Wedgwood Museum Trust Ltd, Re

I now consider costs issues arising out of my judgment of 19^th December 2011.

I have decided that all parties are to have their costs of these proceedings out of the assets of the company, payable as part of the costs and expenses of the administration.

The claim was brought by the administrators, seeking the court’s directions. Though advised that the better view was that the company’s assets were subject to a charitable trust, the administrators correctly recognised that there were arguments the other way, and that a court determination was required. As it happens, my determination was the other way. The administrators’ application was, in the circumstances, both necessary and appropriate.

The Pension Trustees (and the Pension Protection Fund) succeeded in their arguments and are clearly entitled to their costs from somewhere or someone. Their arguments were opposed by the Attorney-General. His arguments were not accepted. Even if they had been accepted, the Attorney-General faced a further hurdle in defeating what would then have become the company’s prima facie right as trustee to an indemnity out of the trust fund for the liabilities incurred in carrying out the trust. Although that point was not before me for decision at the hearing, Mr Pearce QC for the Attorney-General, no doubt concerned lest I should think that he was bound ultimately to lose even if the charity issue went in his favour, explained to me with some care the issues arising under the indemnity argument. Without rehearsing them here, as it is unnecessary for me to do so, Mr Pearce QC satisfied me that the matter was far from straightforward, and that there would have been proper arguments to put on the indemnity issue, involving an investigation as to the circumstances in which the company came to be burdened with the pension deficit.

The Attorney-General’s arguments on all issues were entirely proper, and were advanced with skill and persuasion. But both sides cannot win, and his arguments did not prevail at the end of the day. Mr Sartin therefore asks for his clients’ costs against the Attorney-General. His clients are the Pension Trustees and the Pension Protection Fund. They clearly won, and the Attorney-General lost what was, according to Mr Sartin, a hostile claim to the company’s assets. That may be the correct starting point, but it is far from the end of the matter.

It is in my judgment an over-simplification to regard the Attorney-General as having made a hostile claim to the company’s assets. He was an involuntary Defendant, joined as the proper party to represent the public interest. Neither he nor (when previously consulted) the Charity Commission advanced any adverse claim before the administrators chose, as they were entitled to do, to seek the directions of the court. On the contrary, the Charity Commission had early on expressed the view in correspondence that the assets were not held on charitable trusts separate from the assets of the company. That view turned out to be correct, despite the evidence then assembled by the administrators suggesting the contrary.

In those circumstances, I do not think that it would be appropriate to order the Attorney-General, as losing party, to pay any part of the costs. He is a necessary party to all actions involving charities, and in that representative capacity performed in the instant case a necessary and valuable function. He was in the same position as any other representative defendant, where it is common to make costs orders out of the assets, though there is never any inevitability about that.

My conclusion on this point is unaffected by the fact that the Attorney-General declined to agree in advance to all parties’ costs coming out of the assets. That was not a piece of tactical manoeuvring, but was based on genuine concern as to whether that was something the Attorney-General could, consistently with his duty to protect charities, properly agree to.

I also think it would be most unfortunate, and potentially damaging to the due administration of justice, for the court to adopt a hostile approach to the Attorney-General’s participation in proceedings such as these. He is often, and understandably, reluctant to involve himself in charity proceedings. Yet there are many occasions (of which the present case is a good example) where the court is greatly assisted by his participation. I would not wish to say anything to discourage the Attorney-General from adopting a pro-active role in charity proceedings, where the public interest is thought to require it. The Court should be slow to adopt a critical approach to such participation. The Attorney-General ought ordinarily to be entitled to his costs out of the fund in question. That was the course adopted in Liverpool and District Hospital for Diseases of the Heart v Attorney-General [1981] Ch 193, in the case of a solvent enterprise, and the position is no different in the case of an insolvent company. It is a matter of common occurrence for the costs of the parties to applications for directions by office holders to be paid out of the assets, even in the case of an unsuccessful party, so long as that party has acted properly. Different considerations may apply where the unsuccessful party has in substance conducted the application as ordinary adversarial litigation, or has provoked the application for directions by making an adverse claim, but that is not the present case.

The position of the Attorney-General as regards costs has also been considered by Parliament. Section 7 of the Administration of Justice (Miscellaneous Provisions) Act 1933 lays down the general rule that the costs of proceedings in which the Crown is a party are subject to the same principles as costs between subjects. There then follow 2 provisos: the first contemplates the Attorney-General, when he is required to be a party, receiving his costs from another party, whatever the result, depending upon the character and circumstances in which he appears; the second provides that nothing is to affect the power of the court to order the payment of costs out of any particular fund. Given the Attorney-General’s participation in these proceedings as a necessary party representing the public interest, it seems to me that those provisos recognise the appropriateness of his costs being provided for – in this case, as part of the costs and expenses of the administration.

It follows from these observations that it would not be right to order the Attorney-General to pay the costs of the Pension Trustees and the Pension Protection Fund. Their costs also will come out of the assets. I do not overlook, in making these rulings, that, as the principal creditor, they are effectively bearing the costs of all parties though successful. That is the unfortunate result of this application for directions proving necessary, as in my judgment it was. Once that conclusion is reached, the costs consequences I have indicated, however unfortunate for the successful party, follow.

Separate issues arise concerning the administrators’ costs. Their costs of the application generally were clearly justified, as the point upon which they sought directions required a definitive answer. It is said, however, that their briefing of Leading Counsel (Mr Adkins QC) was not appropriate and should be disallowed, the more so in the light of the concerns expressed by the Court of Appeal in BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL Plc and Others [2011] EWCA Civ 227. In that case, Lord Neuberger MR gave guidance at paragraphs 102-105 as to the undesirability of attendance of Leading and Junior Counsel for (in that case) trustees who had no active role to play. He recognised that the position might be different in other cases, for example if the trustees were facing criticism.

Despite that guidance, Mr Adkins QC both appeared and lodged a short skeleton argument as to the merits. His skeleton argument (unsurprisingly) added nothing of significance to the skeleton argument filed on behalf of the Attorney-General. Mr Adkins QC recognised the appropriateness of the administrators generally taking a “neutral” position, though describing that as “non-descript” in the circumstances of this case.

On the first day of the 3-day hearing, I queried whether Mr Adkins QC’s attendance was necessary, and referred to the observations of Lord Neuberger MR in the BNY case. As might be expected, Mr Adkins QC told me he was aware of that authority. He did not suggest that his attendance was necessary, nor did he address me on the substantive issues. Accordingly, he attended only on the first day, and not on the next 2 days.

I am now asked to disallow the costs of Mr Adkins QC’s attendance. His agreed brief fee was £45,000 plus VAT. His refresher rate had been agreed at £6,000 plus VAT per day. The costs of the further 2 days were avoided, but the more substantial costs of the brief fee were incurred upon delivery of the brief.

It appears from an Attendance Note of CMS CameronMcKenna, the solicitors for the Pension Trustees and the Pension Protection Fund, dated 20^th July 2011 that it was still not then clear what role the Attorney-General was to take at the hearing. Mr Rawlings for the administrators is recorded as saying that, if the Attorney-General did not engage, the administrators would put the relevant legal principles before the court. They would not necessarily be arguing the points but would be putting them forward. No-one has suggested that that was an incorrect approach, on the hypothesis of the Attorney-General playing no part.

The date fixed for the start of the hearing was 13^th September 2012. On 12^th August 2012, the Treasury Solicitor told Mr Rawlings that Mr Pearce QC had been instructed to appear for the Attorney-General. Mr Rawlings also passed this information on to CMS CameronMcKenna. He also confirmed that Mr Adkins QC was instructed for the administrators. At no stage did CMS CameronMcKenna suggest to Mr Rawlings that the attendance of Mr Adkins QC at the hearing, or his continued retainer, was inappropriate, even though their clients were, as the principal creditors having claims dwarfing all others, directly affected. The first time any point was taken was by me on the first day of the hearing itself.

I have grave concerns over the costs occasioned by what turned out to be an unnecessary briefing of and attendance by Mr Adkins QC. He was not briefed until shortly after Mr Pearce QC had been retained for the Attorney-General. It was known by then that the Attorney-General would be playing an active role, representing the public interest. Mr Rawlings argued that it was still appropriate for the administrators to brief Leading Counsel, because it was not known precisely what arguments Mr Pearce QC would be putting. He also suggested, as justifying the briefing of Mr Adkins QC, that he had greater experience in this area than either Mr Pearce QC or Mr Herbert QC (who appeared for the Pension Trustees and the Pension Protection Fund).

In my judgment, it was clearly inappropriate for the administrators to brief Leading Counsel in case 2 other Leading Counsel between them proved deficient. Nor did it become appropriate because the precise arguments to be put by Mr Pearce QC were not known, and would not be known until delivery of Skeleton Arguments shortly before the hearing. It is not the function of administrators to supervise the Attorney-General in his role of representing charities in the public interest. That is the role the law assigns to the Attorney-General. Once the Attorney-General decided to participate in the hearing and brief Leading Counsel, the administrators should have recognised that there was no longer any need for them to appear at the hearing, certainly not by Leading Counsel. It may have been appropriate for the court to know (which it did) what Mr Adkins QC’s historical advice had been, but that did not make anything other than an entirely neutral stance appropriate, and did not require any attendance.

The position may well have been different if the Attorney-General had, without conceding the point, decided not to play an active role. In that event, the court would have had power to direct the administrators to argue the case against Mr Herbert QC’s clients, and may well have done so, given the advice previously received by the administrators. This was a case which required proper argument on both sides. The practical result would have been that 2 sets of hearing costs would have been chargeable to the fund. There would have been no hearing costs of the Attorney-General on that hypothesis. As it happens, the administrators are now asking me to allow 3 sets of hearing costs. I find that unacceptable.

If the administrators were in doubt as to what role they should play, the matter could have been raised informally by letter to the court, explaining the intended role of Mr Herbert QC and Mr Pearce QC, and seeking the court’s directions as to what role (if any) the administrators should play at the hearing. Had that been done, I have little doubt that I would have given the same indication as I gave at the hearing, dispensing with the need for any advocate to attend for the administrators.

In the circumstances, I shall disallow the costs of briefing Leading Counsel for the administrators.

I shall also order all parties’ costs, including those of the administrators, to be assessed, if not agreed, and paid out of the assets of the company. Further, to the extent of any disallowed costs (including the brief fee just disallowed) the administrators are to have no right of recoupment out of the assets. The assessment shall be on the standard basis as regards the Defendants, and on the indemnity basis as regards the administrators.

My reason for ordering assessment on the indemnity basis in the case of the administrators is that I consider that the onus should be on the person challenging their costs to demonstrate their unreasonableness. This is despite what I regard as the unreasonableness of briefing Mr Adkins QC to attend the hearing, as I have already disallowed that element. That may also be said to give rise to the possibility (I put it no higher at this stage) that the administrators may have been less vigilant than they should have been in relation to the incurring of unnecessary costs in other respects, but I do not think it would be right to assume that against them. The concern remains, however, and justifies an assessment process, albeit on the indemnity basis.

Mr Sartin referred me to the analogy of Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638. That case concerned a court appointed receiver. The main issue related to the receiver’s remuneration. Ferris J also considered payments to third parties such as solicitors. He highlighted the need for legal costs to be subject to critical scrutiny, recognising the distinction between the receivers’ contractual obligation to pay, and the extent to which the legal costs were properly payable out of the assets. The 2 were not necessarily the same. The same applies here. Like court appointed receivers, administrators are officers of the court, and are expected to scrutinise legal costs with some care, if they are to be charged to the estate.

I should make it plain (in case it is of assistance to the costs judge) that the assembly by the administrators of evidence for this application was all proper. The only item of costs I have specifically disallowed is the costs of briefing Mr Adkins QC, as I am as well positioned as anyone to reach the view that I have on the reasonableness of that course. I was also told by Mr Rawlings that the brief fee for Mr Adkins QC related in part to work pre-dating Mr Pearce QC’s retainer, which may justify some allowance of costs for that separate work. That will be for the costs judge.

Mr Rawlings argued that, were I to order an assessment of the administrators’ legal costs, that should be on the solicitor and own client basis. I do not accept that submission. On that footing, any item of costs approved by the administrators, including Mr Adkins QC’s brief fee (on the assumption that the administrators approved this) would have to be allowed. The question of what is due between the administrators and their solicitors is separate from what is properly recoupable from the assets of the company. It is well established that the court has a discretion to disallow recoupment: see Re Capitol Films Ltd (in administration); Rubin and another v Cobalt Pictures Ltd and others [2010] EWHC 3223 (Ch) (second judgment, paras 100-104). The discretion is a broad one. However, disallowance of the right of recoupment should, absent special circumstances, only occur when there has been some degree of unreasonableness on the part of the administrators. It seems to me that the indemnity basis of assessment fairly covers that element, as the onus is on those challenging the costs to demonstrate unreasonableness. If they satisfy that onus, the right of recoupment should be lost.

The order I make will permit the Pension Trustees and the Pension Protection Fund to agree any costs of the administrators, as they are for practical purposes the paying party. They should also have standing in the assessment proceedings as a person having a financial interest in the outcome of the assessment within CPR 47.17A(3) and 47PD.17. I shall also direct that the administrators shall be at liberty, in the exercise of their commercial judgment, to agree the costs of the other parties, though they should feel free to consult CMS CameronMcKenna before agreeing the Attorney-General’s costs. Failing agreement, there will be detailed assessments.

Mr Rawlings objects that the disallowance of any of the administrators’ costs is unfair (as they will have to pay them out of their own pockets) and that I should leave any challenge to be brought by separate challenge within the insolvency, for example, by an unfair harm application under paragraph 74 of Schedule B1 of the Insolvency Act 1986 (“Schedule B1”). He does not seek any costs order for the administrators, relying instead on the administrators’ right of recoupment of expenses, even after they have ceased to hold office, under paragraph 99(3) of Schedule B1. He also points to rule 2.67(1) of the Insolvency Rules 1986 as a definitive list of allowable expenses, and their respective priorities, which clearly extend to the costs of these proceedings.

Real concerns having been raised in this case as to the administrators’ legal costs, it seems to me that I have jurisdiction to deal with those concerns on this application. The fact that there may be other ways of mounting a challenge is not determinative of my powers on this application. Moreover, Mr Rawlings accepts that the general power of the court to give directions enables the court to give directions having the effect of depriving the administrators of their right of recoupment (in whole or in part). As I am concerned with the costs of an application for directions which has been made, now seems the appropriate time to deal with any issues concerning the administrators’ costs of that application, as well as those of the other parties.

There is no unfairness to the administrators. To the extent that any costs are shown to be unreasonable, they should not have been authorised. As regards the priority rights under the Insolvency Rules, these relate only to expenses properly incurred. This is expressly the case under rule 2.67(1)(a) and must be implicit under the remaining sub-paragraphs as regards expenditure over which the administrators have a measure of control.

Mr Rawlings also complained that it was never suggested before the hearing by CMS CameronMcKenna (or anyone else) that Mr Adkins QC should not be briefed, even though he was entirely open as to the administrators’ intention to do so. He regarded the stance now taken by CMS CameronMcKenna as opportunistic. There is some force in this point, and it is one which I weigh in the balance. Nevertheless, it seems to me that the wastefulness of additional, unnecessary representation by Leading Counsel was obvious, and that the administrators, as officers of the court, should not have needed to be told this. That would be so even without the BNY guidance. That guidance having been given, it should not have gone unheeded, and requires, in my judgment, to be reflected in my approach to costs.

The costs of the further hearing shall follow the main costs order. All parties’ costs will be subject to detailed assessment (unless agreed) and payable out of the assets of the company. In the case of the administrators, the assessment will be on the indemnity basis. In the case of all other parties, there will be a standard basis assessment.