Crumpler & Anor (Liquidators Of Peak Hotels And Resorts Ltd v Candey Limited

For the purpose of valuing services under Insolvency Act 1986, section 245, the court must assess objectively the legal services actually supplied after creation of the floating charge. The relevant value is what could reasonably have been obtained for those services in the ordinary course of business and on the same terms, excluding the agreed fixed fee, credit risk and merits risk. A retrospective time-cost valuation is therefore generally appropriate where the work actually done can be identified. The court may use the supplier’s ordinary charging rates as strong evidence of market value. It should exclude work undertaken for the solicitor’s own benefit or without authority, while applying a proportionate and practical approach to disputed time entries.

The applicants, the BVI liquidators of Peak Hotels and Resorts Limited, sought relief under section 245 of the Insolvency Act 1986 concerning a floating charge granted to Candey Limited under a fixed fee agreement. The charge had previously been held to satisfy the statutory conditions for avoidance, subject to the value of appropriate new value supplied by Candey.

The Court of Appeal had overturned an earlier valuation of approximately £3.8 million and remitted the Valuation Issue to the High Court. The principal questions were the correct basis of valuation, the applicable hourly rates, the treatment of disputed time entries, the admissibility of late evidence and whether a further hearing was required.

1. Valuation basis. The court held that the burden of proof on the Valuation Issue lay on the Liquidators. Section 245 required an objective and retrospective assessment of the legal services actually supplied after creation of the charge. The agreed fixed fee was irrelevant because it priced the anticipated work and allocated risks concerning the amount of work, delay and non-payment. The hypothetical supplier was to have the same expertise and resources as Candey, but the supply was to be assumed to occur in the ordinary course of business.
2. Excluded risks and alternative funding models. The valuation could not include compensation for the company’s credit risk, delay in payment or the risk of losing on the merits. A hypothetical damages-based agreement, conditional fee agreement or litigation funding agreement was not an appropriate valuation method. Those arrangements involved contingencies, credit or funding elements and uncertainties about the scope of the work which section 245 required the court to disregard.
3. Time costs and rates. The appropriate method was to multiply relevant time spent by hourly rates. Candey’s agreed pre-existing rates were the best evidence of the open-market rates for the services. Guideline hourly rates and comparisons with other costs decisions were only rough cross-checks and did not justify reducing Candey’s rates.
4. Evidence and procedure. Late evidence seeking to establish substantial unrecorded work was excluded. Applying the Denton principles, the breach was serious and significant, there was no good explanation, and admission would cause delay, expense and procedural unfairness. No further detailed assessment hearing was required; the court adopted a proportionate broad-brush approach.
5. Chargeable work. Work for Candey’s own remuneration or security was excluded. Work undertaken for PHRL before liquidation, including appropriate funding work, could be valued. Unauthorised post-liquidation funding work and other work outside the retainer were excluded. Overseas travel time was allowed on a discounted basis, while adequately evidenced internal meetings, strategy and reading time were allowed in full.
6. The parties were directed to lodge an agreed order, or competing drafts, dealing with the principles and final valuation.

• Court of Appeal: The earlier first-instance valuation of approximately £3.8 million was overturned and the Valuation Issue was remitted to the High Court. The relevant Court of Appeal citations were [2018] EWCA Civ 2256 and [2019] EWCA Civ 345.
• High Court (Chancery Division): The remitted valuation issues were determined by His Honour Judge Davis-White QC. Finalisation of the valuation and consequential matters was left to a subsequent order.