- Costs incurred in preparing to comply with disclosure orders not payable by liquidators
- Protection for wasted costs should have been sought earlier in the proceedings
The liquidators of two companies wound up in the Cayman Islands (SICL and SHL) sought disclosure of documents relating to those companies from PwC in Bermuda. Orders were made at first instance and then set aside, in the case of SICL by the Court of Appeal of Bermuda and in the case of SHL by the Privy Council. This judgment deals with the costs incurred by PwC in preparing to provide documentation prior to the orders being set aside.
The Privy Council (Lord Clarke dissenting) held that the costs which had been sought (but not obtained) by PwC during the course of proceedings were only the costs of compliance and not the costs of preparatory work which later proved to be unnecessary due to the disclosure orders being set aside. Protection in relation to such wasted costs could have been achieved (if at all): “by appealing, seeking an extension of time for compliance or a stay of execution pending determination of the appeal and, if this is resisted insisting, as a condition of the refusal, on an undertaking in damages to cover costs wasted.” PwC’s application was therefore dismissed.
The position on costs of compliance with a disclosure order in an insolvency scenario (in the English context pursuant to, for example, section 236) is not entirely settled but case law favours costs not being met out of the insolvency estate. Nevertheless, in relation to the costs of compliance which are later wasted (because orders are set aside), this case is a clear statement to seek appropriate protection on such costs at the outset. Whether or not such protection will ultimately be granted remains a separate question.