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Introduction
In this case, the court considered whether Part 36 of the Civil Procedure Rules (CPR) applies to applications for directions made within insolvency proceedings. The court found that Part 36 does apply and accordingly Part 36 offers can be made and accepted.
Background
Greensill Capital (UK) Ltd (Greensill UK) was an English company, placed into administration with English administrators. Greensill Bank AG (Greensill AG) was a German company, placed into administration in Germany with a German administrator.
Greensill UK made an application to the court for a determination as to the beneficial ownership of funds which it held.
The ownership of the funds was unclear following negotiations between Greensill UK and Greensill AG.
Greensill AG made a purported Part 36 offer. Greensill UK initially rejected the Part 36 offer. Around a year later, Greensill UK purported to accept the Part 36 offer.
The matter therefore turned on whether the dispute over beneficial ownership of the funds caused Part 36 to apply and, if so, whether there had been a valid offer that Greensill AG was bound by.
Issues
- Does CPR Part 36 apply to applications by office holders for directions in insolvency proceedings?
- If so, was there a Part 36 offer which was accepted?
Greensill UK relied on the fact that that Rule 21.1 of the Insolvency (England and Wales) Rules 2016 (IR 2016) applies the provisions of the CPR to insolvency proceedings insofar as there are no inconsistencies between the provisions of the CPR and those of IR2016. Greensill UK further asserted that there was no inconsistency between Part 36 and IR2016, so Part 36 is applicable.
In contrast, Greensill AG argued that Rule 12.4(1) IR 2016 gives rise to an inconsistency between IR2016 and CPR Part 36, with the result that Part 36 does not apply in insolvency proceedings. This was on the basis that Rule 12.4(1) governs costs in insolvency proceedings and does not refer to Part 36, a point that Greensill AG considered meant that Part 36 must be inconsistent. Greensill AG also argued that the same policy considerations which underpin Part 36 (encouraging settlement) do not apply when an office holder is seeking directions.
However, Greensill AG was forced to concede that where there is a real dispute between various parties, such that there was essentially hostile litigation between them, then Part 36 could apply.
Decision
The judge emphasised that despite the fact the question before the court had been formulated as a declaration of beneficial ownership, the issues effectively involved a dispute as to beneficial ownership of the relevant funds. The judge also made it clear that this was not a case of administrators seeking directions on matters where they have various options and are essentially neutral. This case could, therefore, be categorised as hostile litigation.
The judge found there to be no inconsistency between Part 36 and IR2016. In fact, some provisions applicable in insolvency proceedings (i.e. Part 44) refer specifically to Part 36.
Further, the fact that the normal costs rules were the same as under the CPR also reinforced this and the availability of Part 36 should not depend on the form in which the application is brought.
The fact that proceedings may not be as adversarial does not warrant a blanket ban.
Accordingly, there was a Part 36 offer.
The judge further found that that offer had been accepted.
Conclusion
This case illustrates how Part 36 may be available in circumstances beyond the typical adversarial application. When determining whether it is hostile litigation or a neutral application for directions, the court will favour substance over form.
However, whilst the case does illustrate that the court will look beyond the form of the application, it does not necessarily mean that Part 36 will be applicable in all insolvency applications. The weight placed by the judge on the fact that these proceedings were effectively adversarial indicates that a different result might be reached in a case where the office holder truly is seeking directions on how to proceed.
Given this approach, office holders should consider whether a Part 36 offer can be used to achieve settlement.
The case also highlights the importance of reviewing offers you have made and revoking them if you no longer wish for them to be accepted.
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