Hobbs & Anor v Gibson & Ors

On an application to remove officeholders, the starting position is that the application costs are not payable as an expense of the liquidation under Insolvency Rules 1986, r 4.119(5). The court may make a contrary order, but that discretion must be exercised carefully. Ordinarily, costs are determined under Civil Procedure Rules 1998, r 44.3, and follow the event. Officeholders who resist a properly founded removal application cannot ordinarily indemnify themselves from the estate when their removal is in the creditors’ interests. Indemnity costs may be ordered where the resistance is unreasonable and untenable.

The applicants challenged the validity and continuation of the respondents’ appointments as liquidators. In an earlier judgment, the court determined that Mr Stevens had never been appointed and that Mr Gibson and Mr Tailby should be removed. The appointment of the applicants’ nominee was left to creditor meetings.

The remaining issues concerned allocation of costs, indemnification from the liquidation estate, and whether assessment should be on the standard or indemnity basis.

1. The applicants had substantially succeeded. The failure to secure immediate appointment of their nominee did not materially alter that result. The respondents were ordered to pay the applicants’ costs.
2. Rule 4.119(5) of the Insolvency Rules 1986 establishes that removal-application costs are not payable as an expense of the liquidation, subject to a contrary order. That exception must be exercised carefully. The ordinary costs discretion is governed by r 44.3 of the Civil Procedure Rules 1998.
3. The respondents could not pass their liability, or their own costs, to the liquidation estate. The liquidation had continued despite clear objections, the risk of an adverse result was obvious, and resistance to the application was unjustified. The court declined to make a contrary order under r 4.119(5). Re Biposo Proprietary Ltd [1995] 17 ACSR 730 did not establish a normal rule in England.
4. Indemnity costs were appropriate because the respondents maintained an untenable position, caused substantial costs, and made inadequate attempts to remedy the position.

First-instance consequential costs judgment following the court’s earlier judgment delivered orally on 17 December. No appeal history is stated.