IP Briefing: Joint Liquidators of Hellas Telecommunications (Luxembourg) II SCA v Apax Partners LLP & Others
The Factual Background
The claimants were liquidators of a Luxembourg company which had moved its centre of main interest to England in order to take advantage of the administration regime under the Insolvency Act 1986. There were 42 respondents connected with two global private equity houses.
The liquidators commenced a claim pursuant to s423 of the Insolvency Act 1986 (transactions defrauding creditors) in respect of a transaction at an undervalue in the amount of approximately £1 billion. The trial commenced and was scheduled to last six weeks however the liquidators discontinued the proceedings after four days. Prior to the claim in the High Court, the liquidators had unsuccessfully pursued proceedings against the respondents in Luxembourg and New York. The English proceedings were issued shortly before the expiry of the limitation period and the liquidators’ application to stay the proceedings was rejected. The issue in dispute was whether the liquidators should be liable for costs on the standard basis or the more onerous indemnity basis.
The Decision of the High Court
The court should not try to determine the merits of the abandoned claims. However, the court could assess, in broad terms, the reasonableness of the pursuit and the manner of presentation of the proceedings, having regard to the earlier foreign proceedings and their frailties, difficulties and the sustained efforts to avoid the natural jurisdiction in the UK.
The litigation was high-risk. It had been aggressively and expensively pursued after failure in multiple jurisdictions, without clear support in documentary evidence. The shape of the foreign proceedings and the publicity the claims seemed to have been calculated to attract, committed the liquidators to an inappropriate form of action as the complaints did not fit within s423. The complaints might elicit a jury’s support in New York, however, they had much lesser chance of success before a judge in the UK.
The case was out of the norm for the following reasons: (i) serious allegations of commercial impropriety were pursued four days into a trial and then suddenly abandoned when settlement talks failed, without explanation and without visible change in the forensic landscape; (ii) the changing nature of and inconsistencies in the case, both internally and with the expert evidence; (iii) the publicity surrounding the case, stoked up by the New York proceedings and the highlycoloured way the case was presented there and in the UK; (iv) by the unfairness of preserving for the liquidators the benefits of the ordinary basis of assessment whilst exposing the respondents, having had to respond to an expensively presented case, a shortfall in costs recovery and being denied the chance of vindication without any explanation.
The standard basis of costs would not reflect the extraordinary nature of the case and its sudden discontinuance or provide a fair balance in the circumstances. Costs were, therefore, payable by the liquidators to be assessed on the indemnity basis (with an interim payment of over £7 million ordered).
Advice for Insolvency Practitioners
In Scotland the judiciary have a discretionary power to make an award of expenses. The general rule is that expenses follow success and the successful party’s expenses are taxed on a party and party basis (as opposed to the standard basis in England and Wales). This means allowable expenses are those which are reasonable for conducting the litigation in a proper manner and can often only amount to half to two thirds of legal spend (they can be more or less). However, if the court is dissatisfied with the conduct of either party, it may depart from the general rule and award expenses against that party on an agent and client, client paying basis. This is a more generous basis. This English case is a non-binding argument that an award of expenses be made on the more onerous agent and client basis where an office holder has commenced proceedings for an improper purpose and in an improper manner and then discontinues the case without good reason; resulting in the other party having a shortfall in costs recovery and no vindication. In reaching its decision, the court will have regard to whether or not the circumstances of the case are out of the norm. In particular, serious allegations of commercial impropriety which are well publicised take a case out of the norm.
BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk) or Sheana Campbell (smc [AT] bbmsolicitors [DOT] co [DOT] uk). This briefing note is current as at 5 December 2018 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).