Vol 12 (2015) - Issue 6

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Re Harvest Finance Ltd (in Liquidation); Jackson and another v Cannons Law Practice LLP and others: Time Costs for Performing a Public Duty for an Office Holder Are Unlikely To Be Recoverable

The liquidators (the 'Liquidators') of Harvest Finance Ltd (in liquidation) (the 'Company') were successful in their application under sections 234 and 236 of the Insolvency Act 1986 (the 'IA 1986') against the respondents, Cannons Law Practice LLP ('Cannons'). The court ordered that Cannons deliver the documents and electronic files under their control. The application by Cannons in Re Harvest Finance Ltd asked the court to consider whether it had jurisdiction to order the payment of expenses which were incurred by Cannons in complying with the order. The court held that it should not, in this instance, exercise its discretion to allow Cannons to charge for the cost of their compliance with the order of the court.

Background
The company was suspected to have been engaged in international fraud as a vehicle for loans charged on securities at artificially inflated values. Cannons were a firm of solicitors who had acted for many of the special purpose vehicles that were under investigation in connection with the suspected international fraud. The Liquidators made an application under sections 234 and 236 of the IA 1986 for the disclosure and retrieval of various documents in relation to the Company and held under the control of Cannons, to aid their investigation into a significant number of the Company’s conveyancing transactions that were suspected to be fraudulent. Although the court found that Cannons had no knowledge of, or participation in, the fraud, the Liquidators believed that Cannons held documents relevant to it.
Cannons were ordered to deliver the documents to the Liquidators as requested (the 'Document Order'). Cannons later sought an application to the court for reimbursement of the costs it incurred as a result of complying with the Document Order. Cannons submitted a claim for costs which amounted
to GBP 40,381 excluding VAT.

Issues before the court
Initially the court was concerned with whether any legal privilege attached to the requested files should be overridden. In addition, Cannons’ application highlighted two substantive issues for the court, namely:
1. Whether the court had jurisdiction to order payment of Cannons’ costs incurred in complying with the Document Order and delivering the requested documents to the Liquidators; and
2. Whether the court should exercise its discretion to order such (or any) payment by the Liquidators of Cannons’ compliance costs.

The facts
Cannons initially refused to produce the files in relation to the Company without protective orders from the court on the basis that the contents of the documents in their possession were, or potentially could be, privileged. Compulsory orders were subsequently made under sections 234 and 236 of the IA 1986 following which the dispute surrounding the costs of compliance with such an order (the 'Compliance Costs') arose. Unfortunately there are conflicting High Court authorities on whether the court has jurisdiction to order Compliance Costs following Re Aveling Barford [1988] 3 All ER 1019 (judgment of Hoffman J) and Re Cloverbay [1989] BCLC 724 (judgment of Vinelott J).