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Katie Longstaff, barrister at St Philips Stone Chambers, discusses the recent case of Gillan and others v HEC Enterprises Ltd and others and warns that office-holders should think carefully before embarking on costly trust-related work.
Gillan and others v HEC Enterprises Ltd and others and other applications  EWHC 3179 (Ch),  All ER (D) 103 (Dec)
The Chancery Division considered an application by the administrators of two companies in administration which had provided services to the rock band Deep Purple for an order granting them a right of indemnity out of the trust assets of the two companies for the administrators’ remuneration, costs and expenses in relation to the administration and management of the assets. The court distinguished the case of Berkeley Applegate (Investment Consultants) Ltd; Re Harris v Conway  Ch 32,  3 All ER 71 from the present case.
In Re Berkeley Applegate (Investment Consultants) Ltd the court recognised its jurisdiction to order that an office-holder be remunerated out of trust assets, for work done in relation to those assets. In Gillan, Morgan J considered the scope of what has become to be known as the Berkeley Applegate principle.
The claimants were members of the rock music band Deep Purple (the fourth claimant was the executor of a former band member) (the claimants). HEC Enterprises Ltd and Deep Purple (Overseas Ltd) (the companies) had contracted with the claimants to, among other things, account for Deep Purple’s music royalties. In 2015 the claimants brought proceedings against the companies for unpaid income deriving from various rights, and for the transfer of certain shares held on trust by the companies, to the claimants.
The companies went into administration on 19 January 2016 and the claimants sought permission to continue their proceedings notwithstanding the statutory moratorium. The administrators did not consent to the claimants’ application, but accepted that the rights and shares were held on trust. Subsequently, the administrators sought a Berkeley Applegate order.
Morgan J had to determine what kind of work—as carried out by the administrators—came within the Berkeley Applegate principle.
Morgan J was critical of the administrators’ decision to carry out work in relation to the trust assets in circumstances where they could, and should, have consented to the claimants’ application to continue legal proceedings they had brought in 2015, which would have dealt with the administration of trust assets. Morgan J took the view that:
‘the administrators chose, against the wishes of the claimants, to refuse to consent to those proceedings continuing and they gave themselves the role of acting as brokers or mediators between various persons interested. Those negotiations did not result in a settlement. The administrators did not seek, and did not obtain, the directions of the court as to whether they should act in this way’.
It appeared that a significant amount of work carried out by the administrators enabled them to either advance a case against the beneficiaries of the trust assets, or at least helped them determine whether assets were trust assets or not. Morgan J held that this work was carried out in the interests of unsecured creditors and opposed the beneficiaries’ interests; costs incurred in carrying out such work should not be borne by the trust.
The administrators had also applied for a Berkeley Applegate order in respect to costs that related to a threatened injunction on the part of the claimants, the claimants’ 2015 claims and application made under paragraph 43(6) of Schedule B1 to the Insolvency Act 1986, and their own Berkeley Applegate application. Morgan J held that these ‘litigation costs’ would not be dealt with separately and subject to a Berkeley Applegate order, they would be dealt with under the usual costs jurisdiction.
Morgan J did not make final determinations as to what work came within the Berkeley Applegate principle. It was unclear what work had been done, or if it had benefited the beneficiaries. However, the judgment helpfully summarises the points to consider when seeking a Berkeley Applegate order.
Office-holders should think carefully before embarking on costly trust-related work, and consider whether the work is adverse to the potential beneficiaries’ interests—and if in doubt, apply to court for directions.
Interviewed by Tracey Clarkson-Donnelly.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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