Berntsen & Ors v Tait & Ors (prior appeal concerning parts of Norris J's order)

The Court of Appeal considered an appeal against an interim costs order made by Norris J in insolvency litigation. The principal legal principles were the wide discretion vested in the court to order interim payments on account of costs under the relevant version of CPR Part 44 and the need to have regard to the overriding objective in CPR Part 1. The court held that impecuniosity and the risk that an interim costs order might "stifle" a claim are relevant factors to be taken into account but that the absence of detailed evidence of inability to pay or of how the litigation was to be funded may justify the making of an interim order. The judge had not misdirected himself or erred in principle in ordering an interim payment of 45,000 and a stay pending payment, and the appeal was dismissed.

Background and parties

The appellants, Mr Innes Keochan Berntsen and Mr Christopher Richardson, were the only two members of Coniston Hotel (Kent) LLP in liquidation. The respondents, Mr Matthew Tait and Ms Sarah Rayment, were former joint administrators. The appellants had issued proceedings under paragraphs 74, 75 and 78 of Schedule B1 to the Insolvency Act 1986 seeking to remove the administrators and to pursue claims against them. The LLP was subsequently wound up and the administrators discharged except as to any application under paragraphs 74 and 75.

Procedural history

• The administrators were appointed on 22 June 2010.
• The appellants issued insolvency proceedings on 1 August 2011 under Schedule B1.
• On 12 December 2011 the LLP was wound up; further procedural directions followed and the appellants filed Points of Claim on 14 March 2012.
• The respondents applied on 4 July 2012 to strike out the Points of Claim and/or for summary judgment.
• By an order of Norris J (referred to in the judgment as given on 1 February), many of the appellants' pleaded complaints and allegations of fraud were struck out, the Points of Claim were to be amended and particularised, and the appellants were ordered to pay 85% of the respondents' costs of the application together with an interim payment of 45,000 by a date specified, the proceedings being stayed until payment.
• Permission to appeal to the Court of Appeal was granted by McCombe LJ on one ground limited to the challenge to the interim payment.

Issues framed

1. Whether the appellants could raise the argument that an interim costs order would stifle a genuine claim.
2. Whether impecuniosity and the risk of stifling a claim are relevant factors in deciding to order an interim payment on account of costs.
3. Whether evidence of impecuniosity was required and, if required, whether it had been provided and shown to an extent that the order would stifle a claim.
4. Whether the judge erred in principle in making the interim payment order and stay and, if so, what order should have been made.

Court's reasoning and decision

The court emphasised that the discretion to order interim payments was at large under the version of CPR Part 44 in force at the relevant time and that the court may take into account all the circumstances, including whether an interim order may stifle prosecution of the claim. The appellants were permitted to raise the stifling argument. The Court of Appeal concluded, however, that the material before Norris J contained little detailed evidence of impecuniosity or of how the litigation was being and would be funded; while there were general assertions of financial ruin, no specific showing had been made to establish that the appellants could not, by some means, meet the interim order or that the proceedings would necessarily be stifled. The judge had allowed a generous period for payment and had been aware of the appellants' financial difficulties. Reading the judgment and the transcript as a whole, the appellate court was not persuaded that Norris J had misdirected himself or failed to take relevant matters into account. Accordingly, the appeal against the interim costs order was dismissed.

Appeal dismissed. The Court of Appeal held that the judge had a broad discretion under the relevant version of CPR Part 44 to order an interim payment on account of costs, that impecuniosity and the risk of stifling a claim are relevant considerations but require evidence of sufficient quality, and that Norris J did not err in principle in ordering an interim payment of 45,000 and staying proceedings pending payment.

Appeal from the decision of Norris J in the High Court of Justice, Chancery Division, Companies Court (order given on 1 February as recorded in the judgment) that struck out parts of the appellants' pleadings, required particularisation, awarded 85% of the respondents' costs of the strike-out application and ordered an interim payment of 45,000 with a stay pending payment. Permission to appeal was granted by McCombe LJ limited to challenge to the interim payment.