Mr Morris was appointed as administrator of two companies, which were in litigation against a third company, Haven Insurance Co Ltd ("Haven"). Mr Morris approached Wright Hassall LLP ("Wright Hassall") to act for the companies in the litigation, which they agreed to do under two conditional fee agreements ("CFAs"). One CFA was to cover the initial advice offered to the two companies, the other was to cover acting in litigation against Haven.
The litigation was concluded with a settlement agreement between Haven and the two companies, under which Wright Hassall were not paid. Wright Hassall issued a claim in respect of their fees, naming as defendant "Mr Duncan Roderick Morris in his capacity as Administrator of Marketbalance Ltd and Phoenix Insurance Management Limited". Mr Morris adopted the stance that the CFAs were entered into between Wright Hassall and the companies themselves and not him personally.
Wright Hassall were successful in obtaining a costs order against the defendant in a court order naming as defendant "Mr Duncan R Morris (Administrator for Marketbalance Ltd and Phoenix Insurance Management Limited)". The judge did not, however, address the issue of the identities of the contracting parties. The companies did not have sufficient funds to discharge the amount of the court order and Wright Hassall applied to the court for an order making Mr Morris personally liable.
Naming the administrator with reference to his office
In his judgment, Cooke HHJ attached particular importance to the fact that Mr Morris had been named with reference to his office as is common practice in litigation.
The Court did not accept the claimant's analogy between liability of a trustee and that of an administrator because a trust, unlike a company, has no separate legal identity from the trustee. The trustee is therefore necessarily personally liable, whereas an administrator is not.
Cooke HHJ acknowledged that an administrator is personally liable for costs of an action which he brings, because in doing so he places an obligation on his opponent to incur those costs. However, the Court distinguished proceedings in which an administrator is defendant, where the administrator must be entitled to protect himself from claims without fear of a costs order against him. The court recognised that the role of an administrator would be too onerous if they did not have the ability to defend themselves in proceedings.
Further, the Court recognised that personal liability usually only arises in an agency situation where the agency relationship is not disclosed to the other contracting party. Wright Hassall were fully aware of the agency relationship between Mr Morris and the two companies and thus liability remained with the companies and not the agent.
The court therefore recognised that the intention behind naming the defendant as 'Mr Duncan Morris as an administrator for X Ltd' was to recognise that he was being sued in his capacity as an agent, rather than personally. The court thereby created a default position whereby the administrator is sued as an agent unless it is specifically argued otherwise.
Whether the original costs order was made on the assumption that Mr Morris would be personally liable
Counsel for the defendant submitted several arguments which the Judge accepted as "collectively pointing firmly" to his conclusion that Mr Morris was not contemplated in the original proceedings as being personally liable for the costs order. Cooke HHJ listed the following as particularly relevant reasons for rejecting personal liability:
- Under normal agency principles, an administrator is not personally liable unless the contract provides otherwise. Although is it usual to include an express clause excluding personal liability, it was not accepted that (in the absence of an express clause to the contrary) the contract imputed personal liability on Mr Morris.
- In response to the defendant's initial defence, the claimants re-issued their invoices and dropped their original claims against Mr Morris's business partner. If Mr Morris was liable in his personal capacity, his business partner should have been jointly liable under the claim.
- At trial, the claim proceeded on the implicit basis that Mr Morris was not personally liable. Paragraph 1 of the defence, with which Counsel for the claimant took no issue, pleaded that the retainer was between Wright Hassall and the companies. Further, the substantive issue raised at the trial was in relation to the binding nature of the CFA, not the identity of the parties. The Judge at the trial did not consider the 'identity' issue in his judgment at all.
- Counsel for the claimant at the trial raised the issue of apportionment of the costs between the two companies. This would not have been contemplated as an issue if Mr Morris was personally liable for the costs.
Cooke HHJ therefore decided that the order was made under the pretence that liability fell on the estate, rather than Mr Morris personally. The order was held not to impose personal liability on Mr Morris, but upon the estates of the two companies.
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