RE: HARVEST FINANCE LTD; JACKSON & ANOTHER V CANNONS LAW PRACTICE LLP & OTHERS [2014]

This case concerns the provision of documentation under s236 IA 1986. The documentation requested by the liquidators was extensive and the Respondents wished to claim their time costs (£40,381) of providing the same.  The Court held that whilst it was within the Court’s jurisdiction to make an order for costs against the insolvent estate, it was not minded to do so in this case.

The Facts

The Applicants were the appointed liquidators of Harvest Finance Limited seeking to recover from the Respondents, Cannons Law Practice (“CLP”) documentation relating to number of conveyancing transactions, which the liquidators considered may have been fraudulent.

CLP were the successors in title to the firm of solicitors who had acted in relation to the conveyancing transactions.  The liquidators believed that their files would contain important information concerning the alleged fraud.

CLP had previously refused to deliver up the documentation requested by the liquidators.  The files were held on an antiquated computer system and substantial resources and time would be needed to identify the relevant files, review and provide copies of the same.  

Upon the Order of the Court, CLP eventually delivered up the files to the liquidators.  Thereafter, CLP claimed from the liquidators the sum of £40,381 including VAT for their time costs of in complying with the order.

The liquidators argued that the Court did not have jurisdiction to make an order for CLP’s costs of compliance with s236 IA 1986.  CLP argued that they were an innocent party in the matter and should be reimbursed for the time costs they had incurred in assisting the liquidators.

The Law

Rule 9.6 IR 1986 makes certain provisions in relation to the costs of proceedings under s236.  Rule 9.6(4) IR 1986 provides that an individual summoned to appear before the Court under s236 shall be awarded “a reasonable sum in respect of travelling expenses incurred in connection with his attendance. Other costs falling on him are at the court’s discretion.”

The judge considered two (prime facie, conflicting) High Court authorities on the question as to whether he could make provision for payment of CLP’s costs of providing the documentation required.

Re Cloverbay Limited [1989]

In Cloverbay, Vinelott J held that the court had no jurisdiction to award costs for compliance with s236 IA 1986 as such costs do not fall within the remit of Rule 9.6(4) IR 1986.  However, Vinelott J foresaw a situation where the court may make an order in ‘exceptional circumstances’.

Re Aveling Barford Limited [1988]

In Aveling, Hoffman J referred to Rule 9.6(4) IR 1986 and stated that this rule could extend to cover the costs of the provision of documentation under s236 IA 1986 but that there was no presumption that a respondent should be automatically entitled to his costs of doing so.

Further, arguably, the wording of Rule 9.6(4) IR 1986 could be construed such that a person ‘summoned’ under s236 IA 1986 could extend to someone who is required to produce documentation (in the same way it would to someone who is required to attend court).  The provision for ‘other costs at the court’s discretion’ could also cover the costs of compliance.

The Decision

Registrar Jones in Harvest Finance did not see the need necessity to distinguish between the two aforementioned cases as neither case created a presumption that any respondent to a s236 application should be entitled to his costs.  Further, the practical outcome of the two cases was the same.

On the facts, Registrar Jones decided not to grant an order for the Respondent’s costs.  The Registrar held that the obligation to co-operate with an officeholder “exists in order that (a) office holders can perform their statutory duties; and (b) there is an effective insolvency process within this jurisdiction.  Those with relevant knowledge should assist as a matter of public duty”.  Therefore, as a general rule, parties should not ordinarily expect to receive payment for complying with s236 IA 1986 and there is no automatic rule or presumption making provision for such.

Weight was given to the fact that in this case, the fact of a public duty was particularly important due to the suspicions of fraud. Further, the liquidators should not have to pay for the inadequacies of CLP’s anticipated computer systems.

Comment

This decision worked out well for the liquidators of Harvest Finance, who were not required to pay £40,381 for the provision of information they required. Nonetheless, it has been confirmed that the court does have jurisdiction to make an order for recovery of costs, where it is appropriate to do so. The finding that Respondents do not have an automatic entitlement to costs is nonetheless a positive one for office holders as funds in an insolvent estate are often limited.