Extravagant cost budgets in a transaction defrauding creditors claim subjected to judicial criticism but no sanction (Lemos and ors v Church Bay Trust Company Ltd)

20 Feb 2023

Dispute Resolution analysis: A Court, cost-managing a claim under s423 of the Insolvency Act 1986 has strongly criticised the level of anticipated costs reflected in cost budgets and have made an order reflecting the view formed.

Lemos and ors v Church Bay Trust Company Limited [2023] EWHC 157 (Ch)

What are the practical implications of this case?

This is an interesting judgment, showing the difficulties of cost management in insolvency claims. The Court considered cost budgets lodged by both parties and formed a clear view than the anticipated costs could not be justified on the grounds of reasonableness or proportionality. The difficulty for the Court was that it felt it could not go through those costs on a line by line basis without giving the parties an opportunity to offer an explanation for the costs and to enable argument to be heard about those costs. Providing those opportunities, however, would have exacerbated the problems by adding in a layer of costs. That would not further the overriding objective. The judgment also indicates that claims alleging a transaction defrauding creditors similar to the one at issue here was suitable for a medium to senior junior and leading counsel was not the norm. Overall, the Court indicated that it would expect to see cost budgets of between roughly £350,000 and £600,000.

What was the background?

This is a judgment following a costs management hearing conducted in a claim brought under s423 of the Insolvency Act 1986. In 1994, a Liberian corporation owned 27 and 27A Bracknell Gardens (the “Property”). The corporation’s shares were settled on trust in 1994 by a transfer to the trustees of the Kalliopi Lemos 1994 Settlement. The Claimants argue either that the Liberian corporation and, therefore, the Property was beneficially owned solely by Mr Lemos or that the Property was beneficially owned equally with Mrs Lenos. They argued, therefore, that the settlement on trust was a transaction defrauding creditors. The Claimants filed a cost budget in the sum of £1.927m. The Defendants filed a cost budget (agreed by the Claimants) in the sum of £1.2m. The Court, upon becoming aware of the level of costs anticipated in these cost budgets expressed concern that the level of fees on both sides appeared extreme. At the cost management hearing, the parties were only prepared to consider the specific issues of disputes in the Claimants’ budget and were not prepared to offer detailed argument about the level of costs overall. The parties were invited to put in brief written justifications for the costs anticipated in terms of reasonableness and proportionality, in order to enable the Court to provisionally determine the matters in dispute concerning the Claimants’ budget and to only note the Claimants’ consent to the Defendants’ budget.

What did the court decide?

In a claim of this sort, the Court would have expected to receive cost budgets in the sum of between £350,000 and £600,000, a range well below the level of the budgets actually lodged. This was not a claim in which a very high volume of disclosure could be expected; the pleadings themselves confining the issues to a relatively narrow field of factual enquiry. That is not, however, to suggest that this was a straight-forward case. Claimants’ costs of nearly £200,000 for the statements of case were not justified in terms of reasonableness and proportionality, notwithstanding some complications arising out of the joinder of two additional Claimants. The disclosure exercise reduced some 381,324 documents into around 4,000 relevant documents. Nevertheless, this did not justify the level of costs anticipated for this phase. As regards witness statements, significant time was anticipated being spent getting evidence from persons who did not have direct personal knowledge of the relevant events. Similarly, the costs anticipated in obtaining evidence from an elderly Greek woman who did not speak English fluently could not be justified. The Court was also critical of the anticipated costs of reviewing skeleton arguments and the large number of solicitor attendances at the trial. Counsel brief fees were also too high. A claim of this sort was suitable for a medium to senior junior with brief fees based on annual earnings in the region of £750,000 at the top end. Costs associated with leading counsel were not reasonable and proportionate. Overall, although the claim value was approximately £8 million, it was not appropriate to assess the proportionality of costs against this metric alone. It was necessary also to consider the nature of the case and what is required to present the arguments at trial. The Court was concerned to avoid a further hearing to explore these matters further. The parties agreed with the suggestion made by the Court that an order is made simply recording the Court’s view that on the information currently available, it did not consider the budgets filed to be reasonable and proportionate.

Case details

  • Court: Business and Property Courts, Insolvency and Companies List
  • Judge: Insolvency and Companies Court Judge Jones
  • Date of judgment: 23 January 2023

Article by Phillip Patterson – first published by LexisNexis


Phillip Patterson

Call: 2008


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