RECEIVERS, EXTENSIONS OF TIME AND RIGOROUS COSTS BUDGETING TO ENSURE PROPORTIONALITY

The Denton principles were considered by Mr Registrar Jones in Justice Capital Ltd -v- Murphy [2014] All ER (D) 187 (Dec).  There were important issues in relation to proportionality and costs. Of particular interest is the rigorous case management and costs budgeting of every issue to the next hearing in an effort to prevent disproportionate costs.

THE CASE

The applicants were out of time in making an application to challenge the expenses of administrators.  There was an issue as to whether the challenges were out of time. The Registrar had to consider whether an extension of time was needed and, if so, whether it should be granted.

EXERCISE OF THE DISCRETION AND DENTON

The Registrar determined that the challenges were out of time.  He found that the “Denton” principles were applicable; the second and third stages of Denton needed to be considered.

“C) Extension of Time

22. The starting point is to consider the purpose of the 8 week time limit in the context of
the statutory scheme.
23. In this case the purpose of certainty within 8 weeks will be thwarted by the Second
Application but it is difficult to see that this will have any significant effect when the
remuneration and expenses of the First Progress Report are already challenged. This
is endorsed by the fact that Mr Lopian informs me that the principles of challenge are
the same and similarly the remuneration and expenses of the Third Progress Report
have been challenged. In those circumstances the relevance of certainty for this
administration’s remuneration and expenses is relatively small.
24. In that regard it is notable that the administrators rightly accept that any reasoning
behind decisions upon the First Progress Report which adversely affect their further
remuneration would be applied to the later remuneration.
25. There is an argument that this should be sufficient for the purpose of the exercise of
my discretion. However, Rule 12A.55(2) expressly applies the CPR. This must mean
that considerations relevant to the CPR are intended to be applied insofar as they are
relevant to the application. That raises the further issue whether the Court of
Appeal’s decision in Denton and Others v T H White Limited and another [2014]
EWCA Civ 906, [2014] 1 WLR 3926 (“Denton”) applies. In my judgment it does (or
at least it should be borne in mind) because Rule 2.109(1B) is (or is in effect) a
peremptory provision; no application can be brought if it is not complied with (subject
to the power to extend time, which is equivalent to the power to be released from
sanction).

26. Applying Denton, the following matters stand out: the Applicant always intended to
challenge the remuneration and expenses in the Second Progress Report; the
underlying grounds relied upon are stated to be the same as those for the First
Progress Report; the evidence in reply in the First Application addresses the issues;
the failure to issue the Second Application in time was due to a misunderstanding of
the Rules; the consequential delay in itself is not significant; the Respondent in the
course of correspondence was willing to agree an extension subject to agreeing
directions; and the delay has had no material effect upon the policy of certainty for the
reasons set out above.
27. Those factors do not mean that this is a trivial case of failure. It is a breach which
requires consideration of the second and third stages identified in Denton. Applying
the second stage test of Denton, misunderstanding is an explanation not an excuse for
the breach and is not a good reason for failure to comply. However, looking at all the
circumstances and dealing justly with the application, the combination of those factors
leads me to conclude under the third stage of the Denton test in the exercise of my
discretion that an extension of time should be granted notwithstanding the weight of
the decisions under the first two tests.”

COSTS

There were major concerns about costs in this case.  The sum of around £112,000 was effectively in issue. The Registrar had strong words to say.

“E) Directions

29. There is a fundamental concern that the costs involved in these three applications will
be disproportionate to the sums in issue. Although the following legal costs are only
estimates provided at this hearing at my request without reviewing the files, the
figures given for each side are: the First Application, £75,000; the Second
Application, £50,000; and the Third Application £50,000. These are to be measured
against the total sums in respect of remuneration (not expenses) of £166,000, £69,000
and £56,000 for the three Progress Reports respectively in circumstances of the
Administrators plainly being entitled to a significant figure for their remuneration and
expenses.
30. The First Application proceeds on the bases of (in summary): (a) the estimated cost
for the administration identified in terms of a “fair wind” was £150,000; (b) many
instances of inappropriate fee-earner level; (c) instances of duplication of work; (d)
high number of time units recorded requiring further explanation; and (e) too much
time spent for P49 report.
31. Taking into account the estimate and the test of “excessive”, it is not difficult to
envisage (although I make no finding) that a minimum sum of some £175,000 is
unchallengeable. In those circumstances only some £112,000 will be potentially in
issue as against costs currently estimated at £175,000 for each side with some £45,000
having been incurred by the Applicant to date (no figure being available for the
Respondents). The conclusion is obvious. This is disproportionate. There will either 
have to be heavy cost cutting within costs budgeting or the parties will have to
narrow the issues.
32. The evidence in answer (understandably) relies upon the details of the relevant SIP 9
Time and Cost Summary. This (on its face) accords with the “Practice Direction:
Insolvency Proceedings”, Part 6 [2012] BCC 265 applicable to any remuneration
application under the Act or Rules. However, it seems to me that the better approach
for the parties is to assume that (at least) £150,000 is reasonable and to concentrate
upon the reasons why additional costs were incurred within the context of the
“excessive” test. I reach that view taking account the evidence in reply. If the
approach adopted in that evidence is followed, costs will never be proportionate. In
my judgment as a matter of case management and taking into account the underlying
policy behind Rule 2.109(1B) it is necessary to adopt a broad brush approach both
with regard to the evidence being considered and the time allowed for a hearing.
33. Whilst I will hear further argument if the following approach is not agreed prior to the
handing down of this judgment, I propose the following directions for all 3
Applications:-
33.1 By 4.00 pm on [to be agreed or else decided by me] the parties shall agree
costs budgets for compliance with the following directions taking account of
the guidance figures below or in the event of a failure to agree file a document
identifying the costs agreed, those disagreed and the reasons for such
disagreement (costs budget guideline £1,500).
33.2 By 4.00 pm on [to be agreed or else decided by me] the Respondents shall file
and serve a statement of case incorporating a statement of truth explaining
why the remuneration detailed in the three progress reports exceeds £150,000
and providing such details as may be required to oppose the assertion that
remuneration over £150,000 is excessive (costs budget guideline £5,000).
33.3 By 4.00 pm on [to be agreed or else decided by me] the Applicant shall file
and serve a statement of case in answer which will identify the remuneration
and/or expenses alleged to be excessive and the reasons for this (costs budget
guideline £5,000).
33.4 By 4.00 pm on [to be agreed or else decided by me] the Respondents shall file
and serve a statement of case in reply (costs budget guideline £2,500).
33.5 By 4.00 pm on [to be agreed or else decided by me] the parties will meet to
hold without prejudice discussions and insofar as dispute remains to draft a
statement of issues agreed and not agreed with a summary of the reasons for
any disagreement to be filed within 7 days of that meeting (costs budget
guideline £3,500 for each party).
33.6 A further case and costs management conference is to be fixed on the first
available date not before 28 days after the date provided for the meeting above
(costs budget guideline £2,000 for each party). Part 3, II of the CPR shall
apply.
33.7 A date to be fixed for a ½ day hearing.
33.8 Permission to apply.”

FURTHER READING

Barristers James Morgan and Matthew Weaver comment on the technical and practical details of this case on the Lexis Nexis blog.

 

 

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