14 June 2012 #Dispute Resolution
In the recent decision in Wright Hassall LLP v Morris (2012), the Court was asked to determine whether an administrator was personally liable for an award of damages and costs entered against two companies in administration.
The Facts of the Case
The Claimant was a firm of solicitors who had been instructed by the two companies in administration under a conditional fee agreement. This litigation was settled but the solicitors were not paid their fees. This resulted in an action brought by the solicitors against the administrator for non-payment of their fees. In an initial hearing, the Court held that the solicitors were owed their fees of the settled litigation as damages and their costs of bringing the action. The Order named the administrator as the Defendant.
A further dispute arose between the parties as to whether the Claimant was entitled to recover the damages and costs awarded from the administrator personally or from the estate of the companies in administration.
The matter came before Judge David Cooke who ruled that although the Court Order identified the administrator as the Defendant; this was only in his capacity as administrator of the insolvent companies and that the parties had proceeded to trial on the basis that liability fell on the companies’ estate. In consequence, the administrator could not be personally liable for the damages and costs.
The Claimant had argued that the administrator had been named as Defendant and, on that basis, he was personally liable, irrespective of whether he was acting as an administrator on behalf of the companies. An analogy was drawn with trustees who are often personally liable for contracts entered into in respect of trusts. However, the Judge drew an important distinction between administrators and trustees in that administrators act as agents for the estate of an insolvent company, which in itself is a separate legal personality; whereas a trust has no legal personality of its own.
In addition, an administrator is generally protected by statute from incurring personal liability in exercising his powers as administrator. There are several good reasons for this, not least that if an administrator could become personally liable in carrying out his functions as an administrator, it would become far more difficult to find people who were prepared to take on the responsibility of liquidating companies. There is precedent to say that an administrator can be personally liable for a defendant’s costs when bringing an action as a claimant on behalf of an insolvent company because he had caused those costs to be incurred by his actions. However, this is not the case where the administrator is defending proceedings on behalf of an insolvent company. The Judge saw no reason to deviate from this general rule and as a result, it was held that an administrator could not be deemed to be personally liable in this instance for carrying out his duties as an agent of the insolvent companies.