Andrew Settle v Sandstone Legal Limited & Ors (Costs Judgment)

When an administration order is made, the court retains discretion over whether, and to what extent, an applicant’s costs are payable as an expense of the administration. Insolvency (England and Wales) Rules 2016 r 3.12(2) must be read with the court’s general costs jurisdiction and the relevant provisions of Schedule B1. Costs generally follow the event, subject to all the circumstances, including litigation conduct. A director may be ordered personally to pay costs even where the administration application is treated as an application by the company, if the director was the real party conducting the litigation for personal benefit and with materially misleading evidence. The court may allow winding-up petition costs as an administration expense and may treat pre-administration work as an expense where it has a sufficiently direct and appropriate connection with the subsequent administration.

The judgment gave reasons for costs orders made after an administration application concerning Sandstone Legal Limited. The applicant director’s proposed pre-pack sale and nominees were rejected at the first hearing. Interim managers were appointed. At the later hearing, the court made an administration order and appointed nominees supported by Seven Stars Legal Limited and other creditors.

The court had found in its earlier judgment that the applicant knowingly included material, self-serving untruths in his first two witness statements. The costs issues concerned the treatment of the petitioner’s winding-up petition costs, the administrators’ interim-management and application costs, the applicant’s own costs, and Seven Stars’ entitlement to a personal costs order.

1. Petitioner’s costs. The petitioner’s costs of the winding-up petition and administration application were properly payable as an expense of the administration. The reasoning in Irish Reel Productions Ltd v Capitol Films Ltd [2010] EWHC 180 (Ch), concerning equivalent wording in the earlier rules, applied under the Insolvency (England and Wales) Rules 2016.
2. Administrators’ costs. Interim managers’ costs could be treated as pre-administration expenses under r 3.52 where a sufficiently direct and appropriate connection existed between the work undertaken before administration and achievement of the administration itself. That connection was established here. A request to reorder priority under r 3.51(3) required a properly supported application on notice and was not determined.
3. Applicant’s costs. Rule 3.12(2) did not remove the court’s discretion over the applicant’s costs. It had to be read subject to section 51 of the Senior Courts Act, paragraph 13(1)(f) of Schedule B1 and CPR r 44.2. The applicant was allowed only the issue fee as an administration expense. His proposed pre-pack had failed, and the successful outcome resulted from the work of Seven Stars, the petitioner and the appointed office-holders.
4. Personal costs. Costs generally followed the event, but the court had to consider all the circumstances. Dishonesty did not automatically displace that starting point, but materially misleading evidence and conduct could properly affect the order. Seven Stars was the successful party up to 7 February 2025. In the exceptional circumstances, the applicant was ordered personally to pay Seven Stars’ costs up to and including that hearing. Rule 3.4 did not prevent a personal non-party costs order because the applicant was the real party during that period and had a full opportunity to respond.
5. Seven Stars’ later costs were payable as an expense of the administration. The applicant’s neutrality after 7 February and later correction of the false evidence justified that different treatment.