Costly matters - personal liability of administrators and liquidators in litigation

For obvious reasons, office-holders such as administrators and liquidators are invariably cautious to avoid any suggestion of personal liability for costs. A recent decision in which the High Court declined to award the costs of a claim against an administrator personally will be a welcome one therefore.

The case highlights a difference in approach as to office-holders' personal liability, depending on whether or not they are claimant or defendant.

Wright Hassall LLP v Morris [2012] EWHC 188 (Ch) was a claim by solicitors against the administrator for costs under conditional fee agreements (CFAs) in relation to litigation with a third party. That litigation settled, Wright Hassall's fees were not paid and so they sued Mr Morris, the administrator, for the costs.

On the first question of enforceability of the CFAs, the Court had found in favour of Wright Hassall and made an order against Mr Morris, who was named in both the claim form and the subsequent court order as "Mr Duncan Morris (Administrator of Marketbalance Ltd and Phoenix Insurance Management Limited)". The companies did not have sufficient funds to satisfy the order, and so Wright Hassall applied for an order that Mr Morris was personally liable.

The court concluded that the naming of Mr Morris as defendant on the claim form and in the subsequent court order did not indicate that he was personally liable in itself. In general, where litigation is brought against an administrator, arising out of contractual obligations entered into by him as administrator, the cause of action lies against the company only. In this case, the naming of Mr Morris as "administrator of Marketbalance…" supported the assumption that he was being sued as agent, as opposed to in his personal capacity.

The court also rejected the claimant's argument that an analogy should be drawn between the position of an office-holder and that of a trustee (the latter would be personally liable regardless of whether they had been named as a defendant by reference to their status as a trustee) on the basis that an insolvent estate is a separate legal entity which can be represented by an agent, whereas a trust has no separate legal personality.

Finally, in relation to the general rule that an office-holder will be liable for the costs of litigation he commences, if not claims brought against him, the court dismissed any attempt to extend this principle on the basis that it was a "rule of policy ... because it is [the office-holder] who imposes on his opponent the obligation to incur those costs".

While the solicitors have been left ruing unpaid bills, there is obvious sense in HHJ David Cooke’s decision. Proceedings are commonly brought against office-holders personally and it would have been odd if that, in itself, had been enough to found personal liability. There remains though the anomaly of different costs rules depending on who has started a claim. This case, after all, was about the costs of litigation which was commenced by the administrator (against a third party). The claimant here argued that this should be fairly characterised as a case about costs in proceedings initiated by the administrator. That argument was rejected but it is a point it seems likely will be run again.

Lawyers Andrew Howell, Rowena Lewis, Nick Moser, Neil Smyth