23 July 2018

Background

The appellants were the parents of eight children, at the time aged 14, 12, 1, 9, 7, 5, 2 and 8 months. In July 2007, the police exercised their powers under s 46 of the Children Act 1989 (the ChA 1989) in respect of all eight children. Section 46 enabled a police officer who had reasonable cause to believe that a child would otherwise be likely to suffer significant harm to remove the child to suitable accommodation and keep him there for a maximum of 72 hours.

The 72 hours of police protection expired on 8 July. On 9 July, the parents went to the offices of the respondent local authority (the authority) and requested the return of their children. They were told that they could not take the children home.

On 11 September, the children were returned to their parents.

In July 2013, the appellants commended proceedings, seeking damages for, among other things, breach of their rights under art 8 of the European Convention on Human Rights (the art 8 claim). The claim was dismissed, apart from the art 8 claim. The court held that the authority’s interference with the parents’ art 8 rights had not been in accordance with the law, because there had been no lawful basis for the accommodation of the children.

The authority appealed successfully to the Court of Appeal, Civil Division. The appellants appealed to the Supreme Court.

Appeal dismissed.

Issues and decisions

Whether there had been a lawful basis for the children’s accommodation under the ChA 1989, s 20 when the 72 hours of police protection under s 46 had expired.

First, the starting point had to be parental responsibility. All mothers and most fathers presently had it automatically. It encompassed all the rights of a parent: most obviously and fundamentally, the right to look after and bring up one’s own children. A person with parental responsibility could arrange for some or all of his parental responsibility to be met by others acting on his behalf, and the exercise of parental responsibility could be circumscribed by court order. However, a local authority could not interfere with a person’s exercise of their parental responsibility, against their will, unless it had first obtained a court order (see [38] of the judgment).

Second, it could be confusing to talk of parental ‘consent’ to the removal of a child. If a parent did consent, he was simply delegating the exercise of parental responsibility for the time being to the local authority. Any such delegation had to be real and voluntary. A delegation could be ‘real and voluntary’ without being fully ‘informed’ (see [39] of the judgment).

Third, removing a child from the care of a parent was very different from stepping into the breach when a parent was not looking after the child (see [40] of the judgment).

Fourth, parents might ask the local authority to accommodate a child, as part of the services they provided for children in need (see [41] of the judgment).

Fifth, ChA 1989 s 20(7) operated as a restriction on the powers and duties of the local authority. The authority could not accommodate a child if a parent with parental responsibility, who was willing and able either to accommodate the child himself of arrange for someone else to do so, objected to the local authority doing so. It said nothing about the suitability of the parent or the accommodation being arranged (see [42] of the judgment).

Sixth, ChA s 20(8) made it absolutely clear that a parent with parental responsibility could remove the child from accommodation provided or arranged by a local authority at any time. There was no need to give notice, in writing or otherwise. It followed that, if a parent unequivocally required the return of a child, the local authority had neither the power nor the duty to continue to accommodate the child and had to either return the child or obtain the power to continue to look after it, either by way of police protection or an emergency protection order (see [44], [45] of the judgment).

Seventh, the right to object in ChA 1989 s 20(7) and the right to remove in s 20(8) were qualified by ss (9) and (10). Those catered for court orders which had determined with whom a child was to live (see [47] of the judgment).

Eighth, ChA 1989 s 20 made special provision for children who had reached 16 (see [48] of the judgment).

Ninth, there was nothing in ChA 1989 s 20 to place a limit on the length of time for which a child might be accommodated. However, local authorities had a variety of duties towards the children whom they were accommodating (see [49] of the judgment).

Thus, although the object of s 20 accommodation was partnership with the parents, the local authority also had to think of the longer term. There were bound to be cases where that had to include consideration of whether or not the authority should seek to take parental responsibility for an accommodated child by applying for a care order (see [50] of the judgment).

Although it was not a breach of s 20 to keep a child in accommodation for a long time without bringing care proceedings, it might well be a breach of other duties under ChA 1989 and the Regulations, or unreasonable in public law terms to do so. In some cases, there could also be breaches of the child’s and of the parents’ rights under ECHR art 8 (see [52] of the judgment).

In sum, there were circumstances in which a real and voluntary delegation of the exercise of parental responsibility was required for a local authority to accommodate a child under ChA s 20, albeit not in every case. Parents with parental responsibility always had a qualified right to object and an unqualified right to remove their children at all. Section 20 gave local authorities no compulsory powers over parents or their children and ought not to be used in such a way as to give the impression that it did. It was obviously good practice that, in every case, parents should be given clear and accurate information, both orally and in writing, as to their own rights and as to the responsibilities of the local authority before a child was accommodated under s 20 or as soon as possible thereafter (see [64] of the judgment).

On the evidence, the parents not having objected or unequivocally requested the children’s immediate return, there had been a lawful basis for the children’s continued accommodation under ChA s 20. That meant that the ground on which the judge had held their accommodation to have been in breach of the parents’ art 8 rights was not made out (see [61] of the judgment).

It followed that the parents’  claims under the HRA 1988 ought to have been dismissed (see [63] of the judgment).

R (on the application of G) v Nottingham City Council [2008] All ER (D) 45 (Mar) considered; Gloucester County Council v S and C1 and C2 [2015] EWFC B149 considered; In re A (Application for Care and Placement Order: Local Authority Failings) [2015] EWFC 11 considered; Coventry City Council v C [2012] All ER (D) 69 (Aug) considered; In re H (a Child: Breach of Convention Right: Damages) [2014] EWFC 38 considered; Re W (parental agreement with local authority) [2014] EWCA Civ 1065 considered; Medway Council v A (Learning Disability: Foster Placement) [2015] EWFC B66 considered; Northamptonshire County v AS and others [2015] All ER (D) 52 (Feb) considered; Re AS, London Borough of Brent v MS, RS and AS [2015] EWFC B150 considered; Medway Council v M and T [2015] EWFC B164 considered; N (Children) (Adoption: Jurisdiction), Re [2016] 1 All ER 1086 considered; A Local Authority v AB and another [2018] All ER (D) 171 (Feb) considered; A (a child), Re [2015] All ER (D) 234 (Feb) considered; Re P (a Child) (Use of s 20 Children Act 1989) [2014] EWFC 775 considered.

Decision of Court of Appeal, Civil Division [2017] All ER (D) 101 (Jan) Affirmed On Other Grounds.

Deidre Fottrell QC, Louise MacLynn and Christine Cooper (instructed by Sky Solicitors) for the appellants.

Nicholas Stewart QC and Ali Reza Sinai (instructed by London Borough of Hackney Legal Services) for the authority.

Charles Geekie QC and Sharon Segal (instructed by Coram Children’s Legal Centre) for Coram Children’s Legal Centre, as intervener.

Mark Twomey QC and Alex Laing (instructed by TV Edwards LLP) for the Association of Lawyers for Children, as intervener.

Alex Verdan QC, Olivia Magennis, Michael Edwards and Indu Kumar (instructed by Goodman Ray LLP) for Family Rights Group, as intervener.

Fiona Scolding QC (instructed by Equality and Human Rights Commission) for Equality and Human Rights Commission, as intervener.

Toby Frost Barrister.

The appellant parents’ appeal against the dismissal of their claim by the Court of Appeal failed. They had contended that the accommodation of their children under the Children Act 1989 had constituted a breach of their human rights under art 8 of the European Convention on Human Rights, once the period of 72 hours’ accommodation specified under s 46 of the Act had passed. The Supreme Court held that, the parents not having objected or unequivocally requested the children’s immediate return, there had been a lawful basis for the children’s continued accommodation. That meant that the ground on which the judge had held their accommodation to have been in breach of the parents’ art 8 rights had not been made out.

Background

The husband and wife were married in 1987. The wife was a qualified beauty therapist. In the early years of the marriage she had worked, self-employed, in that capacity. They had one child, a son. In 2000, the husband left the family home. On 7 June 2002, in the ensuing divorce proceedings, financial issues were resolved within a consent order. In addition to provision for their son,  the order provided, among other things, that the home, vested in the joint names of the parties, should be sold and its net proceeds should be divided in accordance with a formula which in the event yielded £230,000 for the wife in settlement of all her capital claims against the husband. The order further provided that the husband should make periodical payments to her at the annual rate of £13,200 (not index-linked) on the open-ended basis, namely during their joint lives until her remarriage or further order in the interim.

In 2002, the wife purchased a house in Weybridge for £345,000 by deploying in effect her entire share of the proceeds of the home and by raising the balance of £125,000 on mortgage. By that time, the wife had begun to work again as a beauty therapist, but part-time. In 2006, the wife sold the house in Weybridge and in 2009 she began to rent accommodation. Between 2009 and 2015, the wife had rented six successive properties in London and Surrey. By April 2015, the wife had no capital and had overdrafts of £4,000, credit card liabilities of £18,000 and a tax liability of about £20,000.

The husband had applied to the Central Family Court for discharge of the order for periodical payments on his payment to the wife of a modest capital sum, say of £26,000; or for a fixed period to be set on her continued receipt of periodical payments and/or for a downwards variation of their amount. The wife had cross-applied for an upwards variation of their amount. Both applications were made under s 31(1) of the Matrimonial Causes Act 1973 (MCA 1973). Pursuant to MCA 1973 s 31(7)(a), the court should consider whether in all the circumstances and after having regard to any change in any of the matters to which the court had been required to have regard when making the order to which the application related, it would be appropriate to vary the order. At the hearing, the judge was given a breakdown of what was suggested to be the amount of the wife’s necessary annual expenditure. Exclusive of figures referable to the adult son, the annual total was £35,792, of which £10,200 was for rent. Following deduction of her earnings of £18,500, the wife’s annual need was therefore for £17,292.

The judge analysed the wife’s loss of the capital sum awarded to her in 2002 and held, among other things, that the award in 2002 would have enabled her to buy a home free of mortgage, but that she had not managed her finances wisely. Consequently, the judge countenanced a shortfall of £4,092 between the wife’s annual need for £17,292 and the husband’s obligation to meet it. He rejected the husband’s submission that the wife’s need to pay rent of £10,200 should be entirely eliminated from the total needs which it would be appropriate for him to meet. Nevertheless, he found it fair that the husband’s contribution to the wife’s needs should not include a full contribution to her housing costs. The judge found on clear evidence that the husband could afford to continue to make periodical payments in the annual sum of £13,200. With regard to the husband’s application for him to set a fixed period upon the wife’s continued receipt of the periodical payments, applying s 31(7)(a), the judge concluded that he could not identify any fixed period as being sufficient to enable the wife to adjust without undue hardship to their termination. It followed that the order should continue to require them to be paid on the open-ended basis. Accordingly, the judge dismissed both the husband’s application and the wife’s cross-application. The husband and the wife sought permission to appeal from the Court of Appeal, Civil Division.

The Court of Appeal allowed the wife’s appeal by varying the order for periodical payments upwards from the annual sum of £13,200 to that of £17,292, backdated to the date of the judge’s judgment. The husband appealed.

Issues and decisions

Whether the court was entitled to decline to increase the order for the husband to make periodical payments to the wife so as to fund payment of all (or perhaps even any) of her rent even if he could afford to do so in circumstances in which the wife had exhausted the capital awarded to her by entry into a series of unwise transactions and so developed a need to pay rent.

In addressing that question, the Court had to consider three earlier decisions of the Court of Appeal, namely Pearce v Pearce[2003] All ER (D) 467 (Jul)(Pearce), North v North[2007] All ER (D) 386 (Jul), (North) and Yates v Yates[2012] All ER (D) 209 (Mar) (Yates).

The cases of Pearce, North and Yates had been correctly decided. The answer to the question before the Court was ‘yes’. By its terms, that question asked only whether a court would be ‘entitled’, rather than obliged, in the circumstances there identified to decline to require the husband to fund payment of the rent. Its reference to the court’s entitlement to do so served to respect the wide discretion conferred upon it by MCA 1973 s 31(1) and (7) in determining an application for variation of an order for periodical payments. However, in the relevant passages in Pearce, North and Yates, the Court of Appeal had expressed itself in forceful terms; and a court would need to give very good reasons for requiring a spouse to fund payment of the other spouse’s rent in the circumstances identified by the question. A spouse might well have an obligation to make provision for the other; but an obligation to duplicate it in such circumstances was most improbable. Accordingly, the judge had clearly been entitled to decline to vary the order for periodical payments so as to require the husband to pay all of the wife’s rent (see [40], [41] of the judgment).

The Court of Appeal’s order would be set aside and the judge’s order would be restored (see [41] of the judgment).

Pearce v Pearce [2003] All ER (D) 467 (Jul) approved; North v North [2007] All ER (D) 386 (Jul) approved; Yates v Yates (judgment delivered extempore) [2012] All ER (D) 209 (Mar) approved.

Decision ofCourt of Appeal, Civil Division [2017] EWCA Civ 12 Reversed.

Philip Cayford QC and Sassa-Ann Amaouche (instructed by Lodders Solicitors LLP) for the husband.

Frank Feehan QC and Katherine Dunseath (instructed by Osbornes Solicitors LLP) for the wife.

Neneh Munu Barrister.

The judge had clearly been entitled to decline to vary the order for periodical payments so as to require the husband to pay all of the wife’s rent, even if he could afford to do so, in circumstances where the wife had exhausted the capital awarded to her by entry into a series of unwise transactions thereby developing a need to pay rent. The Supreme Court so held having considered and approved three earlier decisions of the Court of Appeal, Civil Division, to the same effect. Consequently, it allowed the husband’s appeal against the Court of Appeal’s order for upwards variation of an order for periodical payments made against him in favour of the wife.

Background

The claimant arrived at Southampton airport from Amsterdam. He  was stopped by an officer who questioned him and he was required to submit his baggage for examination. The claimant  asked for the reasons why he had been selected for searching, and was told that the examination of his bag was that permitted by s 78 of the Customs and Excise Management Act 1979 (the CEMA 1979) and that no other reason for the selection of him would be given.

The claimant issued judicial review proceedings. The judge rejected his argument that there was a requirement for a specific reason for search connected with the individual.  Rather, he concluded that the requirement of necessity was for the existence of a system of search. The judge further rejected the obligation to give reasons, because it arose from the need to demonstrate a reasonable cause. The claimant appealed.  

Appeal dismissed.

Issues and decisions

Whether the defendant Secretary of State had a duty to give reasons for the exercise of the power set out in the CEMA 1979 s 78.

The removal of the ‘reasonable suspicion’ test bearing on an individual in the previous version of the legislation left a broader test of necessity. It was inconceivable that Parliament had intended to narrow, rather than broaden, the basis of such stop and search powers. The legislative intention had clearly been to broaden the exercise of the power and the language of the statute was consistent with that. The requirements of the common law had been analysed from the previous statutory language. The clear intention of Parliament had to have had the effect of abrogating those requirements (see [24], [25], [28] of the judgment).

Parliament had chosen to remove the threshold of reasonable suspicion of an individual, so that a necessary process or system would be enfranchised by the CEMA 1979.  If that was correct, and no individual necessity need be present, any requirement to give individual reasons fell away (see [27], [28] of the judgment).  

R (on the application of Hoverspeed Ltd) v Customs and Excise Comrs [2003] 2 All ER 553 considered.

Decision of Mark Ockelton  [2014] EWHC 4674 (Admin) affirmed.

David Gardner (instructed by Rustem Guardian LLP) for the claimant.

Amelia Walker (instructed by the Government Legal Department) for the Secretary of State.

Karina Weller - Solicitor (NSW) (non-practising).

The power of stop and search of baggage laid down in s 78(2) of the Customs and Excise Management Act 1979 could be exercised when there was an objective necessity for a system of search, not only when there was an objective necessity to stop and search the individual concerned. The Court of Appeal, Civil Division, in dismissing the claimant’s appeal, held that Parliament had chosen to remove the threshold of reasonable suspicion of an individual in the previous version of the legislation, so that a necessary process or system would be enfranchised.

Legislation

Paragraph 74 of Sch B1 to the Insolvency Act 1986 (IA 1986) provides: ‘(1) A creditor or a member of a company in administration may apply to the court claiming that (a) the administrator is acting or has acted so as unfairly to harm the interests of the applicant (whether alone or in common with some or all other members or creditors), or (b) the administrator proposes to act in a way which would unfairly harm the interests of the applicant (whether alone or in common with some or all other members of creditors).’

Background

In February 2018, the appellant company, LF2 Ltd (LF2) applied under IA 1986 Sch B1 para 74 (para 74) for an order requiring the respondent joint administrators of Pennyfeathers Ltd (the company) to assign to LF2 a cause of action which the company allegedly had in relation to a claim against its former solicitors (the Firm). That claim alleged breach of fiduciary duties concerning the negotiation of a conditional fee agreement (CFA). The deputy judge dismissed LF2’s application and ordered it to pay the joint administrators’ costs, summarily assessed at £26,000, and the Firm’s costs, summarily assessed at £45,833.33.

LF2 appealed

Issues and decisions

(1) Whether the judge had erred in holding that the alleged claim was frivolous and vexatious. Among other things, the court considered a witness statement by B, a solicitor and the sole director and shareholder of LF2. B had been approached by the company’s directors and shareholders (S and T) and he had offered to act as the company’s solicitor in connection with the possible claim against the Firm. In his statement, B stated that S and T were not wealthy or sophisticated. He alleged that the CFA was unsuitable for the company and that the Firm had not given it appropriate advice to that effect.

In the present case, the deputy judge had been wrong to conclude, on the material before him, that the claim against the Firm was frivolous and vexatious. However, the present court was not making any final decision as to the outcome of such a claim (see [31], [45] of the judgment).

Having reviewed the material before the deputy judge and having considered the submissions before the present court, the deputy judge had not had the material which would have enabled him to find that it was frivolous and vexatious to contend that the Firm had failed to give appropriate advice which warned the company of the potentially adverse practical implications of the CFA. Further, it had not been frivolous and vexatious to contend that the CFA was unsuitable for the company and that the Firm had failed to give appropriate advice to the company in that respect (see [48] of the judgment).

Concerning damages, B had put forward a case as to causation of loss which was not frivolous or vexatious. If that case were established, damages would be assessed to reflect the disadvantages to the company of being subject to an unsuitable CFA, rather than a suitable CFA. It had not been open to the deputy judge to reach the conclusion which he had reached and his conclusion was wrong (see [49], [50] of the judgment).

However, on the assumption that the claim was not frivolous and vexatious, consideration had to be given to whether it was open to the present court to allow the appeal, having regard to the terms of LF2’s appellant’s notice (see [31] of the judgment).

(2) Whether it was open to the court to allow the appeal having regard to LF2’s appellant’s notice.

LF2 had satisfied the deputy judge that it was a creditor of the company and, so, had locus to make an application under para 74. In order for LF2 to have succeeded in its application, it had had to satisfy the court that the administrators had been acting in a way which unfairly harmed the interests of LF2, whether alone or in common with some or all other creditors. The deputy judge held that he was not satisfied that the administrators had been acting in a way which harmed, in particular, which unfairly harmed, the interests of LF2, whether alone or in common with some or all creditors. It followed that, unless the appeal court reversed that finding, the appeal had to be dismissed. There was no ground of appeal by way of challenge to that finding. The ground of appeal which challenged the finding that the claim was frivolous and vexatious was not a challenge to the finding that there was no unfair harm in the present case (see [33], [34] of the judgment).

At the hearing of the appeal, the court refused to grant LF2 permission to amend its appellant’s notice, having considered that the application for permission to amend had been made very late in a way which would prejudice the position of the administrators and the Firm and where there was no good explanation for the lateness of the application. For the reasons given earlier, it was not appropriate to grant permission to amend the appellant’s notice, with all the consequences that might then flow, just to improve LF2’s position as regards costs (see [38], [39], [41] of the judgment).

The court ruled:

The result was that the appeal would be dismissed (see [42] of the judgment).

(3) The court considered the attitude an administrator should adopt in relation to the possibility of a claim by a company against a third party. Consideration was given to the principles relied on by the deputy judge, and the proposition put to the court by the administrators and the Firm, that, when it was not clear whether the cause of action had merit, the administrator ought not to assign it and should, instead, place a burden on the party seeking the assignment to demonstrate that the claim was not frivolous or vexatious (the approach).

As the office holder had a statutory power to assign a cause of action and had a duty to act in the interests of the creditors, it might be thought that, if the assignment produced a benefit for the creditors, then the office holder should be prepared to receive that benefit, unless the case came within the principle in Ex parte James, In re Condon, ex parte James[1874-80] All ER Rep 388. That principle might mean that it would not be honest and fair for the office holder to assign an alleged cause of action where a claim by the assignee would be frivolous or vexatious (see [55] of the judgment).

The approach (that where it was not clear whether the cause of action had merit, the administrator ought not to assign it and should instead place a burden on the party seeking the assignment to demonstrate that the claim was not frivolous or vexatious) read far too much into the remarks in Re Papaloizou[1999] BPIR 106 and Cummings v Official Receiver[2002] All ER (D) 444 (Jul) and was wrong in principle. The most helpful authority was the decision in Citicorp Australia v Official Trustee in Bankruptcy[1996] FCA 1115 which contained an accurate statement of the principles to be applied (see [57], [58], [63] of the judgment).

The administrator’s power to assign a cause of action was conferred by IA 1986 Sch 1 para 2, as a cause of action was ‘property’ within that paragraph. That paragraph was not limited by any words which required the administrator to satisfy himself as to the arguability of an alleged cause of action. A viable claim by the company against a third party was an asset of the company. A claim which was arguably viable, was a potential asset of the company. In principle, an administrator ought to be ready to investigate whether such an asset should be preserved and pursued. There might be obstacles in the way of doing so. The administrator might have no funds with which to take legal advice. In such a case, it might be open to the body of creditors to provide the necessary funds (see [64], [65] of the judgment).

If the administrator had no funds to investigate a possible claim against a third party and he received an offer from a potential assignee of the claim to pay for an assignment, that offer would potentially constitute an asset of the company. The administrator should normally wish to preserve and pursue that asset. If it was clear to the administrator that the claim would be hopeless and that the potential assignee was bent on pursuing a hopeless claim in order to harass the third party, then the administrator should normally decline to assign the hopeless claim. The administrator was an officer of the court and the court expected him to behave honestly and fairly. In the same way as the court would not direct an assignment of a hopeless claim where it was of the view that the assignee’s intention was to use the hopeless claim to harass a third party, then the administrator might well take the same view as to his own participation without finding it necessary to seek a direction from the court (see [66] of the judgment).

There would be other cases; one such case was where the administrator did not have a clear view that the proposed claim would be vexatious and he was offered a sum of money for the assignment of the claim. In such a case, the administrator should be prepared to obtain a proper payment for the assignment. If it was not clear that the offer reflected the true value of the cause of action, then the administrator might well be advised to conduct some process of inviting rival bids or to hold an auction of the cause of action. The receipt of a sum of money for the claim would be likely to benefit someone, whether it was the administrator (as a contribution to his expenses) or the creditors (see [67] of the judgment).

There might also be practical considerations and time pressures which the administrator had to take into account. If the administrator was considering whether the company had a potential claim and there was a high risk that the limitation period for the claim might be about to expire, the administrator might have to take immediate action to protect a potential asset of the company. The administrator might have to cause the company to issue a protective claim form or even to conduct some rapid negotiations to obtain the best available offer for an assignment of the cause of action (see [68] of the judgment).

It might well be undesirable for the court when it was dealing with a dispute between a creditor or a member and an administrator, under para 74, to have a lengthy hearing as to whether the claim was frivolous or vexatious, rather than, save in a clear case, allowing or directing the administrator to assign the alleged cause of action and then, if a claim form was issued against a third party, to allow the third party, if so advised, to apply to strike out the claim form. It was more appropriate for an argument as to whether the claim was frivolous and vexatious to be conducted in the ordinary way between the assignee of the claim and third party (without involving the administrator), rather than in the Companies Court between the potential assignee and the administrator (with possible limitations on the part to be played by the third party at any hearing) (see [70] of the judgment).

Further, the possibility that the assignee of the claim would bring a claim where it was unable to meet an adverse costs order against it would normally be dealt with by the court ordering security for costs in the proceedings brought by the assignee. It was better for the administrator to leave the third party to seek security from the assignee of the claim for the costs of the claim against the third party rather than for the administrator to take on the task of arguing, on an application under para 74 that the applicant had not discharged the burden of showing that the claim was not frivolous and vexatious and the further task of applying for an order for security of its costs in responding to the application under para 74 (see [71] of the judgment).

Papaloizou, Re [1999] BPIR 106 considered; Condon, Re, ex p James [1874-80] All ER Rep 388 considered; Stein v Blake [1995] 2 BCLC 94 considered; Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd [1997] All ER (D) 91 considered; Citicorp Australia v Official Trustee in Bankruptcy [1996] FCA 1115 considered; Cummings v Official Receiver [2002] All ER (D) 444 (Jul) considered; Faryab v Smith [2000] Lexis Citation 1593 considered; Wilson v Specter Partnership [2007] All ER (D) 05 (Feb) considered; London & Westcountry Estates Ltd, Re; Hockin v Marsden [2014] All ER (D) 206 (Mar) considered.

(4) The court considered the procedure to be adopted in relation to an application under para 74, particularly in relation to the part to be played by the proposed defendant to the claim who wished to be heard on the application.

On an application under para 74, the creditor or member would be the applicant and the administrator would be the respondent. The Insolvency Rules 2016 (IR 2016), SI 2016/1024, contained provisions as to the procedure to be adopted by the court in relation to insolvency applications. Pursuant to IR 2016 r 12.9, the court might give directions as to who was to be served with the application. That provided for the possibility that it might be appropriate to serve the application on someone in addition to the named respondent. Pursuant to IR 2016 r 2.11, the court might give further directions as to how the application was to be dealt with (see [73] of the judgment).

If the application was served on the proposed defendant to the claim, or if the proposed defendant came to hear of the application and wished to be heard in response to it, the court had power to allow the proposed defendant to be heard. If the proposed defendant wished to submit that the claim was frivolous or vexatious, then the court had power to allow the proposed defendant to put forward that submission. However, he or she did not have a right to participate in the hearing. In such a case, the court would have to consider whether to permit such participation. It should bear in mind that, if the cause of action was assigned and a claim was brought, then it would be open to the defendant to the claim to apply to strike out the claim or to apply for reverse summary judgment, if so advised. An application of that kind might, in many cases, be a more appropriate occasion for the court to consider whether the claim was frivolous or vexatious, as compared with an application by a creditor or member under para 74. Further, on such an application, the court might be in a much better position to assess whether the claim was frivolous or vexatious as the claim ought to have been pleaded (see [74] of the judgment).

If the court did decide to hear from the proposed defendant on the application under para 74, the question then arose whether the court should permit the proposed defendant to attend the part of the hearing when it heard submissions from the creditor or member and the administrator as to the merits of the claim. In some cases, it might be wholly inappropriate for the proposed defendant to be able to hear the debate as to the merits of the claim, particularly where that debate might involve references to privileged material. In such a case, the court should be guided by the decision of the Court of Appeal in Craig v Humberclyde Industrial Finance Group Ltd[1998] 2 BCLC 52 (see [75] of the judgment).

(5) Whether the deputy judge had erred in making an order for costs in favour of the Firm. LF2 relied on CPR 46.2 which provided, so far as material, that when the court was considering whether to exercise its power under s 51 of the Senior Courts Act 1981 (SCA 1981) to make a costs order in favour or against a person who was not a party to proceedings, that person had to be added as a party to the proceeds for the purposes of costs only. LF2 submitted that the Firm had not been a party to the para 74 application and that the deputy judge had erred in failing to comply with CPR 46.2.

CPR 12.48(1) contemplated that an application for costs might be made by a party to, or a ‘person affected by’ any proceedings in an insolvency. In the present case, the Firm was a person affected by the application within the meaning of CPR 12.48(1). There had been no need for the deputy judge to make the Firm a party to the application and to follow the procedure of CPR 46.2, which did not apply in the present case. It was not suggested that the deputy judge had adopted an unfair procedure when he had dealt with costs. He had heard from all sides and he had made his decision (see [78], [79] of the judgment).

The second ground of appeal was rejected (see [80] of the judgment).

Craig v Humberclyde Industrial Finance Group Ltd [1998] 2 BCLC 526 considered.

Philip Coppel QC (instructed by Ballinger Law Ltd) for LF2.

Reuben Comiskey (instructed by Sprecher Grier LLP) for the administrators.

Hilary Stonefrost (instructed by Fieldfisher LLP) for the Firm.

Carla Dougan-Bacchus Barrister.

LF2 Ltd’s appeal against a deputy judge’s dismissal of its application for an order, under para 74 of Sch B1 to the Insolvency Act 1986, requiring the joint administrators of another company to assign to LF2 a cause of action that the company allegedly had in relation to a claim against its former solicitors (the Firm) was dismissed. The Companies Court held, among other things, that, while the deputy judge had been wrong to conclude on the material before him that the claim against the Firm was frivolous and vexatious, it was not open to the present court to allow the appeal, having regard to the terms of LF2’s appellant’s notice. The court considered the procedure to be adopted in relation to an application under para 74, and the attitude an administrator should adopt in relation to the possibility of a claim by a company against a third party.