Seeking costs for examinees at a private examination (Re Saad Investments)

11 Jul 2016 | 6 min read

Katherine Hallett, a barrister at Three Stone, considers the decision in Re Saad Investments which concerned the circumstances in which the court will award an examinee their costs of representation at a private examination.

Original news

Re Saad Investments Company Ltd and another (in liquidation); Akers and others v Hayley [2016] Lexis Citation 69, [2016] All ER (D) 103 (Jun)

The Companies Court held that it had an unfettered discretion, under rule 9.6(4) of the Insolvency Rules 1986, SI 1986/1925 (IR 1986), to award legal costs to an examinee examined on the application of joint liquidators, under section 236 of the Insolvency Act 1986 (IA 1986), as part of an inquiry into the dealings of two companies in liquidation. An order was made providing for the reasonable costs of the respondent's representation at the examination. However, given the narrow scope of rule 9.6(4), no order was be made requiring the joint liquidators to pay the respondent's pre-application costs, save to the extent that they could be said to be of, and incidental to, the examination in the strictest sense.

What practical lessons can those advising take away from this case?

While it should not be thought that examinees will never get their costs of representation at a private examination, it is likely in practice that such cases will be rare—costs will be payable by the estate in only the most exceptional cases.

However, liquidators should note the factors which persuaded the Chief Registrar to order payment of the examinee’s costs of counsel in this case. These included the delay by the liquidators in contact the examinee and the manner in which a pre-examination interview had been conducted.

What was the background to the hearing?

Mr Hayley had been privately examined pursuant to IA 1986, s 236 upon application by the liquidators of two companies. Due to the complexity of the case, Mr Hayley was represented by counsel at the private examination. There was no suggestion that Mr Hayley was implicated in the fraud which was alleged to have been perpetrated.

The Chief Registrar had already ordered that Mr Hayley should pay the liquidators’ costs of and incidental to the hearing. However, he had reserved judgment on whether Mr Hayley’s costs of representation at the examination should be paid from the estates. This was that judgment.

What were the legal issues the Chief Registrar had to decide?

The Chief Registrar had to decide on the ambit of the discretion to award costs to an examinee and whether that discretion should be exercised in this case.

The liquidators accepted that IR 1986, r 9.6(4) gave the court such a power, but they argued that the provision of information to a liquidator was a public duty in aid of the administration of justice and so the court would not generally award an examinee his costs.

What were the main legal arguments put forward?

The liquidators relied on case law from the nineteenth and early twentieth centuries for the proposition that examinees or mere witnesses were free to retain counsel but that would be at their own expense (see Re, ex p Waddell, Lutscher (1877) 6 Ch D 328 and Re Appleton, French and Scrafton Limited [1905] 1 Ch 749, [1904-7] All ER Rep Ext 1343).

However, Mr Hayley argued that there were a number of reasons why the court should exercise its discretion to award him his costs of being examined in this case.

What did the Chief Registrar decide, and why?

The Chief Registrar concluded that the court had a discretion to award legal costs to an examinee—authority pre-dating the modern IR 1986, r 9.6(4) should not be taken as amounting to anything more than a statement of what the practice was when such cases were decided. That was in line with the approach taken by Mr Registrar Jones in Re Harvest Finance Ltd (In Liquidation) [2015] 2 BCLC 240, [2014] All ER (D) 216 (Dec).

Mr Hayley was awarded his reasonable costs of his representation at the examination. This was for several reasons:

  • the value and complexity of the case
  • the alleged fraud perpetrated while Mr Hayley was general manager of a company with which the companies in liquidation had ‘close ties’
  • the liquidators delay in contacting Mr Hayley
  • the break-down of a pre-examination interview with Mr Hayley which constituted ‘a particularly pointless occasion’

These matters took the case ‘out of the mainstream of private examinations’.

In addition, firstly, the liquidators had ‘ample funds’ at their disposal. The Chief Registrar concluded that the availability of assets or funding was a factor to which the court may have regard in such circumstances. Secondly, there may well have been a benefit to all parties in Mr Hayley being represented by counsel during the examination. The examination was ‘no ordinary one’.

It should also be noted that the Chief Registrar held that he had no jurisdiction to order payment of Mr Hayley’s ‘pre-application costs’—ie costs incurred in cooperating with the liquidators, attending for interview and providing a written statement. IR 1986, r 9.6(4) is ‘narrow in its scope’ and limited to dealing with costs arising out of an examination, not costs attributable to an alternative method of gathering information.

To what extent is the judgment helpful in clarifying the law in this area?

The case is helpful in confirming the modern existence of the jurisdiction to award the examinee their costs of a private examination and in clarifying when a court may exercise that discretion, listing specific factors (some or all of which may apply in other cases).

However, the Chief Registrar also makes it clear that his judgment was ‘not intended to set any precedent’—it was made in circumstances which he regarded as exceptional.

Interviewed by Diana Bentley.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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Inquiry into a company's dealings (including by way of private examination) under section 236 of the Insolvency Act 1986 

Checklist and time-line for evidence and property collection—checklist

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First published on LexisPSL Restructuring and Insolvency

 

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