The costs of rejection-Proofs and Personal Costs Orders

Author – Stephen Baister, Consultant 20 April 2020

Rule 12.47 Insolvency (England and Wales) Rules 2016, “Awards of costs against an office holder, the adjudicator or the official receiver,” provides:

“Without prejudice to any provision of the Act or Rules by virtue of which the official receiver or the adjudicator is not in any event to be liable for costs and expenses, where an office-holder….is made party to any proceedings on the application of another party to the proceedings, the office-holder…is not to be personally liable for the costs unless the court otherwise directs.”

Rule 14.9 (2) of the 2016 Rules deals with challenges (or appeals) to proof of debt decisions made by an officeholder:

“An office holder other than the official receiver is not personally liable for costs incurred by any person in respect of an application under rule 14.8 unless the court orders otherwise”. 

The application of the principles behind those rules lies at the heart of a recent judgment of chief ICC Judge Briggs, Re Tariq Halal Meat (Ilford) Ltd, Nimat Halal Food Ltd & Anor v Patel & Anor [2020] EWHC 734 (Ch).

The application concerned the costs of a confused but partly successful appeal against the office-holder’s decision to reject certain proofs of debt submitted in the administration of a halal meat company. (There had also been an unfair prejudice petition.) The applicants contended that the office-holder had behaved unreasonably in rejecting their proofs and appear, from the judgment, to have made some headway as to some of their criticisms of the office-holder. However, after reviewing a number of authorities (Capital Films Limited [2010] EWHC 3223, Coyne v DRC Distribution Limited [2008] EWCA Civ 488, Promontoria (Chestnut) Ltd v Craig [2017] EWHC 2405 (Ch) and Burden Group Ltd; sub nom. Fielding and another v Hunt [2017] EWHC 406) the judge decided on the facts that a “holistic approach” to the administrator’s conduct had to be taken and that his decision making had not been perverse or unreasonable in the circumstances. The judge reminded himself that there was long standing authority that an office-holder was under a duty to investigate a proof and consider properly the validity of the debts claimed and the evidence in support of them (Re Home and Colonial Insurance Co [1930] 1 Ch 102, Re Fraser, ex parte Central Bank of London [1892] 2 QB 633 CA):

“The allegation that [the administrator] acted unfairly or unreasonably fails to take account of the duty imposed on an office holder’s position. He was entitled to and should have probed the proof of debt claim. [The administrator’s] actions were entirely consistent with an office holder carrying out his duty to investigate and obtain satisfactory evidence”

Having declined to accept that the office-holder’s conduct was “irrational” or “unreasonable” so that the case was a “special case” warranting the making of an order “otherwise” than the usual one provided for by r. 14.9(2), the judge dismissed the applications for costs against the office-holder and upheld his right to be indemnified out of the estate.

 

 

 

The case is another example of the tendency of the courts to back an office-holder who behaves sensibly and reasonably and to interfere with his or her decisions only where they are made in bad faith or negligently (Re Edennote Ltd [1996] 2 BCLC 389).