The Court of Appeal has allowed magic circle firm Slaughter and May to keep €2.76m (£2.11m) in costs by ruling that legal fees agreed by a company's administrators are binding in a subsequent liquidation.
In Hosking and Mackay II SCA v Slaughter and May, liquidators of Luxembourg telecoms provider Hellas Telecommunications had sought to challenge legal fees the former administrators had agreed to pay Slaughter and May.
The High Court previously ruled that the administrators could agree and pay fees for solicitors they engaged, but said they could not agree fees after they left office.
This meant that an invoice for £830,935.09, which the administrators approved a month after administration ended, could be challenged.
The liquidators sought to appeal the decision in order to obtain a ruling which would allow them to ask the court to order a detailed assessment of all the legal costs agreed.
They argued that when an administration is succeeded by liquidation, the liquidator becomes the ‘responsible insolvency practitioner’ and therefore can challenge the costs previously agreed and paid.
But Slaughter and May contended that the administrators can agree and pay legal costs incurred during administration, even if this task is not completed before the administration ends. The firm said subsequently appointed liquidators could not ask the court for an assessment for these costs.
Hilary Stonefrost, of South Square, acting for the firm, argued that if an administrator cannot make a binding agreement with a prospective supplier, no third party would contract them. She also said there was a statutory charge in favour of the former administrator to protect any outstanding remuneration and costs.
Leading the appeal judgment, Lady Justice Arden said liquidators could not seek a detailed assessment of legal fees.
She said: ‘The liquidators have other remedies against the administrators if they fail to proceed to a detailed assessment when they ought to have done so.
‘This is the structure of remedies that parliament has enacted and there is no basis for the court altering that scheme just because it is less easy for the liquidators to recover damages or compensation from the administrators than it is to argue that a bill should be reduced on [assessment].’
She dismissed the appeal brought by the liquidators, and overturned the High Court decision in relation to the fees agreed after the administration ended. Lord Justice Jackson and Lord Justice Kitchin agreed.