Coyne & Anor v DRC Distribution Ltd & Anor

Where substantive proceedings have fallen away but costs remain disputed, the court may determine costs by a summary assessment of the likely merits. It need not hear oral evidence or permit cross-examination merely because witness statements conflict. The procedure must be fair, proportionate and suitable to the clarity of the remaining issues. Oral evidence will be exceptional.

Administrators who cannot deliver a company's business and assets should first seek their recovery before inviting competitive bids. A failure to do so, coupled with an unclear approach to claims arising from antecedent transactions, may justify removal and a personal costs order.

DRC, a substantial creditor of Ulva Ltd, applied to remove its joint administrators, Mr Coyne and Mr Hardy. It alleged that the administration followed an asset-stripping exercise by Ulva's managing director, Mr Foster, and that the administrators had failed to recover the company's business and assets before seeking offers for their sale.

Before the application was substantively heard, the administrators accepted that the purpose of administration could no longer be achieved. The High Court terminated the administration and ordered a compulsory winding-up. It then decided costs alone. His Honour Judge Purle QC held that DRC's removal application would have succeeded and ordered the administrators and Mr Foster jointly and severally to pay DRC's costs personally.

The administrators appealed, principally contending that the costs issue could not fairly be determined without oral evidence and cross-examination.

1. Appeal dismissed unanimously. Lord Justice Rimer, with whom Lord Justice Jacob and Lord Justice Ward agreed, held that the judge was entitled to determine the outstanding costs issue summarily after the administration had ended. The court was not required to conduct the oral-evidence procedure that might have been appropriate had it been deciding DRC's substantive removal application.

2. The court applied the costs-only approach confirmed in Brawley v Marczynski and another (No 2) [2002] EWCA Civ 1453. A court must choose a fair procedure in light of the likely merits, the material factual disputes, the costs at stake and proportionality. Where a safe summary assessment cannot be made, no order may be appropriate. An evidential hearing may exceptionally be proportionate, but it was not required here.

3. The judge had read the evidence and heard full argument. The critical facts were sufficiently apparent from the administrators' evidence and the contemporaneous documents. The Court of Appeal agreed that the administrators' decision on 23 August not to seek recovery of Ulva's assets was a fatal error. They could not conduct a competitive sale while unable to deliver the business and assets to a successful bidder.

4. The administrators should first have sought recovery of the assets from Mr Foster and Ulva International Ltd. If instead they proposed to deal only with Mr Foster, they had to identify precisely what he was offering to buy and at what price, and state expressly in writing which claims arising from the antecedent transactions would remain open. Their invitation to DRC to bid despite the unresolved title position was incapable of producing a level playing field.

5. Those failures justified the conclusion that the administrators could and would have been removed under paragraph 88 of Schedule B1 to the Insolvency Act 1986, and justified the personal costs order. Some of the judge's further criticisms, including his reliance on section 216, were open to reservation, but did not undermine that conclusion.

1. Court of Appeal (Civil Division) — dismissed the administrators' appeal from the personal costs order: [2008] EWCA Civ 488.

2. High Court of Justice, Chancery Division, Birmingham District Registry (His Honour Judge Purle QC) — on 25 September 2007 terminated the administration, ordered a compulsory winding-up, and held that DRC's removal application would have succeeded. The judge ordered the administrators and Mr Foster jointly and severally to pay DRC's costs personally.