CA-2025-000371 - [2025] EWCA Civ 1003

Kington and TWL contend that the general rule on costs does not apply to schemes of arrangement or restructuring plans. They contend that at first instance in such cases, as a general rule, costs orders are not made against objecting creditors. The Court has a discretion but will generally either order the company to pay the objector’s costs or make no order as to costs. They contend that the principles which underlie the approach adopted at first instance should also apply on appeal.

Numerous cases were cited to us which demonstrate the approach taken at first instance, but it is unnecessary to do more than quote Snowden J (as he then was) in a judgment delivered at a hearing to convene meetings of creditors in Re Virgin Active Holdings Limited[2021] EWHC 911 (Ch). He summarised the principles he there applied, at §29, as follows:

“i)

In all cases the issue of costs is in the discretion of the court.

ii)

The general rule in relation to costs under CPR 44.2 will ordinarily have no application to an application under Part 8 seeking an order convening scheme meetings or sanctioning a scheme, because the company seeks the approval of the court, not a remedy or relief against another party.

iii)

That is not necessarily the case (and hence the general rule under the CPR may apply) in respect of individual applications made within scheme proceedings.

iv)

In determining the appropriate order to make in relation to costs in scheme proceedings, relevant considerations may include,

a)

that members or creditors should not be deterred from raising genuine issues relating to a scheme in a timely and appropriate manner by concerns over exposure to adverse costs orders;

b)

that ordering the company to pay the reasonable costs of members or creditors who appear may enable matters of proper concern to be fully ventilated before the court, thereby assisting the court in its scrutiny of the proposals; and

c)

that the court should not encourage members or creditors to object in the belief that the costs of objecting will be defrayed by someone else.

v)

The court does not generally make adverse costs orders against objecting members or creditors when their objections (though unsuccessful) are not frivolous and have been of assistance to the court in its scrutiny of the scheme. But the court may make such an adverse costs order if the circumstances justify that order.

vi)

There is no principle or presumption that the court will order the scheme company to pay the costs of an opposing member or creditor whose objections to a scheme have been unsuccessful. It may do so if the objections have not been frivolous and have assisted the court; or it may make no order as to costs. The decision in each case will depend on all the circumstances.”

Ms Peters for TWL shouldered the burden in respect of this part of the appellants’ case. She submitted that the rationale for the different approach in relation to schemes and plans is as follows. Absent the sanction of a scheme, the Court has no power to vary the contractual rights of creditors. Evidence and submissions from opposing creditors assist the Court in its scrutiny of a scheme, i.e. in testing the proposals through adversarial argument. She submitted that the same rationale applies a fortiori in relation to a restructuring plan under Part 26A, because the Court is being asked to exercise an even more intrusive power over dissenting creditors, namely the cross-class cram-down power.

As David Richards J said in Royal & Sun Alliance v British Engine & ors[2006] EWHC 2947 (Ch) at §23, the reason opposing creditors are permitted to appear on an application such as the sanction of a scheme is because it enables matters of proper concern to be fully ventilated before the Court and, even if the court is satisfied that sanction should be given, the evidence and submissions of opposing creditors or members may well assist the Court in its scrutiny of the proposal.

Ms Peters submitted that the same approach should apply equally on appeal, because the policy and rationale on appeal is the same.

Mr Smith KC, for the Plan Company, did not accept that the approach summarised in Virgin Active should be followed even at first instance. In the unusual circumstance that we are asked to make an order as to the costs of the appeal before the judge has made any order as to the costs incurred before him, Mr Smith did not, however, develop his argument as to the proper approach to be adopted at first instance.

Nothing we say should influence the decision yet to be made by Leech J as to the costs incurred before him. We therefore say nothing about the correctness of the approach summarised in Virgin Active as it relates to applications to sanction a scheme or plan at first instance. We simply assume, for the purposes of addressing Kington’s and TWL’s arguments before us, that it does apply at first instance.

Mr Smith submitted that, irrespective of whether it was the correct approach at first instance, it does not apply on appeal. For the reasons shortly stated below, we agree.

At first instance, the plan company needs to persuade the Court to exercise its discretion to sanction the plan. It needs to do that whether or not there is opposition. Evidence and submissions from opposing creditors can be of assistance to the Court in its scrutiny of the plan, even if that opposition is not successful.

Once the Court has exercised its discretion to sanction the plan, however, the position is different. The plan company needs nothing more from the Court in order to implement the plan. An appeal by opposing creditors reflects their dissatisfaction with one or other aspect of the judge’s decision. We consider that at this stage in the ordinary case – and without ruling out the possibility that in a particular case the Court’s discretion should be exercised in another way – the question of costs should be approached in the same way as most appeals, namely that the successful party is generally entitled to a costs award in their favour. If the opposing creditors’ dissatisfaction with the judgment is justified, then they could expect (subject to other factors which affect the exercise of discretion) to receive a costs order in their favour. If not, then they could expect (on the same basis) to have to pay the plan company’s costs.

We would be concerned, as Mr Smith submitted, that adopting a blanket rule or assumption that – unless they act unreasonably in appealing – opposing creditors can expect to receive their costs of the appeal from the plan company irrespective of whether they win or lose, could encourage unmeritorious (even if not unreasonable) appeals.