Leibson Corporation & Ors v TOC Investments Corporation & Ors

A court order requiring a company to bear provisional liquidators’ fees does not, without more, make the company liable to repay a third-party funder. Nor does Insolvency Rules 1986, rule 4.30(3), create such a freestanding contractual obligation. The funding agreement must be construed from its language and the relevant factual matrix; commercial common sense cannot be invoked retrospectively. An express provision for returning surplus funds may exclude an implied wider repayment term where that term would contradict the agreement. Unjust enrichment cannot be used to obtain repayment inconsistent with the contractual allocation of risk. Subrogation is inappropriate where the company itself discharged its liabilities, although it used the funder’s money.

Beppler & Jacobson Limited was subject to a winding-up petition and provisional liquidation. TOC funded the provisional liquidators’ fees and expenses under a written funding agreement. Following a compromise of the petition and completion of a share purchase, nearly £2.7 million was paid into court pending determination of whether the company was required to reimburse TOC.

Hildyard J held that reimbursement arose from the funding agreement read with the Newey Order and rule 4.30(3) of the Insolvency Rules 1986, alternatively by subrogation. The appeal concerned the construction of those arrangements and whether unjust enrichment could supply repayment where the agreement did not.

Appeal allowed. The Court of Appeal held that the company was not liable to reimburse TOC the sums advanced, except for surplus funds in the limited circumstances specified by the funding agreement.

1. Paragraph 21 of Schedule 1 to the Newey Order, providing that the provisional liquidators’ fees and costs were to be borne by the company, allocated responsibility for paying the provisional liquidators. It did not regulate how the company raised the money or impose a contractual obligation to repay a third-party funder. Rule 4.30(3) of the Insolvency Rules 1986 had the same limited effect: it required the provisional liquidators’ remuneration and expenses to be paid from the company’s property or as an expense of the liquidation, but did not create a freestanding repayment obligation.
2. The funding agreement had to be construed separately from the Newey Order and rule 4.30(3). The word advance was ambiguous. In context, it meant money provided in advance of the provisional liquidators’ ability to recover their fees from company assets. It did not itself establish a right to repayment. The language and factual matrix also gave no basis for assuming retrospectively that TOC expected recourse.
3. Clause 3.4 expressly required only the return of surplus funds after the relevant fees had been satisfied and the provisional liquidation had ended. A wider implied term requiring repayment of all advances would contradict the express agreement and was unnecessary to make it workable. The strict requirements for implying terms, stated in Attorney-General of Belize and others v Belize Telecom Ltd and another [2009] UKPC 10 and Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72, were not met.
4. Subrogation was inappropriate because BJUK had discharged its own liabilities to the provisional liquidators, albeit with money supplied by TOC. The contractual prohibition on requiring the provisional liquidators to exercise remedies against BJUK made subrogation particularly anomalous.
5. An unjust enrichment claim was inconsistent with the funding agreement’s allocation of risk. The court had to avoid conflict with contracts and prevent leapfrogging over an immediate contractual counterparty, consistently with Investment Trust Companies v Revenue and Customs Comrs [2012] STC 1150, the appeal decision at [2012] STC 1280, and Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66.

• Court of Appeal (Civil Division) Allowed the appeal against the declaration of liability.
• High Court of Justice, Chancery Division, Companies Court Hildyard J held that BJUK was liable to reimburse TOC under the funding agreement read with the Newey Order and rule 4.30(3), alternatively by subrogation: [2016] EWHC 20 (Ch).