Dolfin Financial UK Ltd, Re

A special administrator has no automatic right to recoup costs from assets in the administration. The administrator must apply to the court for permission, and recoupment depends on whether the costs were properly incurred. That requires costs to have been incurred reasonably as well as honestly. Unnecessary, procedurally inept or seriously misguided proceedings may justify denying recoupment, even where the office-holder acted in good faith and on legal advice. The court may also order indemnity costs where the proceedings were fundamentally flawed or otherwise outside the norm. The fact that successful parties are beneficiaries of the assets does not itself justify indemnity costs, especially where the order would diminish the fund from which they are to be paid.

Joint special administrators of Dolfin Financial (UK) Ltd applied for directions concerning a proposed protocol and the conduct of the special administration. In an earlier judgment, the court found that the application had no practical utility, fell outside the statutory procedure, was unnecessary and had delayed progress towards distribution of client money and assets.

Firestone Financial Assets Ltd and Investors Europe (Malta) Ltd (DASL) sought their costs. They also argued that the administrators should be denied recoupment of their own costs and any costs payable to the respondents from the company’s assets. Firestone sought an interim distribution and declaratory relief concerning alleged delay. The present judgment determined costs, recoupment and related procedural directions.

1. Costs of the JSAs’ application. The administrators were ordered to pay Firestone’s and DASL’s costs. DASL’s participation had assisted the court and its distinct interest justified separate representation.
2. Recoupment. The court held that IBSA Rules 134 and 135, which give priority to expenses properly incurred, do not confer a right of recoupment. The same applied to the comparable statutory priority provisions and the CASS provision concerning costs properly attributable to client money. A special administrator must apply to the court for permission to recoup costs.
3. The governing question is whether the costs were properly incurred. Costs must have been incurred reasonably as well as honestly. The court may refuse recoupment for misconduct, understood broadly to include conduct unreasonable in all the circumstances, serious mistake or blunder, or where allowing recoupment would be unjust. Following legal advice does not make an unnecessary cost reasonable.
4. Applying that test, the JSAs’ application was procedurally inept, contrary to authority, diffuse, unnecessary and of no practical utility. It delayed the special administration and was unlikely to serve the interests of clients or creditors. The administrators’ good faith and bona fides did not justify recoupment. Their own costs and the costs payable to Firestone were therefore excluded from recoupment out of company or client assets.
5. Indemnity costs. The application was fundamentally flawed from the outset and outside the norm. Firestone and DASL were therefore awarded indemnity costs. Their status as beneficiaries did not itself establish entitlement; the award rested on the conduct and circumstances of the proceedings.
6. Firestone’s application. Firestone succeeded on interim distribution and received indemnity costs. DASL’s overlapping costs were dealt with as part of its costs of the JSAs’ application. The declaratory claim concerning delay was not dismissed, but was procedurally inconclusive. Firestone paid the JSAs’ costs of the hearing on that issue on the standard basis, with other costs reserved to the trial judge. Further proceedings on the declaratory claim and Rule 202 applications were stayed with liberty to restore.