High Court Rules in Favor of Joint Supervisors in CVA Neutrality and Cost Order Appeal

Citation: [2024] EWHC 392 (Ch)
Judgment on

Introduction

The case of Brian Burke & Ors v Peabody Construction Limited is a High Court judgment focused on an appeal regarding a costs order levied against the Joint Supervisors of a Company Voluntary Arrangement (CVA) in proceedings brought by Peabody Construction Limited and Newlon Housing Trust. The principles applied throughout the case revolve around the issues of neutrality and misconduct of nominees in a CVA, and the appropriate application of the cost orders under Civil Procedure Rules (CPR), rule 44.2.

Key Facts

The Company, Mizen Design/Build Limited, proposed a CVA that was challenged by Peabody and Newlon. The Joint Supervisors of the CVA, Burke, Bucknall, and Andronikou, were parties to the proceedings. ICC Judge Prentis initially upheld Peabody’s challenge and made subsequent costs orders against the Company and the Joint Supervisors. The Company entered administration, and at the consequential matters hearing, orders were sought without representation from the Company or Joint Supervisors.

Peabody sought costs from the proceedings, and Judge Prentis determined that both the Company and the Joint Supervisors be jointly and severally liable for Peabody’s costs post-trial. This decision was the basis for the Joint Supervisors’ appeal.

The case highlights several legal principles, centered primarily on the neutrality of nominees in CVA proceedings and the criteria for imposing costs orders on parties under CPR, rule 44.2.

Key takeaways from the legal principles discussed in the case include:

  • Neutrality of the Supervisors: Nominees such as Joint Supervisors in CVA proceedings must maintain neutrality. The judgment scrutinized whether the Joint Supervisors had deviated from this neutral stance, which would constitute misconduct and thus justify a costs order against them ([14]).

  • Costs Orders Against Third Parties: The general principle from CPR 44.2(2)(a) that costs are typically imposed on the unsuccessful party ([10]) was examined in the context of whether the Joint Supervisors, due to their position, should be considered subject to costs orders when they are not the principal contesting party.

  • Personal Misconduct Requirement: An underlying principle for ordering costs against nominees like CVA supervisors is that personal misconduct must be established ([13]-[14]). This echoed the sentiments that some form of culpability or improper conduct is usually a prerequisite for making them liable for costs.

  • Duty of Nominees and Misconduct: If nominees are found to have deviated significantly from their duties or engaged in improper conduct, they may be subjected to personal liability for costs ([13]).

References are made to previous case law that sets precedent for the crucial requirement of personal misconduct, such as Re Naeem (A Bankrupt) (No. 18 of 1988) [1990] 1 WLR 48, Re a Debtor (No. 222 of 1990) ex parte Bank of Ireland (No. 2) [1993] 1 BCLC 233, and Carraway Guildford (Nominee A Limited) & Ors v. Regis UK Limited & Ors [2021] EWHC 2064 (Ch), underscoring the exceptional nature of circumstances where costs orders have been levied against the nominees.

Outcomes

The appeal was allowed and the order made against the Joint Supervisors was set aside. The court concluded that the Judge at first instance had misdirected himself in interpreting neutrality and litigation aggression. The articulation of aggression in a legal team’s skeleton argument was considered to not necessarily reflect the stance of the represented parties ([14] i-iii). Without sufficient evidence of a shift from neutrality to aggression or any findings of personal misconduct, the basis for ordering costs against the Joint Supervisors was deemed inappropriate.

Conclusion

The Brian Burke & Ors v Peabody Construction Limited judgement reinforces the principle that in the absence of explicit personal misconduct, nominees such as Joint Supervisors of a CVA should not be made personally liable for cost orders. It similarly reaffirms the expectation of neutrality among such nominees, while cautioning against inferring misconduct based solely on shared legal representation or robust legal arguments. The decision to set aside the costs order against the Joint Supervisors serves as a reminder that even implied misconduct must be approached with careful judicial consideration and evidence before nominees can be made personally liable for costs.

Related Summaries