Slaughter and May has been hit with criticism over its relationship with Ernst & Young (E&Y) in a judgment relating to its fee-charging in an administration.
The firm successfully defended a court application to assess 13 of its invoices, totalling €2.76m (£2.32m), issued during the course of the administration – but not before Mr Registrar Jones levelled a number of criticisms at it.
The case arose from Slaughters’ work for E&Y on the administration of Luxembourg company Hellas Communications (Luxembourg) II in 2009.
According to Jones’s judgment, E&Y instructed Slaughters by phone and there was no documentation confirming the instruction, or written evidence of agreement over the terms of the retainer. E&Y paid the firm’s invoices in full “without any real or adequate challenge”, according to the claim against the firm.
Hellas Communications joint liquidators Andrew Hosking and Carl Jackson of RSM Tenon requested that the court assess the bills, arguing that it was a “no brainer” that invoices paid without challenge by the administrators should be open to assessment.
The pair instructed Kennedys partner Michael McCarthey and Guildhall Chambers’ Stephen Davies QC to lead the case.
In his skeleton argument Davies contended: “As a matter of perception the administrators and Slaughter and May were too closely connected to permit an independent judgment by the administrators when assessing the bills.
“The fact that neither chose to discuss the retainer makes that perception, which originates from the circumstances of the Ernst & Young retainer, even more pronounced.
“The perception is sustained by the fact that all the invoices were paid in full and without the market having been tested. The perception becomes even bleaker due to the fact that Slaughter and May have provided so little information to the liquidators.”
The registrar agreed, stating: “The resulting perception, also taking account of the circumstances of Slaughter and May owing their new retainer to a personal connection, is of a ’club mentality.”
He continued: “Those factors create an unsavoury tang which permeates through to the stage when very substantial invoices are subsequently agreed without deduction.
“This might have been diffused if there were records or other evidence showing that nevertheless the fees were agreed applying the standards of the prudent businessman investing his own money without any detriment resulting from the fact that fees were left at large when the retainer began.”
Slaughters had resisted the application and refused to put forward its fees to be assessed.
Responding for the firm, South Square’s Hilary Stonefrost suggested that there was no need for the market rate to be tested because E&Y was fully aware of the existing charge rates.
Furthermore, she argued: “The personal relationship which gave rise to the Ernst & Young retainer and the absence of any testing of the market for fees does not cause any appearance of bias or other difficulty in the context of the agreement of their fees. Nothing can be read into the fact that the fees were agreed in full.”
The case raises question over how firms should be appointed during the course of an administration. The issue will proceed to trial and the High Court asked to assess whether the court should hold jurisdiction to assess the fees.
Slaughters could not be reached for comment.
The legal line-up:
For the applicants, Andrew Hosking and Carl Jackson
Kennedys partner Michael McCarthey and solicitor Alejandro Worthington instructing Guildhall Chambers’ Stephen Davies QC
For the respondent, Slaughter and May
South Square’s Hilary Stonefrost instructed directly