CFAs Enforceable With 25% Damages Cap But Success Fees And Hourly Rates Reduced For Lack Of Informed Consent

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Background

The case of Richardson & Others v Slater & Gordon UK Limited [2025] EWHC 1220 (SCCO) involved a group litigation claim by 224 claimants against their former solicitors, Slater & Gordon UK Limited, concerning the enforceability and fairness of Conditional Fee Agreements (CFAs) entered into for personal injury claims. The claims arose from road traffic accidents and workplace injuries occurring between 2016 and 2020. The claimants alleged that the defendant’s retainers were unenforceable as Damages Based Agreements (DBAs), failed to comply with consumer contract regulations, and contained unfair terms. The court was tasked with determining nine preliminary issues, primarily focusing on costs-related matters, including the validity of the CFAs, the adequacy of information provided to clients, and the reasonableness of success fees and hourly rates.

Costs Issues Before the Court

The court was required to determine the following key costs issues:

  1. Whether the CFAs were unenforceable as DBAs under s58AA of the Courts and Legal Services Act 1990.
  2. Compliance with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CC(ICAC)R).
  3. Whether the defendant adequately informed claimants about potential liability for costs exceeding recoverable sums from opponents.
  4. Whether claimants gave informed consent to terms permitting recovery of costs exceeding sums recoverable from opponents.
  5. The fairness of terms under the Consumer Rights Act 2015.
  6. The reasonableness of success fees and hourly rates charged.

The Parties’ Positions

Claimants’ Submissions: The claimants argued that the CFAs were effectively DBAs but did not comply with DBA regulations, rendering them unenforceable. They contended that the defendant failed to provide clear and prominent information about costs, particularly the 25% cap on damages deductions, ATE premiums, and the potential for costs to exceed recoverable sums from opponents. The claimants also alleged that the success fees and hourly rates were unreasonable and lacked informed consent.

Defendant’s Submissions: The defendant maintained that the CFAs were compliant with the CFA Regulations 2013 and were not DBAs. They argued that the information provided to claimants was clear and comprehensive, both orally and in written documentation. The defendant asserted that the success fees were justified by risk assessments and that the hourly rates were standard and agreed upon in the retainer documents.

The Court’s Decision

1. Enforceability as DBAs: The court rejected the claimants’ argument that the CFAs were unenforceable DBAs. It held that the agreements complied with CFA regulations and did not meet the definition of DBAs under s58AA of the Courts and Legal Services Act 1990. The 25% cap on damages deductions was a statutory feature of CFAs, not a DBA mechanism.

2. Compliance with Consumer Contract Regulations: The court found that the defendant had provided sufficient information in a clear and prominent manner, as required by the CC(ICAC)R. The oral explanations and written documentation adequately covered the key terms of the retainer, including the 25% cap and potential liability for unrecovered costs.

3. Informed Consent and Reasonableness of Success Fees: The court held that the claimants had agreed to the terms of the CFA, including the potential for costs to exceed recoverable sums from opponents. However, it found that the success fees required reassessment due to a lack of detailed explanation of their calculation. The court reduced the success fees to 10% for passenger claims, 15% for straightforward driver claims, and upheld the 100% fee for cases proceeding to trial.

4. Hourly Rates: The court ruled that the defendant’s uniform hourly rate of £217 for all fee earners was unusual and lacked justification. It applied the Guideline Hourly Rates (GHR) for National Band 1, allowing differentiated rates based on fee earner seniority.

5. Fairness of Terms: The court concluded that the terms of the CFA were fair and transparent under the Consumer Rights Act 2015. The key terms, including the 25% cap, were prominently displayed and explained in plain language.

In summary, the court upheld the validity of the CFAs but adjusted the success fees and hourly rates to reflect reasonableness and fairness. The judgment provides clarity on the standards for informing clients about costs in CFAs and the importance of transparency in solicitor-client agreements.

Section 74(3) Solicitors Act 1974 Does Not Apply To Family Court Proceedings

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Background

The case of Gorenstein v Sears Tooth Solicitors concerned a detailed assessment of costs under the Solicitors Act 1974. The claimant, Ms Elinor Gorenstein, sought an assessment of costs billed by her former solicitors, Sears Tooth, in relation to family proceedings involving financial remedy and children matters. The assessment was heard before Costs Judge Nagalingam in the Senior Courts Costs Office (SCCO). The parties had exchanged points of dispute and replies, with key issues centring on the applicability of section 74(3) of the Solicitors Act 1974, the adequacy of costs estimates provided, and the reasonableness of certain categories of costs claimed.

Costs Issues Before the Court

The court was required to determine several preliminary costs issues, including:

  1. Whether section 74(3) of the Solicitors Act 1974 applied to the assessment, given that the underlying proceedings were in the Family Court rather than the County Court.
  2. Whether the retainer agreement complied with CPR 46.9(2), particularly regarding informed consent for costs exceeding what might be recoverable inter partes.
  3. The adequacy of costs estimates provided by the defendant and whether the claimant should be bound by them.
  4. The treatment of estimated time entries in the bill of costs.
  5. The categorisation of fee earners described as “Managing Clerks” and the appropriate charging rates.

The Parties’ Positions

Claimant’s Submissions:
The claimant argued that section 74(3) of the Solicitors Act 1974 applied, limiting recoverable costs to what could have been allowed on an inter partes basis. Relying on Oakwood Solicitors v Menzies [2024] UKSC 34 and PACCAR Inc v Competition Appeal Tribunal [2023] UKSC 28, the claimant contended that the statutory construction should protect clients from excessive costs. The claimant further submitted that the retainer failed to provide “full and fair” disclosure of costs risks, citing Macdougall v Boote Edgar Esterkin [2001] 1 Costs LR 118 and Herbert v HH Law [2019] EWCA Civ 527. Additionally, the claimant challenged the adequacy of costs estimates and the inclusion of estimated time entries.

Defendant’s Submissions:
The defendant argued that section 74(3) did not apply, as the proceedings were in the Family Court, not the County Court. Relying on Belsner v CAM Legal Services Ltd [2022] EWCA Civ 1387, the defendant submitted that CPR 46.9 provided sufficient consumer protections. The defendant maintained that the retainer adequately explained costs liabilities and that post-retainer communications reinforced this understanding. On estimates, the defendant cited Guest Supplies International Ltd v Ince Gordon Dadds LLP [2022] EWHC 2652 (SCCO), arguing that estimates were not binding caps and that the claimant had not demonstrated reliance on them to her detriment.

The Court’s Decision

Section 74(3) Solicitors Act 1974:
The court held that section 74(3) did not apply, as the proceedings were in the Family Court, not the County Court. The Crime and Courts Act 2013 had clarified the distinction between these jurisdictions, and there was no evidence Parliament intended to extend section 74(3) to Family Court matters. The court rejected the claimant’s argument that this created an “absurd result,” noting that pre-2013, similar proceedings would have been in the High Court, where section 74(3) also did not apply.

Retainer and CPR 46.9:
The court found the retainer complied with CPR 46.9(2). The retainer explicitly stated that the claimant would be responsible for her own costs, with limited exceptions where costs might be recovered from the opponent. This constituted an agreement permitting the solicitor to recover more than might be allowed inter partes. The court also rejected the claimant’s argument that certain costs (incoming letters, overheads, dual attendances) were “unusually incurred,” as the retainer had clearly provided for these charges.

Costs Estimates:
The court declined to cap costs at the estimated figures but agreed they should be considered in assessing reasonableness. Following Guest Supplies, the court held that estimates were not binding unless relied upon to the client’s detriment. The defendant had provided regular updates and explanations for exceeding estimates, and the claimant had not shown she would have acted differently had more accurate estimates been given.

Estimated Time:
The court rejected the claimant’s argument that all estimated time should be disallowed. Instead, it directed that such entries be assessed on a line-by-line basis, taking into account the work actually done and the claimant’s knowledge of the same.

Managing Clerks:
The court encouraged the parties to resolve this issue between themselves, failing which further submissions would be required.

Next Steps:
The matter was adjourned for a line-by-line assessment of the remaining disputed costs, with the parties directed to provide available dates for the continuation hearing.

CPR 25.27 | £6m Security For Costs Denied As Escrow Funds In UK Account Deemed Sufficient To Satisfy Any Costs Order

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Background

The case of Virgo Marine & Nixie Marine Inc v Reed Smith LLP & Barclays Bank PLC ([2025] EWHC 1157 (Comm)) arose from a dispute concerning escrow arrangements related to the sale of an oil tanker. The First Claimant, Virgo Marine, entered into a Memorandum of Agreement (MOA) with Kibaz Shipping LP to purchase the vessel, with Reed Smith LLP (RSUK) acting as Kibaz’s legal representative. An Escrow Agreement was subsequently executed, under which Virgo paid a deposit and balance totalling approximately USD 13.3 million into RSUK’s USD client account with Barclays. The agreement stipulated that RSUK’s duties were administrative and limited to instructing Barclays to release funds upon specified conditions.

Following Virgo’s designation under US sanctions, RSUK instructed Barclays to freeze the escrow funds. Despite later retracting its position on being a “US person” under the sanctions regime, Barclays refused to release the balance to Virgo, citing potential breaches of US sanctions. The Claimants subsequently brought proceedings against RSUK for breach of contract, duty of care, and fiduciary duty, while RSUK issued an Additional Claim against Barclays for failing to comply with its payment instructions.

Costs Issues Before the Court

The primary costs issue before the court was RSUK’s application for security for costs under CPR 25.27, seeking £6 million to cover its defence costs, the costs of its Additional Claim against Barclays, and any potential liability for Barclays’ costs in defending that claim. The key question was whether the presence of the escrow balance in the RSUK USD Client Account negated the need for security, given RSUK’s contention that the funds might not be accessible to satisfy a costs order.

The Parties’ Positions

RSUK’s Submissions: RSUK argued that there was “reason to believe” the Claimants would be unable to pay its costs if ordered to do so, given their foreign incorporation and lack of financial disclosure. It contended that the escrow balance was not “readily realisable” due to Barclays’ refusal to process payment instructions, citing correspondence in which Barclays expressed concerns about reputational and legal risks under US sanctions. RSUK also sought security for its Additional Claim costs, asserting that if its defence succeeded, it would likely recover Barclays’ costs from the Claimants.

Claimants’ Submissions: The Claimants argued that the escrow balance, held in a UK bank account, was sufficient to satisfy any costs order. They contended that RSUK could re-designate the funds to discharge a costs liability without requiring Barclays to transfer the money, relying on authorities such as Havila Kystruten AS v STLC Europe and Gravelor Shipping Ltd v GTLK Asia, which held that payment into a restricted account could still constitute discharge of a debt. They also challenged the proportionality of RSUK’s costs budget.

The Court’s Decision

Foxton J dismissed RSUK’s application for security for costs. The court held that:

  1. Jurisdictional Threshold: While the Claimants’ foreign incorporation and lack of financial transparency satisfied CPR 25.27(b)(ii), the presence of the escrow balance in a UK account weighed against ordering security.
  2. Availability of Funds: The court was not persuaded that Barclays would refuse to comply with a court order to transfer funds to RSUK to satisfy a costs liability. The evidence of legal jeopardy was “thin and unpersuasive,” and the court highlighted its broad powers under s.37 of the Senior Courts Act 1981 to appoint a receiver if necessary.
  3. Discretionary Factors: It would not be just to require the Claimants to provide additional security when they had already paid over USD 13 million into a UK account, particularly where neither RSUK nor Barclays disputed that the funds economically belonged to the Claimants.
  4. Costs of the Additional Claim: Had security been ordered, the court would have included Barclays’ costs, given the high likelihood of RSUK recovering them from the Claimants if its defence succeeded. However, the court reduced RSUK’s claimed costs by 30% to reflect excessive Grade A fee-earner involvement and rates above Guideline figures.

Ultimately, the court concluded that the escrow balance provided adequate security, rendering a further order unnecessary. The decision underscores the importance of assessing the practical availability of funds held in jurisdiction when considering security for costs applications.

CPR 25.20(6) | Interim Payment Order Variation Application Denied

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Background

The case concerned an application by Volga-Dnper Logistics B.V. (the Defendant) to vary an interim payment order made by Bryan J on 11 February 2025. The order required the Defendant to make payments totalling USD 202,811,264 to Celestial Aviation Trading entities (the Claimants) by 25 February 2025, plus a £50,000 payment on account of costs. The Defendant sought to vary the order so that its payment obligations would only commence after obtaining licences from OFSI (UK) and OFAC (US) sanctions authorities.

The dispute arose from aircraft lease agreements between the Claimants and two Russian airlines, with the Defendant providing guarantees. Following Russia’s invasion of Ukraine in February 2022 and subsequent sanctions, the Claimants terminated the leases and demanded payment from the Defendant under the guarantees. When payment was not forthcoming, proceedings were issued in May 2022.

The procedural history included delays due to the Defendant’s difficulties in securing legal representation under sanctions regimes. The Defendant’s ultimate beneficial owner, Alexey Isaykin, was designated under UK sanctions in June 2022 and US sanctions in August 2024. After various adjournments, Bryan J heard the Claimants’ interim payment application on 11 February 2025, making the order now sought to be varied.

Costs Issues Before the Court

The key costs-related issue was whether the court should vary the interim payment order to make payment conditional upon the Defendant obtaining sanctions licences. The Defendant argued that without such variation, it faced an impossible choice between complying with the order (potentially breaching sanctions) or being in contempt of court for non-payment.

The court had to consider: (1) the principles governing variation of interim payment orders under CPR 25.20(6)(b); (2) the impact of UK and US sanctions legislation on the Defendant’s ability to comply; and (3) whether the circumstances justified varying the original order.

The Parties’ Positions

The Defendant submitted that variation was necessary because:

  1. Complying with the order without licences would breach UK and US sanctions
  2. The original order was made without full consideration of sanctions implications
  3. It had promptly applied for necessary licences (though only after the payment deadline)
  4. It faced potential contempt proceedings despite being unable to comply lawfully

The Claimants opposed variation, arguing:

  1. The court was aware of sanctions issues when making the original order
  2. No material change of circumstances or misstatement justified variation
  3. The order itself did not breach sanctions – compliance was the Defendant’s responsibility
  4. Variation would prejudice their ability to enforce against the Dutch-held funds
  5. They would not pursue contempt proceedings while sanctions prevented compliance

The Court’s Decision

The court refused to vary the interim payment order, finding:

  1. Variation principles: Following Tibbles v SIG, variation requires a material change of circumstances or misstatement. Neither was established here as the court was aware of sanctions issues when making the original order.
  2. Sanctions impact: While sanctions created practical difficulties for the Defendant:
    • The order itself did not breach sanctions (following Mints and R v R)
    • UK sanctions were unlikely to be breached as the Defendant was Dutch and funds would go to Ireland
    • US sanctions concerns were mitigated as ING would not release funds without OFAC approval
    • The Serious Crime Act 2007 offence risk was not made out
  3. Practical considerations:
    • Variation would weaken the Claimants’ position in Dutch enforcement proceedings
    • The Defendant delayed both its variation application and licence requests
    • The Claimants’ assurance against contempt proceedings addressed the Defendant’s key concern

The court emphasised that while sanctions created compliance difficulties, this did not automatically justify varying the order. The original order remained appropriate as it did not itself breach sanctions and preserved the Claimants’ enforcement position.

CA Decision | Aarhus Convention Costs Protection Inapplicable Where Claim Challenges Non-Environmental Law Despite Environmental Impact.

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Background

The case involved an appeal by HM Treasury and the Secretary of State for Business and Trade against a decision by Lang J that a judicial review claim brought by Global Feedback Limited (“GFL”) was an “Aarhus Convention claim” under CPR 46.24(2)(a), thereby attracting costs protection. The underlying claim challenged the legality of the Customs Tariff (Preferential Trade Arrangements and Tariff Quotas) (Australia) (Amendment) Regulations 2023, which implemented tariff preferences under a UK-Australia Free Trade Agreement. GFL, an environmental charity, argued these regulations would increase greenhouse gas emissions through “carbon leakage” from increased Australian beef production. The key costs issue was whether the claim fell within Article 9(3) of the Aarhus Convention as involving a challenge to acts contravening “provisions of national law relating to the environment”.

Costs Issues Before the Court

The central costs issue was whether the judicial review qualified as an Aarhus Convention claim under CPR 46, which would impose costs limits protecting GFL. This turned on whether the challenged decisions allegedly contravened provisions of UK law “relating to the environment” under Article 9(3). The appellants argued the Taxation (Cross-Border Trade) Act 2018 (under which the regulations were made) was not environmental legislation, while GFL relied particularly on section 28 requiring regard for international obligations including climate agreements.

The Parties’ Positions

The appellants contended Article 9(3) only applied where the contravened law’s purpose was environmental protection or regulation. They argued the 2018 Act concerned import duties, not the environment, and section 28 was a general provision requiring regard for relevant international obligations without specifying environmental aims. They distinguished Venn by arguing the planning context was unique in implementing environmental protection through policy.

GFL submitted that section 28’s requirement to consider UN climate agreements meant the claim involved contravention of national law relating to the environment. They argued this was analogous to Venn, where policies formed part of the environmental legal framework. The intervener WWF took a broader view that any law capable of affecting the environment engaged Article 9(3).

The Court’s Decision

The Court of Appeal allowed the appeal, holding the claim was not an Aarhus Convention claim. It analysed Article 9(3)’s language, confirming “relating to” required the national law’s purpose to be environmental protection or regulation. The travaux préparatoires and French text supported this interpretation, showing the original “national environmental law” wording was maintained in substance.

The Court distinguished Venn, noting planning legislation uniquely implemented environmental protection through policy. Section 28 of the 2018 Act was a general provision without environmental purpose. Mere public law errors concerning environmental effects did not engage Article 9(3) unless the contravened law itself had environmental aims. The Court disapproved the broader approach in Friends of the Earth, emphasising the need to focus on the purpose of the legal provision allegedly contravened rather than the decision’s environmental impacts.

As the 2018 Act’s provisions were not for environmental protection, and section 28 did not specifically require environmental considerations, the claim fell outside Article 9(3). Costs protection under CPR 46 therefore did not apply, though GFL could seek a costs protection order under alternative provisions.

Non-Party Commercial Funder With “Significant Interest” Liable For Defendants’ Costs On Indemnity Basis.

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Background

The case of Maranello Rosso Limited v Lohomij BV & Ors concerned an unsuccessful claim brought by Maranello Rosso Limited (“MRL”), a Guernsey company, against multiple defendants arising from a failed scheme to purchase and sell a collection of vintage cars. The claim, issued in May 2020, alleged a conspiracy to injure MRL by unlawful means. The defendants successfully applied for summary judgment in September 2021, with the court holding the claims were largely compromised by a prior settlement agreement. MRL’s appeal was dismissed in December 2022. The claimant was ordered to pay the defendants’ costs at first instance and on appeal, but the defendants recovered nothing from MRL. This led to the present applications by certain defendants for non-party costs orders against Hamish Vans Agnew, who was alleged to have funded the litigation.

Costs Issues Before the Court

The key costs issues were whether the respondent, Mr Vans Agnew, should be liable for the defendants’ costs under section 51 of the Senior Courts Act 1981 as a non-party funder, and if so, to what extent. The court had to determine: (1) whether the respondent was a “pure funder” or had a commercial interest in the litigation; (2) whether his funding caused the defendants to incur costs; (3) whether any liability should be capped at the amount of funding provided (the “Arkin cap”); and (4) whether costs should be assessed on the indemnity basis.

The Parties’ Positions

The applicants argued the respondent was a commercial funder who provided £514,000 to MRL through a “vehicle sale agreement” and separate loans, representing 46.5% of MRL’s first instance costs. They contended the transaction was effectively litigation funding, as the respondent stood to gain a 10% success fee plus a Ferrari worth £1 if the claim succeeded – a potential 14-fold return. They sought full reimbursement of their first instance costs on an indemnity basis.

The respondent argued he was merely securing repayment of existing loans through the car purchase, with only £27,000 constituting genuine litigation funding. He maintained the defendants’ costs would have been incurred regardless of his involvement, as other funders contributed £1.4 million after his payments. He denied controlling the litigation or being a “real party” to it.

The Court’s Decision

The court found the respondent was not a “pure funder” but had a substantial commercial interest in the litigation’s outcome. The “vehicle sale agreement” was held to be a funding arrangement disguised as a sale, with the car acting as security. The respondent’s funding enabled the claim to proceed at critical stages, causing the defendants to incur costs.

The judge rejected applying the Arkin cap, given the respondent’s significant potential returns. He ordered the respondent to pay: (1) all of the applicants’ costs up to 6 May 2021 (when another funder contributed); and (2) one-third of costs thereafter, recognising other funders’ involvement in the later stages. The court awarded costs on the indemnity basis due to the respondent’s attempt to disguise funding as a car purchase and his close alignment with MRL’s conduct of the litigation.

The decision illustrates the courts’ willingness to look beyond formal structures to the economic reality of funding arrangements when exercising their discretion under section 51. It also demonstrates that funders with substantial commercial interests may face uncapped costs liabilities, particularly where their involvement is causally linked to the incurring of costs by the opposing party.

Additional Security For Costs Ordered For Inquiry And Detailed Assessment Despite Discharge Of Injunction.

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Background

The legal dispute involved Alta Trading UK Limited and its co-claimants against Peter Miles Bosworth and various other defendants. The claim stemmed from allegations of fraudulent misrepresentation and improper trading activities. Initially, in February 2015, Teare J granted the Claimants a worldwide freezing order against the Defendants, requiring fortification of $2 million. Over the following years, the freezing order was continued, supplementary applications for fortification were made, and costs orders against different defendants were issued and reviewed. In February 2025, Mr Justice Henshaw ruled in favour of the Defendants, dismissing the Claimants’ claims and leading to various consequential applications regarding fortification and security for costs.

Costs Issues Before the Court

The primary costs issues under consideration were requests for additional fortification of the Claimants’ undertakings in damages and additional security for costs. Initially, fortification of $2 million had been ordered in 2015, and despite requests for increased amounts over the subsequent years, these had often been refused, with the Claimants offering instead to set aside various amounts in specific accounts. Following the February 2025 ruling against the Claimants, Mr Bosworth and Mr Hurley applied for additional security for costs ($3,736,451), alongside Mr Kelbrick/Attock Mauritius requesting further fortification of $89,045,000 and additional security for costs of £2,798,000 due to asset depletion and increased expected litigation costs related to the Inquiry into damages.

The Parties’ Positions

Claimants: The Claimants argued against the applications for further fortification and security for costs. They asserted no jurisdiction existed to require additional fortification as the injunction had already been discharged. They maintained the existing security (set aside in specific accounts) was adequate, and depletion of assets in jurisdiction was justifiable. The Claimants’ solicitor, Mr Morrison, presented financial documents showing substantial net assets and argued against any need for further fortification or security for costs.

Defendants: The Defendants, particularly Mr Bosworth, Mr Hurley, and Mr Kelbrick/Attock Mauritius, highlighted the insufficiency of current security given the recently ordered Inquiry into damages and detailed assessment of costs. They argued the Claimants had depleted available assets significantly, raising concerns about recovering awarded costs and damages. They sought further fortification equating to the expected extensive litigation costs and argued misconduct and dishonesty by the Claimants justified additional security.

The Court’s Decision

Mr Justice Henshaw ruled against further fortification, agreeing with the Claimants that fortification typically cannot be increased post-discharge of the injunction, applying principles from relevant case law such as The Mito and Thai-Lao Lignite (Thailand). The court found it was inappropriate to apply CPR 3.1(5) to order payment into court in these circumstances.

As to additional security for costs, Mr Justice Henshaw found significant changes in circumstances justified increasing security. The detailed assessment and Inquiry, alongside increased costs due to the Claimants’ conduct, warranted additional security. The court ordered the Claimants to provide further security for Mr Bosworth and Mr Hurley’s costs (totaling £3,736,451) and for Mr Kelbrick/Attock Mauritius (£2,798,000). The orders were not made in ‘unless’ form, allowing liberty to apply to address potential non-compliance.

Liquidators Not Personally Liable For Costs Despite Erroneous Admission Of Foleys’ Proof Of Debt.

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Background

This matter concerns the liquidation of Saville Foley LLP (“the LLP”), involving two primary applications. The first application was submitted by Sanrose Investment Limited (“Sanrose”) on 3 August 2023, seeking the reversal of the decision by the LLP’s joint liquidators, Tyrone Courtman and Deviesh Raikundalia (“the Liquidators”) to admit the proof of debt submitted by Lawrence Foley and Jennifer Foley (“the Foleys”) for £502,428. Additionally, Sanrose sought a personal costs order against the Liquidators in case their application succeeded. The second application, dated 6 September 2023, was made by FWJ Legal Limited (“FWJ”), seeking the reversal or variation of the Liquidators’ decision to reject FWJ’s proof of debt dated 10 August 2023.

To provide context, the LLP was incorporated on 8 June 2011 to develop a property in Chelmsford, Essex (“the Property”). The initial members were the Foleys and the Savilles, with Foley Investments Limited (“FIL”), owned by the Foleys, eventually becoming one of the two designated members alongside Sanrose, owned by the Savilles. Despite numerous planning applications and agreements, the development was never completed, leading to significant discord and eventually to the winding-up of the LLP on 13 January 2021, ordered on Sanrose’s contributory petition.

The Liquidators, who were appointed on 1 February 2021, had to deal with the complexities arising from the claims submitted by the parties involved. These included Sanrose’s accepted loan proof of £450,000, FIL’s rejected proof of £450,000, and the Foleys’ accepted proof of £502,428. The dispute largely stemmed from the intricate financial interactions and contributions towards the aborted development project. Against this backdrop, the court was invited to determine the validity and accuracy of the Liquidators’ decisions regarding these proofs and the overall handling of costs incurred in these proceedings.

Costs Issues Before the Court

The court faced several key cost-related questions. Primarily, whether the Liquidators’ decision to accept the Foleys’ proof of debt was correct, which would determine whether Sanrose’s application to reverse that decision should succeed. Additionally, the validity of the Liquidators’ rejection of FWJ’s proof of debt, which depended significantly on the interpretation of the Deed of Assignment and Charge (“DOA”) between FWJ and FIL, was scrutinized. Finally, the issue of whether a personal costs order against the Liquidators was warranted, based on their conduct during the decision-making process, also needed to be resolved.

The Parties’ Positions

Sanrose, represented by Mr Nathan Webb, argued that the Liquidators had erred in admitting the Foleys’ proof of debt. They contended that the proof in question was not properly substantiated and that the evidence overwhelmingly supported the view that any outstanding sums were owed to FIL, not the Foleys personally. They suggested that inconsistencies and errors in financial documentation further supported this position, and they sought to have the decision reversed and costs awarded against the Liquidators personally for procedural failings.

The Foleys, representing themselves, struggled to clearly articulate their claim but appeared to assert that they were personally owed a debt due to their initial property contribution and other associated costs. They maintained that various payments and transactions with the Savilles equaled a legitimate personal investment in the LLP, qualifying them for such a debt.

FWJ, represented by Mr Adam Deacock, submitted that their claim should be recognised by virtue of the DOA with FIL, which they contended assigned FIL’s rights in the LLP’s liquidation to FWJ. They argued that the intent of the DOA encompassed any liquidation scenario, not limited to a member’s voluntary liquidation, raising questions about contractual interpretation.

The Liquidators, though adopting a largely neutral stance, defended their process and substantive rationality of the decisions made, particularly the acceptance of the Foleys’ proof of debt. They explained this was based on viewing the contributions made by the Foleys as loans and personal investments, aligning with the evidence available in various financial records and correspondence.

The Court’s Decision

In its analysis, the court determined that the Liquidators’ decision to admit the Foleys’ proof of debt must be reversed. The evidence suggested that any ongoing financial claim was more properly ascribed to FIL, not the Foleys personally. This conclusion was supported by the historical accounts, contractual documents, and previous legal positions stated by the parties. Consequently, the court ruled that FIL was the proper creditor, entitled to a debt of £450,000, and therefore should participate in the distribution of the LLP’s assets in liquidation.

Regarding FWJ’s claim, the court reasoned that the DOA between FWJ and FIL effectively assigned FIL’s rights in the LLP’s liquidation to FWJ, despite the specific reference to a member’s voluntary liquidation. By interpreting the DOA within its broader context and the factual backdrop of the compulsory liquidation, the court recognised FWJ’s entitlement to prove in the liquidation based on their rights under the DOA.

On the question of a personal costs order against the Liquidators, the court found no evidence of bad faith or irrational conduct. It was noted that the Liquidators acted in a quasi-judicial capacity and made decisions based on their professional judgment and available evidence. The procedural approach, including the meeting with Mr. Foley, was not deemed improper or indicative of bias. As such, a personal costs order against the Liquidators was not warranted.

In summary, the court’s decisions clarified the proper allocation of debts among the parties involved, affirming the rights of FIL and FWJ within the liquidation process while exonerating the Liquidators from personal costs liability due to the absence of misconduct or unreasonable behavior on their part.`