Post-judgment decision in Lehman Brothers case clarifies cost allocation and appeal permissions in insolvency proceedings

Citation: [2023] EWHC 3317 (Ch)
Judgment on

Introduction

In the case of The Joint Administrators of Lehman Brothers Holdings Plc v Lehman Brothers Holdings Inc & Ors [2023] EWHC 3317 (Ch), Justice Hildyard presided over post-judgment submissions related to consequential issues following a main judgment given earlier. The case hails from the Business and Property Courts of England and Wales and touches upon topics such as costs and permission to appeal in the context of insolvency proceedings.

Key Facts

The dispute concerns the distribution of funds in the administration of Lehman Brothers Holdings PLC (in Administration). Parties involved had to determine the cost orders for distinct applications filed in the proceedings, several of which included contentious aspects relating to the proper application of estoppel principles and the prioritization of creditor claims.

The key issues discussed post-judgment mainly revolve around:

  1. The assignment of costs for Issue (1) in light of pre-existing consensus on other issues’ costs.
  2. A dispute between LBHI and DB over payment responsibilities and proposed percentages for these costs.
  3. The question of whether DB should be responsible for the costs of its failed Strike Out Application separately.
  4. The challenge by LBHI to the judgment favoring the priority of the principal amount of Claim C over statutory interest on Claim D and the implication of a large financial ‘swing’ based on this ruling.

Several legal principles are evident in the progression of the case. Among these, the principle of estoppel (in subpart prejudice, issue estoppel, and abuse of process) was raised by the defendants DB which was ultimately dismissed. The principles guiding costs in litigation are also in play, with considerations about fairness, “issue-based” cost allocations, and proportionality being prioritized. The ‘no order as to costs’ alternative, especially after a multifaceted dispute, also underscores the discretionary power of the court.

Judge Hildyard applies precedent from cases such as Waterfall I and ECAPS1 to justify his stance on contractual interpretations. Furthermore, Civil Procedure Rules, particularly Rule 44.2(6)(a), and precedents like Izzo v Philip Ross & Co [2002] B.P.I.R. 310 guide the considerations for setting off costs between the parties.

Outcomes

The court determined that:

  1. Costs relating to Issue (1) should be treated as an administration expense of PLC, honoring a previous order that each party bear its own costs on disputed issues.
  2. LBHI should pay GP1’s costs of Issue (1) subject to detailed assessment.
  3. DB should pay LBHI the costs of the failed Strike Out Application, departing from the DB’s proposed cost-sharing solution.
  4. DB proposed a reduction and splitting of the total costs that were not accepted by the court or LBHI, resulting in a direction towards detailed assessment if costs cannot be agreed upon.
  5. Permission to appeal the previous judgment, particularly on the priority given to claims, was not granted at this instance by Justice Hildyard, who left determination for the Court of Appeal.

Conclusion

The post-judgment decision in The Joint Administrators of Lehman Brothers Holdings Plc v Lehman Brothers Holdings Inc & Ors brings to light the complex nature of cost assessments in insolvency proceedings, especially in cases where multiple applications with their discrete costs impact the overall proceedings. It also showcases judicial discretion in the realm of cost allocation, reflecting on fairness and proportionality in the context of litigation outcomes. Moreover, it highlights the court’s reliance on precedents and rules of civil procedure to arrive at a rational and justified distribution of the fiscal responsibilities among the involved parties. The decision also reinforces the value the court places on consistency with precedent in complex contractual matters and its approach to leave substantial questions to the appellate courts.

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