FIRST DIVISION, INNER HOUSE, COURT OF SESSION
Lord President Lord Reed Lord Mackay of Drumadoon	[2010] CSIH 34 P1981/08 OPINION OF THE COURT (NO.2) delivered by THE LORD PRESIDENT in Petition of THE SCOTTISH LION INSURANCE COMPANY LIMITED Petitioner and Reclaimer; against (FIRST) GOODRICH CORPORATION AND OTHERS Respondents: _______

Act: Howie, Q.C.; Morton Fraser LLP

Alt: Ferguson, Q.C., Munro; Simpson & Marwick WS

28 April 2010

[1] We have before us motions for expenses following the disposal by the court of the petitioner's reclaiming motion. For the background circumstances reference should be made to the relative Opinion, [2010] CSIH 6.

[2] In the course of proceedings in the Outer House the Lord Ordinary, with the assistance of parties, identified two issues for debate, namely, "(1) Are the respondents entitled to challenge the decision by the chairman of the creditors' meetings that the statutory majorities, both by number and value, were attained at the meetings of both classes of creditors? and (2) Can it ever be fair to sanction a 'solvent' scheme of arrangement in the face of continuing creditor opposition to having their occurrence cover compulsorily terminated?"

[3] The first of these questions the Lord Ordinary answered in the respondents' favour ([2009] CSOH 127 at paras [35] - [41]). The second question underwent some refinement in the course of the debate (para [42]) but in substance the Lord Ordinary answered that question also in the respondents' favour. As a result he dismissed the petition without inquiry. The petitioner reclaimed the Lord Ordinary's interlocutor, contending that the Lord Ordinary had, in disposing of the second question, acted precipitately in dismissing the petition and that inquiry should be allowed. It did not challenge the Lord Ordinary's determination on the first question. The reclaiming motion was successful. The Lord Ordinary's interlocutor was recalled and the proceedings remitted to him to proceed as accords.

[4] The issues now before us concern the proper practice of this court in dealing with expenses in opposed applications to the court under Part 26 of the Companies Act 2006. These issues may also be relevant to proceedings in analogous circumstances.

[5] The respondents' primary contention was that, notwithstanding the outcome of the reclaiming motion, they should be found entitled to their expenses against the petitioner both of the debate in the Outer House and of the reclaiming motion. The foundation for that contention was a decision of Eve J (In re Thomas de la Rue & Co., Limited and Reduced [1911] 2 Ch 361) where, in an opposed application by the applicant company for reduction of capital, his Lordship ordered that the costs of a single dissentient shareholder (a natural person) be met by the company. He said:

"As I do not wish to discourage shareholders affected by schemes of this kind from appearing at the hearing of the petition to obtain the Court's confirmation and pointing out matters to which the attention of the Court may properly be drawn, and as I have been materially assisted in this case by the criticism of this particular dissentient, I propose to make it a further term of my confirmation that his costs are provided for by the company."

[6] This approach appears to have been followed by Plowman J (In re National Bank Ltd [1966] 1 WLR 819), the order of the court (at page 830) including:

"The bank [the petitioning company] to pay the costs of the opposing shareholders because their opposition could not be regarded as frivolous and the argument on their behalf had been helpful to the court."

[7] The practice of the (English) Companies Court is noted in Boyle & Marshall: Practice and Procedure of the Companies Court (1997) at para 3.6.8 as follows:

"The court has a discretion to order that an unsuccessful opposing creditor or member should pay the costs of the applicant, although such an order could properly relate only to the extent to which the applicant's costs have been increased by the opposition. Although exceptionally the Court has made orders for costs against opposing creditors or members, where their grounds of opposition have lacked all substance, the tendency of the Court has been to make no order as to the costs or to order their costs to be paid by the applicant where their argument has been helpful to the court."

(See also the review of the authorities by Warren J in In re Peninsular & Oriental Steam Navigation Co [2006] EWHC 3279 (Ch); [2007] Bus LR 554.)

[8] The practice of this court, in so far as can be ascertained from reported judgments, has been different. In Edinburgh Railway Access & Property Co v Scottish Metropolitan Assurance Co 1932 SC 2 unsuccessful (corporate) opponents to proceedings for sanction of a scheme of arrangement moved the court to find the petitioning company liable for their expenses, citing In re Thomas de la Rue & Co in support of that motion. The court, without opining on the matter, declined to award such expenses but, at the invitation of the petitioning company, found no expenses due to or by either party in connection with the proceedings on the note of objection. In Singer Manufacturing Co v Robinow 1971 SC 11 a (natural) shareholder unsuccessfully opposed an application by a company for sanction of a scheme of arrangement. The court repelled his objection. The report does not disclose how it dealt with expenses but the diligence of counsel has discovered that by the relative interlocutor it found "the respondent liable to the Petitioners in the expenses of the application in so far as occasioned by the intervention of the respondent in the process". There is nothing to suggest that, in either of these cases, the court regarded the dissentient's objection as being frivolous or unreasonable. In each case the dissentient was represented by distinguished counsel.

[9] It is clear that in applications under Chapter 26, and in analogous cases, the petitioning company will require to incur certain expenses in securing the sanction of the court. These expenses may in some cases be substantial; these will, in Court of Session practice, commonly include the expenses and fee of a reporter appointed by the court to inquire on its behalf into the facts and circumstances of the petition, which inquiry should ordinarily alert the court to any procedural or other flaws; they will require to be borne by the company whether or not there is any objection by an interested party. The only area in which a dispute as to expenses may arise is where additional expenses are incurred as a result of an objection so taken. In some cases the extra time and expense occasioned by the objection may, taking a broad view, be so insignificant that it may be proper for the court to require the company to meet such expenses. This will be particularly so if the issues raised by the objection, albeit unsuccessful, are such that the court in exercise of its jurisdiction is positively assisted by the submissions advanced by the dissentient. Such factors may in other circumstances justify the making of an order that no expenses be found due either way.

[10] However, subject to such considerations, the ordinary principles in relation to expenses should, in our view, be applied. These will usually result in a party who has been substantially successful in relation to the disputed issues - whether in a defended action or in a petition to which answers are lodged - being found entitled to his or its expenses against the opponent. Where the success can be described as mixed, an order of no expenses due to or by either party may be appropriate.

[11] The debate in the Outer House took three days; the hearing of the reclaiming motion occupied four days. What the respondents, who are substantial American corporations, seek to do, having regard to their commercial interests, is to dissuade the court from sanctioning a scheme proposed by the petitioning company under which, if sanctioned, the respondents would require to accept valuations of their interests in place of their contractual rights. That is a legitimate aim; but the possibility that their rights may be varied or extinguished by a scheme sanctioned by the court is inherent in their having taken insurance policies from, and thus become creditors of, a British company subject to the Companies Act. The circumstances that they have to advance their contentions in what is, for them, a foreign jurisdiction is also inherent in that situation.

[12] The debate before the Lord Ordinary involved the discussion of two issues, each of some substance. On the first issue the respondents were successful and the petitioner has not sought to challenge that determination in its reclaiming motion. On the second issue the respondents were also successful before the Lord Ordinary but that determination has now been reversed; the petitioner ought, in light of the decision of the Inner House, to have succeeded in that matter in the Outer House. In these circumstances the outcome of the Outer House debate, had it been correctly decided, would have been one of mixed success, such that a finding of no expenses due to or by would have been appropriate. In our view, that disposal should now be made. However, in the Inner House there was only one issue, on which the respondents were unsuccessful. In retrospect they advanced a substantive contention before the Lord Ordinary, which was unsound, and renewed that contention in the Inner House. As a result additional expenses were incurred. In these circumstances the proceedings in the Inner House were occasioned solely by the respondents' insistence on that unsound contention. They should, in our view, meet their own and their opponent's expenses in so far as so occasioned.

[13] Two other matters should be dealt with briefly. First, the petitioner seeks an additional fee under RC 42.14, with particular reference to grounds (a) and (e). We are not persuaded that at this stage - where the only expenses awarded to the petitioner are of the Inner House proceedings, in which the role of counsel rather than solicitors was paramount - an additional fee is warranted. A different result may be appropriate after inquiry. Secondly, the respondents sought to open up an interlocutor of 19 December 2008 by which the Lord Ordinary found them liable to the petitioner in the expenses of that day's hearing, their motion having been refused. This application can, and should, be dealt with on the simple basis that no ground of appeal was advanced in relation to it in this reclaiming motion, which, except in relation to matters of expenses arising out of its disposal, has already been disposed of.

[14] In the whole circumstances we recalled the Lord Ordinary's interlocutor of 16 October 2009 (except para 1c thereof). We shall now find no expenses due to or by any party in relation to the hearing before the Lord Ordinary on 7-9 July 2009, find the respondents jointly and severally liable to the petitioner in the expenses of the reclaiming motion, refuse in hoc statu the petitioner's motion for an additional fee and refuse as incompetent the respondents' motion to vary the Lord Ordinary's interlocutor of 19 December 2008.