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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Oraki & Anor v Dean & Dean (A Firm) & Ors [2013] EWCA Civ 1629 (18 December 2013) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2013/1629.html Cite as: [2013] EWCA Civ 1629 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
Mr Robert Ham QC sitting as a Deputy Judge
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE DAVIS
and
LORD JUSTICE FLOYD
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IN THE MATTER OF SHIEDA ORAKI AND IN THE MATTER OF ARDESHIR ORAKI AND IN THE MATTER OF THE INSOLVENCY ACT 1986 SHEIDA ORAKI ARDESHIR ORAKI |
Appellants |
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- and - |
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DEAN & DEAN (a firm) IAN MARK DEFTY (trustee in bankruptcy of the estates of Sheida Oraki and Ardeshir Oraki) |
Respondents |
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(Transcript of the Handed Down Judgment of
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David Nicholls (instructed by Locke Lord (UK) LLP) for the second respondent
The first respondent did not appear and was not represented
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Lord Justice Floyd:
Introduction and background
The judgment
"Those matters are not before me and I can decide nothing about them. In my judgment they are not relevant to the question of costs".
"So far as the Official Receiver and the trustee are concerned, the bankruptcy orders were regularly made, they have on the face of it no personal interest in the matter and there is no ground to mulct them of their costs unless and until the Orakis have established that they have acted improperly."
The judge's order
"The appellant shall pay the following:
(a) The costs of the Official Receiver incurred in relation to the Appellants' bankruptcies;
(b) The costs of [the trustee] of and occasioned by the appeals and applications that are the subject of this order, which shall be subject to a detailed assessment on the indemnity basis; and
(c) The costs and expenses of the Appellants' bankruptcies, including, for the avoidance of doubt, the costs and expenses incurred by the [trustee] and his predecessor as trustees in bankruptcy of the estates of the Appellants (including for the avoidance of doubt those costs and expenses relating to the appeals and applications that are the subject of this order)."
Paragraph 9 made provision for applications by the Orakis to challenge the conduct of the trustee and to challenge his remuneration on the basis that it was excessive.
"an order against [Dean & Dean] that [Dean & Dean] should pay all or any of the costs for which the [Orakis] are liable under the terms of this Order provided that Dean & Dean is given reasonable notice of such an application and that any allegations of fraud are properly and fully particularised. For the avoidance of doubt:
(a) The making of any such application and any order upon it shall not alter the liability of the [Orakis] under the terms of this Order…".
The Appeal
Trustee's costs
"(1)The court may annul a bankruptcy order if it at any time appears to the court—
(a) that, on any grounds existing at the time the order was made, the order ought not to have been made, …
(3) The court may annul a bankruptcy order whether or not the bankrupt has been discharged from the bankruptcy.
(4)Where the court annuls a bankruptcy order …
(a) any sale or other disposition of property, payment made or other thing duly done, under any provision in this Group of Parts, by or under the authority of the official receiver or a trustee of the bankrupt's estate or by the court is valid, but
(b) if any of the bankrupt's estate is then vested, under any such provision, in such a trustee, it shall vest in such person as the court may appoint or, in default of any such appointment, revert to the bankrupt on such terms (if any) as the court may direct;
and the court may include in its order such supplemental provisions as may be authorised by the rules."
"No doubt the application of those parts of the Civil Procedure Rules to insolvency proceedings requires some moulding to make them fit the different nature of insolvency proceedings. For example it may not always be obvious who is the successful and unsuccessful party for the purposes of CPR Rule 44.3(2). In annulment proceedings under s.282, conduct may assume a greater importance than may normally be the case."
"The parties' arguments have all proceeded on the basis that I have unfettered discretion to decide who, if anybody, should pay the trustee's costs. To my mind that must be right. The bankruptcy is pursuant to a court order and the court is still seised of the matter. In my judgement the question of whether the trustee should have his costs, and the question as to who should pay the costs, are at large when the court makes an order annulling the bankruptcy."
Similar conclusions were reached by this court in Thornhill v Atherton [2004] EWCA Civ 1858 at [39], albeit in a case where the judge had directed that the perfection of the annulment order should be deferred. At [41] it was indicated by Lloyd J (with whom Jonathan Parker and Waller LJ agreed) that in the circumstances of that case to order the bankrupt to pay the costs of the trustee was "logical and sensible".
"Prima facie it cannot be envisaged that a trustee in bankruptcy will work for nothing, and normally, when a bankruptcy order has been properly made, subject to questions of reasonableness and subject to special facts, the trustee will be paid out of the estate."
"A professional receiver cannot be expected to accept office except on the understanding that he is to be entitled, in principle, to remuneration."
"I am myself unable to understand the basis on which it is said that the receiver's rights to remuneration in respect of services actually rendered by him during the currency of his appointment can depend in any way on whether the order appointing him would not have been made if the party applying for it made fuller disclosure to the court than it in fact did. Absent any evidence that the receiver was in some way complicit in the non-disclosure or other impropriety on behalf of the applicant in obtaining the order, the receiver is entitled to act and be remunerated for acting on the footing that his appointment is valid."
"It seems to me that the trustees are not wholly blameless for their own position. They should have realised that this was highly likely to be the sort of bankruptcy proceedings which constitute an abuse of process."
Ground 1: wholly innocent bankrupts.
"[Counsel for Mr Atherton's] submission to us came down in the end to say that it was quite unacceptable and an entirely inappropriate, illegitimate exercise of the discretion to order Mr Atherton to pay the trustee's costs when the whole bankruptcy was the result of an abuse of process on the part of the petitioning creditor and no doubt also Mrs Atherton.
It seems to me that the gap in that argument is that it deals fairly with the position as between Mr Atherton, Mrs Atherton and maybe also the petitioning creditor, but it is entirely irrelevant to the position of the trustee in bankruptcy whose costs have been properly incurred, subject of course to being quantified in the appropriate amount, and is entitled, as in Mellor v Mellor, to have security for the discharge of his costs. Mr Burgess ultimately submitted that the order that the judge should have made and the order that we should make is an unconditional immediate annulment and an order that Mrs Atherton pay the trustee's costs, leaving the trustee to do what he can to enforce that order against her, her assets of course, such as they may be, being embroiled in the ancillary relief proceedings. That would leave the trustee without any security. It seems to me it would put him in a wholly invidious position which would be a wrong exercise of the court's discretion to invoke in the circumstances of this case, particularly when there is fault, maybe, as I say, not personal fault of Mr Atherton but fault of him or his advisers, which has led to the situation in which there are such large trustee's costs, so that the liability of the person ordered to pay and the question of security for her payment is a very real point. In those circumstances, it seems to me that the judge's order was well within the range of the legitimate exercise of his discretion. It seems to me that he did not misdirect himself in any respect, particularly not by touching (in the passage that I have mentioned) on the question of whether the fault lay with Mr Atherton or with his solicitors. Where, as between them, the fault lay it does not matter. Mr Atherton does have in this respect to answer for his solicitors' faults. He may have a remedy against them."
Ground 2: did the judge treat the trustee's conduct as irrelevant?
Should the judge have decided that the trustee should get nothing?
Should the judge have adjourned the question of who was liable to pay the trustee's costs?
Should the judge have annulled the bankruptcies unconditionally?
Conclusion
Lord Justice Davis:
Lady Justice Arden:
- The judge could not determine any disputes over the trustee's expenses on the evidence before him;
- There were no grounds for holding that the trustee should not have any right to recover his proper expenses;
- There was no evidence of any special prejudice to the Orakis caused by the deferment - they had been discharged from their bankruptcy some time earlier;
- Even though it is said that the estates are solvent, there was insufficient cash to meet outstanding proved debts and the trustee's expenses, and it appeared that the trustee had incurred considerable expenses in meeting claims made by the Orakis for which he had not been reimbursed.
- The trustee was likely to incur significant further expenses to complete the payment of debts and expenses.
"By s 309 [of the Companies Act 1948], all costs, charges and expenses properly incurred in the winding-up, including the liquidator's remuneration, are made payable out of the assets of the company in priority to all other claims. Where a liquidator has accepted office on this footing, I cannot see that in normal circumstances it would be right to stay the winding-up unless his special position had been fully safeguarded, either by paying him the proper amount for his expenses or by sufficiently securing payment. A liquidator who loses control of the assets by reason of a stay ought normally to be properly safeguarded in relation to his expenses."
i) the petitioning creditor could not pay those costs;ii) the trustee had not (on the evidence before the judge) done anything that would deprive him of any right to his costs;
iii) the costs could if disputed be quantified on a separate application to the court before payment; and
iv) if the trustee did not obtain an order against the Orakis, and their estates turned out to be insufficient to pay his expenses, the burden of non-payment of those expenses would fall on the trustee since those expenses would not be paid.