Case No: 9612 of  2011
Neutral Citation Number: [2012] EWHC 5 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/01/2012

Before :

MR JUSTICE WARREN
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Between :

	NATIONAL WESTMINSTER BANK PLC	Applicant	
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	(1)	MSAADA GROUP (a firm)
(2)	GARY STEVEN PETTIT
(3)	ALAN REDVERS PRICE (joint supervisors of MSAADA Group)
(4)	GORDON CRAIG	Defendants	

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Tina Kyriakides (instructed by Addleshaw Goddard LLP) for the Applicant
Bridget Williamson (instructed by Turner Parkins LLP) for the first and fourth Respondents

Hearing date: 21 December 2011
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Judgment
Mr Justice Warren : 

Costs
1.	Following the handing-down of my judgment, I now have to deal with the costs of NatWest’s application.  Many of the submissions I have received are applicable to the entirety of the costs.  But there are particular points which relate to the costs incurred up to 31 October 2011, when the Bank learned of Mr Craig’s appointment, and to a hearing before Morgan J on 2 November 2011 the costs of which were reserved to the hearing of the application.
2.	The parties’ positions are, as might be expected, miles apart.  The Bank seeks the entire costs of the application from Mr Craig and from Mr and Mrs Keet personally and not simply as a cost of the administration.  Mr Craig resists an order that he should pay any part of the costs.  He does not seek an order in his own favour save that he claims the costs of the hearing on 2 November 2011 from the Bank.  Mr and Mrs Keet resist an order that they should pay any part of the costs but do not argue that the Bank should not be entitled to its costs as an expense of the administration save that they, like Mr Craig, seek their costs of the hearing on 2 November 2011.
3.	It is necessary to recite a little history.  As is apparent from my main judgment, starting at [73], Mrs Keet had been told by the Bank on 15 September 2011 that it would be seeking an administration order.  As far as I am aware, this was the first occasion on which the Bank had evidenced an intention of actually seeking an order, although I suppose that the possibility of putting the Partnership into administration could have been discussed on occasions before that.  
4.	Mrs Keet responded on 18 September 2011 saying that any application would be opposed, but not giving any reasons why.  As far as I am aware, this was the first occasion on which opposition to an administration order was stated.  The Bank had no reason, after that and until it received notice of Mr Craig’s appointment, to think that Mr and Mrs Keet thought that the appointment of an administrator was desirable.  
5.	On 23 September 2011, the Bank served its draft administration proceedings; and later that day, Mrs Keet was informed that its agents would attend court on 29 September 2011.  So all the work necessary to launch the administration application had certainly been carried out by the Bank before 23 September and substantial parts may have been carried out before that date.  The Bank reiterated to Mrs Keet its strategy to have an administrator appointed in its letter dated 27 September.  
6.	The application did not proceed, for reasons referred to in my judgment at [79] to [82].  The Bank was taken by surprise by the appointment of Mr Craig as explained in [83].   Mr Pettit, the supervisor of the PVA of the Partnership, was served with notice of Mr Craig’s appointment on 31 October 2011 and on the same day asserted that the appointment was invalid.  I have upheld his contention.
7.	The position at that stage, therefore, was that Mr and Mrs Keet had purported to appoint Mr Craig but that appointment was challenged by Mr Pettit, a challenge which the Bank supported.  The Bank wanted to have its own nominees in place.  What was it to do?  One thing it could have done, and which is what it did do, was to launch an application for a declaration that Mr Craig’s appointment was invalid and for the appointment of the Bank’s Nominees.  
8.	Another thing it could have done would have been to convene a creditors meeting pursuant to paragraph 97(1) and to replace Mr Craig pursuant to paragraph 97(2).  It is this second course which it is now suggested by Miss Williamson should have taken place.  It would have avoided all of the costs of a contested application.  I was initially attracted by that suggestion, but ultimately I reject it.  Firstly, that process would suffer from the same uncertainty as Mr Craig’s own appointment; the Bank’s Nominees were not prepared to take office with that uncertainty unresolved.  Secondly, although the uncertainty could have been removed, that could only have been done by either (i) obtaining a declaration that Mr Craig’s appointment was in fact valid or (ii) obtaining a confirmatory appointment of the Bank’s Nominees out of court by Mr and Mrs Keet, this time after requisite notice under Rule 2.20(2), or by obtaining an order from the court.  Thirdly, although the Bank is the major creditor of the Partnership, the precise financial position of the Partnership was not known (even to Mr Pettit who had himself experienced difficulty obtaining full information from Mr and Mrs Keet).  It would not have been clear to the Bank, which was a secured lender, at that time whether, in the light of the amount on which it could vote, it would be able to secure the necessary resolution for the purposes of paragraph 97.  It was, I consider, reasonable for the Bank to make the administration application in order to achieve its objective of putting in place the Bank’s Nominees as administrators including in that application, as it did by amendment, the paragraph 88 application to remove Mr Craig.  
9.	The strategy of Mr and Mrs Keet seems to have been to keep secret their intention of appointing their own nominee as administrator out of court.  They did not tell Mr Pettit or the Bank what they were going to do.  As Miss Kyriakides put it, they went behind the Bank’s back.  Their reason no doubt was to ensure that there was in place an administrator who considered that the first objective in paragraph 3 (rescue as going concern) rather than the second objective (better result for the creditors than liquidation) could be pursued.
10.	Whether they were entitled to appoint Mr Craig without notice to Mr Pettit is the point which I have decided against them.  They were not in any way neutral on that issue, instructing Miss Williamson to argue in favour of the validity of Mr Craig’s appointment.  They have not at any time suggested that the Bank’s Nominees should be appointed in order to reflect what Miss Williamson submits could and should have been achieved by a paragraph 97 meeting.  Indeed, they argued that Mr Craig should be appointed rather than the Bank’s Nominees even if I held, which I did, that he had not been validly appointed in the first place.  It seems to me that Mr and Mrs Keet have comprehensively lost on all the aspects of the application which I decided (that is to say everything other than the issue whether Mr Craig should have been removed if validly appointed).  
11.	Mr Craig is in a different position.  Having been purportedly appointed, he, just as much as the Bank, the Bank’s Nominees and the Partnership needed to know whether his appointment was valid.  Miss Kyriakides submits that he should have been neutral on this issue.   Miss Williamson accepts that proposition and says that he was neutral.  Although she appeared at the hearing before me on 28 November 2011 on behalf of Mr and Mrs Keet and on behalf of Mr Craig, she says that her submissions on the issue of the validity of the appointment were made, essentially, on behalf of Mr and Mrs Keet.  
12.	Matters are not that clear, however.  Mr Craig had a real interest in the outcome of the application since, if not validly appointed, he had no right to recover remuneration for the work which he had done although it is true that the Bank’s Nominees, now appointed, might feel able to remunerate him for any work which he has done and which they consider to be of value for the purposes of the administration.  
13.	Further, in his evidence he invited the court to rule that his appointment was valid.  However, to be fair to him, that was on the basis of his view that the “obiter decision” (as he himself described it) of the Chancellor in Minmar was wrong.  Moreover, as Miss Kyriakides told me, the Bank’s Nominees were not willing to accept office while there was uncertainty.  That uncertainty arose not from what Mr Craig said but from the very nature of the issue.  
14.	Nonetheless, it can be said against Mr Craig that the safe and sensible thing to have done, given that he knew of the Minmar decision, would have been to ensure that notice was given under Rule 2.20(2) to eliminate the risk of an invalid appointment.  That he did not do so can, it may be said, only be because be was compliant with the wishes of Mr and Mrs Keet to avoid keeping the Bank in the picture.  It must not be lost sight of that the out of court appointment was precipitated by the Bank informing Mrs Keet on 28 October that it would be seeking an administration order on 2 November.  
15.	Miss Williamson submits that, whatever else I may do, I should not make any order for costs against Mr and Mrs Keet or Mr Craig in respect of costs incurred by the Bank prior to 31 October 2011.  Those costs would, she says, have been incurred even if Mr Craig had not been appointed; if the administration application by the Bank had proceeded, there would have been no question of Mr and Mrs Keet being made liable for the Bank’s costs which would simply have been order to be paid as costs of the administration.  Miss Kyriakides responds by saying that the application would not have been necessary at all if Mr and Mrs Keet had not opposed the appointment of an administrator (an opposition which was not, as we can now see, one of principle but only of the identity of the administrator).
16.	I do not agree with Miss Kyriakides’ submission on this point.  The Bank could not force Mr and Mrs Keet to appoint an administrator out of court, still less to appoint the Bank’s Nominees.  The reality, it seems to me, is that an application would have been necessary.  Accordingly, so far as the costs incurred before the Bank knew on 31 October of the appointment of Mr Craig, all of the costs incurred by the Bank were incurred in relation to an application which would have had to be made in any event.  I consider that the Bank should be entitled only to an order that those costs are to be an expense of the administration.
17.	On 2 November 2011, the Bank made an application to Morgan J in the applications court for the appointment of the Bank’s Nominees as administrators of the Partnership.  This application was one of those applications which used to be called “ex parte on notice”.  Mr and Mrs Keet and Mr Craig were represented at the hearing.  But there had been insufficient time to prepare.  It was, as the Judge said, almost inevitable that the application would have to be adjourned.  It was not, however, entirely wasted.  The Judge made directions, including a direction for a speedy hearing which could not have been obtained without attendance at least by the Bank.  And undertakings were obtained from Mr Craig.  I am bound to say that I do not see why the application was so urgent that it was without proper notice.  Had it been made with proper notice, a direction for a speedy hearing might have been agreed and Mr Craig might have been prepared to give undertakings to the Bank in the form of the undertakings which he in fact gave to the Court.  Matters could perhaps have been dealt with by an application at which only the Bank attended.  It would, however, have been necessary for the representatives of Mr and Mrs Keet and Mr Craig to have spent time on the matter and I rather wonder whether their costs of attending the hearing exceeded the amounts which would have been incurred in agreeing matters without an attendance.  There is no right answer to this.  In my judgment, fairness and justice will best be achieved by making no costs order at all in relation to this hearing.
18.	So far as the costs of the Bank subsequent to that hearing are concerned, and in particular the hearing before me on 28 November, I decline to make an order against  Mr Craig but I propose to make an order that Mr and Mrs Keet pay these costs.   The defence to the challenge to Mr Craig’s appointment and the case that he, rather than the Bank’s Nominees, should be appointed was, as I see it, driven by Mr and Mrs Keet. They must take prime responsibility for the failure to notify Mr Pettit of their intention to appoint Mr Craig and for the insistence on the appointment of Mr Craig even if his initial appointment was invalid.  It would not be just and fair, in my judgement, to restrict the Bank to a direction that its costs should be treated as an expense of the administration.  But nor would it be just and fair to make Mr Craig personally liable for the costs incurred by the Bank in defeating Mr and Mrs Keet’s defence of their actions in appointing Mr Craig and their resistance to the appointment of the Bank’s Nominees.
Disposition
19.	The Bank is to have its costs of the administration application up to 31 October 2011 as an expense of the administration.  I make no order for the costs of the hearing on 2 November 2011.  Mr and Mrs Keet are to pay the costs of the Bank of the administration application from that date.