Benn Sheridan Secures Pro Bono Costs Order in £1.9 Million Commercial Dispute

In a final hearing before ICC Judge Agnello KC, Benn Sheridan obtained the dismissal of a bankruptcy petition filed by the petitioner, a company (“P”), now in administration, against the respondent (“R”), a private individual. R had been represented at the previous hearing by Thomas Evans.

The petition was based on sums (over £1.9 million) allegedly owed by R to P under a contract of guarantee that R had signed in connection with loans provided by P to a third-party company in the music industry, now itself insolvent.

Prior to the hearing, P conceded that substantial grounds existed to challenge the guarantee’s validity and thus the existence of the debt.

Following the dismissal of the petition, the remaining issue was costs. Benn Sheridan argued that there was no reason to depart from the usual rule that costs follow the event, which applies to insolvency proceedings under Insolvency Rule 12.41.

He submitted that any delay in raising the defence was unexceptional because P had not allowed R a reasonable opportunity to raise a defence before presenting the petition. The exception in Re Sykes (2013) could, accordingly, be distinguished. He also submitted that any costs order against P should be treated as an expense in the administration under Insolvency Rule 3.51(2). The effect of this was that the costs order should rank in priority to debts owing to P’s unsecured creditors.

P argued that R’s conduct, and the delay in raising a defence, were exceptional circumstances, and it was therefore appropriate to make a costs award in P’s favour.

The judge ruled otherwise. ICC Judge Agnello KC accepted R’s case in its entirety, and made a pro bono costs order against P under s.194 of the Legal Services Act 2007 for the entirety of the pro bono costs sought. These will be paid to The Access to Justice Foundation.

The case is a timely reminder that a petitioner who chooses to shortcut a Part 7 claim runs a high-risk strategy, which is very likely to sound in costs if the petition is ultimately unsuccessful. It also confirms the application of this rule in the context of the pro bono costs regime, and that pro bono costs orders rank in priority to unsecured debts.

Faiza Ahmed, a pupil in chambers, together with Karl Ayling, chambers’ GLD pupil, provided detailed legal research and hearing preparation assistance throughout.

To instruct Thomas, Benn or Faiza, contact clerks@hendersonchambers.co.uk

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