of the remuneration (paragraph 71). However he then held that the trial costs of JPLs should be borne by the JPLs personally and that Equitas’ trial costs should be paid by the JPLs personally with no right of reimbursement from the estate.

Mr Isaacs QC on behalf of the JPLs seeks a reversal of that order so that all of the costs of the JPLs and Equitas fall on the estate. As I have said above given the LTSB payment due under the Scheme that will not cost the estate in net terms.

The appeals procedure is governed by rule 7.47 Insolvency Rules 1986. Sub rule (2) provides that an appeal from a decision of a Registrar of the High Court lies to a single judge of the High Court.

The procedure on appeal is set out in rule 7.49 which applies to the procedure and practice of the Supreme Court relating to the Court of Appeal and under sub rule (2) any reference in the CPR to the Court of Appeal is replaced by a reference to that Judge. Any reference to the Registrar of Civil Appeals is replaced by reference to the Registrar of the High Court who deals with insolvency proceedings of the kind involved.

In addition the Insolvency Court is by rule 7.47 (1) given the power to review, rescind or vary any order made by it in exercise of that jurisdiction (i.e. the jurisdiction to wind up companies). This gives an insolvency judge the power to review his previous orders and previous orders of a court of a like level of jurisdiction. It is under this power that Registrar Nicholls determined that he was able to re-open the previous 8 fixings of remuneration. Although the jurisdiction is very wide it would generally be exceptional for a Judge to exercise the power to substitute his own decision for that of another Judge of co-ordinate jurisdiction on the same material see: RSM Engineering Ltd [Hammond Suddards v Mond [2000] Ch 40.

The appeal therefore is governed by the provisions of CPR 52.11. The appeal is limited to a review of the decision of the lower court unless either a practice direction makes different provision for a particular category of appeal or the court considers in the circumstances of an individual appeal it would be in the interest of justice to hold a re-hearing. Neither of those exceptions applies in this appeal.

The powers to allow an appeal are set out in sub rule (3) namely where the lower court decision was (1) wrong or (2) unjust because of a serious procedural or other irregularity in the proceedings in the lower court.

The Appeal Court is empowered to draw inferences of fact which it considers justified on the evidence.

“Wrong” can mean either an error of law or an error of fact or erred in the exercise of discretion in relation to alleged errors of facts: see the summary in the White Book at paragraph 52.11.3. Where the lower court has exercised a discretion it is in my view not open to the court to substitute its own view on the exercise of that discretion merely because it might have come to a different conclusion. It seems to me that is only possible if it can be said that on the facts and law as correctly understood by the lower judge the discretion that was exercised was nevertheless one that could not reasonably have been arrived at.

The first ground of attack on the learned Registrar’s judgment was that he displayed apparent bias against the JPLs from the outset. It was submitted in the skeleton argument filed on their behalf (paragraph 20) that if such apparent bias was found, the Registrar should be removed from the hearing of the Remuneration to be fixed for the periods of 27-9-04 to 25-09-05 and 26-9-05 to 31-3-06. Those hearings are currently fixed to be heard before the Registrar on 6^{th -} 8^th November 2006.

At the outset of the hearing I indicated that it would be more practical for this court without attributing any justification to the complaints made against the Registrar to have the future hearings re-listed to be heard before another Registrar. That will not cause a delay because I understand that it can be achieved by a switching of lists on the day in question. It seemed to me that investigating the allegations of apparent bias was not a profitable or worthwhile exercise given the fact that the JPLs did not seek a re-opening and a remission for further consideration of the current remuneration period under appeal. I agree that would have been a wasteful exercise. In the event that the JPLs establish there are grounds for challenging parts of the Registrar’s order that can be dealt with by this court without the need for either hearing assessors or remitting the whole exercise back for further consideration.

I observe that Equitas the main leader of the opposition of course has no interest in going through what for it is now a sterile exercise.

I therefore indicated that I was minded without suggesting that any of the grounds for complaint were justified (and they do seem to me given the breadth and the complexity of the judgment to be weak grounds for alleging apparent bias) that the easier course is to direct the future remuneration hearings be heard by a different Registrar. Mr Isaacs QC did not dissent from that view. I will therefore direct those future hearings to be heard by a Registrar other than Registrar Nicholls. I emphasise that that is not done on the basis that any of the alleged grounds have been established.

Given the learned Registrar’s conclusion that the remuneration of Mr Johnson had been done on a wrong basis (to the extent of the £311,000 referred to above) in the previous years I am not surprised at the time that he made his decision that he thought it was appropriate to re-open those years. I have no doubt that he felt at that time that he would be achieving a considerable benefit to the creditors because the previous years had been agreed with no challenge.

However that is not the end of the matter. As Mr Isaacs QC set out in the skeleton argument on behalf of the JPLs (paragraph 51) the orders for re-opening will be against the JPLs personally. In respect of the early years it will be against Mr Cooper personally who was not a party to the Remuneration Application and might know nothing about the order (I suspect not). As is set out in Mr Jacob’s 47th witness statement both Robson Rhodes and Grant Thornton have closed their financial years since the start of the Provisional Liquidation: profits have been distributed. The composition of those firms has changed over time and the re-opening would make the JPLs and Neil Cooper personally liable to repay the sums in excess of the charges (plus interest presumably). They may be able to seek an indemnity from Grant Thornton and Robson Rhodes, they might otherwise well be personally out of pocket. I observe that they will be out of pocket as regards the repayment of their fees but they will have had the benefit of participating in partnership profits based on the firm receiving those fees nevertheless. Further the learned Registrar at the CMC on 28^th July 2005 stated that he had no intention of re-opening matters where remuneration had already been approved (transcript 28^th July 2005). He was alive to this because in paragraph 61 of his judgment he indicated that he was minded to re-open the previous years despite his earlier statement.

In my view this created a procedural unfairness and did not give the JPLs an opportunity properly to present their case. In this context I should observe that Equitas who had been aware of the level of Mr Johnson’s remuneration for several years did not seek to re-open them. It is to be noted in addition that the Equitas challenge to the hourly rate of Mr Johnson was based on knowledge they had at that time. The claim for Mr Johnson’s remuneration was between £390 and £395 per hour (see below). The cost of Mr Johnson to Grant Thornton for providing his services was between £150 and £90 per hour. Equitas had used Mr Johnson’s services on similar operations and paid only £60 per hour. They did not challenge the level of remuneration (which had been universally claimed by the JPLs at a similar level in the previous years) until the current Remuneration Application.

It seems to me that bearing in mind the fresh evidence which I have allowed in, whilst I can understand the Registrar’s concerns it would be unjust to re-open as against the JPLs when they have provided details of remuneration to the ICC and Equitas over the years. The latter had always had enough material to challenge previous years had it so wished. It is true that it did not know precisely what the mechanism was whereby Mr Johnson was charged out at these high rates. Nevertheless it did know that he was charged out and claimed for at a hugely greater figure than that which they were able to obtain his services for. In addition the consequences to the JPLs personally are likely to operate unfairly and finally I have regard to the fact that creditors will, as a result of the Scheme of Arrangement, which was approved after the hearing before the learned Registrar, suffer no loss.

Given all of those factors it seemed to me that based on that material coupled with the decision of the learned Registrar to reverse his previous stance without warning there was a procedural irregularity and the decision was wrong. I therefore would allow the appeal in respect of the re-opening decision and set aside that part of the learned Registrar’s order.

There are now four outstanding challenges:-

The Judgment deals with Mr Johnson in paragraphs 48-62. He is an insurance consultant to Grant Thornton. He has carried out work on the UIC matter since the start of the Provisional Liquidation. It is submitted that the order of Robert Walker J expressly extended to consultants and employees of Robson Rhodes under their control. Mr Johnson’s time for the period (181.5 hours) was charged at between £130 and £150 per hour. I should say that the invoices that he submitted provided no meaningful narrative of the work that he was doing. Further they also included figures at £60 per hour without any clear elucidation. He delivered his invoices to Grant Thornton and they paid him at those rates. Grant Thornton then decided in effect acting by the JPLs to charge the estate at between £390 and £395 per hour. It is suggested that that rate reflects Mr Johnson’s skill and knowledge. He is said to have very considerable experience of the insurance market. That is all very well but significantly Mr Johnson when negotiating with Grant Thornton (via the JPLs of course) puts a considerably lower valuation on his own services than Grant Thornton did when they decided not merely to pass on but to inflate his hourly worth in some cases by as much as a factor of 5.

During the hearing it was stated in the course of cross-examination of Mr Jacob that the increase was not attributable to any overhead costs that Grant Thornton might incur in providing assistance to Mr Johnson with regards to his consultancy services.

In Mr Jacobs 47^th witness statement (paragraph 11 and following) after the main judgment an attempt was made to introduce further evidence as to Mr Johnson’s role doubtless to try and persuade the Registrar to change his mind. This is addressed primarily to the legal question as to whether or not Mr Johnson is a member of Grant Thornton’s “Staff” (see below). It also attempts (contrary to the oral evidence given) to include a figure attributable to overheads in respect of Mr Johnson’s time. It comes up with a figure of £47,271. However I find the document of little use. All that has happened is that the London based costs have been totalled up and simply divided pro rata by the number of people working there including Mr Johnson. What is missing of course is what other time Mr Johnson might have done on other projects. The total amount claimed was 181.5 hours but one would ordinarily expect somebody working almost full time over a year to work perhaps 2000 hours. If that is the correct analysis then of course the cost to the estate of the overheads would in rough terms be divided by 10 giving a figure of £4,271.00. That is scarcely significant in the context of a charge out which produced an increased figure of over £38,000.00. It is also contrary of course to Mr Jacobs oral evidence. As I read the position he decided that Mr Johnson should be charged out to the estate at an hourly rate which Mr Jacob thought in his mind was appropriate.

Equitas had submitted that since Mr Johnson was a consultant and not an employee the JPLs ought to have charged his time as a disbursement and hence at the rate at which he charged Grant Thornton rather than as part of the JPLs’ staff. This was not initially addressed by the Assessor in his provisional or final report but was raised on the first day of the hearing of the Remuneration Application and Mr Jacob gave oral evidence. The Registrar gave directions for the provision of further information and based his decision on that further information. He also had a witness statement from Mr Johnson dated 5^th June 2006 by the time of the Costs Order but I do not find that of any great assistance beyond confirming my view and the Registrar’s view that Mr Johnson was a self employed independent contractor providing services to Grant Thornton for a fee. In that context whilst he might have some kind of superficial connection with Grant Thornton in the sense that he has some form of business card he is nevertheless independent of Grant Thornton like any other professional that Grant Thornton might wish to retain (such as barrister, solicitor or surveyor or valuer) to enable them to discharge the primary duties that they have assumed for their own clients (in this case the JPLs).

The Registrar summarised the evidence on this part in paragraph 54-56. It is not suggested that he wrongly summarised the evidence. This led him to conclude (paragraph 57) that Mr Johnson should be remunerated by UIC on the basis that he is an independent contractor who provides services for the JPLs of UIC and his invoices should not be considered as part of the Remuneration Application.

He reached this conclusion on the basis that he was not a member of the JPLs’ staff. Rule 4.30 IR 1986 provides for the fixing of the remuneration of a Provisional Liquidator as follows:-

“(1)

The remuneration of the provisional liquidator ….. shall be fixed bt the court from time to time on his application.

(2)

In fixing his remuneration the court shall take into account

(a)

the time properly given by him (as provisional liquidator) and his staff in attending to company’s affairs.

(b)

The complexity or otherwise (of the case)

(c)

……………

(d)

……………

(e)

The value and the nature of the property with which he has to deal

(3)

Without prejudice to any order the court may make as to costs the provisional liquidator remuneration (whether the official receiver or another) shall be paid to him and the amount of expenses incurred by him reimbursed (if a winding-up order is not made) out of the property of the company.

(b)

If a winding-up order is made, out of assets in the prescribed order of priority”.

There was no final winding up order in this case although the Provisional Liquidation lasted in excess of ten years.

The learned Registrar in paragraph 57 concluded that Mr Johnson was an independent contractor who provided the services for the JPLs of UIC and his invoices should not be considered as part of the remuneration. This conclusion was based on the fact that he was not a member of JPLs’ staff.

That reasoning is challenged by the JPLs in the appeal. “Staff” is a word with no defined legal meaning. It has in my view a clear meaning nevertheless. It seems to me that it is primarily equivalent to employees. It might extend to people who are not employees but who are associated with a particular manager. Thus for example in the military world a General might have a staff officer but he is not employed by the General. He is however a member of the same organisation as the General. It seems to me plain that a member of staff is to be distinguished from somebody who is self-employed. Grant Thornton went out of their way to ensure that Mr Johnson did not have any association with them which would make them responsible for his actions or be regarded as an employee. The learned Registrar set out in some detail the material which led him to the conclusion that Mr Johnson was not a member of staff for the purpose of rule 4.30. His reasoning in my view cannot be faulted and I agree with it. I do not see that Mr Johnson is any different to any other self- employed independent contractor that the JPLs might use in order to enable them to discharge their duties. The fact that they might be liable for Mr Johnson (or Grant Thornton’s (for that matter) acts) is immaterial. That arises because they have a non delegable duty to discharge their functions and they cannot escape liability merely because they attempt to have those functions discharged by an independent contractor. That liability does not in my view elevate the independent contractor to the status of a member of staff.

Nor did I find the decision of Stringer v Copley (unreported 17/5/02 at page 3) of assistance. Nor do I find the decision in Smith Graham (a firm) v Lord Chancellor’s Department [1999] MLJ 1443 of assistance either. That determined that a retired policeman who was self employed fell within the definition of fee earner for the purposes of the Legal Aid and Criminal and Care Proceedings (Costs) Regulations 1989. Mrs Justice Hallett determined that his work fell within that definition. No reasoning is given for that conclusion in respect of that statute and therefore it is of no help for me at all.

That is sufficient to dispose of the appeal in respect of Mr Johnson’s remuneration. There were however a number of further matters which were raised which I think it is important I should determine because they may be of assistance to the operation of charging in this area generally.

In his judgment (paragraph 57) the learned Registrar referred to the decision of The Mirror Group Newspapers PLC v Maxwell (No 2) [1998] 1 BCLC 638 at page 648. In so referring to that decision the learned Registrar was reminding the parties that an Office Holder was in fiduciary position and that an allowance of remuneration represents an exception to the rule of conflict as between the fiduciary and his beneficiaries. In this case of course the beneficiaries are the body of creditors.

As a consequence the JPLs cannot negotiate with themselves over their remuneration. If one analyses the position in the terms of legal responsibilities it appears to me to be as follows. The JPLs as office holders owe fiduciary duties to maximise the return for the benefit of the estate. They are of course allowed remuneration but that remuneration must be subject to the principle that it can only be reasonable remuneration. As a matter of legal analysis when the JPLs are partners in a firm of accountants they technically retain the firm to act on their behalf. However in practice the JPLs’ remuneration rates as partners in a firm of accountants are used as the yardstick for the basis for their remuneration. Technically I do not think that is correct because it is the remuneration of the JPLs qua office holders that is being assessed and not their remuneration qua partners in a firm of accountants. There may be a large difference between what might be justified in those two differing capacities. A firm of accountants may be very large and have large overheads which require each partner to charge out his time at a certain hourly rate to cover the overheads and make a profit. It does not follow that all the overheads burden for example can be reflected in an hourly rate for which an Office Holder would charge. This is addressed by the order of Robert Walker J where he allowed the office holders to fix their remuneration by reference to their rates as partners in Robson Rhodes. This I suspect is a standard form of order see Independent Insurance Co Ltd [2002] 2 BCLC 709 at paragraph 6 where an identical order was made. Somewhat intriguingly Ferris J considered that order was unnecessary as the power to fix remuneration was in accordance with rule 4.30. It was expressly disclaimed that the wording of the order enabled the JPLs in that insolvency to charge by reference to their firm’s hourly rates without further reference to the court. In future I do not see any such order is justified for the reasons Ferris J gave and with which I agree as set out above. If it is an attempt to pre-empt the level of remuneration it is not justified; nor can it be used to prevent remuneration being fixed at a different level if that is appropriate.

It might be permissible for a provisional interim level of remuneration but the profession must be aware that it is nothing more than that and levels of remuneration taken at that level might be reduced retrospectively if they prove to be excessive.

I equally do not believe Robert Walker J’s order was intended to displace the statutory power of assessment under rule 4.30. Nevertheless it does provide a starting base namely that the JPLs can charge themselves and their firm’s partners and staff their usual rates but subject to the power of the court in exercising its overriding powers of assessment under rule 4.30 to disallow or reduce any of the relevant expenditure as set out above.

In that context the evidence required to justify remuneration was set out extensively by Ferris J in The Mirror Group Newspaper case at pages 648 – 649. As will be seen from the judgment of the learned Registrar it is an understatement to say that the JPLs in this case fell somewhat short of the evidential duties put upon them to justify the remuneration.

Mr Isaacs QC submitted before me that there was no power of the court to do anything other than approve the remuneration of the JPL and his staff except a residual power to review the remuneration under rule 4.31 upon the termination of the Provisional Liquidators appointment when the court can give such directions as it thinks fit with respect to the accounts of administration or any other matters which it thinks appropriate.

I certainly agree that when the JPL is required to pass his final accounts the court has an opportunity to review those accounts at that stage in so far as they have not been reviewed before. However I do not accept that it is the only occasion when the remuneration can be reviewed. In Independent Insurance (paragraph 52)Ferris J expressed the view that the court would have power to challenge a disbursement if required. Nevertheless he felt the incurring and satisfaction of liabilities to third parties was a matter for the JPLs themselves subject to the right of the creditors or others to challenge such decisions on the passing of the JPLs’ account. In so expressing that view he stated that IR 4.30 only applied to remuneration and not to disbursements.

I am not sure about that. It seems to me that the disbursements would be capable of being assessed under sub rule (3) which extends to any expenses incurred by him. That in my view would cover disbursements.

I do not think this is a difference of importance. One way or another it must be right that the court retains a power to examine all aspects of the expense of the JPLs whether by their own remuneration, the remuneration of their partners and staff if appropriate and their disbursements in respect of third parties. Whether it is done under 4.30 or whenever they are asked to pass their accounts is in my view immaterial.

This is shown further in my view by the decision of Ferris J again in re Independent Insurance Co Ltd (in provisional liquidation) (no 2) [2003] 1 BCLC 640. As a result of the earlier decision the costs were then assessed by Ferris J with an Assessor. The Assessor reported that the JPLs’ costs could have been significantly lessened if they had employed contract or agency staff to carry out document archiving and that applying the usual hourly charge rates for partners and staff which reflected the usual utilisation rate of 70% of potential chargeable hours had been charged to ensure that overheads etc were met but the firm had not made any discount for the fact that in a case of a single assignment such as a substantial insolvency lasting for a long period a utilisation rate in excess of 70% was likely to be achieved.

In giving judgment Ferris J acknowledged the potential conflict between the remuneration of an Office Holder and the desire of a partner in the firm to achieve maximum profitability. At paragraph 20 he said this:-

“I also consider that Mr Batten’s allusion to the firm’s profitability has the potential to introduce a false element into the calculation. In fixing the remuneration of an office-holder the court is concerned not with the profitability of the office-holder’s firm but with the value provided by the office-holder in the form of the services of himself and his staff. I accept that profit cannot be completely divorced from value, because there will not be office-holders available to provide value unless they are able to make a reasonable profit from the process. But if a particular assignment produces a utilisation rate which, at usual charging rates, results in an exceptional level of profit the fact that other assignments yield a lower level of profit does not appear to me to be an adequate reason for rejecting the possibility of a discount in the case of the more profitable assignment.”

This shows that there is no hard and fast rule. Remuneration assessed by reference to a JPLs’ partner’s hourly rate may be appropriate but in other cases it may be excessive. It is a matter for assessment in each case.

What is clear however is that the JPL cannot in effect impose his own rates without expecting them to be reviewed. As Ferris J again said in Independent Insurance No 2 (paragraph 1)

“Where the remuneration of an office-holder has to be fixed by the court the court is in effect a hypothetical client negotiating the terms after the event”.

When one considers the amounts claimed for Mr Johnson the arrangements appear to be as follows. The JPLs decided to retain their firm. As such they ought as Office Holder to negotiate the best rate possible (i.e. the cheapest) for the utilisation of their firm. It is not sufficient in my view simply to expect that the partner’s hourly rate would necessarily be appropriate. Nevertheless as he is charging out his time qua a partner in the firm to the estate that is in effect what is happening. In the case of Mr Johnson the position is even more stark. The Office Holders in this case decided to utilise Mr Johnson’s services. It was done through Grant Thornton. That firm utilised Mr Johnson to enable the JPLs to discharge their duties as Office Holders. That incurred an expense liability on the part of Grant Thornton. In negotiating with Mr Johnson the JPLs (who were the same party) would be concerned to obtain the lowest price for his services to minimise the expenditure of Grant Thornton. Finally the JPLs decided having reduced Mr Johnson’s fees as much as possible to maximise the amount of return for the firm at the expense of the estate.

One only has to set out those various instances to see the overwhelming nature of various conflicts. I cannot see that Grant Thornton were doing anything other than applying a mark-up to Mr Johnson’s expense with no justification whatsoever. I can see no justification as to that mark-up and it would be a flagrant breach of the JPLs’ duties as Office Holders to seek to maintain it.

Therefore the second ground for refusing to allow the mark-up by the learned Registrar was in my view justified.

Finally I should say that I do not accept that the order of Robert Walker J can be construed as enabling the JPLs to increase the fees of Mr Johnson and charge them out at anything other than the rate at which he charged Grant Thornton. I do not see that it would have ever been contemplated at the time that order was made that the court was allowing the JPLs’ firm to make an unjustified profit at the expense of the estate without the matter being fully revealed to the court and agreed by it. There is no evidence to suggest such revealing occurred.

Accordingly the JPLs’ appeal on the Johnson fees is dismissed.

Mr Laventure is a tax consultant who spent 44 hours on the UIC estate to which a claim was made in the Period. The JPLs sought to have £13,200 fixed as their remuneration in respect of these charges. The Registrar disallowed in full this part of the claim for two reasons. The first reason was that the work had actually been carried out by Mr Laventure in the period before the Period. That is correct but the invoices were not received by the JPLs until after the Period and therefore could not have been included in the previous year’s remuneration.

The second reason was that the Registrar concluded that there was no evidence to establish what work had been carried out by Mr Laventure. It is submitted on behalf of the JPLs that this was not an issue which had been raised until the hearing of the Remuneration Application and then the only issue was as to his status as a consultant. Mr Jacob was questioned at the hearing solely in relation to his status as a consultant and prior to the judgment the only issue as to the work carried out came from the Assessor when he queried why Mr Laventure’s invoices related to work undertaken prior to the Remuneration Period and was told they were only submitted in November 2003 and paid within the Remuneration Period.

The Registrar in referring to the observations of Ferris J in Independent Insurance as to proving their entitlement by reference to adequate records concluded that the information that they had been provided was not of sufficient detail to enable it to be correctly assessed (paragraph 63). He also indicated that it was far from clear as to what work was done by him.

The JPLs contend that the first reason given by the learned Registrar is incorrect. They could not have claimed it for the earlier Period because it had not been billed. In my view that is correct. I can see no objection to the JPLs recovery for the bills when they are delivered and paid. As Mr Isaacs QC said in his skeleton the annual review was an artificial but convenient method of determining the JPLs’ remuneration from time to time. To that extent the learned Registrar’s decision on this point was with respect in my view wrong.

Second it is suggested that the detailed information was to be found by looking at Mr Jacobs 24th witness statement dated 20th November 2003 which was filed in support of the Remuneration Application for the previous year. It is submitted that paragraph 16 set out the work that was done in preparation of tax computations can be discerned. I am prepared to accept for the appeal (because the exhibits to Mr Jacobs 24th witness statement are not in the papers) the assurance that the work he did is to be found in those documents. If that is correct then it seems to me with respect to the learned Registrar there was material available to him. I am not convinced it was necessarily drawn to his attention but then that would not necessarily be surprising as I understand from the submissions of the JPLs that they did not think quantum was an issue until they received Judgment.

I would therefore allow the JPLs appeal in respect of Mr Laventure’s fees provided I have the confirmation set out in the earlier paragraph.

As I have said above the Assessor recommended deductions under these headings of £115,143 and £12,723 respectively. As the Mirror Group case set out and emphasised there is a need for the JPLs to prove what work they had done in order to justify remuneration. There is a stark failure in this case on the part of the fee earners to prepare any kind of sensible narrative. Paragraph 71 of the learned Registrar’s judgment shows a shocking failure in my view to provide proper narratives. The Assessor recommended a certain level but at the end of the day the decision is that of the Registrar with the assistance of the Assessor. It will be recalled that Equitas’ argument was that no allowance should be made for any of these items on the basis that the JPLs had failed to prove their case. At the hearing before the Registrar the JPLs contended that they should be entitled to the sums claimed in full without any deductions at all. Before me Mr Isaacs QC modified that stance and only argued for the difference between the recommended deductions by the Assessor and the deductions made by the Registrar.

In my view I do not think the Registrar’s analysis and decision can be criticised. The decision is for him and I have to say that were it open to me to reconsider the matter my determination would have been somewhat harsher than his given the substantial failure of the JPLs in their recording of time. Equally I agree with the Registrar that charge out times in units of 15 minutes as opposed to 6 minutes are unacceptable.

There is in my judgment no basis for suggesting that the Registrar’s judgment was wrong. The JPLs failed to provide proper evidence and he was entitled having regard to the recommendations of the Assessor to come to his view.

The same applies to the hourly rates. I do not accept the criticism of the decision to apply a 1% deduction as regards the overall costs. This reflects the learned Registrar’s concern that there was something in Equitas’ stance that the JPL team was top heavy (see paragraphs 130 – 134 of the judgment). Given the failure of the JPLs properly to establish their case he was entitled to come to that conclusion and he was entitled to exercise his experience and judgment in arriving at an appropriate figure that should reflect the inadequacy of the records used to justify the remuneration sought. Having failed to provide him with proper material the Registrar was left to do the best that he could. I do not see how it can be said that his decision was wrong.

I therefore dismiss the JPLs’ appeal in respect of the increased figures for the null and unhelpful entries and the decision of the Registrar to apply a 1% deduction across the board.

It is submitted that the deductions referred to above should not have been made and the Registrar was wrong to do so for two reasons. First it is suggested that the Registrar wrongly concluded that the JPLs’ charge out rate and those of their staff were “at the high end of the scale” and “on the high side” (paragraphs 39 & 88). The Assessor had reported on this and his thought was that their rates were reasonable although at the higher end in the context of market rates. It is suggested that the Registrar misconstrued that paragraph whilst purporting to accept it.

I do not accept that is a valid criticism of the learned Registrar’s judgment. In paragraph 39 he accurately summarises the Assessor’s report. Nevertheless in paragraph 88 he was perfectly entitled in dealing once again with inadequacy of the evidence put forward on behalf of the JPLs to conclude that the rates whilst within a reasonable bracket were on the high side. He was simply not willing given the inadequacy of that evidence to give the JPLs the benefit of their claimed hourly rate as it was at the high end of the reasonable level. I do not see that it can be said that that decision was wrong and not available to him on the material before him.

The second criticism is that he failed to take into account the success of the Provisional Liquidation. In paragraph 101 he said this:-

“I have no doubt that scheme creditors will be pleased to receive 145 pence in the £ ten years after the company went into provisional liquidation compared with the position they faced in 1996 when the prospect was 26 pence in the £. However I do not accept that the prospect of 145 pence in the £ should be taken as a clear indication of the future outcome for the purpose of fixing the current remuneration application. A prospect achieved in 2006 does not in my view enable the court, with any certainty, to conclude effectiveness in considering the position for the remuneration application in 2003/2004. Hindsight is no an appropriate test. Furthermore, for many years it has been anticipated that there would be a settlement agreement and that a scheme would follow and all remuneration applications could or should have been judged with that in mind. The remuneration of the joint provisional liquidators in 2003/2004 should reflect and be fixed so as to reward the value of the service rendered in the particular period and the effectiveness of the work undertaken duly considered”.

That is criticised by the JPLs in their appeal. First attention is drawn to rule 4.30 (2) (d) IR which expressly mandates the court to take into account the effectiveness with which the provisional liquidator appears to be carrying out his duties. Second the JPLs are critical of the Registrar’s determination that the matter is not viewed with hindsight. He was critical of the evidence of the ICC members adduced by the JPLs. The JPLs fastened in particular on paragraph 110 (vi) “the witness statements, obtained in this fashion, raise further questions. By way of example what is the court meant to assume about the 5 members of the ICC who did not file witness statements?”.

This is not a re-hearing. The view expressed by the Registrar was a strong one but I do not think it is a view that can necessarily be said to be wrong. He was clearly suspicious of the statements and considered that no weight should be given to them. That in my view was a conclusion that he was perfectly entitled to come to on the material before him and I see no grounds for interfering with that conclusion.

The same applies to the overall success in my view. The success clearly has to be taken into account. However the success of the provisional liquidation does not in my view enable the court to award an extra success fee beyond reasonable remuneration. The remuneration must be fair and reasonable. The success of the provisional liquidation is likely to mean that the court is likely to be more favourably inclined to remuneration claimed but not to give more than is reasonably claimable.

The JPLs in effect are suggesting that their failures to prove their remuneration can be papered over by the fact that the provisional liquidation was successful. The difficulty of that is twofold. First it is by no means clear that all the hours claimed led to the success. The success as I understand it arose from the commendable discovery by the JPLs of an indemnity agreement from LTSB. It is true that that has led to the Scheme of Arrangement but it does not follow that that was achieved by the large number of hours claimed over the years as opposed to the discovery of the document. Second it seems to me that it is an attempt to use the success of the liquidation to paper over the cracks of the inadequate evidence put forward by the JPLs. That in my view is a wrong approach. The JPLs must prove what they have done. If they cannot do that that cannot be brushed aside simply on the basis that the provisional liquidation was a success.

Even if that is incorrect it seems to me that the conclusion I would draw is that the success of the provisional liquidation should a have a minimal impact on the assessment of costs and cannot be used to reverse the deduction that had been properly made resulting from the inadequacy of the material the JPLs had brought forward.

I therefore conclude that those factors are not valid criticisms of the Registrar’s judgment.

That disposes of the challenges to the Main Judgment.

The costs of the witness statements that the JPLs obtained from the members of the ICC was disallowed. In addition the Registrar ordered the JPLs to pay Equitas’ costs of responding to them on an indemnity basis (paragraph 59 of the Costs Judgment).

Whilst the evidence might have been relevant to the issues (and even possibly mandatory) by virtue of the Practice Statement paragraph 5.2 (10) it does not follow that the costs of that exercise are necessarily recoverable. The Registrar clearly took a dim view of the evidence and the exercise. That was a conclusion that he was entitled to come to and I do not think it can be said to be wrong. It is not a question as to whether or not I might have come to a different conclusion. Given the fact that I concluded that his comments on those statements could not be said to be wrong equally I conclude that it cannot be said that his decision to award the costs on the basis that he did given his disapproval of those witness statements was wrong either.

I therefore dismiss the JPLs appeal in respect of the Registrar’s order concerning the ICC’s witness statements.

In paragraphs 72-74 of the Costs Judgment the Registrar held that the JPLs should be reimbursed their reasonable costs for preparing the application, providing evidence for the Assessor and Equitas and dealing with the evidence as necessary for a proper inquiry (see paragraph 71). He also held that it would be inconsistent and unjust to deny these costs in a case where they had been able to justify 80% of the remuneration sought. Nevertheless he went on to direct that the trial costs should be borne by the JPLs personally and that Equitas’ trial costs should be borne by the JPLs personally with no right of reimbursement from the estate (paragraphs 72-74). The reasoning for this appears to be a perceived unwillingness on the part of the JPLs to “engage with” Equitas early and a failure to respond to any suggestion that the matter could be resolved by ADR. The second ground appears to be an application of CPR 44 and suggests that they have unsuccessfully pursued challenges to the Assessor’s findings at trial against a background of ever increasing spiralling costs. His conclusion is that he would disallow the costs of the trial on the part of the JPLs and reimbursement out of the funds in respect of Equitas.

It seems to me that it is by no means clear that the failure to resolve the matter by ADR can be laid solely at the door of the JPLs. Neither party seemed to consider that ADR would be achieved in this case.

The learned Registrar is perfectly entitled to apply CPR 44.3 and disallow costs in respect of issues which have been maintained and lost. It seems to me that he is entitled therefore to consider whether or not there should be some disallowance. The proceedings are inquisitorial in nature and the JPLs have to come to court to have their remuneration fixed. As he acknowledged in his Costs Judgment they are entitled to the costs of that exercise. However it is not an unlimited right to claim for all the costs. The court has a discretion under CPR 44.3 to award costs on an issue basis as opposed to an overall success basis. The Registrar accepted that the JPLs success at 80% had to be acknowledged. Nevertheless he was in my view perfectly entitled to disallow the JPLs’ costs and the recovery of Equitas’ costs in respect of issues which they had plainly lost or had prolonged the assessment unreasonably or by raising claims or arguments which failed.

Before the Registrar the JPLs plainly lost on the Johnson matter and the Laventure matter. They lost on the re-opening issue and they lost on the success issue. The position of the null and unhelpful entries and the 1% deduction is more problematic. The dispute between the JPLs and Equitas was more in the nature of an adversarial dispute whereas the overall procedure is one of an inquisitorial nature.

Before me the JPLs have persuaded me that the Laventure decision was wrong and that the re-opening decision was wrong but they have failed in respect of the Johnson appeal and they have failed in respect of their criticisms of the Registrar over the ICC witness statements and the success fee. Finally they have failed in the deduction for null and unhelpful entries and the 1% deduction.

In my view the Registrar was entitled to review the costs of the hearings in the light of his findings. However his decision to require the JPLs in effect to bear the costs of all of the hearings given their overall success was in my view wrong. The decision to disallow the matters therefore ought to be reconsidered. It would not be cost effective to remit the matter to the Registrar to reconsider his costs decision. I have had no submissions as to how the costs should fall in the event that I re-open the decision beyond a statement by the JPLs that they should have all of the costs of the hearing and full reimbursement of Equitas’ costs.

I am not convinced that that is correct because in my view an amount of time was spent before the Registrar raising issues where the JPLs lost. I do not think it is appropriate (however convenient it might be) simply to allow the JPLs’ and Equitas’ costs to come out of the estate. I cannot assess the amount of disallowance and I would invite written submissions for consideration when I hand down the judgment as to what percentage of the costs of the hearing should fall on the estate given the issues which are now lost as a result of the appeal. I have of course allowed the appeal in part and therefore the question to be considered in my view is the percentage of costs in the light of the part I have allowed.

I would also invite similar submissions as regards the costs of the appeal on the same basis given the success and failures of the JPLs. Equitas’ costs in the appeal are different; they are entitled for the reasons that I have set out at the start of this judgment to an indemnity in respect of the costs.