Liquidators entitled to costs pre-dating a change of liquidator—Tackie v Morrison

Where there is a change of liquidator in the course of an office-holder’s claim, does the indemnity principle prevent the new liquidators from recovering costs of the claim relating to the period before their appointment? Cristín Toman of Enterprise Chambers, discusses the appeal of Tackie & Anor v Morrison.

Original news

Tackie & Anor v Morrison [2015] EWHC 3980 (Ch)

What was the background to the appeal, briefly?

This was an appeal from a decision made by the costs judge on a detailed assessment of costs in insolvency proceedings. Mr Morrison was the defendant to proceedings (the preference claim) brought under sections 238–240 of the Insolvency Act 1986 (IA 1986) by the liquidator of ATM Sales Limited.

After commencement of the preference claim, but before trial, the liquidator retired due to ill health and was no longer able to continue in office. New liquidators (the liquidators) were appointed in his place, and were substituted as claimants in the preference claim.

At trial the preference claim succeeded and a costs order was made against Mr Morrison in favour of the liquidators.

At detailed assessment Mr Morrison argued that the liquidators were not entitled to their costs in respect of the period before the change of liquidator. The costs judge rejected this argument, and assessed costs on the basis that the liquidators were entitled to costs pre-dating the change of liquidator and their substitution as claimants.

Mr Morrison appealed to the Chancery Division.

What were the legal issues the judge had to decide in this appeal?

The judge, His Honour Judge Hodge QC, had to decide where there was a change of liquidator in the course of an office-holder’s claim, whether the indemnity principle prevented the new liquidators recovering costs of the claim relating to the period before their appointment.

In his appellant’s notice, Mr Morrison had presented the appeal on the (wrong) basis that the change of office-holder had occurred after the costs order was made, and that the liquidators were attempting to enforce a costs order made before they were party to the proceedings. If these had been the true facts, there would have been a further legal issue as to whether a liquidator can enforce an order for costs made in favour of his or her predecessor in the office of liquidator.

What did the judge decide, and why?

The judge decided that the liquidators were entitled to the whole of the costs of the preference claim, including costs for the period before their appointment.

This did not offend the indemnity principle since there was an express term of the liquidators’ retainer with their solicitor that they would assume responsibility to pay the costs incurred by the previous liquidator.

Even if the liquidators had not expressly assumed responsibility for costs incurred before their appointment, the judge considered that there would have been a powerful argument to the effect that they were still entitled to recover those costs. Since the cause of action under IA 1986, ss 238–240 had been vested in the liquidators from time to time as insolvency officeholders, the change in the identity of those liquidators made no difference.

The court did not decide the question of whether a liquidator can enforce an order for costs made in favour of his or her predecessor in the office of liquidator.

In dismissing the appeal, the judge recorded that the appeal was totally without merit.

How should liquidators in such a situation protect themselves going forward?

The liquidators in the case were successful because they had taken the following steps:

  • on their appointment they had entered into a fresh retainer with the solicitors acting on the preference claim
  • the retainer had expressly provided that they would be liable for costs incurred in the period when the previous liquidator was in office
  • the costs order in their favour stated expressly that Mr Morrison should pay the liquidators’ costs for a period prior to the liquidators’ taking over in the office of liquidator

Where there is a change of office-holder at a time when there are ongoing proceedings on an office-holder’s claim (such as proceedings under IA 1986, ss 238–240, or IA 1986, ss 212–215) the new office-holder(s) should:

  • enter into a fresh retainer with the solicitors acting on the office-holder’s claim
  • make express provision as to whether the new office-holders will be liable for costs incurred during the period when the previous office-holder was in office
  • apply under CPR, r 19.2(4)—which provision applies to insolvency proceedings by virtue of rule 7.51A(2) of the Insolvency Rules 1986, SI 1986/1925—for substitution as applicant in the office-holder’s claim in place of the outgoing office-holder

Where, after change of office-holder, a costs order is made in favour of the new office-holder, the order should specify whether or not the order applies to costs of the proceedings relating to the period before the change of office-holder and/or substitution of the new office-holder as a party in the proceedings.

Cristín Toman practised as a barrister and solicitor in Australia for five years before being called to the bar in England and Wales in 2004. She joined Enterprise Chambers in 2006. Her insolvency work covers corporate and individual cases, including all stages of the winding up and bankruptcy process, disputed debts, validation orders and insolvency appeals.

Interviewed by Barbara Bergin.

The views of our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

Block transfer orders—the new law and practice

Types of costs orders

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.

First published on LexisPSL Restructuring and Insolvency

Relevant Articles
Area of Interest