Court can order the receiver of a defendant company to pay costs to successful plaintiff

Brian Kenneth Anderson (plaintiff/ appellant) v George Hyde t/a Hyde Property Services, Hub Leisure Limited and Broad Enterprises Limited (defendants/ respondents).

Costs - Defendant company - Receivership - Plaintiff succeeds in action - whether receiver liable for plaintiffs costs.

In Her Majesty's Court of Appeal in Northern Ireland (the Lord Chief Justice Sir Brian Hutton and Lord Justice Carswell); judgment delivered 23 February 996.

WHERE one of the parties to an action is a company and it subsequently goes into receivership and the receiver takes over the conduct of the action in the event of judgment being given against the company, the court has the power in suitable circumstances to order the receiver to pay the costs of the action. This is the case regardless of whether the company was the plaintiff or defendant in the action. The question is whether, on the facts of the case, it is just and equitable that such an order be made.

An order for costs may be made against a receiver even though he has not been joined as a party to the action.

The Court of Appeal so held, reversing the order of Mr Justice Sheil that the receiver should not be liable for the costs of the successful plaintiff.

David McBrien BL for the plaintiff/ appellant, Mark Orr BL for the receiver of the second defendant.

LORD JUSTICE CARSWELL, giving the judgment of the court said that the appeal arose out of a case begun in 1991 in which the appellant had sought injunctions and damages in respect of an alleged encroachment by the second defendant ("the company") on a boundary wall dividing two abutting premises, one of which was owned by the appellant and the other by the company.

At first instance, the judge had found in favour of the appellant as against the company. The company had been ordered to pay the appellant damages together with costs. Judgment was given in favour of the first and third defendants as against the plaintiff.

Lord Justice Carswell said that during the course of the proceedings the company had gone into receivership, with a debenture holder, the Ulster Bank, appointing a receiver. Then, upon petition of the Department of the Environment, it was ordered that the company be wound up, with the Official Receiver being appointed liquidator.

The receiver, rather than the liquidator, thenceforth conducted the company's defence to the appellant's action, as it was assumed that, once the debenture holder had realised its security and obtained payment of its secured debt, there would not be any assets available for the unsecured creditors.

After judgment was given, the matter was relisted before the judge in order to allow counsel for the appellant to argue that a special order for costs should be made, whereby the costs would be paid by the receiver and allowed to him as part of his expenses. The judge refused to make such an order. The appellant appealed.

Lord Justice Carswell said that the court had jurisdiction to make an order for costs against the receiver even though he had never been joined as a party to the action: see section 59 of the Judicature (Northern Ireland) Act 1978, and the decision of the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965.

Turning to the substance of the case, Lord Justice Carswell said that counsel for the appellant had relied on Bacal Contracting Ltd v Modern Engineering (Bristol) Ltd [1980] 2 All ER 655. In that case the judge had held that, in suitable circumstances, the court had the power to order a receiver who took over the conduct of an action commenced by the company in receivership as plaintiff, to pay costs, provided that the receivers was allowed the costs as part of his expenses. The judge had made such an order as he considered it just and equitable to do so.

The judged in Bacal had come to this conclusion because, in such cases, the receiver became the "real" plaintiff, with the company being but a "nominee" plaintiff. It was manifestly unjust that a successful defendant should be left with an empty order against the nominee plaintiff, in whose liquidation it would rank as an unsecured creditor.

However, said Lord Justice Carswell, counsel for the receiver had argued that Bacal did not support the imposition of liability for costs where a receiver took over the defence of an action commenced against the company as defendant, and there were no other authorities clearly supporting such an imposition. He had argued that there was no good reason why a successful plaintiff against a company in receivership should rank as an unsecured creditor in respect of his damages but not in respect of his costs.

However, Lord Justice Carswell said that there were two reasons in favour of making an order against the receiver in the present case.

First, if the defence to the proceedings had been carried on by the liquidator instead of the receiver, the plaintiff's costs would on accepted principles have been accorded priority: see Re Wenborn & Co [1905] 1 Ch 413, per Mr Justice Buckley.

Second, in the instant case, in defending the action the receiver's concern had been to prevent the granting of an injunction which might adversely affect the value of the land which constituted the debenture holder's security. However, unless the receiver was to be made liable for the costs of the successful plaintiff, who otherwise would be able to recover his costs only against the company, the receiver would in effect have been able to conduct the debenture holder's defence at no expense. This situation could not be regarded as just and equitable.

The question of costs was a matter within the discretion of the judge and an appellate court would always be slow to interfere with it. However, in this case, the judge had not set out his reasons for exercising his discretion against making the order sought by the plaintiff. Therefore, as this court could not be sure that the judge had taken into account the correct considerations when reaching his decision, this was a proper case where justice required the judge's order to be reversed: see Evans v Bartlam [1937] AC 473.

The receiver would therefore be ordered to pay the costs incurred by the plaintiff since the appointment of the receiver, and he would be allowed such costs as part of his expenses. The balance of the plaintiff's costs would be paid by the company.

Solicitors: Timothy Mayes & Co (Portadown) for the plaintiff/ appellant; T. D. Gibson & Co (Portadown) for the receiver.