Simpson v Bowker

A contractual entitlement under a company voluntary arrangement to recover litigation funding costs is governed by the arrangement’s terms. It is not enlarged by a general principle of rewarding risk, effort or expenditure which was necessary in the factual sense.

Non-legal costs require a contractual link with funding the litigation and must satisfy objective considerations of necessity and reasonableness. A but for test is insufficient. The claimant cannot recover the costs of managing the company or personal effort unless the arrangement provides for them or is varied by agreement.

Veveos Limited entered a company voluntary arrangement after financial difficulties, with its principal asset being a claim against Anadarko. Mr Simpson, a director and creditor, funded the litigation. Following settlement, he claimed reimbursement of legal and non-legal costs from the recovery before distributions to creditors.

The Supervisor sought directions under section 7(4)(a) of the Insolvency Act 1986. Patten J construed the arrangement and disallowed or restricted various items. Mr Simpson appealed, challenging the construction of the arrangement and the application of the recoverability test.

1. Appeal dismissed. Lord Justice Mummery delivered the judgment, with Lord Justice Laws and Lord Justice Moses agreeing.
2. Construction of the CVA. The relevant provisions were to be construed in a common-sense and practical manner, having regard to the purpose of facilitating the pursuit of the company’s claim. References to costs, legal costs and funding indicated agreed limits on the sums recoverable. Identifiable legal costs were covered, but the arrangement did not authorise recovery of money merely because it had been spent on running the company while pursuing the claim.
3. Recoverability of non-legal costs. The correct inquiry was whether each sum was expended on pursuing the claim or was reasonably and necessarily incurred as part of funding its pursuit. A sufficient link between the expenditure and the funding of the claim was required. Necessity and reasonableness were objective considerations.
4. Rejection of the appellant’s approach. The arrangement did not create a but for entitlement under which every expenditure without which the claim might have failed became recoverable. Nor did it make recoverability solely a matter for the company’s officers at the time expenditure was incurred. Mr Simpson’s rights remained governed by the arrangement, including after he could no longer fund the solicitors and counsel. No agreed variation covered the changed circumstances.
5. Application. The judge was entitled to disallow the costs of the CVA, payment for Mr Simpson’s own management time and effort, and the disputed items lacking the necessary contractual connection or evidence. Funding costs connected with selling and replacing the family home were limited to the equivalent cost of borrowing the sum required for the solicitors’ fees, rather than the full costs claimed. The directions and costs order were therefore upheld.

1. Court of Appeal (Civil Division): In [2007] EWCA Civ 772, the court unanimously dismissed Mr Simpson’s appeal.
2. Chancery Division, Leeds District Registry: Patten J gave judgment on 2 May 2006 and made directions concerning the recoverability and quantification of costs and expenses under the company voluntary arrangement. Claims totalling £208,543.80 were disallowed or restricted, and certain items required supporting evidence.