Mr Justice Morgan:
Introduction
1. Deep Purple was, and still is, a rock music band. Its members included Mr Gillan, Mr Glover, Mr Paice and Mr Lord. The first three of these members, and the executors of Mr Lord, are the Claimants in certain litigation brought in 2015, to which I will later refer. In this judgment, I will refer to them as "the Claimants". Other members of Deep Purple to whom it is relevant to refer were Mr Blackmore, Mr Coverdale and Mr Hughes.
2. HEC Enterprises Ltd ("HEC") contracted with various members of Deep Purple to provide various services to them and to account for royalties in relation to various copyright works connected with Deep Purple. HEC went into administration on 19 January 2016.
3. Deep Purple (Overseas) Ltd ("DPO") contracted with various members of Deep Purple to provide various services to them and to account for royalties in relation to various copyright works connected with Deep Purple. DPO also went into administration on 19 January 2016.
4. Issues have arisen in particular in relation to the rights of the Claimants, pursuant to an agreement made with HEC, DPO and others in 2005, which dealt with the formation of a new company, to which various copyrights and other assets were to be transferred, and with the ownership of the shares in that new company.
5. The applications before me are:
i) applications by the Claimants for permission to continue two sets of proceedings which they brought in 2015 against HEC and DPO, and others, to resolve the issues between them, in particular, the issues arising under the 2005 agreement, such permission to be granted notwithstanding the statutory moratorium on legal proceedings against a company in administration; and
ii) applications by the administrators of HEC and DPO for an order granting them a right of indemnity out of the trust assets of the two companies in administration for the administrators' remuneration, costs and expenses in relation to the administration and management of the trust assets; this application has given rise to dispute about the scope of, and the application of, what has been referred to as the Berkeley Applegate principle, after the decision in Re Berkeley Applegate (Investment Consultants) Ltd [1989] Ch 32.
6. Mr Cullen QC appeared on behalf of the Claimants. Mr Sutcliffe QC and Mr Wee appeared on behalf of the administrators of HEC and DPO.
The 2003 litigation
7. In 2003, Mr Gillan, Mr Glover, Mr Paice and Mr Lord brought proceedings against HEC, DPO, Mr Edwards and Mr Coletta. Mr Edwards and Mr Coletta had acted as managers for certain band members of Deep Purple. Initially, Mr Edwards and Mr Coletta acted in a personal capacity and, later, their role was taken by HEC and DPO, companies which they controlled. The proceedings raised a range of issues but, in particular, they concerned the beneficial ownership of the copyright in recordings made by Deep Purple and in compositions written by members of Deep Purple.
The 2005 settlement agreement
8. Following a mediation, the parties to the 2003 litigation reached a settlement which they recorded in a written agreement dated 13 October 2005. The parties to the agreement were: (1) Ian Gillan, Roger Glover, Jon Lord and Ian Paice (referred to in the agreement as "the Claimants"); (2) HEC; (3) DPO; and (4) Mr Edwards and Mr Coletta (referred to in the agreement as "the Managers").
9. Clause 1 of the agreement contained a number of definitions. "Artists" was defined to mean the artists, including the Claimants, who contributed to the composition of any of the Compositions or performed on any of the Recordings. "Artist's Entitlement" was defined to mean the Relevant Proportion of the Relevant Percentage of Net Income. "Compositions" was defined by reference to a Schedule to the agreement. The "Effective Date" was 1 January 2006. "Management Entitlement" was defined as 20% of Net Income until 30 June 2010 and thereafter 15% of Net Income. "Net Income" was the subject of a detailed definition. "Newco" was a company to be formed in accordance with the agreement. "Recordings" was defined by reference to a Schedule to the agreement. "Relevant Percentage" and "Relevant Proportion" were also defined.
10. Clause 2 of the agreement provided:
"2. HEC and DPO agree to form a new company ("Newco") and to transfer into Newco prior to the Effective Date:
2.1 the copyrights or other rights of a similar or proprietary nature in the Compositions if such rights are owned by either HEC or DPO or the Managers and the right to all income streams applicable to the Compositions and the benefit of all contracts affecting such copyrights and income streams
2.2 the copyrights or other rights of a similar or proprietary nature in the Recordings if such rights are owned by HEC or DPO or the Managers and the right to all income streams applicable to the Recordings and the benefit of all contracts affecting such copyrights and income streams; and
2.3 All income which has been received in respect of the Compositions and Recordings from 1 July 2005 less any sums paid to third parties and any deductions which are permitted to be made in computing Net Income hereunder (but in preparation of Newco's accounts the applicable adjustments shall be calculated and taken into account);
provided that if there is any impediment to the transfer of such assets to Newco DPO and HEC shall hold such assets on trust for Newco and shall pay the income derived therefrom to Newco."
11. Clauses 3, 4 and 5 provided for Newco to pay each Artist and the Managers the appropriate sums calculated in accordance with the detailed terms of the agreement.
12. Clause 11 provided:
"11. The shares in Newco will be held by DPO for the benefit of the Claimants and the Managers. If during the period to 30 June 2015, but not before 30 June 2010 without the consent of the Claimants' designee, the Managers wish or after 31 December 2015 either the managers or a majority of the Claimants and Ritchie Blackmore together wish the shares in Newco to be sold, the Claimants and the Managers shall cooperate to achieve the best commercial terms reasonably available. The proceeds of any such sale shall be applied first in discharge of any costs reasonably incurred in connection with such sale (including legal and accounting costs) and the balance shall be paid in the following proportions: 20% to the Managers and 80% to be divided in equal proportions between each of the Claimants and Ritchie Blackmore. If and to the extent that the Management Entitlement is sold as a connected transaction the Managers will procure that each of the Claimants and Ritchie Blackmore is offered the right to sell his Artist's Entitlement to the Managers or a third party designated by the Managers at a price calculated by multiplying the price for the Managers Entitlement ( sic) by the Artist's Entitlement divided by the Management Entitlement."
13. Clause 14 provided:
"The parties hereto shall use their best endeavours to agree a full Schedule which shall replace the Schedule hereto by 28 October 2005 and if no agreement shall have been reached by that date then the Schedule shall be settled by a person appointed by the President of the PRS for the time being at the written request of the Claimants or the Managers."
Events after the 2005 agreement
14. On 3 November 2005, Newco was formed as Purpletuity Ltd ("Purpletuity"). The entire issued share capital in Purpletuity was held by DPO.
15. Mr Coletta died on 9 July 2006. Mr Edwards died on 11 November 2014. Mr Lord died on 6 July 2012.
16. Not all of the provisions of the 2005 agreement have been implemented. In particular, the assets referred to in clause 2 of the agreement were not transferred to Purpletuity. Instead, HEC and DPO continued to receive the income which was referable to those assets. It seems that a Mr Rao, who was one of the directors of HEC, DPO and Purpletuity until 24 November 2014, misappropriated some of this income (and, indeed, some other income to which HEC and DPO were entitled). HEC and DPO brought proceedings against Mr Rao and obtained summary judgment against Mr Rao for the sum of £2.27 million. Some of this money has been received by HEC and DPO. I understand that the net receipt after deduction of costs is some £477,000.
17. On 2 June 2015, Mr Blackmore, a former member of Deep Purple, brought proceedings against HEC and DPO claiming an account of monies due to him under certain agreements, including the 2005 agreement.
The Claimants' 2015 litigation
18. On 16 July 2015, the Claimants brought proceedings against HEC, DPO, representatives of the estate of Mr Edwards and representatives of the estate of Mr Coletta. By those proceedings, the Claimants sought to enforce the 2005 agreement. In particular, they contended:
i) that HEC and DPO were obliged to transfer to Purpletuity the assets referred to in clause 2;
ii) that there should be ancillary orders as to the obligations of Purpletuity to distribute the income from such assets in accordance with the 2005 agreement;
iii) that the shares in Purpletuity were held by DPO on a bare trust for the Claimants and the Managers as to 20% for the Managers in equal shares and as to 80% for the Claimants, or for the Claimants and Mr Blackmore, in equal shares;
iv) in view of a contention which had been put forward by DPO to the effect that all of the shares in Purpletuity were held for all of the beneficiaries, effectively as joint tenants (which contention the Claimants denied), that the right of survivorship would have produced the result that the shares were held 100% for Mr Gillan, Mr Glover and Mr Paice;
v) the court should order DPO to transfer the appropriate percentage of the shares in Purpletuity to the Claimants; and
vi) there should be various orders as to the management of Purpletuity and as to a threatened sale of the shares in Purpletuity.
19. HEC and DPO served a joint Defence to the 2015 claim. They pleaded that they recognised that, to the extent that they held income and rights upon trust, they were neutral regarding the terms of the trust, the identity of the trustee and the future management and administration of the trust. The Defence further stated that as between the Claimants and HEC/DPO, the assets which were the subject of clause 2 of the 2005 agreement were held upon trust for Purpletuity. The Defence further accepted that as between the parties to the 2005 agreement, HEC and DPO were obliged to transfer to Purpletuity the assets which were the subject of clause 2 and in the meantime held those assets on trust for Purpletuity. However, the Defence asserted that the obligation in clause 14 of the 2005 agreement to produce a full Schedule of assets was an unenforceable agreement to agree. As to the shares in Purpletuity, the Defence pleaded that the shares were held for all of the Claimants and the Managers but without creating a joint tenancy to which the right of survivorship applied. It was pleaded that the result was that DPO as trustee of the shares could refuse to transfer identified percentages of the shares to different persons.
20. A Defence to the 2015 proceedings was also served by Mr Edwards' widow, as an executrix of his estate. Her Defence stated that, in that capacity, she did not plead to the matters pleaded by the Claimants and that she would abide by the court's decision on the claim. Two other executors of the estate of Mr Edwards served a Defence to the claim and stated that they were neutral as to the position between the Claimants and HEC and DPO. There was no Defence filed on behalf of the estate of Mr Coletta.
21. I was shown two lists of issues in relation to the 2015 proceedings. One list was prepared by the Claimants and one was prepared by HEC and DPO. It was common ground that HEC and DPO held the assets within clause 2 on trust for Purpletuity and were obliged to transfer the same to Purpletuity. It appeared to be agreed that DPO held the shares in Purpletuity on trust but there was disagreement as to the nature of the beneficial interests under the trust and the identity of the beneficiaries. I also note that the lists of issues identified a number of other issues as to the terms on which the assets within clause 2 should be transferred to Purpletuity and as to the management of Purpletuity and the sale by DPO of the shares in that company.
22. On 2 December 2015, the Claimants brought a second set of proceedings against HEC and DPO claiming an account of monies due to them under the 2005 agreement. HEC and DPO did not serve Defences to that claim prior to going into administration on the 19 January 2016.
The mediation
23. On 18 January 2016, the Claimants, HEC, DPO and representatives of the estates of Mr Edwards and Mr Coletta attended a mediation in relation to the various disputes referred to above. I understand that the mediation was also attended by others, such as Mr Blackmore, who had an interest in the outcome of these disputes. The mediation failed to bring about a settlement of any issue between the parties.
The administrations of HEC and DPO
24. On 19 January 2016, the directors of HEC and the directors of DPO appointed Mr Supperstone and Mr Harris as joint administrators of both companies. The appointments were made out of court pursuant to paragraph 22 of Schedule B1 to the 1986 Act. The administrators made statements in relation to both companies in Form 2.2B to the effect that the purpose of the administration was reasonably likely to be achieved. These statements also disclosed that the administrators had a prior professional relationship with each company in that they had advised the companies as investigative accountants pursuant to an engagement letter of 25 September 2015. This related to accountancy services in relation to monies which the companies had paid to a former director, presumably Mr Rao. I note that in later administration documents relating to pre-appointment costs, the administrators disclosed that they and their staff had spent 13.10 hours in relation to DPO and 8.85 hours in relation to HEC on what was described as advisory/pre-appointment work. In addition, I was told that the directors of the companies had taken advice from the proposed administrators prior to their appointment on 19 January 2016.
The statutory provisions relating to the administrations
25. Administration in relation to a company is dealt with by Schedule B1 to the Insolvency Act 1986. Paragraph 1(1) of Schedule B1 defines an "administrator" of a company as a person appointed under Schedule B1 to manage "the company's affairs, business and property". It was agreed before me that the company's property does not include assets which the company holds on trust for others and in which the company has no beneficial interest. It was also agreed that there could be matters which related to property, not beneficially owned by the company, which could come within the reference to "the company's affairs".
26. Paragraph 3(1) of Schedule B1 states that an administrator must perform "his functions" with the objective of achieving one or more of three purposes. The first is rescue of the company; the second is achieving a better result for the company's creditors as a whole (compared with the result on a winding up); the third is realising property in order to make a distribution to one or more secured or preferential creditors. Paragraph 4 of Schedule B1 provides that an administrator must perform his functions as quickly and efficiently as is reasonably practicable. Paragraph 5 of Schedule B1 provides that an administrator is an officer of the court, whether or not he is appointed by the court.
27. Paragraph 43 of Schedule B1 provides for a moratorium on certain legal process against a company in administration. Paragraph 43(6) provides that no legal process may be instituted or commenced against the company or property of the company except with the consent of the administrator or the permission of the court.
28. Paragraphs 59 to 75 of Schedule B1 have the heading "Functions of Administrator". Paragraph 59(1) permits the administrator to do anything necessary or expedient for the management of "the affairs, business and property of the company". Paragraph 60(1) of Schedule B1 confers on the administrator the powers in Schedule 1 to the 1986 Act. Schedule 1 contains various powers which refer to "the property of the company" but that phrase would not include property in which the company did not have a beneficial interest. Paragraph 63 of Schedule B1 permits an administrator to apply to the court for directions "in connection with his functions". By paragraph 67 of Schedule B1, an administrator is required to take custody or control of all the property to which he thinks the company is entitled. Paragraph 69 of Schedule B1 provides that in exercising his functions under Schedule B1, the administrator acts as the agent of the company.
29. An administrator is entitled to be paid his remuneration and expenses out of the assets of the company: see paragraph 99(3) of Schedule B1. The order of priority for payment of expenses is provided by rule 2.67 of the Insolvency Rules 1986. These provisions do not permit the administrator to recover his remuneration and expenses, in respect of the administration, out of assets which the company holds on trust for third parties and in which the company has no beneficial interest.
An administrator and trust property
30. Property in which the company does not have a beneficial interest is not "the property of the company" as that phrase is used in Schedule B1 to the 1986 Act. If the company holds property on trust for others, an administrator does not become a trustee of that property. The company remains the trustee. Accordingly, an administrator does not owe the duties of a trustee to the beneficiaries under the trust. However, an administrator's functions and powers extend to doing anything necessary or expedient for the management of the affairs of the company. This gives an administrator power to do what is necessary or expedient in certain respects in connection with property held by the company as trustee.
31. The position of an administrator in relation to property held on trust by the company is discussed in Lightman & Moss on the Law of Administrators and Receivers of Companies, 5th ed. at paragraphs 20-023 - 20-024, in these terms:
"Assets of an insolvent company which are held on trust do not form part of the property of the company in respect of which an insolvency practitioner is otherwise appointed as administrator or liquidator. At first sight, therefore, an office-holder appointed in respect of a company which is the legal owner of trust assets should not attempt to administer or realise those trust assets, and normally his involvement with such assets will be limited, at most, to accounting for them to the beneficial owners. Hence, if, after taking advice, the insolvency practitioner is sure as to which assets are held on trust, and which are not, it may be that he will be able to proceed simply by managing and realising the non-trust assets in the usual way. Alternatively, and again if the existence of a trust of certain assets is clear, the insolvency practitioner, or the beneficiaries of the trust, may apply to the court for the appointment of a receiver to manage and realise the trust assets for the benefit of the beneficiaries.
But the affairs of the company may be significantly more complex and the routes described above impossible or inappropriate. It may be unclear whether there is indeed a trust in respect of certain assets (or proportions of assets) or not, and hence whether those assets can be claimed by third party beneficiaries, or whether they should be managed and realised by the office-holder for the benefit of the company and its creditors; and, if assets are held on trust, the identity of the beneficial owners, and their interests in the various trust assets, may be unclear. The resolution of these various difficulties may well involve the office-holder in carrying out detailed investigations. It may further involve him in seeking advice, and the directions of the court, on any of the various issues described above."
32. Recent experience in relation to company administrations has shown that where a company in administration holds substantial funds on trust for clients, it is often appropriate for an administrator to apply to the court for directions as to what is to be done in relation to such funds and it is often appropriate for the court to permit the administrator to administer the trusts in question. There have been several well known cases where that has occurred. The position was described in Re Lehman Bros International (Europe) Ltd (No. 2) [2010] Bus LR 480 at [86] per Lord Neuberger MR, as follows:
" I hope, indeed I would expect, that, if the administrators decide to make an application under the Trustee Acts or pursuant to the court's inherent equitable jurisdiction, in relation to dealing with beneficiaries' rights, the court will provide effective assistance, by arriving at a practical and fair outcome, while ensuring that delay and cost are kept to a minimum."
33. Following these remarks in Re Lehman Bros International (Europe) Ltd (No. 2), the court in Re M F Global UK Ltd (No. 3) [2013] 1 WLR 3874, acting under its inherent equitable jurisdiction, made an order giving directions to administrators in the same way as it could give directions to a trustee, i.e an In re Benjamin order (named after In re Benjamin [1902] 1 Ch 723). The court did much the same in Re Allanfield Property Insurance Services Ltd [2016] Lloyd's Rep IR 217 where the administrators applied for directions under paragraph 63 of Schedule B1 to the 1986 Act.
The correspondence
34. There has been extensive correspondence between the solicitors for the administrators and the solicitors for the Claimants. I was not taken to all of that lengthy correspondence but I was asked to consider some of it, which I will now attempt to summarise.
35. I was shown correspondence between Russells for the Claimants and the administrators and/or their solicitors, Fieldfisher LLP, in late January and early February 2016. This was shortly after the administrators were appointed. The first difficulty which was addressed was that Russells wanted the administrators to give certain undertakings, in the underlying litigation with HEC and DPO, which had earlier been given by those companies. The undertakings related to the possibility of various disposals by those companies. Mr Cullen was critical of the apparent reluctance of the administrators to give the Claimants worthwhile and continuing undertakings and there is force in his submissions. This correspondence shows that immediately after the administrators were appointed, they were necessarily dealing with contentious litigation between the Claimants and the companies. Further, in the course of this early correspondence, the Claimants repeatedly asked the administrators for consent under paragraph 43(6) of Schedule B1 to continue the two sets of 2015 proceedings. Russells asked for such permission by letters dated 2, 5, and 9 February 2016 and by an email on 9 February 2016. The request was not limited to the proprietary claims in relation to the assets within clause 2 of the 2005 agreement and the shares in Purpletuity but, by a letter of 2 February 2016, Russells specifically asked the administrators to transfer the clause 2 assets to Purpletuity, to transfer 64% of the shares in Purpletuity to the Claimants and to give effect to the 2005 settlement agreement.
36. On 10 February 2016, the administrators wrote a long letter to Russells. The administrators stated that their duties were to act in the interests of all the creditors and to maximise realisations and to make payments to those who were owed monies by the company. The administrators then suggested that they would be neutral in relation to disputes with regard to the companies' assets and referred to the need for other parties to resolve their differences. The administrators acknowledged that certain assets were held on trust for the Claimants. Later in the letter, the administrators stated that if it was not possible to reach a commercial solution, they would have to apply to the court for directions. The letter then stated that they had taken advice from leading counsel and others as to the complex affairs of the companies. I comment that in so far as that advice was taken in the interests of the unsecured creditors of the companies, then the cost of the advice may qualify as an expense of the administration; in so far as the advice related to whether certain assets were held on trust, or as to the companies' stance in the litigation brought against the companies, it was advice given to the administrators of companies which were parties to pre-existing contentious litigation as to the nature and extent of such trusts.
37. The letter of 10 February 2016 referred to the costs being incurred by the administrators. The letter stated:
" ... we highlight that under standard Berkeley Applegate principles, we the administrators will be entitled to our expenses of investigating and taking appropriate advice in respect of trust claims."
The letter proceeded on the basis that there was no question of the administrators not being paid for the work which they chose to do, either as an expense of the administration out of the assets of the companies or out of the trust assets. The administrators appeared to assume that the administrators' position as to recovery of their fees for dealing with trust assets was essentially the same as the administrators' right to be paid their remuneration out of the assets of the company, i.e. they were "entitled" to be paid fees for dealing with trust assets out of those assets.
38. The letter of 10 February 2016 continued by addressing the subject of the monies recovered from Mr Rao. The letter stated that the administrators had a duty to act in the interests of all creditors and there was a need to apportion the monies. This comment failed to appreciate that the claims to these monies were not all claims by creditors against the companies. The Claimants' claims were that some of these monies were held on trust for the Claimants. There was therefore a dispute between the Claimants on the one hand and the companies on the other. There was a conflict between the position of the Claimants and the position of the companies. There was also a conflict between the position of the Claimants and the duties of the administrators. It was in the interests of the unsecured creditors for the administrators to seek to reduce the extent of the Claimants' claims to these monies but such an approach was contrary to the interests of the Claimants. The letter ended by suggesting that there be discussions with all interested parties. The letter had referred to the fact that there was an automatic stay of the court proceedings brought against the companies but did not specifically address the Claimants' requests for permission to proceed under paragraph 43(6) of Schedule B1.
39. On 15 February 2016, Russells replied to the administrators' letter. They stated that the matter had been going on for too long already and they stated that the first set of 2015 proceedings should not be stayed any longer. They asked for permission to continue those proceedings and stated that if permission were refused they would apply to the court for permission. They referred again to the need to transfer the clause 2 assets and the shares in Purpletuity.
40. Fieldfisher for the administrators replied to Russells on 17 February 2016. They described Russells' letter of 15 February 2016 as "gratuitously rude, overly aggressive and unhelpful". I have read and re-read the letter of 15 February 2016. Russells' letter of 15 February 2016 was firm and possibly expressed some exasperation at the stance adopted by the administrators but it was no worse than that. I cannot agree with Fieldfisher's description which I think was unfortunate. Such comments did not help to promote the prospect of progress by agreement between the parties. Further, such comments were revealing as to the attitude which the administrators were taking, presumably on the advice of Fieldfisher. The administrators' attitude was that they knew best and, in addition, they were entitled to be paid for the work they chose to do out of the assets owned by the Claimants.
41. Fieldfisher's letter of 17 February 2016 addressed the question of the administrators' costs. It stated that the administrators were entitled to deduct administration costs from asset realisations whether trust assets or the companies' general assets. The letter then stated that the administrators did not accept that the clause 2 assets were held solely for the parties and beneficiaries listed in the 2005 agreement. The administrators were not asserting at this point that such assets were part of the general assets of the companies but rather that there might be other beneficiaries. The letter then stated that the administrators might need to apply to the court for directions.
42. I can take the later correspondence more briefly. Russells wrote on 26 February 2016 and 4 March 2016. Fieldfisher replied on 2 and 8 March 2016. Russells stated that the Claimants would apply to the court for permission to continue their two sets of proceedings against HEC and DPO. The solicitors expressly disagreed about the width of the Berkeley Applegate principle and its potential application in this case. On 27 April 2016, Russells sent to Fieldfisher a draft application, with supporting evidence, for permission to continue the two sets of 2015 proceedings against HEC and DPO. On 29 April 2016, Fieldfisher said that the threat of such an application did not assist. They added that the administrators had agreed in large part what the Claimants sought in those claims.
The procedural history
43. On 6 May 2016, the Claimants issued application notices in the administrations of both companies seeking orders pursuant to paragraph 43(6) of Schedule B1 to the 1986 Act granting permission to the Claimants to continue both of the 2015 proceedings which the Claimants had brought against HEC and DPO. The Claimants served a witness statement dated 6 May 2016 from their solicitors in support of their applications. That witness statement set out the history of the matter in a little detail and concluded by identifying, in sub-paragraphs (1) to (7) of paragraph 52, the reasons put forward in support of the applications. The witness statement also expressed the Claimants' concern at the level of fees which the administrators had reported they were incurring.
44. On 20 May 2016, Registrar Barber gave directions in relation to these applications and, in particular, directed that they be heard on 15 July 2016.
45. On 22 June 2016, the administrators issued application notices in the administrations of both companies seeking declarations that the administrators were entitled to be indemnified out of the trust assets in the possession or control of the companies "in respect of their remuneration, costs, and expenses in relation to the administration and management of those trust assets" and were entitled to an immediate payment on account in respect of such remuneration, costs and expenses.
46. On 21 June 2016, Mr Supperstone, one of the administrators, made a witness statement in response to the evidence filed on behalf of the Claimants and also in support of the administrators' applications of 22 June 2016. He referred to the administrators' fees and the costs they had incurred up to that point. He purported to divide the fees and charges between what he called "trust costs" and "non-trust costs". The administrators' fees and costs were said to be some £149,000 for trust costs and £97,000 for non-trust costs. Fieldfisher's costs were said to be some £83,000 for trust costs and £3,000 for non-trust costs. Leading counsel's fees were £33,000 and were all said to be trust costs. I have rounded these figures to the nearest £1,000.
47. Mr Supperstone stated that if the court gave the Claimants permission to continue the 2015 proceedings, this would increase the costs incurred by the administrators. He stated that the need for the 2015 proceedings to be continued was largely caused because the Claimants continued to reserve their position as to the ability of the administrators to have recourse to trust assets to cover costs relating to those assets. As to the first set of 2015 proceedings, he stated that the Claimants were not the only beneficiaries under the trust created by clause 2 of the 2005 Settlement Agreement. As to the second set of 2015 proceedings, he stated that it involved money claims which should be dealt with out of court in the same way as claims by other creditors.
48. On 6 July 2016, the Claimants served evidence in response to Mr Supperstone's witness statement. One point made in that evidence was that the claim in the second set of 2015 proceedings was to a trust account so that the monies claimed were said to be held on trust so that the Claimants were not simply unsecured creditors.
49. On 15 July 2016, the Claimants' applications of 6 May 2016 and the administrators' applications of 22 June 2016 came before Chief Registrar Baister. The administrators provided me with their counsel's skeleton argument for that hearing. Although that hearing had been directed by Registrar Barber, with a time estimate of 2 hours, to deal with the Claimants' application dated 6 May 2016, the administrators identified the agenda for the hearing as involving hearing, first, their application for an order for an indemnity out of trust assets followed by an adjournment of the Claimants' application by reason of want of time. The skeleton argument stated that there was "no serious dispute" about the administrators' entitlement to an indemnity out of trust assets. The skeleton argument was critical of the stance taken by the Claimants in relation to their application for permission to proceed with the 2015 proceedings. The skeleton then submitted that the application for permission was legally flawed for three reasons, namely: (1) either the Claimants did not possess any of the proprietary rights claimed in the 2015 proceedings; or (2) the Claimants were not on their own entitled to exercise those proprietary rights; or (3) the remaining claims in the 2015 proceedings were not proprietary rights. It was also asserted that the 2015 proceedings were not the most suitable vehicle for the resolution of the issues; one point which was made was that the best course was to allow the administrators to progress the resolution of the issues and disputes by agreement between all interested parties, if possible, and if necessary pursuant to an application to the court for directions as to the resolution of the issues and disputes.
50. At the hearing on 15 July 2016, Chief Registrar Baister directed the administrators, by 12 August 2016, to send to all persons potentially interested written proposals as to the manner in which the disputes that were the subject of the Claimants' two sets of 2015 proceedings should be resolved. He further directed that the Claimants' applications and the administrators' application in relation to remuneration and costs be heard by a judge with a time estimate of 2 days for the hearing. He reserved the costs in relation to these matters.
The proposals
51. In his witness statement of 12 August 2016, Mr Supperstone put forward proposals pursuant to the directions of the Chief Registrar. The proposals dealt with the monies recovered by the companies from Mr Rao, the shares in Purpletuity and the assets within clause 2 of the 2005 agreement.
52. There was then further evidence in response to the administrators' proposals. That evidence included witness statements from Mrs Sadeghi and Mrs Flanagan. I will refer to the position taken by them when I describe what transpired at the hearing before me on 28 and 29 September 2016.
The hearing in September 2016
53. At the hearing on 28 and 29 September 2016, the Claimants and the administrators were represented by counsel and solicitors. I also heard from Mrs Sadeghi and Mrs Flanagan. Mrs Sadeghi is the daughter of the late Mr Coletta. The beneficiaries in relation to his estate are Mrs Sadeghi and her sister. Mrs Sadeghi told me that she was able to speak on behalf of her sister. Mrs Flanagan is the daughter of the late Mr Edwards. The beneficiaries in relation to the estate of Mr Edwards are his widow, Mrs Manuela Edwards, as to 50% with the other 50% being shared between Mrs Flanagan and her sister and her brother. Mrs Flanagan told me that she was able to speak on behalf of her sister and her brother. I was shown a letter to the administrators' solicitors from Mrs Edwards' solicitors which stated that Mrs Edwards neither accepted nor rejected the administrators' proposals and that she would abide by such order as the court might make.
54. At the hearing, I also had a witness statement dated 9 September 2016 from a solicitor acting for Mr Coverdale and also witness statements dated 12 August 2016 and 21 September 2016 from a solicitor acting for Mr Blackmore.
55. I heard submissions from Mr Cullen QC from the Claimants, Mr Sutcliffe QC for the administrators and from Mrs Sadeghi and Mrs Flanagan in relation to the administrators' proposals. I will deal with these proposals in the following order: first, the shares in Purpletuity, secondly, the assets within clause 2 and thirdly, the monies recovered from Mr Rao.
56. The principal point of dispute at the hearing in September related to the shares in Purpletuity. The administrators proposed that the shares be transferred as follows: 64% to the Claimants, 16% to Mr Blackmore and 20% to the beneficiaries of the estates of Mr Edwards and Mr Coletta. The Claimants agreed with this proposal. Mrs Sadeghi and Mrs Flanagan did not agree. They told me that they had had advice from counsel which supported the way the matter had been pleaded in the Defences of HEC and DPO. They submitted that the shares were held by DPO as trustee. The beneficiaries under the trust were the Claimants and the Managers (now their estates). However, it was submitted that the shares were not held for those beneficiaries as tenants in common; it was said that they were held for the beneficiaries but without the beneficiaries having a right to a transfer of any particular number of shares. The reason why the estates of the Managers resisted the administrators' proposals appeared to be that they did not wish to see the Claimants and Mr Blackmore obtaining a majority shareholding in, and therefore control of, Purpletuity. In relation to the contention put forward by the Claimants that if this argument were correct, the position would be that the beneficiaries were joint tenants and the principle of survivorship would apply so that, following the deaths of the Managers and Mr Lord, the surviving beneficiaries would now be Mr Gillan, Mr Glover and Mr Paice. This analysis would leave the estates of the Managers with no interest in the shares. This produced the result that the administrators' proposals were more beneficial to the estates of the Managers than an analysis based on the arguments of Mrs Sadeghi and Mrs Flanagan. No one suggested, I think rightly, that the shares were held on the basis of a non-charitable purpose trust, which would not seem to be legally possible.
57. Having considered the arguments in relation to the shares, I reached the conclusion that it was not in the interests of the estates of the Managers to contend that the beneficiaries in relation to the trust of the shares were beneficial joint tenants and at the hearing Mrs Sadeghi and Mrs Flanagan recognised that this was the case. The alternative analysis was that the beneficiaries were beneficial tenants in common. On that basis, the estates of the Managers were entitled to 20% of the shares and the Claimants, alternatively the Claimants and Mr Blackmore, were entitled to 80% of the shares. As the Claimants and Mr Blackmore agreed to divide the 80% holding in five equal parts, there was no dispute between them. Having reached this position, I held that the administrators were entitled to transfer the shares in Purpletuity as to 20% to the estates of the Managers, as to 64% to the Claimants and as to 16% to Mr Blackmore.
58. In relation to the position as to the shares in Purpletuity in accordance with clause 11 of the 2005 Settlement Agreement, I need to mention separately the position of Mr Coverdale, a former member of Deep Purple. Mr Coverdale had instructed solicitors who wrote to the administrators on 26 August 2016 and 9 September 2016. The first letter asserted a claim by Mr Coverdale that an agreement he had made with DPO on 1 July 1973 should be set aside by reason of undue influence and, if that agreement were set aside, that would affect Mr Coverdale's entitlement to certain copyrights. In the second letter, it was stated that Mr Coverdale required to be given a 5% shareholding in Purpletuity. The letter did not set out a basis on which it could be said that Mr Coverdale had a pre-existing entitlement to a 5% shareholding in that company. On 29 September 2016, the second day of the hearing before me, Mr Coverdale's solicitors wrote to the court stating that Mr Coverdale did not oppose an order for the transfer of the shares in Purpletuity in accordance with my interpretation of clause 11 of the 2005 Settlement Agreement provided that it was clear that the making of such an order did not involve any finding in relation to Mr Coverdale's claims in relation to which his rights were reserved. At the hearing, no one resisted the inclusion of a form of words to give effect to this request from Mr Coverdale.
59. The above conclusions dealt with the shares in Purpletuity.
60. As regards the assets within clause 2 of the 2005 agreement, I was provided with a lengthy schedule to replace the original schedule to the 2005 agreement. I understand that this revised schedule had been compiled by the Claimants. The Claimants say that the administrators played little or no part in its preparation; this is not accepted by the administrators. In their Defences, HEC and DPO had pleaded that clause 14 of the 2005 agreement, which provided for the preparation of a revised schedule was an unenforceable agreement to agree. At the hearing, I did not accept that argument. Clause 14 provides for any disagreement between the contracting parties to be determined by an independent expert and there is no lack of clarity as to the principles that the expert is to apply. He is to apply the general law of copyright to the facts of the case. Accordingly, clause 14 of the 2005 agreement is an enforceable contractual provision.
61. Mrs Flanagan addressed me in detail on the contents of the revised schedule. She suggested that HEC and DPO did not have copyright in some of the listed works. It seemed to me that the way to deal with this suggested difficulty was for the administrators to transfer such right and title as they had to the claimed copyright. That seemed to me to be consistent with the way the obligation in clause 2 of the 2005 agreement was expressed. Mrs Flanagan also suggested that in relation to a few of the listed works, HEC and/or DPO did not have the copyright but that other companies in which the Edwards family had an interest did own that copyright. Again, it seemed to me that the way to deal with this suggested difficulty, in view of the fact that HEC and DPO were in administration, was for the administrators to transfer such copyrights as they had in the listed works but not so as to affect any claim which might be put forward as those copyrights being held otherwise than in accordance with clause 2 of the 2005 agreement.
62. I need to consider, separately, the position of Mr Hughes, a former member of Deep Purple. The 2005 Settlement Agreement had referred to a possible claim by Mr Hughes to a share in the copyright for certain identified compositions. In their proposals, the administrators had proposed that Mr Hughes be included as a co-author in relation to certain specified compositions and Mr Hughes had agreed to that proposal. The wording in the transfer of the copyrights to Purpletuity that the transfer does not affect any claim which might be put forward by other parties to any of those copyrights protects Mr Hughes's position in relation to his claim.
63. The above conclusions dealt with the assets which were the subject of clause 2.
64. The final proposal related to the sum of approximately £477,000 which HEC and DPO had recovered from Mr Rao before the administrations. It was generally accepted that it would be excessively time consuming to endeavour a precise division of that sum between royalties due to the Claimants and the estates of the Managers under the 2005 agreement and other royalties which were assets of the companies in administration. The administrators had originally offered to pay away 85% of the sum as trust monies and to retain 15% as the assets of the company. They were negotiated up to 90% and then to 91.75% of the total sum as representing trust monies. The last figure was acceptable to the Claimants and to the estates of the Managers. Accordingly, I approved the proposal that the administrators should act in that way.
65. Having dealt with the administrators' proposals as described above, the Claimants accepted that they did not need to have permission under paragraph 43(6) of Schedule B1 to the 1986 Act to continue the 2015 litigation against HEC and DPO. That disposed of their application for such permission.
If there had been no proposals
66. As a result of the order made by Chief Registrar Baister and the resolution of the issues which was possible at the hearing before me in September 2016, I no longer have to consider what order I would have made on the Claimants' applications for permission to continue both sets of 2015 proceedings against HEC and DPO, in the absence of the proposals which were made in compliance with the Chief Registrar's order. However, I consider that it is appropriate to comment on that subject for three reasons. The first is that I was able to form a clear view on that question assisted by the submissions made by the parties and my review of the nature of, and the history of, the dispute. Secondly, my views on that question will have a bearing on what order should be made as to the costs of the Claimants' applications; I have yet to hear submissions on the question of costs but I already have the parties' submissions as to the appropriate response to the applications for permission to continue the 2015 proceedings. Thirdly, my views on the applications for permission to continue the 2015 proceedings may have a bearing on the question which I am asked to decide in this judgment as to the administrators' applications for a declaration that they are entitled to be indemnified out of the trust assets in relation to their remuneration, costs and expenses in relation to the administration and management of the trust assets. As I will later explain, the administrators wish to say that their remuneration, costs and expenses in dealing with the Claimants' applications should be covered by such an indemnity.
67. Under paragraph 43(6) of Schedule B1 to the 1986 Act, in a case like the present, where an administrator has refused to consent to existing legal proceedings being continued against a company in administration, it falls to the court to decide whether to permit those proceedings to be continued. The parties were agreed that the principles to be applied in a case like the present are those identified by the Court of Appeal in In re Atlantic Computer Systems plc [1992] Ch 505 at 541 - 544. Those principles are well known and I will not set out in this judgment the lengthy passage from that case which is at 541 - 544. I will instead apply the principles which are of particular relevance to the facts of the present case.
68. Applying those principles to this case, in the absence of the administrators' proposals, I would have reached the following conclusions:
i) the administrators were obliged to respond speedily and responsibly to the applications for permission to continue the 2015 proceedings;
ii) at an early point it was clear that the purpose of the administrations was to achieve a better result for the companies' creditors as compared with the result of a liquidation;
iii) the Claimants' claims related to assets which were held by the companies on trust; those assets were not the assets of the companies and were not available for realisation and distribution to the creditors; that was clearly the position in relation to the copyrights, the subject of clause 2 of the 2005 Settlement Agreement, and also in relation to the shares in Purpletuity; that was also probably the case in relation to the claim to an account and payment in the second set of 2015 proceedings and it was, at least, seriously arguable that the monies claimed in those proceedings were trust monies;
iv) although there might have been issues as to precisely which beneficiaries were interested under the various trusts, it was clear that the companies were not interested in the trust assets; any issues between beneficiaries did not directly concern the companies and their unsecured creditors;
v) the Claimants were the principal (if not the only) persons interested (directly or indirectly) in the trust assets and they did not wish to instruct the administrators to act for them to assist in resolving any possible dispute with other persons who claimed to be interested in the trust assets;
vi) the 2005 Settlement Agreement imposed contractual obligations on the companies which remained binding and specifically enforceable notwithstanding the administrations;
vii) the Claimants' proceedings were an appropriate vehicle in which the Claimants could assert their rights as beneficiaries and their rights under the 2005 Settlement Agreement against the companies; the Claimants, HEC, DPO and the estates of the managers were parties to these proceedings; Purpletuity was not a party to the proceedings but the shareholders in Purpletuity (with the exception of Mr Blackmore) were parties; the Claimants claimed, I think correctly, to be able to seek an order that HEC and DPO transfer the clause 2 assets to Purpletuity, in reliance on the decision in Beswick v Beswick [1968] AC 58;
viii) whether further procedural directions, such as the joinder of other parties to the Claimants' proceedings, were necessary or appropriate should not have been of any real concern of the companies or their administrators;
ix) the Claimants had legitimate reasons for wanting to continue the 2015 proceedings in order to secure performance of the terms of the 2005 Settlement Agreement;
x) the continuation of the 2015 proceedings would not impede the achievement of the purpose of the administrations;
xi) at the earliest opportunity, the Claimants asked the administrators for consent to continue the 2015 proceedings and the administrators did not provide any, or any adequate, reasons for not giving their consent;
xii) when the administrators submitted their reasons for withholding consent in advance of the hearing on 15 July 2016, their suggestion that a grant of permission by the court would impede the achievement of the purpose of the administrations was unconvincing;
xiii) the administrators should not have given themselves the task of seeking to resolve whatever differences there might have been between rival claimants to the trust assets and that task should have been left to be resolved in the 2015 proceedings;
xiv) the administrators ought to have consented to the continuation of the 2015 proceedings when they were asked to consent and they should not have opposed the Claimants' applications to the court for permission; and
xv) in the absence of consent from the administrators, the court would have granted the Claimants permission to continue the 2015 proceedings, subject to a possible limitation as to the enforcement of any non-proprietary money claims.
The result of the Claimants' applications
69. At the conclusion of the hearing in September 2016, I stated that I would make an order to give effect to the conclusions I had reached at that hearing and I asked counsel to provide a draft minute of order. Subsequently, a draft order was agreed and I made that order in relation to those matters. The order did not deal with the administrators' applications dated 22 June 2016 and the order provided that the costs of the various applications would be considered at a further hearing. The remainder of this judgment therefore addresses the administrators' applications for declarations that they are entitled to be indemnified out of the trust assets in respect of their remuneration, costs and expenses in relation to the administration and management of those trust assets.
The administrators' applications
70. The administrators have applied for declarations that they are entitled to be indemnified out of the trust assets in respect of certain remuneration, costs and expenses by reason of the Berkeley Applegate principle. There was considerable dispute as to the extent of that principle and how it applied to the facts of this case. I therefore need to describe what that principle is before I seek to apply it to the circumstances of this case. I will begin by describing the Berkeley Applegate litigation itself and then refer to other authorities which have considered the relevant principle.
The Berkeley Applegate litigation
71. Berkeley Applegate (Investment Consultants) Ltd received money from investors and lent it to borrowers on mortgage terms. The company subsequently went into liquidation and issues arose as to whether the benefit of the mortgages, and some further funds which had not been lent out, were held on trust for the investors or whether those assets formed part of the general assets of the company. The liquidator brought proceedings to determine the issues arising and counsel for representatives of the investors and of the unsecured creditors of the company made submissions to the court. The judge (Mr Edward Nugee QC, sitting as a deputy High Court Judge) held that the benefit of the mortgages and the further funds were held on trust for the investors. His judgment is reported at (1988) 4 BCC 274.
72. Following the judge's ruling that the relevant assets were held on trust for the investors, the liquidator applied to the judge for an order entitling him to payment of remuneration and reimbursement of costs and disbursements out of the assets of the company and out of the assets held on trust. Counsel for the liquidator accepted that there was no clear authority in support of the application that the liquidator be paid out of the trust assets but he invoked two general principles, namely, (1) that "he who seeks equity must do equity" and (2) that the court had jurisdiction over trusts and could make orders to "promote their administration": see [1989] Ch 32 at 36H-37A. The judge held that the liquidator was entitled to have his proper expenses and remuneration paid out of the trust assets, if necessary. The following matters, which appear from his judgment, are relevant:
i) the judge described the work which had been carried out by the liquidator by reference to five categories of work;
ii) the first category involved work of investigation into the company's affairs, most of which was useful in the liquidation and which included as assessment of the nature of the proprietary claims of the investors;
iii) the second category involved work of dealing with inquiries from investors and borrowers;
iv) the third category involved work of ascertaining the assets of the company and the assets arguably held on trust;
v) the fourth category was work of managing the investments;
vi) the fifth category concerned general liquidation matters;
vii) the judge noted that the liquidator's right to remuneration for his services under the Insolvency Act 1986 and the Insolvency Rules 1986 provided for payment out of the assets of the company but not out of assets held by the company on trust;
viii) he noted that if a receiver had been appointed of the trust assets, the court would have permitted the receiver to be paid for his services;
ix) he noted that the liquidator was not a trustee in relation to the assets held by the company on trust;
x) he considered cases where a liquidator was entitled to be reimbursed by secured creditors for the costs incurred by the liquidator in realising their securities for their benefit;
xi) he considered cases where a trustee was allowed remuneration incurred for the purpose of the proper administration of trust property;
xii) he considered cases where a party who needed the assistance of court of equity to secure his rights was subject to the court's power to impose conditions in order to do justice between the parties;
xiii) he said at page 50 C-E:
"As a condition of giving effect to their equitable rights, the court has in my judgment a discretion to ensure that a proper allowance is made to the liquidator. His skill and labour may not have added directly to the value of the underlying assets in which the investors have equitable interests but he has added to the estate in the sense of carrying out work which was necessary before the estate could be realised for the benefit of the investors. As was the case in Scott v. Nesbitt, 14 Ves. Jun. 438, if the liquidator had not done this work, it is inevitable that the work, or at all events a great deal of it, would have had to be done by someone else, and on an application to the court a receiver would have been appointed whose expenses and fees would necessarily have had to be borne by the trust assets. On the evidence before me, the beneficial interests of the investors could not have been established without some such investigation as has been carried out by the liquidator.
The allowance of fair compensation to the liquidator is in my judgment a proper application of the rule that he who seeks equity must do equity."
xiv) he said at page 50G-51B:
"The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in
In re Marine Mansions Co., L.R. 4 Eq. 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v. Nesbitt, 14 Ves. Jun. 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in
Phipps v. Boardman [1964] 1 W.L.R. 993 ). In my judgment this is a case in which the jurisdiction can properly be exercised."
xv) he said that the fact that the liquidator was not a trustee of the trust assets did not prevent the court determining the extent to which compensation for his expenditure of money, skill and labour should be borne out of the trust assets but was a relevant factor;
xvi) he said that the fact that the company could not have charged for any costs it might have incurred did not preclude the court from exercising its inherent jurisdiction in favour of the liquidator but was a relevant factor; and
xvii) he said that he was not asked to determine whether any particular item of expenses or remuneration should be allowed nor as to how the expenses and remuneration should be borne as between the company's assets and the trust assets.
73. The judge directed an inquiry as to what sum the liquidator should receive in respect of expenses and remuneration "in respect of his investigations into, and the administration and supervision of, the trust assets". He also directed an inquiry as to how and in what manner that remuneration and reimbursement should be borne as between the trust assets and the company's assets. The terms of the inquiries appear from the later judgment of Peter Gibson J in the same litigation, reported at (1989) 5 BCC 803, see at 804B-D. In the event, the amount payable was agreed. In his judgment, Peter Gibson J refers to the amount as being in respect of "administering trust assets". Peter Gibson J held that these costs were not costs incurred in the winding up to be paid out of the company's assets.
Later authorities
74. In Lehman Bros International (Europe) Ltd v CRC Ltd [2012] Bus LR 667, the decision in Berkeley Applegate was referred to in passing by Lord Walker of Gestingthorpe JSC at [101] where he cited it as an authority which permitted an administrator of a company which held certain assets on trust to be paid his "administrative costs" in relation to the trust assets.
75. Berkeley Applegate has been applied in several later authorities at first instance. I was referred to four of them in particular, namely, Re Telesure Ltd [1997] BCC 580, Green (Trustee in bankruptcy of Tranckle) v Bramston [2011] BPIR 44, Re Allanfield Property Insurance Services Ltd ( Allanfield) [2016] Lloyd's Rep IR 217 and Bell v Birchall [2016] 4 All ER 766. I was also referred to the discussion of Berkeley Appelgate in Lightman & Moss on the Law of Administrators and Receivers of Companies at paras. 20-023 to 20-032 which refers to other authorities including Tom Wise Ltd v Fillimore [1999] BCC 129, Re Local London Residential Ltd [2004] 2 BCLC 72 and Credit & Mercantile plc v Kaymuu Ltd [2014] EWHC 1746 (Ch).
76. In Re Telesure Ltd, the company paid receipts from the sale of insurance policies into a separate account pursuant to statutory requirements and because some insurance companies required a trust to be maintained for receipts owing to them. The company went into administrative receivership and then into voluntary liquidation. The liquidators indicated their view that the question of title to the funds in the account required investigation by them. Some of the insurance companies wished to commence proceedings against the receivers for a declaration that the moneys in the account were trust property. The liquidators applied to the court for directions and the registrar decided that the liquidators, rather than the receivers, were the proper persons to carry out an investigation into the fund. The liquidators requested that their remuneration and expenses until further notice in investigating title to the funds be paid out of the assets of the company whether held beneficially or as trustee on behalf of insurance creditors and further that all such remuneration and expenses incurred from the date of the liquidators' appointment be payable out of such assets. The registrar granted an order substantially in those terms. The insurance companies appealed. During the course of the appeal, the judge considered that the registrar's order was too wide: it would have allowed the liquidators to charge all their costs out of the fund irrespective of whether or not those costs had anything to do with the claims in respect of the fund, and being made 'until further order' could entitle the liquidators to engage in hostile litigation against the insurers. In giving judgment, the judge said that the work of sorting out the insurance companies' claim had to be done by somebody and even if done by the receivers, who preferred the liquidators to do it, the liquidators would have to vet any operation carried out by the receivers as part of the liquidators' own duties. The liquidators could not carry out those duties without making a proper investigation themselves and were the proper persons to make the investigation. The court had a discretion, where a person sought to enforce a claim to an equitable interest in property, to require an allowance for costs incurred in connection with the property to be borne by the property. The registrar's order should be amended so that the remuneration should be out of the fund and limited to cover the administrative stage and investigating the claim rather than dealing with any hostile response to the claim.
77. In Tom Wise Ltd v Fillimore, the company, before going into administration, had assigned to a third party the debts due to the company. The administrator recovered money pursuant to those debts which was, pursuant to the assignment, held on trust for the third party. The administrator took advice on whether the assignment to the third party was valid and he was advised that it was. It was held that the administrator was not entitled to deduct his costs of investigating the validity of the assignment from the trust money payable to the third party.
78. In Re Local London Residential Ltd, the judge did not allow a liquidator to be paid his expenses out of an asset registered in the name of the company but where two other parties claimed that the asset was held on trust. The judge commented that the liquidator was in the position of a litigant in dispute with the other parties.
79. In Green v Bramston, Mr Green was the trustee in bankruptcy of Mr Tranckle who was the registered proprietor of two properties and the joint registered proprietor of a third. A company owned by Mr Tranckle and his partner claimed that the three properties were held on trust for the company. The trustee investigated whether the properties were indeed held on trust for the company. If the trustee had been able to establish that the properties were owned by the bankrupt (in one case, jointly owned) beneficially, then that would be for the benefit of the bankrupt estate. The trustee later conceded that the properties were held on trust for the company. He then claimed to be entitled to be paid certain fees and expenses out of the trust assets. It was conceded that he was entitled to fees and expenses in relation to the realisation of the properties but he claimed, in addition, that he should be entitled to his fees and expenses in relation to investigating whether the company was the beneficial owner of the properties. Judge David Cooke, sitting as a Judge of the High Court, held that the trustee in bankruptcy was not entitled to these further fees and expenses.
80. At [26], Judge Cooke said that the making of an allowance in accordance with Berkeley Applegate was discretionary and not circumscribed by precise rules. At [35], he stated that the trustee in bankruptcy was pursuing an interest which was adverse or potentially adverse to the interests of the true beneficiary, the company. At [36], he said that although the matter was discretionary, it was unlikely to be appropriate to subject the interests of the beneficiaries to the costs of advancing, or considering whether to advance, an interest adverse to their own, as distinct from matters involved in, or for the purposes of, enforcing and giving effect to their own beneficial interest. At [42], he described the operation of the Berkeley Applegate principle as subjecting the beneficial interest in question to an obligation to pay the remuneration and costs allowed by the court, resulting in the creation of a proprietary interest in priority to that of the beneficiary whose equitable interest is to be enforced, rather than giving the office holder a personal claim against the beneficiary.
81. In Credit & Mercantile plc v Kaymuu Ltd, the judge followed the approach in Green v Bramston and did not allow a trustee in bankruptcy to recover his remuneration and expenses out of property held on trust for a third party when the trustee in bankruptcy had investigated and opposed the third party's claim. Other points in the case, but not this one, were the subject of an appeal to the Court of Appeal: see Wishart v Credit & Mercantile plc [2015] 2 P&CR 15.
82. In Allanfield, two companies which had acted as insurance intermediaries went into administration. The companies held client money which, under the relevant regulatory scheme, was held on trust for clients. The regulatory scheme was to operate in accordance with Chapter 5 of the Client Assets Sourcebook ("CASS 5") in the Financial Conduct Authority Handbook. The companies had not kept proper records as to the persons entitled to the money in the client accounts. The administrators applied to the court for directions as to how the client money was to be distributed. It was accepted that money held by the companies on trust did not form part of the assets of the companies. However, the administrators were entitled to apply to the court for directions in connection with their functions: Insolvency Act 1986, schedule B1, para. 63. Under schedule B1, para. 59(1), those functions extended to doing anything necessary or expedient for the management of "the affairs, business and property of the company". Although the trust money was not the property of the company, its distribution was part of the "affairs" of the company. However, schedule B1, para. 63 did not specify the scope of the directions which might properly be given where a proposed scheme of distribution might involve a breach of trust. The court had an inherent equitable jurisdiction (explained in Re M F Global UK Ltd [2013] 1 WLR 3874) to give directions as to the distribution of trust property.
83. In Allanfield, the first question raised by the administrators was whether the money in the client accounts was trust money. There was no real argument to the contrary and, indeed, the administrators had accepted from an early point in their involvement that the money was trust money. The judge then considered a large number of detailed questions which might collectively be described as relating to the distribution of trust money. Some of the questions might also be described as raising issues as to whether certain particular parts of the funds might be regarded as part of the general assets of the companies. In addition, there was an issue as to whether one trust pool of money could assert a tracing claim into another trust pool.
84. In Allanfield, issue 6 concerned whether the administrators were entitled to deduct from the trust pool their costs "associated with the ascertainment and distribution" of the trust pool. The administrators claimed to be entitled to deduct their costs, either under CASS 5.3.2 R (4) ("the Rule") or under the Berkeley Applegate principle. The Rule provided that the companies held the trust pool "on the failure of the firm, for the payment of the costs properly attributable to the distribution of the client money".
85. The costs incurred by the administrators related to various categories of work which they had done. They had communicated with the directors of the companies and staff in an attempt to reconcile the client accounts. They had reviewed documents with a view to calculating client balances. They coordinated the funding and production of a report by forensic accountants who were paid by an unsecured creditor. They wrote to clients of the companies and to third parties. Finally, they incurred costs in relation to the applications to the court. By the time of the court hearing, the administrators' costs amounted to 57% of the combined values of the trust pools.
86. The judge considered submissions as to the width of the Rule and as to the meaning of "attributable to", the phrase used in the Rule. He held that the Rule covered costs which were incurred for the purpose of bringing about the distribution of the client money; work done for the purpose of ascertaining how the obligation to distribute is to be performed was to be regarded as ancillary to the performance of the trust. He held that where it was necessary to carry out work for the purpose of identifying the beneficiaries of the trust and the extent of their entitlement, then remuneration should be available under the Rule for such work.
87. The judge stated that in view of his interpretation of the Rule, it was unnecessary to consider the Berkeley Applegate principle but he nonetheless briefly did so. He said at [146]:
"I see no sound policy reason for excluding the equitable jurisdiction, which is of course discretionary and to be exercised only if the facts of the case justify it. On the contrary: if there may be cases where significant work is required to enable a distribution to take place in accordance with the statutory trust but there is no mechanism in the rules by which the office-holders may be remunerated for that work, there is a strong policy reason for exercising the general equitable jurisdiction. The fact that the jurisdiction is to be sparingly used is not itself an objection to its use in the present case or in similar cases."
88. At [147], the judge held that the categories of work done by the administrators were in principle capable of being remunerated under the Berkeley Applegate principle. At [148], he addressed concerns which had been expressed as to the amount of costs which had been incurred by the administrators and he said:
"In my judgment, the proper way of dealing with questions of the amount of costs that ought to be allowed is by referring the matter to a Registrar of the Companies Court, who will have expertise in assessing office-holders' remuneration. In those circumstances, it is unlikely to be helpful if I make observations on specific matters of concern. I shall, however, observe that the costs sought by the administrators appear disconcertingly high, having regard to the modest size of the funds, and will require close scrutiny. In a case such as the present, when it is apparent at an early stage that there are necessary enquiries before distribution can be commenced, the office-holders can reasonably be expected to devise at the outset a strategy for carrying out the work efficiently and with regard to the size of the trust fund, so that expenditure is planned and controlled. Although an early application to the Court for directions is not itself a condition of the recovery of costs and disbursements, without such an application the office-holders run the risk that the work they have done will be regarded as unreasonable or disproportionate and of being unremunerated for significant parts of it. Of course, that is not to say that this will necessarily be the outcome in the present case."
89. In Bell v Birchall the court did not allow a claim by a trustee in bankruptcy to be indemnified as to his remuneration and expenses out of trust property. The principal reason was that the beneficial owners of the trust property did not require the assistance of the court to secure their rights so there was no occasion for the court to impose on them a condition that they could only enforce their rights if they submitted to the burden of bearing the remuneration and expenses. The court also held that, if it had a discretion to impose that burden on the beneficial owners of the trust assets, the detailed circumstances of that case did not justify the court in exercising that discretion in favour of the trustee.
Without prejudice matters
90. Before seeking to apply the Berkeley Applegate principle to the facts of this case, I need to address certain submissions which were made to me in relation to without prejudice communications between the parties.
91. At the hearing in September 2016, all sides appeared keen for the court to know that there have been without prejudice meetings and indeed various letters had been sent, headed "without prejudice save as to costs". Whether that was appropriate or not, I now know those facts. At that hearing, it was agreed (unsurprisingly) that there ought not to be any reference to the content of these without prejudice matters unless everyone agreed (and they did not agree). Accordingly, in so far as there were submissions at the hearing in September as to the way in which the parties had conducted themselves, the submissions were by reference to the open communications between the parties.
92. Following the hearing, counsel for the administrators provided me with a Note, the heading of which suggested that it was a Note dealing with certain authorities which had been mentioned at the hearing. The Note did refer to one authority in particular but it also made a number of comments about without prejudice matters. The note referred to submissions made on behalf of the Claimants at the hearing which had been critical of the administrators' conduct of the matter. The Note then said that the true picture was revealed in the without prejudice correspondence and, as a result, the administrators were unable to correct the misleading picture which had been put before the court (based on matters which were in evidence, including the open communications between the parties). It was then said that the administrators were at a fundamental disadvantage because they could not contradict the criticisms which had been made of them. It was then submitted that the court should be very reluctant to pass any comment on what it perceived to have been the conduct of the administrators. It was said that if the court entertained the Claimants' criticisms of the administrators' conduct the court would be guilty of a "gross procedural injustice".
93. Counsel for the Claimants responded to the Note from counsel for the administrators. The Claimants objected to what was said in the Note and submitted that the Note was improper. The Claimants further submitted that it was the consequence of matters being, by agreement, without prejudice that one party could not seek to advance his case, or to prejudice the other party, by referring to without prejudice matters.
94. I consider that the submissions of the Claimants on these without prejudice matters are self-evidently right. The court must judge matters, which are relevant to its decision, on the basis of the evidence before it. The without prejudice material is not before the court. That ought not to be a surprise to the administrators. They agreed that matters were to be without prejudice and would not be before the court. If it is relevant for the court to form a view on the conduct of the administrators, it will do so on the basis of the evidence before it. It was inappropriate for counsel for the administrators to suggest that, if only he could refer to without prejudice matters, the case would look better from his clients' point of view and, therefore, the court would be guilty of "gross procedural injustice" if it decided the case on the basis of the evidence before it.
Discussion and conclusions
95. I have already referred to Mr Supperstone's witness statement of 21 June 2016 where he put forward certain figures for the administrators' remuneration and costs which were said to relate to work done in relation to the trust assets. In a later witness statement (on 9 September 2016), Mr Supperstone updated these figures and stated that, in relation to what he called "trust costs", the administrators' charges were £234,710.28, Fieldfisher's charges were £131,967.00 and counsel's fees were £56,025, making a total of £422,702.28.
96. Counsel for the administrators put forward a description of the work said to have been done by the administrators for which, it was submitted, they were entitled to be paid remuneration and have their disbursements reimbursed. I will set out counsel's description verbatim, as follows:
"The Joint Administrators have been required to undertake work and incur expenses which have benefitted or been directly connected to the trust property in what has proved to be an extremely complex administration. They have had to consider a substantial number of song titles and recordings and to deal with numerous enquiries from parties regarding the rights to these titles and those parties' various entitlements. They have carried out considerable work seeking to protect and enhance the collection of royalties relating to these titles. Their work has included the following:
(1) Negotiating with and instructing Wixen with regard to continued dealing with the rights, licensing requests, royalty statement allocations and obtaining advice from Wixen as to royalty entitlements. This work is predominately of direct benefit to the trust assets; approximately 90% of the monies received by the Companies in this regard are referable to Clause 2 Assets and form part of the trust property. The Joint Administrators had to carry out a considerable amount of work in this regard in addition to the services performed by Wixen.
(2) Further, since the end of March 2016 the Joint Administrators have been forced to assume roles previously performed by Wixen due to a lack of funds to meet Wixen's fees. Again, this work is predominately of direct benefit to the trust assets.
(3) Investigating and liaising with parties regarding the recovery of monies misappropriated by Mr Rao and dealing with associated matters. Again, this has been predominately for the benefit of the trust as approximately 90% of the monies misappropriated are referable to income from Clause 2 Assets and form part of the trust property. Work was required to investigate the sources of the monies misappropriated by Mr Rao (i.e. whether from non-trust or trust assets) and thus how recoveries should be accounted for. Further, the Joint Administrators have negotiated and arranged a CFA and ATE insurance in order to pursue third parties liable for the misappropriation of monies by Mr Rao.
(4) Obtaining advice from Fieldfisher and counsel as to the nature of the assets held by the Companies and whether those assets are subject to the Clause 2 Trust. The cost of this advice is expenditure which was necessary to realise the estate, account for trust income received and as a pre-cursor to transferring the Clause 2 Assets to Purpletuity.
(5) Corresponding and meeting with parties interested (or purporting to be interested) in the Clause 2 Assets. There has been an extensive amount of correspondence with these parties and numerous meetings have taken place, as set out in Supperstone 3. This has entailed a considerable amount of time and expense and has been exacerbated by the uncooperative stances taken by many of those parties and their representatives.
(6) Making quarterly distributions of income to those interested in the income of the Class 2 Assets. In excess of £500,000 in royalty distributions has been paid out since the Companies went into administration. This has entailed working with Wixen to investigate why the December 2015 distribution had not been made and formulating and negotiating proposals with interested parties to deal with the shortfall in funds available to make the distribution, caused by Mr Rao's misappropriation of monies. Agreeing these matters with the interested parties took a considerable amount of time and effort. Work was also required to finalise the distribution for the March 2016 quarter.
(7) Dealing with actual or threatened claims concerning the Clause 2 Assets, including:
(a) The Russells Claimants' threatened injunction concerning the Clause 2 Assets. The Joint Administrators and their representatives had to spend time taking advice on this threatened claim and negotiating undertakings concerning Clause 2 Assets to be given to the Russells Claimants.
(b) The 2015 Claims and Permission Application. The Joint Administrators have been required to undertake a detailed review of the 2015 Claims and to seek advice from Fieldfisher as to those claims and merits of the Permission Application. Further time and cost have been incurred (i) corresponding with and meeting the Russells Claimants and other parties in connection with the Permission Application, (ii) preparing evidence in opposition to the Permission Application, and (iii) preparing the Proposals directed by Mr Registrar Baister in connection with the Permission Application.
(c) The Berkeley Applegate Application. Preparing this application and corresponding with the parties opposing it has also taken time and expense. This expense could have been avoided had the opposing parties taken a constructive and sensible approach to making provision for the remuneration, costs and expenses of Joint Administrators, which is an obvious issue given that the vast majority of the assets held by the Companies are trust assets.
97. It can be seen that counsel's description of the work goes beyond a description of what was involved in the work which was done and contains a number of comments on matters which are contentious and which cannot necessarily be taken at face value. Conversely, some of the descriptions are somewhat general and raise questions as to what might precisely have been involved.
98. The Claimants took the preliminary point that the administrators are not entitled to claim an indemnity under the Berkeley Applegate principle because this is not a case where the Claimants needed the assistance of the court so that the court is not able to impose upon the Claimants the condition that the trust assets should bear the burden of the administrators' remuneration and costs. The Claimants relied upon the decision in Bell v Birchall, to which I have referred. I do not accept this submission. The Claimants have needed the assistance of the court, whether that was pursuant to their claim as beneficiaries to have trust assets vested in them or as claimants for an order for specific performance of the obligation that the companies transfer assets to Purpletuity, applying the principles in Beswick v Beswick [1968] AC 58.
99. There is a question as to the extent to which the court should attempt to deal with the detail of the remuneration and costs which are claimed or, conversely, whether it would be appropriate simply to deal with matters at the level of general principle. It was pointed out that in Berkeley Applegate itself and in Allanfield, the courts dealt with the matter as one of principle and left the question of the precise definition of the entitlement and its quantification to a later stage. Thus, in Berkeley Applegate, although the court summarised the potentially relevant work by reference to five categories, the court did not make specific findings as to which parts of the work were to be taken into account; that question was later agreed between the parties. In Allanfield, it was submitted that the costs involved were very high but the judge considered that it would be unhelpful to comment on specific matters of concern and that the costs should be referred for detailed assessment where they would be the subject of close scrutiny: see at [148].
100. The administrators' applications seek declarations that the administrators are entitled to be indemnified out of the trust assets in respect of their remuneration, costs and expenses in relation to the administration and management of those trust assets. That formulation is obviously based on the statement of general principle in Berkeley Applegate but to make a declaration in those terms is unlikely to be of much help to the parties. The real dispute between the parties is as to the extent to which work of the kind described by the administrators' counsel, as quoted above, comes within that principle, so that the administrators' claims should go forward for detailed assessment. I consider that I should address the description of the work which has been put forward and to comment upon it and then consider the result which emerges from that exercise.
101. There are a number of general points to be made before addressing the paragraphs of counsel's description of the work done by the administrators. The first point is that the administrators were appointed in relation to companies which were the subject of contentious litigation which already existed when the companies went into the administrations. That litigation arose because the companies had failed to perform the 2005 Settlement Agreement and the Claimants had brought proceedings to enforce it. Plainly, the administrators had to decide what to do in relation to the litigation against the companies. If the administrators incurred costs in relation to that litigation, then the court has power to determine who should bear the costs of that litigation. I consider that, prima facie, the sums claimed by the administrators in relation to that litigation should be dealt with under the court's jurisdiction as to the costs of litigation and not separately, and not differently, by applying the Berkeley Applegate principle. If the court held that the administrators should pay the Claimants' costs of the litigation or a step in it, or part of those costs, then it would be difficult for the administrators to say that their remuneration and charges, in relation to the same matters, should be paid to them by the other party to the litigation. Similarly, if the court held that the Claimants should bear the administrators' costs of the litigation or a step in it, or a part of those costs, it would be difficult for the administrators to claim more than they would be entitled to under such an order for costs. I also note that if an order for costs were made in favour of the administrators, then it would not normally be appropriate for the administrators to claim remuneration for their own time in connection with that litigation as part of the costs of the litigation: see SISU Capital Fund Ltd v Tucker [2006] BCC 463.
102. Further, apart from the costs involved in litigation, I also consider that the administrators ought not to be able to recover remuneration and charges in relation to work which they did which was for the benefit of the unsecured creditors and adverse to the interests of the beneficiaries under the trusts. An example of that in this case is where the administrators negotiated with the Claimants as to the split of the monies recovered from Mr Rao. It was recognised that some of the money was to be paid to the beneficiaries who claimed that such part of the money was held on trust and some represented the assets of the companies. The Claimants succeeded in their negotiations with the administrators so that they became entitled to 91.75% of those monies which was more than was originally offered by the administrators. In that context, I consider that the administrators were acting to protect the interests of the unsecured creditors of the companies but were not seeking to protect or advance the interests of the beneficiaries. Work which was done by the administrators to enable them to argue the case for the unsecured creditors is not work for which the beneficiaries under the trusts should pay.
103. There is a further example of the same point in relation to the opposing interests of the beneficiaries and the administrators as to whether certain assets were trust assets. In that respect the interests of the beneficiaries and the administrators were opposed and work done to enable the administrators to advance the case that assets were not trust assets or to determine whether they were or were not trust assets can be said to be work done for the benefit of the unsecured creditors but it is not work for which the beneficiaries under the trusts should pay.
104. There are features of this case which distinguish it from Berkeley Applegate and Allanfield, relied upon by the administrators, and, indeed, from the type of case considered in Re Lehman Bros International (Europe) Ltd (No. 2) and in Re M F Global UK Ltd (No. 3). This was not a case where a company in administration held substantial funds on trust for a large number of beneficiaries where the obviously most convenient course was for the administrators to administer the trusts and distribute to the beneficiaries. This is a case of two companies which had failed to perform their contract with the Claimants and had been sued as a result. At an early point, following the companies entering into administration, the Claimants sought the administrators' consent to continue the proceedings. I consider that the administrators ought to have given that consent. It would then have been for the Claimants and the estates of the managers and any other rival claimant to sort out the dispute, by pursuing the litigation and/or by attempting to settle it. The administrators did not give the consent they should have given. Further, they did not seek directions as to what they should do. They decided that matter for themselves. Part of the time, they acted in the interests of the unsecured creditors and not in the interests of the beneficiaries, as described above. The administrators also seemed to think that they could appoint themselves as mediators of a settlement between various parties but without the consent of those parties. They seemed to think that if they acted in that way they would be entitled to charge the beneficiaries remuneration for so acting. In the event, insofar as the administrators took on the role of mediators between beneficiaries, they did not bring about a settlement of the issues between them and conferred no real benefit on them. The administrators have spent considerable time and incurred considerable costs in opposing the Claimants' applications for consent to continue the litigation and in pursuing their own applications for orders that they be paid their remuneration and charges.
105. I will now comment on the specific matters in the description of work done which was put forward by the administrators' counsel.
106. Paragraphs (1) and (2): it is possible that some of this work could come within the Berkeley Applegate principle. I am not able to make any findings of fact as to what work the administrators did, whether that work was beneficial to the beneficiaries nor as to the appropriate charge to be made for any such work.
107. Paragraph (3): it seems likely that much, or at any rate some, of this work, would not be recoverable under the Berkeley Applegate principle for the reasons given in paragraph 102 above.
108. Paragraph (4): for the reasons given in paragraph 103 above, this work does not come within the Berkeley Applegate principle.
109. Paragraph (5): I would not allow the work within this category within the Berkeley Applegate principle. I have held that the administrators ought to have consented at an early point to the Claimants continuing the 2015 proceedings whereupon it would be for the Claimants to have sought appropriate procedural directions and orders to establish their claims to the trust assets and to specific performance of the 2005 Settlement Agreement. Instead, the administrators chose, against the wishes of the Claimants, to refuse consent to those proceedings continuing and they gave themselves the role of acting as brokers or mediators between various persons interested. Those negotiations did not result in a settlement. The administrators did not seek, and did not obtain, the directions of the court as to whether they should act in this way.
110. Paragraph (6): it is possible that some of this work could come within the Berkeley Applegate principle. I am not able to make any findings of fact as to what work the administrators did, whether that work was beneficial to the beneficiaries nor as to the appropriate charge to be made for any such work.
111. Paragraphs 7(a), (b) and (c): the administrators' costs should be determined by the court in accordance with the general principles as to the costs of litigation and not separately under the Berkeley Applegate principle.
The form of the order
112. In the light of the above comments, I will hear counsel as to whether I should make any declaration in relation to the administrators' applications. I will not make the declaration which is expressly sought by those applications on the ground that it is expressed in too general terms to be of any real use. It may be that the best course is not to make any declaration but to simply leave it to the administrators to reconsider their position in the light of this judgment. If they consider that they do have a proper claim to be paid in accordance with the principles in this judgment, then they should identify their claim in enough detail to enable it to be the subject of a detailed assessment. They should then submit that detailed claim to the Claimants for agreement or resolution.
Costs
113. It has been agreed that I should not deal in this judgment with the costs of the applications made by the Claimants and by the administrators. Accordingly, following the hand down of this judgment, I will hear submissions as to costs.
