Deutsche Trustee Company Ltd v & Ors

Where parties are engaged in hostile litigation concerning structured-finance rights, the costs of a neutral trustee may be treated as adversarial costs if the trustee’s participation is necessary and proper to protect the relevant noteholders’ interests. Those costs may be ordered against the unsuccessful party in the dispute. A non-participating issuer which agrees to be bound by the outcome may instead be left to rely on its contractual entitlement to recover costs under the transaction documents. Interim costs payments should avoid prejudging unresolved issues affecting the assessment. Permission to appeal may be granted where the proposed appeal has a real prospect of success, even though the first-instance judge remains confident that the decision was correct.

The court determined the costs consequences of proceedings concerning the interpretation of transaction documentation. The claimant trustee appeared and made limited submissions, while the issuer did not attend and agreed to be bound by the outcome. The second defendant, the Collateral Manager, and the third defendant, Napier, had conducted the hostile litigation.

The court had to decide whether the issuer and trustee should recover their costs from another party or from the transaction fund, and whether an interim payment should be made towards Napier’s assessed costs. It also considered the Collateral Manager’s application for permission to appeal the costs decision.

1. Issuer’s costs. The issuer did not participate in the proceedings and merely agreed to be bound by the outcome. It was therefore not appropriate to make a costs order in its favour. The issuer had to rely on its contractual entitlement under the transaction documentation.
2. Trustee’s costs. The ordinary approach in trust litigation, under which a neutral trustee’s costs may come from the fund, did not govern automatically. The transaction structure had to be considered. The trustee’s costs of and occasioned by the proceedings were adversarial in nature because the trustee’s role included protecting the noteholders’ interests and it was a necessary and proper party. The unsuccessful Collateral Manager was therefore ordered to pay those costs on the standard basis, subject to assessment if not agreed.
3. Interim payment. The court declined to resolve immediately the dispute concerning professional fees and possible duplication between solicitors. It made a cautious interim costs order, ultimately directing payment of £84,000 within 28 days.
4. Permission to appeal. Although the judge remained satisfied that the interpretation of the transaction documentation was correct, the competing construction was arguable and the proposed appeal had a real prospect of success. Permission to appeal was granted, without extending time.