Brian Burke & Ors v Peabody Construction Limited

A nominee or supervisor under a company voluntary arrangement may in principle be ordered to pay costs personally, even where joined only to be bound by the outcome. However, such an order ordinarily requires serious personal misconduct, and that misconduct must be properly identified and fairly tested. Neutrality is not displaced merely because the nominee shares legal representatives with the company, adopts wording in a joint skeleton argument, seeks to protect creditors from bearing costs, or communicates a possible solution to a defect in the arrangement. A flawed voluntary arrangement does not itself establish professional misconduct by its supervisors. The appeal was therefore allowed and the personal costs order was set aside.

Creditors challenged a company voluntary arrangement promoted by Mizen Design/Build Ltd. ICC Judge Prentis upheld Peabody Construction Ltd’s challenge but rejected Newlon Housing Trust’s challenge. The company appealed the decision in favour of Peabody, but that appeal was dismissed by Sir Anthony Mann. At the subsequent consequentials hearing, the ICC Judge ordered the company and the joint supervisors of the arrangement to be jointly and severally liable for Peabody’s costs from trial onwards.

The supervisors appealed against the personal costs order. The central issue was whether their conduct justified treating them as personally responsible for Peabody’s costs despite their formal role as nominees and supervisors.

1. Appeal allowed. The order making the joint supervisors jointly and severally liable for Peabody’s costs was set aside.
2. A nominee may in principle be made personally liable for costs under CPR 44.2, although the nominee was joined only to be bound by orders concerning the voluntary arrangement. The authorities show that some element of serious personal misconduct is ordinarily required, and even misconduct falling below the proper standard may not suffice in the circumstances of the case.
3. The ICC Judge had misdirected himself by treating the use of the same legal team and the plural wording of the joint skeleton argument as conclusive evidence that the supervisors had abandoned neutrality and adopted litigation aggression. Those matters were capable of another explanation, particularly where the supervisors’ evidence stated that they remained neutral. Caution was required in finding misconduct without corroborating evidence.
4. The supervisors’ proposed recovery of their own costs did not necessarily demonstrate hostility. A neutral supervisor could reasonably seek to prevent the company’s creditors bearing costs incurred in resisting an unsuccessful challenge.
5. The supervisors’ failure to engage on consequential matters or attend the consequentials hearing did not, without more, amount to sufficiently serious misconduct. Nor could the flawed nature of the voluntary arrangement be converted into a finding of supervisory misconduct where no such allegation had been made or fairly tested at trial.
6. Communicating a proposed variation to address a defect in the arrangement was not evidence of a lack of independence or neutrality. Addressing the defect could instead be consistent with responsible conduct.

• Chancery Appeals (ChD): The appeal was allowed and the personal costs order made by ICC Judge Prentis was set aside.
• High Court (ChD): ICC Judge Prentis upheld Peabody’s challenge to the voluntary arrangement in [2023] EWHC (Ch) 127 and later ordered the company and the joint supervisors to be jointly and severally liable for Peabody’s costs from trial onwards.
• Appeal concerning the company: The company’s appeal against the decision in favour of Peabody was dismissed by Sir Anthony Mann on 19 April 2023.