Varvari v The Personal Insolvency Acts 2012 to 2015 [2020] IEHC 23 (27 January 2020)

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THE HIGH COURT
CIRCUIT APPEAL
DUBLIN CIRCUIT
COUNTY OF DUBLIN
[2020] IEHC 23
[2019 No. 63 C.A.]
IN THE MATTER OF THE PERSONAL INSOLVENCY ACTS, 2012 TO 2015
AND IN THE MATTER OF CIPRIAN VARVARI (A DEBTOR)
JUDGMENT of Mr. Justice Denis McDonald delivered on 27 January, 2020
The issue before the court
1.       This judgment deals with an application by an objecting creditor, Tanager DAC
(“Tanager”), for costs against a personal insolvency practitioner in connection with an
unsuccessful appeal by the practitioner from an order made by the Circuit Court on 12th
February, 2019 refusing the practitioner’s application under s. 115A (9) of the Personal
Insolvency Act, 2012 (“the 2012 Act”) as amended by the Personal Insolvency
(Amendment) Act, 2015 (“the 2015 Act”).
2.       In summary, the application by the objecting creditor is made on the following grounds:-
(a) In the first place, it is alleged that the practitioner did not carry out adequate due
diligence to establish the income position of the debtor and did not exercise his own
independent function to satisfy himself in relation to the debtor’s income such that
the original application before the Circuit Court was moved on a false premise as to
the extent of the household income available to sustain the proposed arrangement,
the subject of the s. 115A application:-
(b) Secondly, it is alleged that the practitioner determined to pursue an appeal to this
court notwithstanding that it was apparent to him (at the latest within 13 days of
filing the notice of appeal) that the earnings of the debtor and his wife fell
significantly short of the household income on which the proposed arrangement had
been predicated. It is submitted by the objecting creditor that, in those
circumstances, the appeal was doomed to fail and, manifestly, ought not to have
been pursued by the practitioner.
Background
3.       On 22nd June, 2017, a protective certificate was issued by the Circuit Court in respect of
the debtor, Mr. Ciprian Varvari. The practitioner, Mr. Daniel Rule of McCambridge Duffy
(“the practitioner”) subsequently formulated proposals for a personal insolvency
arrangement which were unsuccessfully put before creditors at a meeting on 29th August,
2017. Two creditors (representing 4.9% of the total debt owed by Mr. Varvari) voted in
favour of the arrangement. However, the objecting creditor, Tanager, which holds
security over the family home of Mr. Varvari (his principal private residence for the
purposes of s. 115A) voted against the arrangement. The debt owed by Mr. Varvari to
Tanager represents 95.1% of Mr. Varvari’s overall indebtedness
4.       As Appendix 2 to the arrangement makes clear, it was formulated on the basis that the
entire household income (i.e. the income of Mr. Varvari and of his wife) amounted to
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€3,218.00 per month. This equates to €38,616.00 per anum. This was based on what
was described as the net self-employed income of Mr. Varvari of €1,458.00 per month
and the net monthly income of his wife of €1,760.00 per month. In this context, although
no arrangement was proposed in respect of Mr. Varvari’s wife, the practitioner, quite
properly, included her income in the stream of income available to service the mortgage
debt owed to Tanager. This is in accordance with s. 104 (1) and s. 104 (2) of the 2012
Act. Under s. 104 (1), a practitioner is required, in formulating a proposal for an
arrangement (on terms that will not require a debtor’s principal private residence to be
disposed of), to have regard, inter alia, to the ability of other persons residing with the
debtor to contribute to the costs of the debtor remaining in occupation of the principal
private residence.
5.       In proceedings under the 2012-2015 Acts, it is crucial that accurate information is
provided in relation to the means of a debtor. At the very start of the process, a debtor is
required to execute a Prescribed Financial Statement (“PFS”) in which accurate
information must be provided in relation to the assets, income and liabilities of the
debtor. The PFS is then circulated to the creditors of the debtor so that they can make
informed judgements when considering any arrangement proposed on behalf of the
debtor by a personal insolvency practitioner. In this case, according to para. 15.2 of Part
IV of the proposed arrangement (dealing with the “debtor-specific terms of the
arrangement”) the practitioner stated that he had investigated certain statements made
by Mr. Varvari and that he had “verified the information provided by examining the
following documentation:…Self Employed Income …”. This statement appeared in s. 15 of
Part IV of the arrangement where the practitioner set out his comments on the proposed
arrangement.
6.       Furthermore, in para. 15.5 the practitioner stated that, from the investigations carried out
by him as outlined in para. 15.2, he could:-
“…confirm that the Debtor’s true position as to assets and liabilities does not appear
in any material respect to be different from those presented…”.
7.       In addition, at note 1 to Appendix 2, the practitioner stated that the income of Mr. Varvari
was:-
“…based on information provided by the Debtor’s accountant. The Debtor is
currently self-employed and is projected to earn €18,000 gross in 2017”.
8.       At a much later stage in the proceedings (after I had indicated at a hearing on 20th
September, 2019 that the appeal would have to be dismissed) it emerged that the
information relied upon by the practitioner in support of the statements summarised in
paras. 5-7 above comprised a very short letter dated 31st March, 2017 issued by Mr.
Varvari’s accountant in the following terms:-
“I confirm that Ciprian Varvari … . His estimated income for 2017 from self-
employment will be around €18,000.”
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9.       The only other investigation that was carried out by the practitioner in relation to Mr.
Varvari’s income involved a telephone conversation which subsequently took place
between an assistant to the practitioner and Mr. Varvari’s accountant on 3rd April, 2017
in which it was confirmed with the accountant that the figure of €18,000 is after tax net
income. The practitioner stated that Mr. Varvari had “declared his income” in the PFS.
This figure of €18,000 was then used in the PFS made by Mr. Varvari on 18th May, 2017
and confirmed by him in a statutory declaration in accordance with the requirements of
the 2012 Act.
10.       Insofar as the income of Mr. Varvari’s wife is concerned, it emerged from an affidavit
sworn by the practitioner in October 2019 that he had obtained weekly payslips for Ms.
Varvari in respect of a sixteen-week period running from 15th September, 2016 to 2nd
February, 2017. These payslips suggested that Ms. Varvari earned €1,759.97 per month
which equated, in round terms, to the figure given in Appendix 2 to the arrangement.
11.       It is important to keep in mind that none of the information summarised in paras. 8-10
above was known to the creditors at the time of the creditors meeting to consider and
vote upon the proposed arrangement prepared by the practitioner. As it happens, the
arrangement was not supported by a majority of creditors. Therefore, the only way in
which the arrangement could come into effect was on the basis of a successful application
under s. 115A.
12.       After the proposed arrangement was rejected by a majority in value of the creditors of
Mr. Varvari, the practitioner made an application (pursuant to notice of motion dated 11th
September, 2017) to the Circuit Court seeking an order pursuant to s. 115A (9) of the
2012 Act (as amended by the 2015 Act) confirming the coming into effect of the proposed
arrangement. A notice of objection was filed on behalf of Tanager. In the course of the
proceedings in the Circuit Court, a number of affidavits were sworn on behalf of Tanager
by Mr. Patrick Mabry in support of Tanager’s objections. In Mr. Mabry’s second affidavit
sworn on 31st August, 2018, he suggested that, in order to assess the sustainability of
the proposed arrangement, it was necessary that Mr. Varvari should furnish a copy of his
audited accounts over the course of the previous three years. In para. 7 of his affidavit
he said:-
“In light of the Debtor’s repayment history and the Objecting Creditor’s concerns in
relation to sustainability, I say and believe that it is incumbent on the PIP or,
indeed, the Debtor to furnish a copy of the Debtor’s audited accounts for the past
three years, as well as copies of any relevant income projections…in order to allow
sustainability to be assessed. Moreover, given that the PIA is entirely contingent on
repayments from the Debtor’s wife, it is not unreasonable to expect that full
disclosure would be made of her financial circumstances.”
13.       Although Mr. Mabry’s affidavit was sworn on 31st August, 2018, there was no replying
affidavit filed until the eve of the Circuit Court hearing on 12th February, 2019. On the
day prior to that hearing, Mr. Varvari swore an affidavit in which he suggested, in para. 8
that he had “obtained stable employment”. However, this was not consistent with the
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terms of the proposed arrangement in which Mr. Varvari was described as self-employed.
At that point, there was insufficient time for Tanager to respond without putting the
hearing date in jeopardy. I was informed by counsel for both sides that, at the hearing
before the learned Circuit Court judge on 12th February, 2019 counsel for Tanager drew
attention to material available on a “LinkedIn” page for Mr. Varvari which suggested that
he had a number of sources of potential income. Having considered all of the evidence
before her, the learned Circuit Court judge dismissed the application under s. 115A (9)
and made no order as to costs. However, it was indicated in the course of the hearing
that, in the event of an appeal, Mr. Varvari intended to make a further affidavit in which
he would explain himself in relation to his income. Thereafter, on 21st February, 2019 a
notice of appeal dated 14th February, 2019 was filed in the office of the Dublin Circuit
Court. Mr. Varvari subsequently swore an affidavit on 25th February, 2019. In para. 4,
he stated that the purpose of the affidavit was to “satisfactorily evidence my income and
clarify the issues raised by the Objecting Creditor” at the hearing of the application before
the Circuit Court. A copy of his tax returns for 2017 and 2018 were exhibited to his
affidavit. The tax return for 2017 was prepared on behalf of Mr. Varvari and his wife. It
shows two sources of income for Mr. Varvari, both a self-employed income with gross
trading profit of €19,350 for the 2017 tax year and also a PAYE income of €2,369 for the
same period. Those figures are not significantly out of line with the projected net income
for Mr. Varvari as set out in the proposed arrangement. However, the income for Ms.
Varvari was significantly less than the income set out in the proposed arrangement. The
total income in the tax return for the 2017 tax year from Ms. Varvari was €7,150. The
total gross income for both Mr. Varvari and his wife for the same period was €24,276
which represents a monthly income of €2,023 per month. This is substantially less than
the monthly income stated in Appendix 2 to the proposed arrangement of €3,218.00 per
month (on which the sustainability of the proposed arrangement was based).
14.       The 2018 tax return showed increased income for Mr. Varvari and also increased income
for his wife. However, their total taxable income was €33,564 which equates to €2,797
per month. This is €421 per month short of the figure given in Appendix 2 to the
proposed arrangement for the total household income. However, this is on a gross basis.
In fact, the net income figure for the 2018 tax year appears to be €30,770.28 (when the
total tax liability of €2,793.72 is taken into account) which would equate to a net monthly
household income of €2,564.19. This would mean that the total household monthly
income for 2018 was €653.81 per month short of the figure of €3,218.00 set out in
Appendix 2.
15.       It is important to record at this point that, during the course of the Circuit Court
proceedings, the practitioner, in an affidavit sworn on 21st June, 2018, confirmed, in
para. 12, that Mr. Varvari’s “current income, current expenditure, current affordability has
been assessed and verified”. He also said in para. 21 of his affidavit that:-
“Finally, I say and believe that the PIA clearly sets out that the Debtor’s household
income is €3,218 and expenditure is €2,328 and thereafter there is an affordability
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of €890 which clearly shows that the Debtor is in a position to comply with the
terms of the PIA and make the payments as specified”.
16.       That was the evidence which the practitioner placed before the Circuit Court. It was also
the evidence which he placed before this court for the purposes of the appeal from the
Circuit Court. In light of the contents of the tax returns for the 2017 and 2018 tax years,
it is quite clear that these averments by the practitioner are wrong. It is important to
note that, as of the date of swearing of this affidavit by the practitioner in June 2018, the
tax return for the 2017 tax year had already been filed with Revenue. It is clear from
exhibit “CV-01” to Mr. Varvari’s affidavit sworn on 25th February, 2019 that the return
was submitted on 1st February, 2018. However, the 2018 return would not have been
available at that time. In this context, I cannot see any date on the 2018 return in
exhibit “CV-01”.
17.       That was the state of the affidavit evidence when the appeal came on for hearing before
the court on 22nd July, 2019. During the course of that hearing, counsel for Tanager
drew attention to the discrepancy between the figures shown in the 2017 tax return for
the combined household income for Mr. Varvari and his wife and the figures shown in
Appendix 2 to the proposed arrangement. Although this is an appeal from the Circuit
Court (which is heard on the evidence which was before the Circuit Court) I decided, in
fairness to Mr. Varvari, that an opportunity should be given to him to explain the position
on affidavit. I directed that any such affidavit should be filed not later than 6th
September, 2019 and that the hearing should be adjourned to 20th September, 2019.
Thereafter, despite the efforts of the solicitors for the practitioner, no further affidavit was
filed by Mr. Varvari. When the matter came on for further hearing before me on 20th
September, 2019, I heard additional arguments from counsel for the practitioner and
counsel for Tanager. In light of the fact that the 2017 and 2018 tax returns showed a
significantly lower household income than that required in order to meet Mr. Varvari’s
obligations under the proposed arrangement, I came to the conclusion that the proposed
arrangement was not sustainable. I therefore indicated that the appeal would have to be
dismissed. However, I also indicated that it was crucial that the court should be in a
positon to rely on averments made by a practitioner and that I was very concerned that
the practitioner in this case had sworn an affidavit in June 2018 in which he had
suggested that he had carried out a process of assessing, verifying and substantiating the
income and that the proposed arrangement set out the household income correctly at
€3,218. Given the contents of the tax return for 2017 which shows very significantly
lower figures, I indicated that an explanation was required on affidavit from the
practitioner to explain how, in those circumstances, he could have said, several months
after the delivery of the 2017 tax return, on affidavit, that he had verified the figures and
that the household income was as set out in the proposed arrangement. In the same
affidavit sworn in June 2018, the practitioner had deposed in para. 16 that the payments
specified under the arrangement “are tailored to the exact means of the Debtor as they
currently stand and will remain based on my assessment of their income and
expenditure.” Thus, his affidavit gave the very clear impression that the figures set out in
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Appendix 2 to the proposed arrangement had been appropriately assessed and verified by
the practitioner.
18.       In the circumstances, I deferred making any final order in relation to the appeal to await
a further affidavit from the practitioner explaining what had occurred. Two affidavits were
sworn by the practitioner. In fact, the first of those affidavits appears to have been in
existence prior to the hearing on 20th September, 2019 although it was not produced to
the court on that day. This is an affidavit sworn on 10th September, 2019. In that
affidavit (which was in quite short form) the practitioner stated in para. 4 that, at the
very outset of the process, Mr. Varvari had provided him with evidence of his income and
his wife’s income. However, the only material exhibited in support of this averment was
the letter from the accountant of 31st March, 2017 which simply provided an estimate of
the income for 2017 looking forward. It fell far short of evidence of income. It was no
more than an estimate.
19.       There is a further unsatisfactory aspect to the affidavit sworn by the practitioner on 10th
September, 2019. In para. 6 of this affidavit, the practitioner referred to the PFS which
was signed by Mr. Varvari on 18th May, 2017. As noted above, this showed monthly
income of €1,500. It provided no evidence as to the overall household income. On p. 4
of the PFS the figure of “0.00” was shown in respect of: “Contribution from household
members”.
20.       Notwithstanding this, in para. 7 of the affidavit, the practitioner stated that:-
“On the basis of the evidence provided by the Debtor in respect of his household
income and Prescribed Financial Statement that I prepared a proposed Personal
Insolvency arrangement which was sought to be approved in these proceedings”.
21.       That averment on the part of the practitioner is manifestly inaccurate in that the material
exhibited at paras. 4 and 6 (described in paras. 18-19 above) did not in fact provide any
information about the total household income and in particular provided no information
about the income of Mr. Varvari’s wife. Furthermore, the averment ignores the vital role
and responsibility which the practitioner has under the 2012-2015 Acts in relation to the
PFS to be completed by a debtor. In the first place, while s. 50 (1) requires the debtor to
provide to the practitioner “information that fully discloses his or her financial affairs”, the
practitioner is required under s. 50 (2) to examine the information provided by the debtor
and, having regard to the obligation of the debtor to make full and honest disclosure of
his or her financial affairs, to assist the debtor in completing the PFS. This clearly
envisages that the practitioner will scrutinise the information provided by the debtor and
assist in ensuring that the debtor makes a complete and honest disclosure of his or her
financial affairs. This is strongly reinforced by the provisions of s. 54 (a) under which a
practitioner is required to make a statement confirming that he or she is of the opinion
that the information contained in the PFS is complete and accurate. As counsel for
Tanager submitted, in the course of the costs hearing, this obligation would be entirely
otiose if all the practitioner was required to do was to take at face value the information
contained in a debtor’s PFS.
Page 7 ⇓
22.       Remarkably, in para. 9 of this affidavit the practitioner stated:-
“I say that at the time of the swearing of my Replying Affidavit on the 21st June,
2018, based upon the evidence provided to me by the Debtor, that my averments
in the Replying Affidavit reflected my assessment of the Debtor’s income at the
time of swearing of that Affidavit”.
23.       It should be recalled, at this point, that in that affidavit of 21st June, 2018 the
practitioner had sworn that the household income was as set out in the proposed
arrangement and had given the impression that this had been verified by him as at the
date of swearing of the affidavit. However, the material described in paras. 4-6 of the
practitioner’s affidavit does not provide any evidence of household income of that scale.
As noted previously, the material comprises no more than an estimate of Mr. Varvari’s
future income for 2017. The material contained no information whatsoever in relation to
the income of Mr. Varvari’s wife. Again, it should be recalled that the affidavit suggests
that an assessment had been made by the practitioner of the household income. It was
impossible to see, on the basis of this affidavit sworn on 10th September, 2019 that any
assessment was carried out. Furthermore, as explained in para. 21 above, it is not
appropriate for a practitioner to simply rely upon the material contained in the PFS of a
Debtor. On the contrary, as outlined above, the practitioner has an obligation under s. 54
(a) of the 2012 Act to consider whether the information contained in a PFS is complete
and accurate.
24.       In para. 12 of the affidavit sworn on 10th September, 2019, the practitioner addressed
the 2017 tax return of Mr. Varvari. He said that this tax return was not provided to him
prior to February 2019 when Mr. Varvari swore his affidavit of 25th February, 2019. That
is also a remarkable averment. It entirely undermines the suggestion made in the
practitioner’s affidavit sworn in June 2018 that he had assessed the income. It seems
quite extraordinary that he would not have sought any relevant tax returns prior to
swearing the affidavit in June 2018. This is particularly so in circumstances where, in the
next paragraph of his affidavit the practitioner extols the practices of his firm and
suggests that they are superior to those of other practitioners. What he says in para. 13
is as follows:-
“I say and believe that this firm has very strict and considerable procedures in
place to ensure income is correctly verified. I say and believe that we are one of
the only PIP firms to expressly set out what documents and evidence we rely upon
in the PIA. I must however note that in self-employment cases precise
confirmations of monthly income is more difficult that (sic) regular capital PAYE
income.”
25.       This averment must be seen together with para. 16 of the practitioner’s affidavit where he
helpfully exhibits, for the benefit of the court, the Protocol put in place under the aegis of
the Insolvency Service of Ireland (“ISI”) in March 2015 dealing with, inter alia, the
verification by a practitioner of information contained in a proposed arrangement. This
Protocol is the result of work done by a steering group which appears to have had input
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from all relevant interests in the insolvency process including creditors and practitioners.
Under Clause 2.1 of the Protocol, it is expressly stated that, by accepting it, both
practitioners and creditors agree to follow the processes and use the agreed
documentation that forms part of the Protocol. Practitioners indicate their acceptance of
the content of the Protocol by drawing up a proposal which is based on the standard
documentation and which states that it follows the Protocol. The arrangement proposed
in this case was expressly stated on the first page of the executive summary to be a
standard arrangement following “Protocol Version March 2015”.
26.       Under Clause 11.1 of the Protocol, income for a PAYE or self-employed debtor is to be
verified by a practitioner in accordance with the requirements of Appendix 3. Appendix 3
sets out a list of documents which, where applicable, a practitioner should require from a
debtor when seeking to understand and verify the financial circumstances of the debtor.
In the case of employees, these include the most recent P60 along with three payslips. In
addition, where a person is paid weekly, it is suggested that three months’ payslips
should be obtained. In the case of a self-employed debtor, Appendix 3 indicates that a
practitioner should obtain the most recent audited and certified accounts and
management accounts for the year to date and copies of revenue income tax returns.
Thus, it is clear that the practitioner, in this case, notwithstanding what he said in para.
13 of his affidavit sworn on 10 September, 2019 (quoted above), did not, in fact, verify
the financial circumstances of Mr. Varvari in the manner envisaged by the Protocol under
which the arrangement in this case was expressly put forward to the creditors of Mr.
Varvari for approval and, subsequently, to the Circuit Court and to this court on appeal.
27.       At para. 14 of his affidavit the practitioner said that he was “unhappy that the income was
not as per my verifications when the matter finally ended up before this Honourable
Court.” In the same paragraph he also said that he was: “firmly of the view that this
should not have occurred and I operate my practice to ensure the full means of all
Debtors is brought to bear on a PIA. I apologise for this having occurred.” Again, it is
impossible to understand how the practitioner can say that he is unhappy that the income
of Mr. Varvari was not “as per my verifications”. There is nothing in the affidavit of 20th
September, 2019 to establish that the practitioner undertook any measure of verification
of the figures presented to him by Mr. Varvari. No underlying documentation (such as
accounts or tax returns) were sought or obtained by him prior to formulating the
proposed arrangement or placing it before creditors for their consideration.
28.       When the matter next came before me on 17th October, 2019, the affidavit sworn on
10th September, 2019 was brought to my attention for the first time and presented to me
as though it had been sworn in response to the direction given by me on 20th September.
My attention was not drawn to the date of swearing of the affidavit. Having considered
the averments made by the practitioner (as outlined above), I indicated that the affidavit
was plainly unsatisfactory and did not properly explain that position. I directed that a
further affidavit should be filed. Thereafter on 31st October, 2019, a further affidavit was
sworn by the practitioner which addressed, for the first time, the steps taken by the
practitioner to assess the income of Mr. Varvari’s wife. In para. 5 of this affidavit the
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practitioner explained that he was provided with sixteen weekly payslips for Ms. Varvari
which showed that the average weekly income was of the order of €406.46 per week. By
my calculations this would equate to a yearly income of the order of €20,845.22 which is
slightly less than the yearly income shown for Ms. Varvari in Appendix 2 to the proposed
arrangement (€21,120).
29.       With regard to the income of Mr. Varvari, the practitioner in this affidavit again referred to
the letter from the accountant to Mr. Varvari of March 2017 and to the telephone call
which took place thereafter on 3rd April, 2017 (both of which have been described
above). It is clear from the affidavit that no other steps were taken by the practitioner to
verify the income of Mr. Varvari.
30.       In para. 7 the practitioner said as follows:-
“I say and believe that verification of a Debtor’s income who is self-employed is, by
its nature, a more complex exercise than it is for a PAYE worker. I say and believe
that when trying to ascertain the income of a self-employed Debtor, I am of the
opinion that the best way to do this is to rely on the professional services of an
accountant. When a professional accountant provides income projections, I rely on
these as they are from a qualified professional. This is similar to when a valuer
provides a valuation of the property, a PIP relies on the information being given to
them by a professional person in their capacity”.
31.       At para. 8 of his affidavit, the practitioner referred again to the PFS and said, at para. 9,
that on the basis of the “evidence” provided by Mr. Varvari and his accountant, he
prepared the proposed arrangement. In para. 11 of his affidavit, he said that, at the time
of the swearing of his affidavit on 21st June, 2018, the affidavit reflected his “assessment
of the Debtor’s income at the time of swearing of that affidavit” and was based on the
evidence” provided to him by Mr. Varvari. However, it is clear from this affidavit sworn
on 31st October, 2019 that the only materials which a practitioner had, at the time of
swearing of his affidavit in June 2018 were the following:-
(a) A two-line letter from Mr. Varvari’s accountant estimating a projected income for
2017 of €18,000;
(b) While there appears to have been a further telephone conversation between an
assistant to the practitioner and the accountant on 3rd April, 2017, this does not
appear to have elicited any further information other than to confirm that the
projection was of net income as opposed to gross income. Curiously, this is not
consistent with Appendix 2 to the proposed arrangement which expressly states
that the figure of €18,000 was gross income rather than net income;
(c) A PFS signed by Mr. Varvari. However, as noted above, it is not sufficient for a
practitioner to simply rely, without more, on the PFS. It must be borne in mind that
a practitioner has the statutory obligation under s. 54 (a) to assess whether the
information contained in the PFS is complete and accurate. Indeed, the verification
Page 10 ⇓
exercise envisaged under Appendix 3 to the Protocol is expressly stated to be for
the purpose of assisting a practitioner in the necessary verification exercise;
(d) The only concrete evidence which the practitioner had was in respect of the income
of Ms. Varvari in that he had sixteen weeks payslips in respect of the period
between September 2016 and February 2017. He did not, however, at time of
swearing of his affidavit in June 2018, have any ongoing evidence of Ms. Varvari’s
income. In particular, he did not have any information in relation to her income in
the period between March 2017 and June 2018.
32.       While the practitioner has sought to suggest that it was appropriate for him to rely upon
the services of Mr. Varvari’s accountant, this suggestion does not stand up to scrutiny.
That is not what is set out in the Protocol. The Protocol is quite explicit as to the material
which a practitioner should consider. In the case of a self-employed person, this includes
tax returns and accounts. Given the role accorded to a practitioner in the processes
under the 2012-2015 Act, it would make no sense that a practitioner could, in effect,
delegate his role of assessing the means of a debtor to another person such as an
accountant with a professional relationship with the debtor. That would entirely
undermine the independent role which a practitioner has under the Acts and which is
constantly highlighted by practitioners in affidavits which are sworn in the course of
proceedings under s. 115 A. Obtaining a valuation from an independent valuer is entirely
different to obtaining a projection of income from an accountant to a debtor. A
practitioner is clearly not professionally qualified to carry out an independent valuation
himself or herself. However, a practitioner is undoubtedly qualified to call for the
accounts of a self-employed debtor and for tax returns of a self-employed debtor and to
form his or her own view as to the extent of a debtor’s means. That is a very basic
inquiry and investigation that must be carried out by a practitioner in all cases under
Chapter 3 and Chapter 4 of Part 3 of the 2012 Act (as amended).
33.       Notwithstanding the manifest failure of the practitioner here to undertake those basic
inquiries, the practitioner reiterated in para. 15 of his affidavit sworn on 10th October,
2019 what he had previously said in his affidavit sworn on 10th September, 2019. In
para. 15 he said:-
“I say and believe that this firm has very strict and considerable procedures in
place to ensure income is correctly verified. I say and believe that we are one of
the only PIP firms to expressly set out what documents and evidence we rely upon
in the PIA. I must however note that in self-employment cases precise
confirmations of monthly income is more difficult that (sic) regular PAYE income”.
34.       The “very strict and considerable procedures in place” are not described anywhere in the
practitioner’s affidavit. Regrettably, what is disclosed in the affidavit demonstrates very
plainly that the practitioner in this case did not follow the very simple and straightforward
steps envisaged under the Protocol to ascertain and verify the income of Mr. Varvari.
Given the role which a practitioner has under the 2012-2015 Acts, the failure of the
practitioner in this case to call for the underlying accounts of Mr. Varvari or to call for the
Page 11 ⇓
records held by Mr. Varvari’s accountant is manifestly unacceptable. There is no evidence
at all in this case to support the contention of the practitioner that he has “very strict” or
considerable” procedures in place to ensure income is correctly verified. There was a
complete failure in this case to take any steps to verify Mr. Varvari’s income. It is deeply
unimpressive that a practitioner would support an application for a protective certificate
and, subsequently, put forward proposals for an arrangement on the basis of the
threadbare and unverified material described in the practitioner’s affidavits sworn on 10th
September and 10th October, 2019. The position of the practitioner becomes even less
impressive when one considers what occurred when the practitioner came to swear his
affidavit in June 2018. That affidavit was sworn in response to the first affidavit of Mr.
Mabry sworn on behalf of the objecting creditor on 22nd February, 2018. In paras. 11-15
of his affidavit, Mr. Mabry drew attention to the poor payment history of Mr. Varvari and
highlighted that neither the arrangement nor the grounding affidavit sworn by the
practitioner explained whether there had been any improvement in Mr. Varvari’s
circumstances that could give comfort that Mr. Varvari would now be in a position to
sustain monthly payments of €645 per month. It is in response to this affidavit that the
practitioner confirmed, in para. 11, on oath that he had assessed Mr. Varvari’s ability to
make repayments “based on his financial positon as presented to me as of the date of the
swearing of the [PFS], and thereafter as reviewed and certified during the Protective
Certificate process culminating in the drafting of the PIA proposal as presented to
creditors….”.
35.       Furthermore, in para. 12 of the same affidavit the practitioner stated that (inter alia) the
income of Mr. Varvari “has been assessed by me, verified and substantiated to my
satisfaction….it therefore leads to a situation that the current income, current
expenditure, current affordability has been assessed and verified”.
36.       These averments (made on oath) by the practitioner were obviously designed to give the
impression that a process of verification had taken place such that the figures put forward
in the proposed arrangement were reliable. Furthermore, the averments clearly suggest
that the process of verification was an ongoing process and did not terminate as of the
date of execution of the PFS by Mr. Varvari. This impression is reinforced by what was
said in para. 21 of the same affidavit where the practitioner stated that the arrangement
clearly sets out Mr. Varvari’s household income and “clearly shows that the Debtor is in a
position to comply with the terms of the PIA and make the payments as specified”. That
averment gives the impression that as of the date of swearing of the practitioner’s
affidavit, the figures set out in the arrangement remained true and correct. In light of
what is now known to have taken place (as summarised in paras. 8 to 14 above) I find it
impossible to understand how the practitioner could have thought it to be appropriate to
swear an affidavit in the terms described above. No sufficient explanation has been
provided as to how the practitioner thought it appropriate to do so. I regret to say that
the averments in question are plainly misleading. They give the impression that a careful
and comprehensive process of verification had taken place (which, regrettably, was not
correct). Crucially, if, at the time of swearing of this affidavit in June 2018, the
practitioner had sought Mr. Varvari’s tax returns for 2017 (which were available at that
Page 12 ⇓
time) he would have seen that the arrangement was manifestly unsustainable based on
the income actually earned by Mr. Varvari and his wife during the 2017 tax year. As the
Protocol shows, the appropriate method of verifying the income of a self-employed person
such as Mr. Varvari was to call for accounts and/or tax returns. Had that basic step been
taken, it would have been plain to everyone that there was no basis on which to pursue
an application under s. 115A to the Circuit Court.
37.       This wholly unsatisfactory position was further compounded by the pursuit of an appeal to
this court from the Circuit Court by the practitioner notwithstanding that, within days of
filing of the relevant appeal, it was apparent from the affidavit of Mr. Varvari sworn on
25th February, 2019 that the true level of the household income available to Mr. Varvari
and his wife for both 2017 and 2018 was significantly less than the income shown in the
proposed arrangement (on the basis of which it had been suggested that the arrangement
was sustainable). In light of the information which emerged from the exhibits to Mr.
Varvari’s affidavit (in particular the tax returns for 2017 and 2018) I find it impossible to
understand how the practitioner could have considered it to be either proper or plausible
to pursue an appeal to the High Court against the refusal of the Circuit Court to approve
the arrangement. It was very obvious that the figures for household income on which the
entire arrangement had been predicated were unreliable and that accordingly the
arrangement could not be confirmed by the court. Yet, the appeal was pursued. In this
context, it is important to keep in mind that there was a significant time gap between the
date of filing the appeal in February 2019 and the date when the matter first came on for
hearing before the court in July 2019. There was ample opportunity for the practitioner
to take stock and to consider whether to seek a date for hearing or to withdraw the
appeal. In my view, in light of the evidence of Mr. Varvari it was blindingly obvious that
the appeal should have been withdrawn. Nonetheless, the practitioner sought a date for
the hearing of the appeal; the appeal was duly listed for hearing, and the practitioner
sought to proceed with the hearing as though there was a proper basis for it.
38.       Remarkably, notwithstanding the matters outlined above, the practitioner has still not
offered any explanation as to why he chose to pursue the appeal in circumstances where,
on the evidence he himself placed before the court, the household income disclosed in the
tax returns was manifestly insufficient to sustain the proposed arrangement.
39.       It is in the circumstances described above that Tanager, the objecting creditor, seeks an
order for costs against the practitioner in respect of the appeal. Having set out the
relevant facts, it is now necessary to consider the law.
Relevant law
40.       As counsel for Tanager observed, the starting point in any consideration of the costs of an
application under s. 115A is s. 115A (14) which provides as follows:
“The court in an application under this section, shall make such other order as it
deems appropriate including an order as to the costs of the application”.
Page 13 ⇓
41.       There was a significant measure of agreement between counsel for the practitioner and
counsel for Tanager in relation to the relevant legal principles. Both were agreed that s.
115A (14) can be seen as displacing, at least to some extent, what counsel for Tanager
correctly described as the presumptive rule under O.99 r.1 that costs should “follow the
event”.
42.       Both counsel also drew attention to the case law, in particular the decisions of Baker J. in
Re: James Nugent [2016] IEHC 309, Re: Darren Reilly [2017] IEHC 558 and Re: Niamh
Meeley [2018] IEHC 38. Those authorities make clear that, although the court has
jurisdiction to award costs against a practitioner, this jurisdiction will be exercised
sparingly and costs will only be awarded against a practitioner in exceptional
circumstances. As Baker J. observed in Darren Reilly at para. 71:
“If a PIP lodges an application bona fide and in exercise of his or her professional
and reasonable judgement, and prosecutes an appeal in a similar fashion, it seems
unlikely that a PIP would be subject to an award of costs, and the usual order which
has been sought by successful creditors is that an order be made against the
debtor, not against the PIP.”
43.       The underlying reason why an order for costs will not generally be made against a
practitioner who acts in a bona fide way was described as follows by Baker J. in Re:
Nugent at para. 17:
“The PIP does not act in a quasi- judicial manner, but does have a unique and
burdensome obligation to the court in the manner in which an application is
presented for protection, and a high degree of frankness and trust is required for
the process to function in the manner envisaged. In those circumstances there is, it
seems to me, no reason in principle why costs could not be awarded against a PIP
in a suitable case, although I consider, as did Costello J. in Wogan, that such
jurisdiction would be exercised sparingly and in exceptional circumstances”.
44.       In deciding not to make an award of costs against the practitioner in Darren Reilly, Baker
J. took the following into account:
(a) The application was one of the earliest applications under the personal insolvency
regime;
(b) There was a public interest in clarifying the law in the area;
(c) The practitioner did not stand to gain financially from the application and the scale
of fees charged by the practitioner was modest;
(d) There was no evidence of mala fides on the part of the practitioner.
45.       Subsequently, in Niamh Meeley, Baker J. reiterated these considerations at paras. 151-
152 in the following terms:
Page 14 ⇓
“Having regard to the particular and express public interest that is performed by a
PIP in the insolvency process, and the fact that the PIP has no economic or personal
interest in the outcome of an application, save for any fees which might come to
accrue under a PIA which might come into effect following a making of an order of
court, I consider that a costs order would not be made, unless it can be shown that
a PIP acted without bona fides or dishonestly, or 'acted with any impropriety' in the
language of the Supreme Court in McIllwraith v. His Honour Judge Fawsitt [1990] 1
I.R. 343 where the question concerned the award of costs against Circuit Court
judge in judicial review.
…The circumstances in which a costs order against a PIP would be made would be
exceptional, probably more correctly, truly exceptional”.
46.       It is accordingly clear that, although a practitioner does not have immunity from liability
for costs, it will only be in exceptional circumstances that an order for costs will be made
against a practitioner. I do not, however, believe that Baker J. in Niamh Meeley intended
to exhaustively define or describe the circumstances in which a practitioner might be
made liable for costs. In particular, I do not believe that Baker J. intended to suggest
that a practitioner would only be made liable for costs in equivalent circumstances to
those in which a judge would be made liable for costs under the principles established by
the Supreme Court in McIllwraith v. His Honour Judge Fawsitt [1990] 1 I.R. 343. Having
regard to the fact that a practitioner is actively involved as a participant in proceedings
under the 2012-2015 Acts, a practitioner has a significantly different role to that of a
judge of the District or Circuit Court who will only ever act in an adjudicative capacity. As
Baker J. had previously observed in Re: Nugent (in the passage quoted in para. 43 above)
a practitioner does not act in a quasi-judicial manner. In my view, the reference by Baker
J. to McIllwraith was clearly intended to underline that it would only be in exceptional
circumstances that a practitioner would be made liable for costs.
47.       Counsel for the practitioner and counsel for Tanager, very helpfully, sought to identify
some of the exceptional circumstances which could expose a practitioner to a liability in
costs. These included:
(a) The vexatious promotion of a personal insolvency arrangement or a debt settlement
arrangement. As explained by Barron J. in his judgment in Farley v. Ireland
(Supreme Court, unreported 1st May, 1997 at p. 3), it is vexatious to pursue
proceedings which have no prospect of success. Thus a practitioner would be
exposed to a liability in costs where the practitioner pursues an arrangement in the
knowledge that there was no legal or evidential basis for it or where the practitioner
knows that the drafting of the arrangement is fatally deficient;
(b) The promotion of an arrangement where the practitioner knows that the
arrangement does not include all of the debts of the debtor;
(c) Counsel also instanced circumstances where an application is made to approve an
arrangement where the practitioner has no instruction from the debtor to do so.
Page 15 ⇓
(d) Counsel for Tanager also submitted that repeated breaches of court directions
(whether by creditors or practitioners) should also be capable of being admonished
through an appropriate order for costs.
48.       I fully agree with counsel that, in each of the examples cited by them, a practitioner
would be at risk for costs. That said, I do not believe that this list is exhaustive. It is,
nonetheless, helpful in identifying the level of misconduct or impropriety that would have
to exist before a practitioner would be exposed to a liability for costs. It seems to me that
a practitioner will also be exposed to liability in costs where he pursues an application for
approval of an arrangement where it is obvious that the figures on which the arrangement
is based are incorrect and where the true figures available to the practitioner demonstrate
that the arrangement is unsustainable. A practitioner who proceeds with an application in
such circumstances is, in effect, misleading the court. In this context, it is well established
that a high degree of frankness is required of practitioners in their dealing with creditors
and the court. This duty of good faith was emphasised by Baker J in James Nugent at
para. 17 of her judgment.
49.       In James Nugent, Baker J drew attention, in this context, to similar observations made in
the context of examinerships. While the position of a practitioner is not on all fours with
that of an examiner appointed under the Companies Act, 2014, there is an obvious
parallel between the position of a practitioner and the position of an examiner. In Re:
Wogans (Drogheda) (No. 2) (High Court, unreported, 7th May, 1992) Costello J. (as he
then was) emphasised the duty of good faith owed by an examiner to the court to
disclose all relevant facts material to the exercise by the court of its discretion. Similarly,
under s. 115A, the court is vested with a discretion as to whether to grant relief. While s.
115A sets out a large number of statutory requirements which must be fulfilled, there is a
residual discretion in the court as to whether or not to grant relief under s. 115A even
where all the statutory requirements are fulfilled. It is therefore the duty of any
practitioner, as an independent professional, to fully disclose to the court all of the facts
(whether good or bad) relevant to the fulfilment of the statutory conditions or relevant to
the residual discretion vested in the court. In his subsequent decision in the same case
(Re: Wogans (Drogheda) Ltd (No. 3), High Court, unreported, 9th February, 1993),
Costello J. refused to sanction a payment of fees to the examiner in that case by reason
of the examiner’s failure to disclose to the court a number of matters which were clearly
material to the issues which the court had to decide. These included the fact that the
examiner was aware of the failure by the directors of the company in question to make
full disclosure to the court at the time they petitioned the court for the appointment of an
examiner on an interim basis. At p. 25 of his judgment, Costello J. said:
“I think the breach by the examiner of his duty to the court arising from his
knowledge of the abuse of the courts processes by the directors was a most serious
one and disentitles him to be remunerated for the work he performed or to be
reimbursed for the costs and expenses he incurred. I must so hold (a) because the
Court must ensure the fulfilment of duties owed to it by professional persons in the
interests of justice, and should not condone what happened by the order the
Page 16 ⇓
examiner now seeks and (b) because in this case it is highly probable that had the
Court been informed of the fraud which had taken place and which was
compounded in the petition an order for protection would not have been made. In
such circumstances it would be unjust to require the company's creditors to
remunerate the examiner or indemnify him for services which, had this duty been
fulfilled, would not have been performed”.
50.       The importance of full disclosure was subsequently emphasised by Finlay Geoghegan J. in
her judgment in Re: Camden Street Investments Ltd [2014] IEHC 86. In that case,
having referred to the judgments of Costello J. in Wogans, Finlay Geoghegan J. said at
para. 58:
“58. Costello J. also referred to the necessity for compliance with these obligations [to
disclose all relevant facts material to the exercise by the court of its discretion]
because, inter alia, the Court must depend to a considerable extent on the truth of
what it is told by, in the first instance, the company, … and thereafter, by an
interim examiner or examiner. I respectfully agree. In many examinerships, unlike
the present one, there may be no creditor or other interested party who takes an
active role in opposing any aspect of the applications before the Court. The Court is
required to make decisions, either at a petition hearing or subsequently on an
application to confirm a scheme which may have an immediate and sometimes
adverse impact on creditors, employees and others who are not present and not
represented before the Court. The Court is absolutely dependent upon being able to
rely upon petitioners, in the first instance, and thereafter, examiners and their
professional advisors giving to the Court a full, frank and clear picture with all the
objectively material or potentially material facts relevant to any decision which it is
required to take, or to the exercise by it of its discretion.”
51.       Finlay Geoghegan J. subsequently concluded, at para. 61 of her judgment, that the
examiner in question had acted “…in breach of his duties to act with fullest candour in
putting all material matters before the Court in connection with this application for
confirmation of his proposals for a scheme of arrangement…”.
52.       While the observations of Costello J. and Finlay Geoghegan J. were made in the context of
examinership, they apply, in my view, with equal force in the context of proceedings
under the 2012-2015 Acts. The court must be in a position to rely on practitioners, in the
exercise of their independent professional role in the processes under the Acts, to place
all material facts before the court (whether those facts tend to support or undermine the
case for relief under the Acts) so that the court can make a fully informed decision, in the
exercise of its jurisdiction under s. 115A (or any other relevant provision of the 2012-
2015 Acts that may be in issue in any individual case).
53.       Similarly, if a practitioner states that a proposed arrangement has been prepared in
accordance with the Protocol, this constitutes a representation to the creditors (and also
the court) that the practitioner, in the absence of any indication to the contrary in the
terms of the proposed arrangement, has taken the necessary steps to verify the debtor’s
Page 17 ⇓
income in accordance with the requirements of Appendix 3 to the Protocol. If that
process of verification has not taken place then, in the absence of some statement to that
effect in the arrangement, a practitioner would be misleading the court and the creditors
if he or she were to proceed with an application to the court based on the arrangement in
question.
54.       In my view, having regard to the importance of the duty of disclosure to the court, any
attempt by a practitioner to mislead the court or any failure to make full disclosure to the
court must, subject to any countervailing circumstances which may exist, expose a
practitioner to a potential liability in costs. Such behaviour on the part of a practitioner
seems to me to be so serious as to fall within the exceptional category of cases
contemplated by Baker J. as justifying an award of costs against a practitioner. Whether
the court, in any individual case, will impose a liability for costs will obviously depend on
the circumstances and whether the practitioner is in a position to offer any plausible
explanation or justification for what has been done or what he or she has failed to do.
55.       In making the observations in para. 54 above, I am conscious that in both Wogans and in
James Nugent, Costello J and Baker J declined to make orders for costs notwithstanding
that, in each case, there had been failures on the part of the examiner and the
practitioner respectively to make full disclosure to the court. However, in Wogans a very
effective admonition was delivered by the court in that the examiner was denied payment
in respect of the work done by him. That represented a significant sanction to mark the
breach of duty on the part of the examiner in that case. That sanction is not available to
the court in proceedings under the 2012-2015 Acts.
56.       In the case of James Nugent, the application for costs was made by an affected creditor
on the basis of alleged non-disclosure on the part of the practitioner in relation to an ex
parte application under s. 95(6) of the 2012 Act for an order extending the protection
period. While Baker J declined to make an order for costs against the practitioner in that
case, it is clear from para. 22 of her judgment that this was in circumstances where the
practitioner did not actively mislead the court in the evidence presented by him in support
of the s. 95(6) application. In that case, there had been a failure by the practitioner to
properly scrutinise the information made available by the debtor on which the practitioner
had relied. While that was unsatisfactory, this failure did not arise as a consequence of
any mala fides on the part of the practitioner. The information relied on was not known to
be incorrect by the practitioner and Baker J held that the primary blame for what occurred
lay with the debtor personally. It seems to me to follow from what is said by Baker J in
para 22 of her judgment that if the practitioner had been personally responsible for
misleading the court, a costs order would have been made against him.
57.       To my mind, where parties such as objecting creditors have been put to expense as a
consequence of steps of the kind summarised in paras. 47-48 above or where costs have
been incurred as a consequence of a failure by a practitioner to make full disclosure to the
court or where costs have been incurred as a consequence of misleading conduct or
statements by a practitioner, it is difficult to see why an order for costs should not be
Page 18 ⇓
made against the practitioner concerned unless the practitioner is in a position to offer an
acceptable explanation for what occurred or where there are other excusing
circumstances. In such cases, it seems to me that the onus must lie on the practitioner
to justify why an award of costs should not be made.
58.       Equally, it seems to me that similar issues arise where a practitioner decides to proceed
with an appeal in circumstances where the evidence available to the practitioner, in
advance of the hearing of the appeal, clearly and undeniably demonstrates that the
arrangement is no longer viable. In my view, a practitioner, in such circumstances, has an
obligation to bring that to the attention of the court and to withdraw the appeal. If a
practitioner proceeds with the hearing of an appeal in the teeth of evidence available to
him or her which clearly shows the arrangement to be unsustainable, that would, in my
view, expose the practitioner to a liability for the costs of the appeal. It would be totally
unacceptable that a practitioner would proceed with an appeal in such circumstances. By
proceeding with such an appeal, a practitioner is exposing the objecting creditors to
wholly unnecessary legal costs and is also taking up valuable court time that could
otherwise be made available to a more deserving case. In my view, such conduct on the
part of a practitioner is, in the absence of an acceptable justification or excuse, of such a
serious nature as to warrant an award of costs in favour of the objecting creditor. To my
mind, such behaviour on the part of a practitioner very obviously falls within the rubric of
exceptional circumstances as contemplated by Baker J. in her judgment in Niamh Meeley.
59.       It is nonetheless very important to emphasise that this does not mean that a practitioner
will be exposed to a liability in costs merely because a practitioner fails to persuade a
court (either at first instance or on appeal) to grant relief under the 2012-2015 Acts. The
judgments of Baker J. make that very clear. I reiterate what was said by Baker J in
Darren Reilly at para. 71 that: “if a PIP lodges an application bona fide and in exercise of
his or her professional and reasonable judgment, and prosecutes an appeal in similar
fashion, it seems unlikely that a PIP would be subject to an award of costs…”.
60.       That judgment was delivered in 2017. Since then, there have been a very significant
number of cases under the 2012-2015 Acts both in this court and in the Circuit Court. In
only a very small number of cases has any attempt been made by an objecting creditor to
seek costs against a practitioner and, in so far as I am aware, none of those attempts has
been successful. This demonstrates very clearly that, in light of the guidance given by
Baker J in James Nugent, Darren Reilly and Niamh Meeley, there is a recognition and
understanding on the part of all participants in the process that an application for costs
against a practitioner will only be entertained in exceptional circumstances and that the
costs follow the event” principle is of no application in cases where a practitioner’s
application for relief under the Acts fails either on the merits or on a point of law.
61.       It is only in what should be very exceptional circumstances of the kind outlined in paras.
42-54 above that a practitioner will have any reason to fear that he or she may find
themselves exposed to a liability for costs. If a practitioner behaves honestly responsibly
and professionally, the practitioner will have nothing to fear. Practitioners should be
Page 19 ⇓
aware that it is their duty to make full disclosure and to satisfy themselves, insofar as
practicable, that the debtor has made appropriate disclosure. Appendix 3 to the Protocol
provides extensive guidance as to the steps which should be taken for this purpose. In
the case of applications under s. 115A, it is important that practitioners understand that
they are independent professionals and they have a duty to place all facts before the
court which are relevant to any of the statutory conditions in s. 115A and any facts which
may be relevant to the exercise of the discretion of the court.
62.       In the case of appeals, s. 37 of the Courts of Justice Act, 1936 (“the 1936 Act”) envisages
that appeals from the Circuit Court to the High Court proceed by way of rehearing on the
basis of the same evidence that was before the Circuit Court. Section 37 (2) provides
that no new evidence can be given in the High Court for the purposes of the appeal
without the special leave of the judge hearing such appeal”. However, it seems to me
that it is crucial for the purposes of any appeal to the High Court that the court should
have available to it up to date information in relation to the debtor’s financial position.
Given that the High Court, on any such appeal, is required to consider the matter afresh
and satisfy itself that all of the statutory preconditions to the grant of relief under s. 115A
have been satisfied and that there are no circumstances which would cause the court to
refuse relief on discretionary grounds, the court must have available to it up to date
information in relation to the debtor’s financial circumstances. Otherwise, if the debtor’s
financial circumstances have changed materially since the hearing in the Circuit Court,
this could lead to the High Court dealing with the matter on the basis of an entirely false
or incomplete premise. It therefore seems to me to be essential that, in advance of the
hearing of an appeal, the practitioner should make appropriate enquiries to satisfy himself
or herself as to whether there has been any material adverse change in the debtor’s
financial position or whether there are any other material circumstances which should be
brought to the attention of the court. In cases where there has been a material adverse
change in circumstances or where additional relevant material has come to light, it seems
to me that it must be the obligation of the practitioner to place the necessary additional
evidence before the High Court for the purposes of that appeal. While s. 37 (2) of the
1936 Act envisages that special leave will be required for doing so, it seems to me that
the High Court should readily admit such evidence so as to be in a position to make an
informed decision on the basis of the best financial information available as to whether
relief should be granted.
Decision
63.       In the present case, there are a number of areas of concern:
(a) In the first place, it is clear that, although the practitioner purported to propose an
arrangement in accordance with the March 2015 version of the Protocol, he did not
take the necessary steps to verify the income of Mr. Varvari in accordance with
Appendix 3 to the Protocol. As noted in paras. 5-6 above, he also wrongly
represented in paras. 15.2 and 15.5 of the arrangement that he had investigated
and verified the income of Mr. Varvari. However, he did disclose in note 1 to
Appendix 2 to the proposed arrangement that the income of Mr. Varvari was based
Page 20 ⇓
on information provided by Mr. Varvari’s accountant. Thus, anyone who closely
read the arrangement may have realised that the figure for Mr. Varvari’s income
was not based on Mr. Varvari’s accounts or his tax returns and that, accordingly,
his income had not been verified by reference to the steps outlined in Appendix 3 to
the Protocol. While I am strongly of the view that the practitioner was entitled to
proceed in that way and while, for the reasons outlined in para. 34 above, I believe
that the letter from the accountant came nowhere near the level of verification that
was required to be undertaken by the practitioner, I do not believe that this failing
on the part of the practitioner would, of itself, come within the rubric of exceptional
circumstances as envisaged by Baker J. in Niamh Meeley. In my view, it was on the
margin and I would be prepared, in light of the terms of note 1 to Appendix 2 to
the proposed arrangement, to give the practitioner the benefit of the doubt;
(b) The second area of concern relates to the practitioner’s apparent unquestioning
reliance on the PFS made by Mr. Varvari. I have already set out my views on the
practitioner’s failings in this regard in para. 21 above. In my view, the practitioner
was plainly not entitled to proceed in this way but, again, while his conduct was
unacceptable and while it comes close to the margin of exceptional circumstances, I
do not believe that, taken on its own, it could be said to give rise to a liability in
costs;
(c) The next area of concern arises in relation to the swearing of the practitioner’s
affidavit in June 2018 which, as outlined in paras. 34 to 36 above clearly gave the
impression that the practitioner had, by that stage, taken active steps to verify the
income of Mr. Varvari and his wife. The averments made by the practitioner in
paras. 11,12 and 21 of his affidavit (as summarised in paras. 34-36 above) clearly
conveyed the impression that, as of the date of swearing of the affidavit, the figure
for household income set out in the arrangement remained true and correct. As
observed by me in para. 36 above, I find it impossible to understand how the
practitioner could have thought it to be appropriate to swear an affidavit in those
terms. In my view, these averments by the practitioner in his affidavit are
misleading and give the false impression that a careful and comprehensive process
of verification had taken place. While the application to the Circuit Court ultimately
failed, the averments in question were clearly designed to dispel any concern that
might exist as to the veracity of the income. The true position was entirely
different. The practitioner had not taken any sufficient steps to verify the income.
To make matters worse, had he done so, he would immediately have seen that the
income actually earned by Mr. Varvari and his wife fell far short of the figure used
by him to justify the sustainability of the proposed arrangement. The entire costs of
the Circuit Court hearing and of the appeal to the High Court could have been
avoided if, at the time of swearing of this affidavit in June 2018, the practitioner
had sought Mr. Varvari’s tax returns for 2017 (which had been available since
February, 2018 four months prior to the swearing of the affidavit). Instead, the
practitioner chose to deploy the affidavit in the proceedings notwithstanding that he
was aware that, as at the date of swearing of the affidavit, he had not undertaken
Page 21 ⇓
any steps to verify the up to date income position of Mr. Varvari or his wife. In all of
the circumstances, the misleading impression created by the affidavit of June 2018
is clearly within the Niamh Meeley rubric and is of sufficient gravity to merit an
award of costs being made against the practitioner - subject to the existence of any
countervailing circumstances that might justify a different outcome;
(d) Fourthly, the pursuit of the appeal, notwithstanding the evidence available from the
2017 and 2018 tax returns (which the practitioner very properly placed before the
court) is a further serious cause for concern which, again, in my view, falls within
the Niamh Meeley rubric. The costs of the appeal and the time taken in hearing the
appeal could all have been avoided. The tax returns plainly demonstrated that the
arrangement proposed by the practitioner in this case was unsustainable. In those
circumstances, the practitioner has pursued an appeal to this court which was
bound to fail and, moreover, which he must have known was bound to fail. As I
observed in para. 37 above, it was blindingly obvious that the appeal should have
been withdrawn. The pursuit of the appeal was accordingly vexatious. In my view,
this undoubtedly exposes the practitioner (subject to consideration of any
countervailing circumstances) to a liability in costs for the appeal.
64.       Before deciding whether to impose liability for costs, I must also consider whether there
are any countervailing circumstances that are relevant to the exercise of the court’s
discretion under s. 115A (14) of the 2012 Act. Regrettably, as noted previously, the
practitioner has not put forward any satisfactory explanation for proceeding in the way
that he did. I am, however, conscious that this is the first time that an issue of this kind
has come before the court. I also bear in mind that, although the practitioner has not
satisfactorily explained his conduct, he has shown genuine remorse and regret and I am
satisfied that, in dealing with the matter since October, 2019, the practitioner has been
frank and has very properly and acknowledged his own failings. I also believe that it is
important to acknowledge that the practitioner very properly disclosed the evidence in
relation to the tax returns albeit that he did not take any steps thereafter to bring the
appeal to an end and instead continued to maintain the appeal. However, I do not believe
that these considerations are of sufficient weight to prevent an order for costs being made
against the practitioner in this case. They are, however, relevant to the extent of the
liability to be imposed. In this context, the court has power under O.99 r.5 to direct that
a sum in gross be paid in lieu of taxed costs. That rule must now be read subject to the
provisions of Part 10 of the Legal Services Regulation Act, 2015 under which costs are
now subject to adjudication rather than taxation.
65.       While the conduct of the practitioner in this case (highlighted in paras. 63(c) and (d)
above) well justifies an order for costs being made against him, I propose, in this case,
having regard to the fact that this is the first such order to be made, and having regard to
the other considerations outlined in para. 64 above, that the appropriate course to take is
to make an order that the practitioner should pay to Tanager the objecting creditor within
a period of time to be fixed by the court, the sum of €6,000 together with VAT (if
applicable). That sum represents two thirds of the fees (excluding VAT) that the
Page 22 ⇓
practitioner would have earned had the arrangement been confirmed by the court. I will
hear the parties in due course in relation to the period to be given to the practitioner to
make this payment.
66.       I fully appreciate that the sum of €6,000 represents no more than a fraction of the cost
which Tanager has incurred. However, in circumstances where this is the first case in
which such an order has been made (following full argument) I believe that it would be
inappropriate, on this occasion, to fix the sum at a higher level. The amount which I have
fixed should not be taken as a precedent for future cases. Now that the issue has been
fully debated, practitioners will henceforth be more fully aware of the circumstances in
which they may find themselves liable for costs. Accordingly, subject to any
countervailing circumstances that may exist in any particular case, there is no reason in
the future why practitioners should not be fixed with a more significant liability for costs
of proceedings which would never have been incurred had they acted properly.


Result:     The practitioner was ordered by the Court to pay to Tanager ,the objecting creditor, within a period of time to be fixed by the court, the sum of €6,000 together with VAT (if applicable)




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