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In the case of Stevensdrake Ltd v Stephen Hunt & Ors  EWHC 1527 (Ch) the High Court has dismissed an appeal in which a liquidator of a company sought to avoid being personally liable for success fees (or uplifts) and counsel's fees pursuant to a conditional fee arrangement (CFA). The terms of the CFA were plain in that if the liquidator won his claim (as he did in accordance with the definition of 'win' in the schedule), he would pay the basic charges, disbursements and success fee of the solicitors. The CFA went on to say that the liquidator was 'personally liable for any payments' that he may have to make' under the agreement. The court rejected the liquidator's argument that he was not the client and it was in fact the company: the contractual provisions of the CFA which he had signed were clear. As such, summary judgment and an order for an interim payment of £75,000 in respect of these costs stood.
What does this mean in practice?
This case involved a 'battle of the forms' type scenario. The liquidator had tried to rely on a retainer letter and correspondence that pre-dated the CFA which referred to fees and disbursements being paid out of recoveries only. However, this was contrary to, and had no bearing on, the final contractual position to which he had agreed whereby he was personally liable for payments, and not limited to the funds available in the liquidation.
Until the implementation of costs reforms in April 2013, success fees in a CFA (such as this one signed in 2008) were recoverable from the losing party. However, in insolvencies, as in this case, the other side may be a debtor who hasn't paid because they themselves are insolvent or bankrupt. The liquidator can therefore be 'on the hook' personally. He may try to seek a bond or indemnity from the company in liquidation but this is only available subject to company funds.
Terms of the CFA
Stephen Hunt was appointed as liquidator of a company called Sunbow Limited (a liquidator acts in a personal capacity) and instructed a firm of solicitors, Stevensdrake Ltd, to pursue two individuals for monies owed to Sunbow. Initially a retainer letter was agreed between the parties which stated that fees and disbursements would be paid from recoveries only.
However, subsequently a CFA was agreed which stated 'if you [Mr Hunt] win your claim, you pay our basic charges, our disbursements and a success fee....' (the success fee was recorded at 100%).
The two debtor individuals settled their claims and agreed to pay certain sums of money; this constituted success in the context of the CFA for triggering payment of the success fee.
However only a small sum of the money owed was paid as the principal debtor was declared bankrupt. The solicitors paid counsel's fees and then looked to Mr Hunt for recovery of these disbursements, their own charges and the success fee (together totalling £1 million) in accordance with the CFA. Crucially, the CFA Mr Hunt had signed stated, 'you are personally responsible for any payments that you have to make under this agreement.'
Mr Hunt refused to pay and the solicitors brought a claim for these monies. At a hearing before a Master, summary judgment was given in respect of the disbursements relating to counsel's fees and an order made for Mr Hunt to pay £75,000 on an interim basis. The remaining fees were not dealt with and the action is due to continue to trial.
Mr Hunt was given permission to appeal the summary judgment.
Personal liability under the CFA
HHJ Purle was clear that under the CFA it was the personal responsibility of Mr Hunt to pay for disbursements, including counsel's fees. Alternative options for payment of these fees may have been discussed in previous correspondence but this was superseded by the signing of the CFA. Summary judgment and the order for interim payment were therefore not set aside.
Stewart v Engel  3 All ER 518
Although the Court of Appeal decision in Stewart supports the proposition that a liquidator is not, purely by instructing a solicitor, assuming personal responsibility, the wording of the CFA plainly did mean this and by signing it Mr Hunt was contractually bound.
Any attempts to manipulate the position semantically, for example pointing to the definition of 'responsible insolvency practitioner' in statute, were 'red herrings'. The liquidator is acting as agent for the company but this does not exclude him from being personal liability in any contract he signs as that agent.
First published by Lexis PSL Dispute Resolution
Lydia Lee, Freelance Consultant
0330 161 1234