Discovery (Northampton) Ltd & Ors v Debenhams Retail Ltd & Ors

Costs in a challenge to a company voluntary arrangement are governed by the ordinary rules in CPR 44.2. The challenge is adversarial litigation between parties, unlike the court-sanction stage of a scheme of arrangement. The successful party will ordinarily recover its costs, although the court may make an issue-based or proportionate order where justice requires it. Success on a fundamental legal issue may justify departing from the general rule, even where the overall challenge fails. Payment on account should ordinarily be ordered unless the needs of justice indicate otherwise. The court may make separate costs orders for discrete applications and may require costs to be assessed where summary assessment would duplicate the costs judge’s work.

Six associated landlords challenged a Debenhams company voluntary arrangement. The judgment dealt with outstanding costs issues arising from the CVA Challenge Application and related applications, including applications to exclude evidence, review the earlier decision, review under Insolvency Rule 12.59, and strike out claims by applicants in administration or receivership.

The central questions were whether the costs approach applicable to objections at a scheme-sanction hearing should apply to a CVA challenge, how the parties’ success on particular issues should affect costs, whether payment on account should be ordered, and what costs orders should be made in favour of Debenhams, the joint supervisors and GLAS.

1. The Strike-out Application succeeded because the receivership applicants did not provide the confirmations required to show that pursuing the CVA challenge would not obstruct the receiverships or deplete company assets. The relevant applicants were ordered to pay Debenhams’ costs of that application and of the CVA Challenge Application from which they were removed.

2. The court rejected the analogy with scheme-sanction proceedings. Under Part 26 of the Companies Act, the company seeks the court’s sanction and objectors do not become parties. A CVA challenge under s.6 of the Insolvency Act 1986 is an application with respondents, creates a lis, and has a successful and an unsuccessful party. CPR 44.2 therefore applied.

3. Debenhams was the successful party overall, but Southampton had succeeded on Ground 3, a fundamental legal argument establishing that the CVA was defective and required modification. Justice therefore required a departure from the general rule. Southampton was ordered to pay 85% of Debenhams’ costs of the CVA Challenge Application, rather than the whole amount, but was not awarded its own costs.

4. The Exclusion Application, Review Application and Rule 12.59 Application were treated as discrete applications. Debenhams obtained indemnity costs of the Exclusion Application and standard-basis costs of the Review and Rule 12.59 Applications. The court ordered cautious interim payments on account under CPR 44.2(8).

5. The joint supervisors were entitled to their reasonable and proportionate costs of the CVA Challenge Application, including the Exclusion Application and limited participation in the later applications. GLAS was entitled to costs only down to 16 August 2019, when it should have become clear that continued active participation was unnecessary. Relevant costs were to be assessed, with interim payments ordered.

First-instance costs judgment arising from applications concerning the Debenhams CVA. No appellate history is stated in the judgment.