Hobbs & Anor v Gibson & Ors

I now have to consider various matters arising out of the judgment which I delivered orally on the 17^th December in this matter. I have dealt on a piecemeal basis with consequential matters, and they are largely agreed. I have discussed with counsel the form of the orders to be made.

The outstanding question relates to the costs of the proceedings. The applicants say they succeeded in establishing that Mr Stevens never was a liquidator and in the removal of Mr Gibson and Mr Tailby. The respondents say that the applicants have not achieved anything useful, because they have not succeeded in having their nominee appointed, whose virtues were again sought to be raised before me today.

At the hearing, which led to the judgment of 17^th December, Mr Littman in response to various criticisms that had been voiced of his clients’ nominee did not press for his appointment, but said the matter would have to be left to the creditors. I have decided that is what should happen. I am not prepared to go back on that, although it is now clear that HMRC, who were previously keeping their powder dry, would as things presently stand favour the appointment of that nominee. There are, however, other creditors, and I do not know to what extent HMRC’s votes will be sufficient to carry the day, or whether they may yet have a change of heart, as appears to have happened in the past.

Accordingly, I do not consider it right to appoint without further ado the applicants’ nominee. There will be creditor meetings to consider the point. However, even though Mr Littman did not press for this particular appointment at the original hearing, the hearing was not any less contentious for that and I do not consider that any significant costs consequences should follow from the failure to obtain the appointment of the nominee in question, or from the fact that various other items of ancillary relief have either not been pursued or granted.

It seems to me that prima facie, if I am still allowed to use that expression, the applicants are entitled to their costs, subject to the points on conduct, which Mr Tamlyn prayed in aid. He said there has been an unreasonable refusal to negotiate. This ties in with his point that the applicants have achieved nothing useful and, therefore, in one sense goes to the question of success. He points out that there were in the course of correspondence offers to have without prejudice and open meetings, culminating in a statement in open court on the 29^th January 2010, which was repeated in a witness statement of the 12^th February 2010 of the respondents’ solicitor, Mr Parkhouse.

The witness statement is as follows:

In a subsequent witness statement, Mr Parkhouse also said Mr Stevens offered to meet with the applicants since becoming aware of their involvement, but such offer had been rejected. As I have said, there were also earlier offers of discussions in December 2007 and in June 2009 before the current application was issued. The first was made by Beachcroft, apparently on behalf of Mr Gibson and probably Mr Tailby (but it could be Mr Stevens) as well. However, the offer was made on the premise that the proceedings which had been issued relating to the administration were based on such spurious grounds that they could not possibly afford a reason for an officeholder to vacate office. I have held that the desirability of that course was self-evident.

So far as the June 2009 offer was concerned, this was in an email of the 5^th June from McGrigors, who were initially acting only for Mr Stevens. However, on the same day Mr Gibson was robustly asserting that there was no ethical conflict and no reason why he should not continue in office as joint liquidator. His position, at least as stated in correspondence, was fairly described Mr Littman as intransigent. It is also clear that from an early stage, August 2007, the essential elements of the claims advanced by the applicants were articulated and not taken sufficiently seriously by the respondents. The absence of a proper creditors committee of Tannit, the fact that there was no creditors committee at all of Robin Hood, and the absence of any proper revision of the proposals justifying the appointments of Mr Gibson and Mr Stevens as joint liquidators were all highlighted, as were the deficiencies in a subsequent meeting.

It seems to me that in it would be wrong to characterise the applicants’ commencement and continuation of these proceedings as unreasonable. Moreover, the meeting that was offered was a different meeting to the one which is now to take place. The meeting that was offered was to consider the question of whether Mr Gibson and Mr Stevens should remain in office or be replaced. The position that will now be put to the creditors is to appoint new liquidators, Mr Stevens having been determined never to have been a liquidator, and Mr Gibson and Mr Tailby having been removed.

I should mention two other matters. The first is that Mr Tamlyn points out in his skeleton argument (and has repeated to me today) that it is understood that an offer for Mr Gibson to stand down, leaving only Mr Stevens in office, was made in June 2010, but was also refused. That is not made good by evidence, and it is not appropriate for me to take it into account. The second matter is that I noted in my earlier judgment that Mr Gibson’s solicitors were the same both in this application and in the litigation against the former administrators. That is not correct, for which I apologise. Mr Gibson’s solicitors in these proceedings are McGrigors, who also act for Mr Stevens. It is now clear that initially they advised Mr Stevens alone; Mr Gibson was previously advised by Beachcroft, who are also the solicitors in the administration proceedings.

This is not a matter which was fundamental to my judgment, but I wish to correct the mistake in fairness to everyone involved. Nevertheless, it is also clear from correspondence I have been taken to that the liquidators did pay a sum in excess of £20,000 to Beachcroft, presumably in respect of the costs of the liquidation, so that they have also acted in the liquidation, though not in this application.

Accordingly, the point I made in relation to potential costs overlap between the liquidation and the administration litigation may still have some limited validity. However, that was not the main point of my decision. The main point of my decision was that Mr Stevens was never appointed and that Mr Gibson and Mr Tailby were in an impossible position, which resulted in the liquidation having achieved very little to date.

In my judgment, this is a proper case for the applicants’ costs to be paid by the respondents. Under Rule 4.119(5), as it currently stands, of the Insolvency Rules 1986, the costs of the application are not payable as an expense of the liquidation. The equivalent rule previously provided that the costs were not payable out of the assets, which amounted to the same thing. This is, however, a qualified provision, because it is preceded by the words ‘subject to any contrary order of the court’. It is thus clear that the starting point is that on a removal application the costs are not a liquidation expense. The court has power to make a contrary order, but that is an exception to the general position and should therefore be applied with care, and not automatically. Ordinarily, the court will exercise its discretion as to costs applying the provisions of CPR 44.3.

As, in my judgment, the applicants have won, I consider that their costs should be paid by the respondents. In reaching this conclusion, I bear in mind also that I have been critical of Mr Gibson’s evidence about the issue of a certificate relating to the creditors’ committee of Tanit, and that his evidence of the outcome of the initial Robin Hood creditors’ meeting was far from ideal.

The question then is whether the liquidators should also have their costs out of the estate, or be able to pass on to the estate the costs that they have to pay to the applicants. This would mean that the creditors would end up paying for the removal of liquidators whose removal I have held to be in their interests. This will substantially diminish the estate, though there may still be something substantial left, as on the figures a lot of the costs have already been paid, and those costs would, as is accepted, be the subject of a detailed assessment, if they are not disallowed. If they are not ordered to be paid out of the estate, it is accepted that such costs as have already been paid will have to be reimbursed by the respondents.

In my judgment, it is not appropriate to permit the respondents to indemnify themselves in that way. Leaving aside the important question that Mr Stevens is not a liquidator and, therefore, cannot (it might be said) look for an indemnity out of the estate, the position is that the liquidation has continued despite the clearly articulated objections of the applicants from an early stage. The risk of an adverse result was obvious, and the respondents were not justified in resisting the application. In the absence of special circumstances, which in my judgment do not apply here, costs should follow the event, and not be borne effectively by the creditors.

Moreover, I again refer to Rule 4.119(5), which has a significant direct impact in the context of indemnity out of the estate. I do not consider it appropriate to make a contrary order. My attention was drawn to the decision of the Supreme Court of New South Wales in Re Biposo Proprietary Ltd [1995] 17 ACSR 730. A liquidator was removed in that case on the basis of apparent bias, bordering on actual bias. The costs of the successful applicant were ordered, so far as I can tell, to be paid by the liquidator, but with an indemnity out of the estate. It was said in that case to be the normal rule.

In my judgment, there is no such normal rule in England, whatever the position may be in Australia. There may of course be cases, as was predicated by Mr Justice Oliver in Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 (at 285 G to J) where liquidators, who find themselves on the receiving end of proceedings by those who are dissatisfied as to the way in which they are carrying out their functions, should not have the costs awarded against them personally. There is a public interest in not encouraging such applications to be made lightly, but the power to make such a costs order undoubtedly exists. In the present case, the issue was as to the fundamental validity of an appointment, and the propriety of a continuing appointment. The respondents never faced up to the weaknesses of their position. It seems to me that there are no solid reasons for departing from the general rule reflected in rule 4.119(5) and CPR 44.3(2)(a).

The question then arises to whether the costs should be assessed on the standard or on the indemnity basis. In my judgment, this is an appropriate case for indemnity costs. In the light of my finding that it was self-evidently undesirable that Mr Gibson should remain in office and in the light of what, upon a careful reading, was in my judgment the only viable reading of the rules relating to the creditor’s proposals, it seems to me that the respondents acted unreasonably in maintaining an untenable position, and causing substantial costs to be incurred on the basis of that untenable position. In addition, their attempts to put the matter right were woefully inadequate.

I take into account also what to my mind was the unsatisfactory evidence of Mr Gibson. This affects Mr Stevens and Mr Tailby also, because they have made common cause with Mr Gibson, and in the course of correspondence Mr Stevens quite wrongly asserted that any question in relation to the administration was not a matter for him, but was a matter for the claimants.

As I made clear in my earlier judgment, I did not consider that Mr Gibson, Mr Stevens and Mr Tailby were deserving of adverse comment upon their professional standing and reputation generally. Nevertheless, I do consider that their response to the applicants’ detailed comments from an early stage was less than adequate and fell well below the standards of competence and reasonableness that is to be expected of officeholders, who need in every case to satisfy themselves both that they have been properly appointed and (where a reasoned challenge is made) that it is appropriate that they should continue to act. I will accordingly ask counsel, subject to any further application that may be made, to agree a minute of order giving effect to this judgment.