Issue 3 August 2012 IT S NOT PERSONAL FOR INSOLVENCY PRACTITIONERS

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1 Issue 3 August 2012 IT S NOT PERSONAL FOR INSOLVENCY PRACTITIONERS A recent High Court decision is good news for Insolvency Practitioners in that generally they will not be personally liable under contracts entered into by them in that capacity. The case of Wright Hassall LLP v Duncan Morris [2012] EWHC 188 (Ch) was a claim by a firm of solicitors, Wright Hassall LLP, against an Insolvency Practitioner, Mr Duncan Morris. Mr Morris is an IP for the Redfern Partnership. He was appointed as the administrator of two companies who were Defendants in ongoing litigation. In that litigation Mr Morris entered into conditional fee agreements with the firm of solicitors. The conditional fee agreements did not include any disclaimer of personal liability. The litigation was settled but invoices issued by the solicitors went unpaid. The solicitors issued Court Proceedings against Mr Morris on 4 March The Claim Form named the Defendant as Mr Duncan Morris... and Mr Timothy Heaselgrave... together trading as the Redfern Partnership (a firm). Mr Morris argued in his Defence that he had instructed the solicitors in his capacity as administrator of the companies, and not in a personal capacity. On 24 July 2009 the solicitors amended their Claim Form to name him as Mr Duncan Roderick Morris, the administrator of.... References to Mr Heaselgrave and to the Redfern Partnership were deleted. Mr Morris then amended his Defence to argue that the conditional fee agreements were made with the companies and not with him personally. The Claim came before His Honour Judge Brown QC, who found in favour of the solicitors holding that they were entitled to their costs arising under the conditional fee agreements. The Judge did not directly address the issue of who the contracting party was. The Court Order was made against Mr Duncan R Morris (administrator for...). There were insufficient funds in the insolvency estates of the companies to make payment. The solicitors issued a new claim against Mr Morris seeking to enforce the debt against him personally. His Honour Judge David Cooke decided that naming the Defendant in the conditional fee agreements as an individual as administrator of... recognised that the IP was acting as an agent of the companies rather than in a personal capacity. This reflects paragraph 69 of Schedule B1 to the Insolvency Act Therefore the administrator contracted as an agent of the companies and not in his personal capacity. The Court Order made by HHJ Brown QC was only enforceable against the companies, and not against Mr Morris personally. In conclusion, an administrator who enters into a contract in his capacity as an administrator will not generally be personally liable under that contract.

2 If you have any queries that you would like to discuss about the issues raised in this article please contact: Glyn Lancefield Solicitor, Commercial Litigation Tel: TERMS AND CONDITIONS: ARE YOURS INCORPORATED? A business s terms and conditions are an essential pre-requisite to it trading. They govern the trading relationship between it and its customers and hopefully address most expected and some unexpected eventualities. Many hours are spent agonising over these documents until the final version is signed off. How galling would it be, having spent all that time in drafting them for them not to be applicable! It is not unusual for contracting parties to vie with one another to have their terms and conditions accepted as the basis for the contract and the party with the best bargaining position is likely to be the winner. If a particular term relied upon is either particularly onerous or unusual then the party tendering the document must show that it has fairly and reasonably been brought to the other party s attention. This goes beyond simply providing them with a copy of the terms and conditions. Nowadays with a computer connected to the internet on every desk, a business s terms and conditions tend to be on the business s website and reference is made in the contract documentation to where they can be found. Despite this, the old principles still apply that a business s terms and conditions must be incorporated into the contract and particularly onerous or unusual clauses must be drawn to the other party s attention to be enforceable. Clauses on order forms, even if signed, which say By signing this agreement you confirm acceptance to our terms and conditions are unlikely to incorporate the terms and conditions of the business unless it can be proved that the terms and conditions were brought to the attention of the contracting party. It is therefore worthwhile regularly reviewing your terms and conditions of business to ensure that the clauses within them are inline with the relevant industry standards and if some are particularly onerous or unusual that they are highlighted to the other contracting party. Copies of the terms and conditions of business should be sent out with every quotation for work and you should seek a written confirmation acknowledging them, to seek to safeguard your position. If you have any queries about your terms and conditions that you would like to discuss please contact: Stuart Irons Partner, Commercial Litigation Tel: stuart.irons@brabnerscs.com

3 COSTS MANAGEMENT: LIMITING LITIGATION COSTS For the last few months, a costs management scheme has been piloted in all cases proceeding in certain courts: the Mercantile Court (which, essentially, deals with business disputes) and the Technology & Construction Court (which - yes, you've guessed it! - deals with technology and construction disputes). Under the pilot scheme, each party - at an early stage in proceedings - must lodge at Court (and serve on each other) a costs budget, setting out an estimate of its own costs for each stage of the litigation process. Here's where it gets interesting: the Court can then make, based on that costs budget, a Costs Management Order. If it does, it will, after making any appropriate revisions, approve a party's budget. It can also monitor expenditure going forward to compare progress against that budget. At the conclusion of a case, when assessing the costs payable by the losing party to the winning party, the Court will have regard to the approved budgets and won't depart from them unless it's satisfied that there's good reason to do so. There is power to ask the Court to vary the figures contained in the costs budget, and potentially the devil is in the detail, but the basic rule is that where the Court makes a Costs Management Order the costs which the receiving party can recover will be capped at (or around) the figure in the costs budget. What does this mean in practice for parties engaged in a dispute to which the pilot scheme applies? They will know, at an early stage, what their maximum liability in costs to the other side is likely to be. This will enable parties to budget for a 'worst case scenario', i.e. one in which they are ordered to pay the other side's costs. Hence, parties can know - before they are too immersed in litigation - what level of risk they are facing. This will enable our clients to make a fully informed decision about whether to proceed with the litigation and to budget effectively. The first few months of the pilot have seen Courts 'feeling their way' through the novel and not entirely straightforward maze of costs management. The first judgment on the subject has recently come from the senior costs judge, who ruled that where a party had exceeded his costs budget and failed to pass this information on to the Court and his opponent, he was prevented from recovering the excess from his opponent. Costs budgeting is the future. The likelihood is that from April 2013 it will be rolled-out across the civil courts. At Brabners Chaffe Street we support anything which fosters transparency in legal costs. In the same way that we believe in giving our clients full costs information at an early stage, so we regard transparency and certainty in relation to the opponent's costs as being conducive to sensible and proportionate litigation. If you would like more information about this new development on costs management or on ways to limit litigation costs exposure generally please contact: Jeff Lewis Partner, Commercial Litigation Tel: jeff.lewis@brabnerscs.com

4 LEGAL TIME LIMITS - 7 THINGS YOU DIDN T KNOW The topic of legal time limits has been thrust into the media spotlight recently following the debacle surrounding the deportation of the radical cleric Abu Qatada and the declaration of the Home Secretary, Theresa May, to the House of Commons. Rarely is such a mundane yet important issue give such media attention within the public domain. Many may subscribe to the thought that the interpretation of legal deadlines is a topic reserved for the practice of lawyers and whilst this may generally be the case, in this increasingly litigious environment that we now live in, it is important for individuals and business alike to be aware of the basic legal time limits. Failure to do so may jeopardise your rights to pursue a legitimate action and equally may open you up to a liability which could have otherwise been opposed. Whilst it remains important that legal advice is obtained at the earliest opportunity within legal proceedings here are 7 of the most common legal time limits: 1. If served with a Claim Form a defendant has 14 days in which to acknowledge the claim. In default a judgment may be entered. 2. There is a general statutory rule that civil actions (such as a breach of contract claim) must be commenced within 6 years of the date on which the cause of action (i.e. the breach) occurred. 3. If served with a Statutory Demand the debtor has 18 days in which to apply to the court to set aside the demand or 21 days in which to make payment to the creditor. Failure to comply with either deadline may result in insolvency proceedings being commenced. 4. In defamation proceedings the defamed party has 1 year in which to commence proceedings. 5. An employee has 3 months to make a tribunal claim if they have been unfairly dismissed. 6. Public bodies have 40 days to respond to a Freedom of Information Act request. 7. Personal injury claims must generally be commenced within 3 years of the injury occurring. The premature announcement of Theresa May to the House of Commons that Mr Abu Qatada was to be deported following the misguided understanding that the 3 month period in which Mr Qatada had to appeal the decision had expired serves as a reminder of the importance of understanding and interpreting the correct legal time limits. If you have any queries or require advice about any of the issues raised in this article please do not hesitate to contact: Jack Froggatt Solicitor, Commercial Litigation Tel: jack.froggatt@brabnerscs.com

5 SHEDDING LIGHT ON ADMINISTRATORS LIABILITY FOR COMPANY RENT ARREARS In the recent High Court decision in Leisure (II) Ltd & Others v Luminar Lava Ignite Ltd & Others it was considered whether rent falling due for payment prior to appointment of an administrator by the tenant could be claimed by the landlord against the administrator as an expense of the administration. It has long been the case that, from the date of administration, rent is recoverable from administrators of tenant companies as an expense of the administration where the administrator occupies the leased premises. The Court had not previously been called on to consider the position relating to rent falling due prior to administration. On the facts of this case the tenant traded from various leased premises and entered administration leaving rent which had fallen due for payment owing to the landlord. The landlord applied to Court seeking an Order that the administrator pay all outstanding rent arrears both pre and post administration. It was argued that the administrator s use of the premises benefitted the tenant company s creditors except the landlord and that it was unfair that the landlord could not forfeit the lease for non payment of rent due to the moratorium created by the administration. The Landlord was unsuccessful in the application. The Court held that an administrators liability for payment of rent to a landlord as an expense of the administration is limited to the administrator s use of the premises within the administration. In light of this decision administrators who are about to be appointed around a rent payment date may be best advised to wait until after that date to confirm the appointment assuming that the circumstances allow for this. If you have any queries or require advice about any of the issues raised in this article please do not hesitate to contact: Simon Morris Associate, Commercial Litigation Tel: simon.morris@brabnerscs.com

6 PROTECTING DEFENDANT CLIENTS: SECURITY FOR COSTS AND ATE INSURANCE Red Flag Alert s quarterly benchmark of company distress revealed a 24% year-on-year increase in the number of companies suffering critical levels of financial distress during the last three months of The Insolvency Service has subsequently revealed that in the first quarter of 2012, company insolvencies have increased by 0.2% on the previous quarter and by 4.3% when compared to the first quarter of These increases highlight the need for legal practitioners who are acting for a Defendant, against which a claim has been brought by a company, to be ever mindful of the powerful weapon that is a security for costs application. Failure to consider the need for such an application could result in their Defendant client being left with a hefty legal bill and being unable to recover any legal costs from the Claimant company. A court has jurisdiction to grant security for costs where there is reason to believe that a Claimant company will be unable to pay the Defendant s costs if ordered to do so and where the court is satisfied that it is just to grant such an order. A Claimant company may secure After The Event (ATE) insurance, which covers the Claimant s liability to pay the Defendant s costs. Will this obviate the need for a security for costs application? One might be minded to think so, on the basis that the ATE insurance is, although between the Claimant and insurer, indirectly providing security for the Defendant s costs. However, this is not necessarily so. The decision in Michael Phillips Architects Ltd v Riklin [2010] EWHC 834 (TCC) indicates that whilst ATE insurance can provide sufficient costs protection for a Defendant, there may be terms pursuant to which the insurer can readily but legitimately and contractually avoid liability to pay the Defendant s costs. Before deciding that a security for costs application is unnecessary, legal practitioners should examine the terms of the ATE insurance carefully so as to determine whether it really does provide the Defendant with costs security, in particular query whether there are extensive cancellation rights within the policy. Examples of clauses to look out for are those permitting cancellation where: 1. The insurer gives a specified period of notice 2. There is a Conditional Fee Agreement between the Claimant and their solicitors and that agreement terminates for whatever reason 3. The insurer considers that there is no longer a reasonable prospect of successfully defending the claim 4. There is any material misrepresentation or non-disclosure in relation to the insurance or the proceedings; and 5. The Claimant fails to inform the insurer of anything that may materially alter its assessment of the claim. The above examples demonstrate that far from providing a Defendant with security in respect of its costs, ATE insurance can actually put the Defendant at the mercy of the Claimant and insurer in that regard. In such circumstances, the ATE insurance will not obviate the need for a security for costs application.

7 This article has been written by Paul Lunt, Head of the Litigation team in Liverpool, assisted by trainee Peter Humphreys. If you have any queries or require advice about any of the issues raised please do not hesitate to contact: Paul Lunt Head of Litigation - Liverpool Tel: paul.lunt@brabnerscs.com IN OTHER NEWS The High Court has recently dismissed a multi-million pound negligence claim commenced by Mr Joyce who was left confined to a wheelchair after falling out of a van driven by his uncle, Edward O Brien. In a strange set of circumstances, the accident took place after the pair stole a pair of ladders from a property in South London. Mr Joyce was left clinging to the back of the van as Mr O Brien made a speedy get away with the rear doors of the vehicle still open. Unsurprisingly, Mr Joyce fell out of the moving vehicle and hit his head on the road and it was only when Mr O Brien had dumped the stolen ladders in an alleyway after driving another 100m that he returned to attend to his badly injured nephew. In his judgment Mr Justice-Cooke concluded that a joint enterprise which involves a theft and speedy getaway; where one person is driving and the other is clinging dangerously to the stolen items and to the rear of an open van, that an injured party cannot recover for injuries suffered in the course of that enterprise as the risk and danger were inherent in the enterprise itself and therefore the driver cannot owe a duty of care to his co-conspirator. If you wish to discuss any litigation issues you may have please do not hesitate to contact: Jack Froggatt Solicitor, Commercial Litigation Tel: jack.froggatt@brabnerscs.com This bulletin is for general guidance purposes only and should not be used for any other purpose If you wish to receive this bulletin please let us know by contacting Liz Fox at: Liz.Fox@brabnerscs.com Brabners Chaffe Street is a Limited Liability Partnership