Paul David Wood & Anor v Dilip Desai & Anor

In insolvency directions proceedings, costs may properly be paid from the insolvent estate where the application is a neutral judicial inquiry required to enable the liquidation to proceed and its outcome benefits the estate. The usual rule that costs follow the event remains discretionary and must be applied with caution.

Permission for a first appeal requires a real prospect of success or another compelling reason. The implied-term test is necessity, not reasonableness or fairness. A stay pending appeal is exceptional and ordinarily requires a risk of irremediable harm.

The judgment determined consequential matters following the court’s substantive decision of 24 July 2024 on the liquidators’ application under section 112 of the Insolvency Act 1986. The court had held that £250,000 paid by insurers belonged to the company’s general assets, rather than being held on trust for respondents who had brought a professional-negligence claim against the company.

The respondents opposed an inter partes costs order, sought permission to appeal on an implied-term point, and sought a stay preventing use of the insurance monies pending appeal. The liquidators sought their costs from the insolvent estate. A further issue concerned costs of an earlier stay application in proceedings pending in London.

1. Costs. The court ordered that the liquidators’ costs of the section 112 application, including the directions hearing, be paid out of the insolvent estate. Costs are discretionary under section 51(1) of the Senior Courts Act 1981 and CPR rule 44.2. The general rule that the unsuccessful party pays the successful party was displaced after consideration of all the circumstances.
2. The relevant approach in insolvency litigation is cautious and fact-sensitive. Proceedings may be treated as a necessary judicial inquiry sponsored by the estate, justifying payment of costs as an expense of the administration. The present application was neutral, concerned the only realisable company asset, and was fundamental to the liquidation.
3. Permission to appeal. Permission was refused. Under CPR rule 52.6, a first appeal requires a real prospect of success or another compelling reason. The real-prospect threshold means a prospect that is not unreal, but permission remains discretionary. The proposed implied term was unnecessary to give the contract business efficacy. The test is necessity, rather than reasonableness or fairness.
4. Stay. The stay application was refused. Under CPR rule 52.16 an appeal does not ordinarily operate as a stay. A stay is exceptional; solid grounds are required, followed by a balancing exercise focused principally on risks of irremediable injustice. No irremediable harm was established because the liquidators could repay the equivalent sum if required.
5. Further costs. The court made no order concerning costs of the earlier stay application in London, identifying a jurisdictional and procedural problem because those proceedings had not been transferred to Bristol.

This was a first-instance judgment on consequential matters following the same court’s substantive judgment of 24 July 2024. No citation for that earlier judgment is stated.