[View without highlighting]
[Printable RTF version]
[View ICLR summary:  WLR(D) 544]
[Buy ICLR report:  Ch 52]
[Buy ICLR report:  3 WLR 1323]
WARNING: reporting restrictions may apply to the contents transcribed in this document, particularly if the case concerned a sexual offence or involved a child. Reporting restrictions prohibit the publication of the applicable information to the public or any section of the public, in writing, in a broadcast or by means of the internet, including social media. Anyone who receives a copy of this transcript is responsible in law for making sure that applicable restrictions are not breached. A person who breaches a reporting restriction is liable to a fine and/or imprisonment. For guidance on whether reporting restrictions apply, and to what information, ask at the court office or take legal advice
||Neutral Citation Number:  EWHC 2169 (Ch)
||Case No: E80LS200
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN LEEDS
BUSINESS LIST (ChD)
||Leeds Combined Court Centre,
1 Oxford Row Leeds LS1 3BY
B e f o r e :
HIS HONOUR JUDGE DAVIS-WHITE QC
(SITTING AS A JUDGE OF THE HIGH COURT)
|| SIMON MATTHEW GWINNUTT
(as the First Defendant's Trustee in Bankruptcy)
||- and -
|| (1) NICHOLAS FRANK RAYMOND GEORGE
(2) MICHAEL RYAN
Mr Stephen Hackett (instructed by J H Powell & Co.) for the Claimant
Mr Ian Tucker (instructed by Howes Percival LLP) for the Defendants
Hearing dates: 2 August 2018
HTML VERSION OF JUDGMENT APPROVED
Crown Copyright ©
His Honour Judge Davis-White QC :
- In circumstances where a barrister is engaged on express terms that there should be no contract between him or her and the person instructing them, such that the barrister is unable to bring proceedings to enforce any promise to pay the barrister's fee, is there any property relating to such fee that will vest in the barrister's trustee in bankruptcy or is the trustee restricted to seeking the fee either when paid, as after-acquired property, or by way of an income payments order? That is the broad question that is raised by the preliminary issue before me.
- Mr George, the first defendant, is a barrister. He was called in 1983. With the exception of a brief period, when he worked for a firm of solicitors, he has practised as a barrister ever since. At all material times to the matters before me he practised from New Walk Chambers in Leicester.
- The second defendant, Mr Ryan, is the Practice Manager at New Walk Chambers and has worked as a barristers' clerk for over 30 years.
- Mr George was made bankrupt, for the third time, by Order of Registrar Derrett made in the High Court, in the Rolls Building on the petition of the Commissioners for Her Majesty's Revenue and Customs dated 21 March 2012. He had previously been made bankrupt in 1994 and 1999.
- In a statement made to the Official Receiver (by way of Preliminary Information Questionnaire) made on 3 April 2012, Mr George confirmed that he had fees outstanding of just over some £76,000 (net of VAT). The precise terms on which Mr George was instructed on each case has yet to be agreed or determined but for present purposes I am told that (1) none of the fees represent an entitlement to publicly funded fees (though I note that this does not sit well with a letter from Mr George's Chambers' management committee which suggests that there were legal aid fees involved. In any event I do not deal expressly with the position where the barrister is publicly funded and/or paid direct by the Legal Services Commission as part of the Community Legal Service); (2) a very limited number of the fees arise from direct access work expressly carried out on a non-contractual basis and (3) the overwhelming majority of the remaining fees (if not all) were expressly carried out on a non-contractual basis (including some conditional fee agreements). As I understood matters, this was common ground between the parties. I refer to fees that were outstanding as at the date of Mr George's bankruptcy as the "Outstanding Fees".
- Mr Gwinnutt, the claimant, (the "Trustee") was appointed by the Secretary of State the Trustee in Bankruptcy of Mr George's estate on 24 April 2012.
- In about October 2012 it became apparent to the Trustee that some Outstanding Fees had been paid over (apparently to Mr George) but not accounted for to the Trustee. Further information was sought. A payment summary report was received by the Trustee's solicitor in December 2012
- The Trustee's solicitor (Mr Jonathan Hill of J H Powell & Co) apparently "allowed the matter to stagnate" between December 2012 and June 2013. In June 2013 he was contacted by the Trustee's assistant. As a result he apparently considered the payment summary report received by him in December 2012 and e-mailed Mr Ryan telling him that his, the solicitor's, analysis of the payment summary report, received in December 2012, revealed payments of fees of Mr George of some £14,000 or so, of which only £4,000 or so had been provided to the Trustee. A further payment summary was requested and provided. This summary showed, according to the Trustee's solicitor's later calculations, that by that time, some £44,000 or so (including VAT) of fees had been recovered but only just over £6,000 had been accounted for and provided to the Trustee. Some £38,000 or so had apparently been paid to Mr George.
- Correspondence at this time was being conducted between Mr Hill and Mr George's Chambers. Mr George had had a heart attack in about May 2013. By email dated 9 July 2013 Mr George wrote to Mr Hill saying that he was aware of the recent conversations that Mr Hill had had with Mr Ryan and others at his chambers; that he realised the position was serious and urgent and that he intended co-operating as fully as possible. He indicated that an immediate payment of £6,000 should be possible and then instalment payments with regard to the balance, the hope being at a rate of at least £1,000 a month. Such payments would, in effect, recoup the Trustee the sums that had been paid to Mr George in respect of Outstanding Fees. A number of cheques for fees, representing the proceeds of post-bankruptcy work, were sent to the Trustee to credit against the £38,000 or so that he was claiming.
- Meanwhile, in about July 2013, the Trustee had reported the matter to the police. The police, having carried out a voluntary interview with Mr George, eventually decided to take the matter no further. The Trustee in effect complained, through his solicitor, of this non-action in about November 2014. As I understand matters the police again decided to take matters no further.
- Also, in about November 2014, the Trustee complained to the Bar Standards Board. This resulted in disciplinary proceedings. There were a number of charges but the final position was that there was a charge of engaging in conduct likely to diminish public confidence in the legal profession or administration of justice or otherwise bringing the legal profession into disrepute. The relevant conduct was said to be that between 21 March 2012 (the date of bankruptcy) and around 9 July 2013 Mr George kept some £38,302.35 of pre-bankruptcy fees which he should have paid to the Trustee and failed to do so. Further that he thereafter refused or failed to pay over the £38,302.35 despite having acknowledged by letter of 9 July 2013 that he was obliged to do so. The defence raised was essentially the defence raised that I have to deal with by way of preliminary issue, namely that because such fees were not contractually due, they did not vest in the Trustee. At least two adjournments appear to have been granted to enable this defence to be determined by the courts in recovery proceedings to be brought by the Trustee. In the end the disciplinary proceedings continued, the panel of the Disciplinary Tribunal of the Council of the Inns of Court decided that the defence was not a good one in law and Mr George thereupon pleaded guilty to the charge I have indicated. It is accepted that I am not bound by the decision of the Disciplinary Tribunal and that it does not operate as an estoppel against Mr George in favour of the Trustee.
- Letters before action were sent to the Defendants on 1 December 2015. Draft Proceedings were sent to the County Court Money Claims Centre in November 2016, but the claim was only issued in February 2017. (A problem seems to have been that only a business address for Mr Ryan was provided.) According to the transcript of a hearing before the Disciplinary Tribunal, at least some delays prior to November 2016 were caused by funding issues.
The Pleadings and the preliminary issue
- With updated figures available, the Trustee asserts that he has not received just over £29,000 of the sum of just over £49,500 of Outstanding Debt which Mr George has had paid to him and benefitted from. He also asserts that there is a further sum to be established on enquiry representing further Outstanding Debt received by Mr George, but not accounted for to the Trustee.
- The claim against Mr George is brought (in the alternative) in conversion, a sui generis tort, breach of trust, unlawful means conspiracy (with Mr Ryan) and unjust enrichment. The claim against Mr Ryan is similarly framed.
- The defence raises the main issue of whether fees, which arose under an arrangement that was not a contract and to which there was no contractual entitlement, vest in the Trustee or not. The defence asserts that they do not. The defence is that the fees were not due under any contractual arrangement, there was no assignable right to such fees and the arrangement was personal to the bankrupt. This has been described as the "Honorarium Defence", Mr George's services being described as being provided on the "honorarium basis". There is then a counterclaim for return of the monies paid to the Trustee in respect of the sums said by the Trustee to have been taken wrongfully and retained by Mr George.
- The reply, as well as joining issue in detail on the "Honorarium Defence", also asserts that Mr George is estopped from taking that defence against the Trustee. This latter issue is not one before me.
- It was agreed before me that I should deal with the legal question of whether a non-contractual arrangement entered into by a barrister to perform work for a fee, is one that vests in his trustee in bankruptcy. The question is whether the "expectation" of payment under that arrangement is one that vests in the Trustee as "property" within the meaning of the Insolvency Act 1986.
- As formulated by the District Judge the preliminary issue is defined as being whether the First Defendant's entitlement to receive payment of his aged debt did not pass to the Claimant on his appointment as the First Defendant's trustee in bankruptcy because that entitlement to aged debt arose on an honorarium basis rather than under a contract (the "Honorarium Defence"). Given the manner in which the case has been argued before me I propose, subject to Counsel's assistance, to reformulate the preliminary issue. My proposed re-formulation is as follows:
"whether any expectation of the First Defendant to receive fees arising in respect of work carried out by him on a non-contractual basis before his bankruptcy vests in his trustee in bankruptcy".
The precise formulation will be a matter for further submission in the light of this Judgment. I have used the term "expectation" rather than "entitlement" for reasons that will become clear.
The nature of the relationship between barrister and solicitor
- Before turning to the Insolvency Act 1986 it is necessary to consider the nature of the barrister's "expectation of payment" under a non-contractual arrangement. That also involves some history.
Prior to 1991
- Until 1991, there was thought to be a rule of public policy, inherited from the Romans, that a barrister could not enter into contractual relations with regard to the services that he or she performed.
- Blackstone's "Commentaries on the Laws of England" Vol III pg 28 states as follows, speaking of "the antient Roman Orators" and comparing them to barristers and serjeants
"Those indeed practised gratis, for honour merely or at most for the sake of gaining influence: and so likewise it is established with us, that a counsel can maintain no action for his fees; which are given, not as locatio vel conductio, but as quiddam honorarium; not as salary or hire, but as a mere gratuity, which a counsellor cannot demand without doing wrong to his reputation: as is also laid down with regard to the advocates in the civil law, whose honorarium was directed by a decree of the Senate not to exceed in any case ten thousand sesterces , or about £80 of English money."
- The position in antiquity was reviewed at length in the case of Kennedy v Broun (referred to below). As there explained, in classical times advocates were only ever paid by way of gift though there were attempts at various times to exclude even the right to a gift or to regulate the maximum permitted size of any gift. The reference made by Blackstone regarding the 10,000 sesterce limit is a reference to one such attempt.
- In Turner v Phillips (1792) Peake 166 the Court indicated that no action lay to recover back a fee given to a barrister to argue a case which he did not attend. Lord Kenyon mentioned: "the general opinion of the profession, that the fees of barristers and physicians were as a present by the client, and not a payment or hire for their labour." On that basis the matter was settled out of court.
- In Poucher v Norman (1825) 3 B & C 744 a retrial was ordered where Lord Alexander CB, sitting at the Cambridge Summer Assizes, had withdrawn part of the case from the jury on the basis that a certificated conveyancer could not maintain an action to recover compensation for business that he had done. The Court held that:
"The general rule is, that any man who bestows his labour for another, has a right of action to recover a compensation for the labour. There are two exceptions to that rule, viz. physicians and barristers. The law supposes them to act with a view to an honorary reward. In the other degrees of those professions parties may recover for their services. An attorney may recover for conveyancing. So a surgeon may recover for attendance."
- In Kennedy v Broun and Wife (1863) 13 C.B.(N.S.) 677 the plaintiff brought an action for money alleged to be due from the defeddants to the plaintiff upon accounts stated with the female plaintiff before her marriage. The judgment of the Court of Common Pleas, sitting in banc, was given by Erle, CJ. Pithily he summarised the determination as follows:
"We consider that a promise by a client to pay money to a counsel for his advocacy, whether made before, or during, or after the litigation, has no binding effect; and furthermore, that the relation of counsel and client renders the parties mutually incapable of making any contract of hiring and service concerning advocacy in litigation"
- The decision in Kennedy v Broun was based both on precedent and principle. As regards the latter:
"The incapacity of the advocate in litigation to make a contract of hiring affect the integrity and dignity of advocates, and so is in close relation with the highest of human interests, viz. the administration of justice"
- It followed that:
"..the requests and promises of the defendant, and the services of the plaintiff, created neither an obligation not an inception of an obligation, nor any inchoate right whatever capable of being completed and made into a contract by any subsequent promise."
- In Mostyn v Mostyn (1870) 5 Ch App 457, a barrister had been engaged by a solicitor to work as conveyancing counsel in relation to the estate of the late Hon Thomas E.M.L Mostyn. Part of his fee was paid to the solicitor who then paid the sum on to the barrister. That left some £446 pounds or so outstanding. The estate was being administered in court and the barrister put a claim in against the estate for the amount of the outstanding fee. It was submitted on his behalf that there had been a promise by the (lay) client to pay because the part payment by the solicitor raised an implied promise to pay by the client. This argument was rejected by Giffard LJ:
"It was properly admitted at the Bar that the claim of a counsel against the client is a moral one only, whether the business was litigious or non-litigious, and that counsel could not maintain an action against his client without an express promise by the client to pay them…... Now, I have no hesitation in saying that a solicitor cannot pledge his client's credit to his counsel, and therefore part payment by him cannot convert the moral obligation into a legal debt. The judgment in Kennedy v Brown is most accurate in reasoning and sound in law, and that case forms a landmark of the law on this subject".
- In Wells v Wells  P 167 a wife had commenced divorce proceedings against her husband, a barrister who worked from chambers in Old Square, Lincoln's Inn. She had obtained an order for what would now be called interim maintenance. There were arrears. The wife sought to garnish fees due to the husband from a firm of solicitors, Slaughter and May. The Court of Appeal held that such fees were not debts and could not therefore be attached under a garnishee order:
"The question is whether the fees can be attached by garnishee proceedings. In our opinion fees owing to counsel are not "debts," and cannot be attached or garnisheed as such, nor can the garnishees be ordered to pay the amounts as "debts," nor can execution issue against them in default of payment. We are quite aware that the solicitors in question, Messrs. Slaughter & May, are ready to pay, and indeed are desirous of paying, to the proper person whatever may be due from them for counsel's fees earned by the judgment debtor, but they cannot be ordered in garnishee proceedings to pay the amount to the judgment creditor. It is settled beyond all question that counsel's fee is not a debt but an honorarium, the fees are payable as a matter of honour and not of legal obligation; see Kennedy v. Broun and In re Le Brasseur and Oakley. It was, however, urged that where the solicitor acknowledged that he had received from his lay client the money to pay counsel's fees, and that he actually had in hand the money, the position was different, that there was a legal obligation on him to pay, and that an action would lie against him for money had and received. This proposition is quite unfounded. These facts do not make the least difference as regards the right of counsel to sue. Counsel can no more sue for their fees when the solicitor has received the money than when he has not received it: see Hobart v. Butler."
- Interestingly in the Wells case there had been an assignment of the book debts owing to him (in effect his fees) by the bankrupt, prior to the attempt to obtain a garnishee order, to a trustee to pay certain creditors, with an ultimate entitlement in the assignee. The question of the validity of this assignment was left open by the Court of Appeal.
- In In re Sandiford (No 2), Italo Canadian Corporation, Limited v Sandiford  1 Ch 681 it was held that (and I take the following from the headnote), counsel had no right to prove for his fees in the administration of the insolvent estate of a deceased solicitor in a case where the client reimbursed the solicitor the amount of the fees upon the faith of the solicitor's false representation that he had in fact paid them to counsel. Clauson J was clear that there was no right to prove as: "during the lifetime of the solicitor there was no cause of action by Counsel against him at law or in equity." That could not change by reason of the solicitor's death. He went onto consider whether there might be a "quasi right to prove", that is, that the barrister be treated as if he had a right to prove. He identified that, in earlier authorities, the Court of Appeal had suggested that, at most, in certain circumstances of payment by the client to the solicitor there might be a right to receive payment out of the estate by virtue of the principle or rule in ex P James L.R. 9 Ch 609. However, in the view of Clauson J any such right would be that of the client who had made the payment and not of counsel.
- In Rondel v Worsley  1 QB 443 the Court of Appeal had to consider the question of a barrister's immunity from suit for negligence. It was submitted, (among other matters) and in line with the then generally accepted view, that a barrister's immunity from suit for negligence was the other side of the coin to the barrister not being able to sue for his fees and only being "entitled" to them by way of an obligation in honour only. There being no contract between barrister and client or solicitor it would be wrong for the barrister to be liable for having been negligent. This argument was rejected. However, the Court of Appeal found that the barrister's immunity remained on grounds of public policy (though not that of the "dignity" of Counsel). In the course of considering the position Lord Denning set out a helpful statement of the position regarding fees. He dealt with the position up until the decision of the House of Lords in Hedley Byrne & Co Limited v Heller & Partners Ltd  AC 465, which greatly changed the law regarding misrepresentation and liability for economic loss and which was a key decision in considering the question of liability of barristers for loss caused by their conduct. Lord Denning MR said:
"Beyond doubt the barrister was treated differently from other professional men. He could not sue for his fees. He could not even make a contract for them with his client. Nor with the solicitor who represented the client. The obligation to pay him was an obligation which was binding in honour, not in law. Such was the position of the advocate in the Roman law. Such was the position of the barrister in our English law. It was the tradition of centuries that what he received from the client was a gift or honorarium, and not a stipulated wage. To this day his very robe bears witness. At the back of it there is still the flap of the little pocket where the client could place his gratuity. In the pretence that the barrister did not know he was being given a reward!"
- I should perhaps comment that the current view appears to be that the "little pocket" referred to by Lord Denning MR was not to receive a fee secretly but was a vestige of historic costume:
" "The 'bag' at the back of the Barrister's gown is not - as popularly thought - for legal fees, but has its roots to a mourning hood, similar in style to an academic hood." (History Of Legal Dress, Ede & Ravenscroft).
- The House of Lords upheld the decision of the Court of Appeal based upon public policy considerations. As regards the barrister's right to a fee, Lord Reid said:
"Then, some importance was attached in argument to the rule that counsel cannot sue for their fees. That rule has a long history and before the decision of this House in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. it was regarded as a reason for the continuance of the other rule that counsel cannot be sued for professional negligence. But the two rules now have no necessary connection. The existence of the rule preventing counsel from suing for fees may still have fiscal and other consequences, but I do not think that it is now relevant when considering whether it should be possible to sue counsel for professional negligence. In fact, the rule has very little practical importance in this connection for its abolition would very seldom enable counsel to recover fees which they do not at present receive."
- Lord Morris of Borth y Gest said:
"The searching and exhaustive review of the relevant authorities which was a feature of the careful addresses of learned counsel revealed with clarity (a) that it has for long been considered to be settled law that a barrister may not and does not enter into any contract which enables him to sue for fees and, (b) that it has for long been considered to be settled law that an action alleging negligence against a barrister may not be brought. In this case the first of these has not been challenged. Learned counsel for the appellant (while reserving a contention that a barrister could enter into a special contract) was content to accept that it is the law today that a barrister cannot sue for fees and that this inability rests on a rule of etiquette which has now hardened into a rule of law. As it was no part of the argument for the appellant to suggest that this rule of law should now be re-examined or should be reversed it is not necessary to probe deeply into the authorities which recognise it nor to consider whether the reasons upon which it has been based possess today any current validity. Suffice it to say that the rule existed in 1742 when in Thornhill v. Evans, Lord Hardwicke L.C. proclaimed:
"Can it be thought that this court will suffer a gentleman of the bar to maintain an action for fees, which is quiddam honorarium or, if he happens to be a mortgagee, to insist upon more than the legal interest, under pretence of gratuity or fees for business formerly done in the way of a counsel?"
- Lord Pearce said:
"It is argued that this immunity sprang from the fact that barristers for reasons of status cannot sue for fees: and that, since the case of Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. has held that work may impose a liability for negligence even though a defendant had no contract with, and received no remuneration from, the plaintiff, the immunity no longer holds good. But the hypothesis that the immunity stems from the inability to sue for fees is unsound."
He found that the barrister's inability to sue and his immunity from suit flowed from the same public policy considerations but not one from the other.
- Lord Upjohn said (as regards fees and contractual arrangements):
"…..there are three matters which may be stated which are not in dispute and are indeed common ground. First, it is clear that counsel cannot sue for his fees. This has been established for nearly two hundred years and it is usually put upon the ground that a barrister is of too high an estate to condescend to the common arena to sue his client. Fees must be regarded as pure honoraria (see Thornhill v. Evans, per Lord Hardwicke, and In re May, per Kindersley V.-C.). It is true that Bayley J. in Morris v. Hunt put it on a more realistic though humdrum basis that counsel should ensure that he is paid before the case and the matter should not be left to chance afterwards, so that he cannot thereafter maintain an action; not a very good reason. Best J. in the same case really put the inability of counsel to sue upon the ground of public policy, namely, that counsel should not thereby have any temptation to endeavour to get a verdict. However, whatever reason may be ascribed it is clear that counsel cannot sue for his fees and this applies equally to fees for non-litigious work (see Mostyn v. Mostyn), though that was only a matter of admission, but in principle the admission was clearly right.
Secondly, a barrister does not enter into a contract, express or implied, with his client or with the solicitor who in all matters pertaining to litigation necessarily stands between the barrister and the lay client except in the case of dock briefs. At one time it was left open whether a barrister could expressly or impliedly contract with his client in litigious matters though I have no doubt it would always have been regarded as a breach of professional etiquette for him to do so; but I regard it as settled by Kennedy v. Broun that in fact counsel is incapable of doing so. Parenthetically the necessity for the marking of a fee on a brief before counsel appears in court is only because it is entirely contrary to the etiquette of the Bar that he should admit his fee to depend on the result (see Bayley J. in Morris v. Hunt). This incapacity to contract is important, for counsel for the respondent founds an argument upon it to which I must later return. To sum up the result of these two points, fees due to counsel create no debt: Wells v. Wells; In re Sandiford (No. 2).
- Lord Pearson said:
"My Lords, for more than a hundred years it has been a settled principle of English law that the arrangement between barrister and client (which is made through the agency of a solicitor, except in the case of a dock brief) for the barrister to conduct litigious business for the client is not a contractual or otherwise legally binding arrangement. The relationship of barrister and client in respect of litigious business does not create legal rights or legal obligations. The client does not make a legally binding promise that he will pay the barrister his fees. The barrister does not make a legally binding promise that he will act for the client or that when so acting he will exercise due care and skill."
Courts and Legal Services Act 1991
- In 1991, the position of barristers as regards fees was equated with physicians: as Lord Morris of Borth y Gest mentioned in Rondel v Worsley there had been a long line of statutes "beginning with an Act in 1858 [21 & 22 Vict. c. 90] which have brought it about that physicians (apart from Fellows of the Royal College of Physicians) may now sue for professional fees."
- Section 61 of the Courts and Legal Services Act 1991 ("CLSA 1990") abolished the historical rule preventing barristers from entering into contracts for the provision of their services. It came into force on 1 January 1991 (see SI 1990/2484 art. 2, Sch. 1 para. 1). It provides:
"61. — Right of barrister to enter into contract for the provision of his services.
(1) Any rule of law which prevents a barrister from entering into a contract for the provision of his services as a barrister is hereby abolished.
(2) Nothing in subsection (1) prevents the General Council of the Bar from making rules (however described) which prohibit barristers from entering into contracts or restrict their right to do so."
- In the Committee of the Whole House on the Bill which ultimately became the CLSA 1990 in the House of Lords the Lord Chancellor (Lord Mackay of Clashfern) said as follows:
"There is a fairly strong view that a rule of law prevents a barrister as such from entering into a contract with his client for the provision of his services as a barrister. That prevents him from among other things suing for any fee that may have been arranged in advance. If there is such a rule I have sought in this clause to take it away but make it absolutely clear that the General Council of the Bar can regulate any matter in this connection. It is therefore entirely open to the General Council of the Bar to make any rules it wishes about it"
- At the Report stage of the Bill which became the CLSA 1990 in the House of Lords the Lord Chancellor (Lord Mackay of Clashfern) said as follows:
"Among other things, the Bar has recently enlarged the class of those from whom they can take instructions. That immediately raises the question of whether they can have a relationship with the persons from whom they take instructions which is binding in law. The purpose of this clause is to deal with that legal question while at the same time reserving to the General Council of the Bar (because they are the body with responsibility in respect of barristers and that is why it is restricted to them) the power to make, 'rules (howsoever described) restricting a barrister's right to enter into contracts'. Perhaps I may take Lord Mishcon's phrases and apply them to that. If the Director General of Fair Trading by any chance comes along to visit the Bar Council, the Bar Council is able to reply in words — I am sure not as elegant as the words the noble Lord used — that Parliament, the House of Lords and the House of Commons (the noble Lord was kind enough to add 'with the blessing of the Lord Chancellor' as if that was a separate matter) has conferred on the General Council of the Bar the right to make rules, however described, restricting a barrister's right to enter into contracts." (Hansard, HL Vol.516, col.840 (March 1, 1990).)
The Bar's practice after 1991
- For many years the position was governed by the Bar's Code of Conduct. The default position was that barristers were instructed by solicitors on a
"non-contractual (i.e.non legally enforceable ) terms known as "Terms of Work on which barristers offer their services to Solicitors and the Withdrawal of Credit Scheme 1988 as amended ("the Terms of Work")" (see the General Council of the Bar Consultation on Contractual terms of Work for the supply of legal services by barristers to solicitors dated April 2010 (the "2010 BC Consultation")).
- In 2000, in Arthur JS Hall & Co v Simons  1 AC 615, the House of Lords revisited the public policy basis of an advocate's immunity from suit and reversed Rondel v Worsley. Not surprisingly the focus was on public interest factors not the barrister's inability to contract. Lord Hoffmann helpfully explained the history as follows:
"The old rule [of immunity from suit in negligence] for barristers survived until 1967. The way in which it was usually explained was that barristers, unlike solicitors, had no contract with their clients. They could not sue for their fees. And in the absence of a contract there could be no liability. But that reason was undermined when the House of Lords decided in Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465 that, even without a contract, a person who negligently performed professional or other duties which he had undertaken could be sued in tort. So the whole question was re-examined by the House in Rondel v Worsley  1 AC 191. What emerged was a different rule of immunity, in some respects wider and in others narrower, not based upon any technicalities but upon what the House perceived as the public interest in the administration of justice.
The new rule was narrower because, although their Lordships were not unanimous about its precise limits, they agreed that it should in general terms be confined to acts concerned with the conduct of litigation. None of them thought that it could apply to non-contentious work. Barristers had previously been immune from liability for anything. On the other hand, the new rule was wider in that it also applied to solicitors."
- As at 2010 the non-contractual Terms of Work formed Annex G1 to the then Code of Conduct. They had originally been authorised in July 1988 but were thereafter the subject of amendments. The position set out below covers the position in 2010.
(1) The default position was that the non-contractual Terms of Work applied unless there was express agreement to the contrary (recital (2));
(2) Although non contractual, the actual terms are fairly detailed covering (among other things) payment of fees, including the fee carrying of simple interest once not paid by a certain time; an ability by a solicitor to challenge fees and have the matter referred to a tribunal (acting as an expert) to determine the dispute and a procedure by which fees that were unpaid should be referred to the Chairman of the Bar Council> On such referral, the Chairman could then instigate a process and, if fees remained unpaid, issue a direction that no barrister without the written consent of the Chairman should knowingly accept instructions from any person or firm unless the fees were to be paid directly by the Legal Service Commission (as publicly funded work) or the instructions were accompanied by payment of the fee or the barrister agreed in advance to accept no fee. This latter process was known as the withdrawal of credit scheme. There was a professional obligation on a barrister to make a complaint in appropriate circumstances. The scheme was in effect to protect all barristers by enabling future cases to be conducted on the basis that (usually) unless there was an upfront payment the barrister was not professionally obliged to act.
- As mentioned by the Terms of Work it was open for barristers expressly to agree something else or to agree that the "Contractual Terms of Work on which Barristers offer their services to solicitors 2001" (the "Contractual Terms 2001") should apply. In 2010 those terms formed Annexe G2 to the Bar Code of Conduct. Those terms were to apply where a barrister was instructed by a solicitor and they had agreed in writing that the barrister's retainer should be contractually binding.
- The 2010 BC Consultation pointed out that the Law Society ceased to accept complaints on the basis of non-payment of barrister's fees in 1998. Further, the professional obligation on solicitors to pay barristers' fees was removed in July 2007, on the introduction of the Solicitor's Code of Conduct. It was suggested however that the Core Duty of acting with integrity in all professional dealings with "..other lawyers…" might give rise to a successful threat of a possible finding of misconduct as an encouragement to payment. However, it was recognised that:
"…it is in effect impossible for barristers themselves to invoke the solicitor's disciplinary coder as a means of encouraging or compelling solicitors to pay fees due under the Terms of Work."
- As regards the "only remaining remedy", the Withdrawal of Credit Scheme, the scheme was described as "not having any direct effect as regards the payment of outstanding fees, although in many cases, the threat of naming a solicitor under the scheme also has the additional effect of securing fee recovery". However, the scheme was seen as a
"cumbersome and indirect means of securing the payment of outstanding fees". .
- The proposal in the BC Consultation was that the withdrawal of credit scheme be abolished. In its place there would be an Advisory List of Defaulting Solicitors. More significantly, there would be a new basic form of legally binding contract which the Bar Council would recommend be used by barrister and solicitor. In the absence of specific agreement in any particular case, the New Contractual Terms would operate as the de facto default agreement.
- In 2014, a case came before the Chancery Division in which Counsel sought summary judgment against an English barrister who had since qualified as an advocate in Jersey and was the sole principal of a firm of Jersey advocates (Singh v Sinel  EWHC 3058 (Ch)). The claim was for fees charged by the barrister in respect of work done in 2007. The matter came before the court as an application to strike out the defence as disclosing no reasonable grounds for defending the claim, alternatively for summary judgment.
(1) The solicitor argued that the terms of Annex G1 applied (and that there was therefore no contract). That submission was rejected by HH Judge Barker QC on the basis that the Annex only applied to the terms on which barristers offered services to solicitors and this was an engagement by an overseas lawyer not an English solicitor acting as such.
(2) The Judge accepted that there as an arguable defence that no contract had been entered into by the solicitor to be responsible for the fees and concluded on the evidence that although the defence might be weak, nevertheless it was a genuine triable issue and for resolution by trial only, rather than summarily.
(3) However, the claimant also put an alternative case, premised on the assumption that there was no express contract. This was by reference to a quantum meruit basis by reference to implied contract and unjust enrichment.
- As regards quantum meruit and restitution, the Judge held that the defendant had, "asked the claimant to carry out the work, he had accepted and used the claimant's services; and he had used the product of the claimant's work." In addition, he rejected a submission that the defendant had not benefitted from the work. The defendant, he held, had been paid for his own work and had he not been able to use the claimant's work "he would have received much less or at least some less remuneration himself." In those circumstances, the Judge pointed out "in the ordinary way the claimant would be entitled to an objectively assessed reasonable fee on a quantum meruit basis."
- For the defendant it was submitted that this was a case falling outside the "ordinary way". This was because, as a barrister, his remuneration was (as at 2007) viewed as an honorarium. The Judge referred to a passage from Halsbury's Laws vol 65 at paragraph 1305 and Note 4 thereto to the effect that "if there is no advance agreement between a barrister and a solicitor that the barrister's retainer is to be contractually binding, there is no contractual relationship between a barrister and either his instructing solicitor or the lay client upon which a claim may be brought to recover fees". He also referred to Wells v Wells. He dismissed this line of authority as being "all about the relation between a barrister and an instructing solicitor, which is not this case".
- The Judge went on:
(1) to accept the submission for the claimant that "….since the 1990s if not earlier it had been commonplace for foreign buyers (possibly a typing error for lawyers) to instruct barristers and for the basis of such instruction to be contractual, express or implied";
(2) to reject the submission on behalf of the defendant that it was not clear what the relevant chambers' terms of business were with foreign lawyers. The evidence was that there were no standard terms and contracts were made on the basis of an agreement to accept instructions and an agreement of a fee or fee structure. (In this context barristers are now required to publish their normal terms of engagement: see the Provision of Services Regulations 2009.);
(3) to reject the submission that "because there can be no contract, there can be no quantum meruit".
- My understanding of the judgment of HHJ Barker is that he accepted that the issue of whether or not there was a binding express contract for payment of a specific fee of £108,694 was one that (on the facts) he could not be determine by way of summary application and that it would have to go to trial. Obviously if there was a binding contract then, on the face of it, restitution would have no role to play. However, if there was not a binding contract, in the circumstances of the case before him, where work had been requested, carried out and been of benefit to the defendant, usually there would be a restitutionary claim for a quantum meruit. In the particular context, there was no public policy preventing a barrister contracting for his fees (or impliedly contracting for them on a restitutionary quantum meruit basis or receiving a reasonable sum by way of restitution) given the 1991 Act. The "default" position, that in the absence of an express agreement there was no contract at all where a barrister was engaged, only applied to cases where the barrister was instructed as such by a solicitor qualified in England and Wales. So far as the chambers in question was concerned, the evidence was that they entered into express agreements and no evidence of a default position where barrister members of such chambers engaged with their overseas instructing clients on a non-contractual basis. There was no suggestion of an express concord that the relationship would be non-contractual and the evidence that it was considered by the defendant to be non-contractual was non-persuasive, based on a flawed understanding of Annex G1 and its applicability and not supportive of a case that on an objective basis the parties engaged on a non-contractual basis. Accordingly, it was a question for express "agreement" whether an engagement was on a non-contractual or contractual basis.
- If there was no express agreement that the engagement was to be on a non-contractual basis, then there was either a contract or not. If there was no contract there was no reason why restitutionary remedies would not be available: this was not a case where it was arguable that engagement was on a non-contractual basis as opposed to being a case where (possibly) a binding contract had not been reached. As I read the judgment, he decided that either (if the contract was proved) the full fee would be due (£108,694) or, if there was no contract, then, on a restitutionary/quantum meruit basis the sum agreed by the defendant to be reasonable (£46,000) plus 90% of the remaining contested balance would be due (£104,265 or so in total). Although he did not deal with this point expressly, as I read the judgment, he also decided that rather than having a trial over whether there was a contract and £108,000 or so was due or there was not a contract (so that only £104,265 was due on a restitutionary basis), the overriding objective favoured immediate judgment for the lower sum, which would be the least the defendant would have to pay on either hypothesis.
2013 onwards and today
- The position after 31 January 2013 is helpfully set out in a "Standard Contractual Terms Guide" produced by the Bar Council. (I should point out that there are transitional provisions but I need not go into those). As from 31 January 2013, instructions thereafter received by a barrister may be accepted on three different bases:
(1) On the Standard Conditions of Contract for the Supply of Legal Services by Barristers to Authorised Persons 2012 (replacing the old Annexes G1 and G2 to the Bar Code), such terms not however operating as default terms. These terms may be used where the counterparty to the barrister is a solicitor or other person authorised by the Solicitors Regulatory Authority;
(2) On "bespoke terms" (contractual or non-contractual) drafted by the barrister or his Chambers or an SBA;
(3) On "bespoke" terms drafted by the Authorised Person (eg. the instructing solicitor).
(4) On terms that are a variant of any of the above.
- Although not necessary for my judgment and not fully argued before me, my preliminary view is that the position as regards barristers instructed by solicitors (or any other person(s) authorised by the SRA) is now as found to be the case by HH Judge Barker with regard to overseas lawyers instructing counsel prior to 2013 as decided in Singh v Sinel, namely:
(1) If terms of engagement are expressly agreed to be on a non-contractual basis then there is no legal right in the barrister to claim his fee which is, in effect, payable as an honorarium as traditionally prior to 1991 it was.
(2) If a contract is reached, then the barrister has the usual contractual remedies including damages and/or in debt.
(3) If no contract is reached, and there is not express concord that the engagement is to be on non-contractually binding terms, there is no reason why restitutionary remedies should not be available in the usual way.
- It was submitted by Mr Hackett that even in circumstances where the terms of engagement are on a non-contractual basis a restitutionary claim will be capable of being made, provided the other requirements of such a claim are otherwise met. For this proposition he relied upon Singh v Sinel. However, for the reasons that I have endeavoured to explain, in my assessment that case was a case where there was no express concord or agreement that engagement would be on a non-contractual, honorarium basis. In any event, my assessment is that restitutionary remedies are not available where it is agreed that the basis of engagement will be non-contractual. In effect, the barrister has accepted that he will not be able to sue for his fee or to have any right to the same. It would be unjust rather than just were he in that situation able to obtain an enforceable right through restitution. The circumstances pointing against restitution are analogous to, but if anything stronger than those in e.g. Regalian Properties Plc v London Docklands Development Corp  1 W.L.R. 212.
- One of the submissions of Mr Hackett was that in circumstances where a barrister's fee was subject to the non-contractual, honorarium regime and it could not be enforced by action at law the same was nonetheless "realisable". I will explain the significance of this point when considering vesting under the Insolvency Act 1986 below. For present purposes, however, I note the uncontradicted evidence of the defendants that it is not possible to buy or sell "unpaid fees", due on an honorarium basis, under a commercial factoring scheme and that a brochure prepared by the Bar Council and its "affinity partners" talking of aged debt funding, speak in terms of the same being unsecured.
HMRC: view on death
- On behalf of Mr George it was also submitted that a barrister's unpaid fees, arising under the honorarium or non-contractual regime, are not regarded by HMRC as falling within the estate of the deceased barrister for inheritance tax purposes. This is a different statutory regime and I do not derive much assistance from it.
Vesting of property in bankruptcy
- Section 306 of the Insolvency Act 1986 provides as follows:
"s306.— Vesting of bankrupt's estate in trustee.
(1) The bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee.
(2) Where any property which is, or is to be, comprised in the bankrupt's estate vests in the trustee (whether under this section or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer."
- Section 307 of the Insolvency Act 1986 deals with after-acquired property and provides:
"307.— After-acquired property.
(1) Subject to this section and section 309, the trustee may by notice in writing claim for the bankrupt's estate any property which has been acquired by, or has devolved upon, the bankrupt since the commencement of the bankruptcy.
(2) A notice under this section shall not be served in respect of—
(a) any property falling within subsection (2) or (3) of section 283 in Chapter II,
(aa) any property vesting in the bankrupt by virtue of section 283A in Chapter II,
(b) any property which by virtue of any other enactment is excluded from the bankrupt's estate, or
(c) without prejudice to section 280(2)(c) (order of court on application for discharge), any property which is acquired by, or devolves upon, the bankrupt after his discharge.
(3) Subject to subsections (4) and (4A), upon the service on the bankrupt of a notice under this section the property to which the notice relates shall vest in the trustee as part of the bankrupt's estate; and the trustee's title to that property has relation back to the time at which the property was acquired by, or devolved upon, the bankrupt.
(4) Where, whether before or after service on the bankrupt of a notice under this section—
(a) a person acquires property in good faith, for value and without notice of the bankruptcy,
the trustee is not in respect of that property entitled by virtue of this section to any remedy against that person, or any person whose title to any property derives from that person.
(4A) Where a banker enters into a transaction before service on the banker of a notice under this section (and whether before or after service on the bankrupt of a notice under this section) the trustee is not in respect of that transaction entitled by virtue of this section to any remedy against the banker.
This subsection applies whether or not the banker has notice of the bankruptcy.
(5) References in this section to property do not include any property which, as part of the bankrupt's income, may be the subject of an income payments order under section 310."
- Section 310 of the Insolvency Act 1986 provides:
"310.— Income payments orders.
(1) The court may make an order ..."an income payments order") claiming for the bankrupt's estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.
(1A) An income payments order may be made only on an application instituted—
(a) by the trustee, and
(b) before the discharge of the bankrupt.
(2) The court shall not make an income payments order the effect of which would be to reduce the income of the bankrupt when taken together with any payments to which subsection (8) applies below what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family.
(3) An income payments order shall, in respect of any payment of income to which it is to apply, either—
(a) require the bankrupt to pay the trustee an amount equal to so much of that payment as is claimed by the order, or
(b) require the person making the payment to pay so much of it as is so claimed to the trustee, instead of to the bankrupt.
(4) Where the court makes an income payments order it may, if it thinks fit, discharge or vary any attachment of earnings order that is for the time being in force to secure payments by the bankrupt.
(5) Sums received by the trustee under an income payments order form part of the bankrupt's estate.
(6) An income payments order must specify the period during which it is to have effect; and that period—
(a) may end after the discharge of the bankrupt, but
(b) may not end after the period of three years beginning with the date on which the order is made.
(6A) An income payments order may (subject to subsection (6)(b)) be varied on the application of the trustee or the bankrupt (whether before or after discharge).
(7) For the purposes of this section the income of the bankrupt comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment and (despite anything in section 11 or 12 of the Welfare Reform and Pensions Act 1999) any payment under a pension scheme but excluding any payment to which subsection (8) applies .
(8) This subsection applies to—
(a) payments by way of guaranteed minimum pension.
(9) In this section, "guaranteed minimum pension" has the same meaning as in the Pension Schemes Act 1993.
- Section 283 Insolvency Act 1986 provides:
283.— Definition of bankrupt's estate.
(1) Subject as follows, a bankrupt's estate for the purposes of any of this Group of Parts comprises—
(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and
(b) any property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling within the preceding paragraph.
(2) Subsection (1) does not apply to—
(a) such tools, books, vehicles and other items of equipment as are necessary to the bankrupt for use personally by him in his employment, business or vocation;
(b) such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the bankrupt and his family.
This subsection is subject to section 308 in Chapter IV (certain excluded property reclaimable by trustee).
(3) Subsection (1) does not apply to—
(a) property held by the bankrupt on trust for any other person, or
(b) the right of nomination to a vacant ecclesiastical benefice.
(3A) Subject to section 308A in Chapter IV, subsection (1) does not apply to—
(a) a tenancy which is an assured tenancy or an assured agricultural occupancy, within the meaning of Part I of the Housing Act 1988, and the terms of which inhibit an assignment as mentioned in section 127(5) of the Rent Act 1977, or
(b) a protected tenancy, within the meaning of the Rent Act 1977, in respect of which, by virtue of any provision of Part IX of that Act, no premium can lawfully be required as a condition of assignment, or
(c) a tenancy of a dwelling-house by virtue of which the bankrupt is, within the meaning of the Rent (Agriculture) Act 1976, a protected occupier of the dwelling-house, and the terms of which inhibit an assignment as mentioned in section 127(5) of the Rent Act 1977, or
(d) a secure tenancy, within the meaning of Part IV of the Housing Act 1985, which is not capable of being assigned, except in the cases mentioned in section 91(3) of that Act.
(4) References in any of this Group of Parts to property, in relation to a bankrupt, include references to any power exercisable by him over or in respect of property except in so far as the power is exercisable over or in respect of property not for the time being comprised in the bankrupt's estate and—
(a) is so exercisable at a time after either the official receiver has had his release in respect of that estate under section 299(2) in Chapter III or [the trustee of that estate has vacated office under section 298(8) or
(b) cannot be so exercised for the benefit of the bankrupt;
and a power exercisable over or in respect of property is deemed for the purposes of any of this Group of Parts to vest in the person entitled to exercise it at the time of the transaction or event by virtue of which it is exercisable by that person (whether or not it becomes so exercisable at that time).
(5) For the purposes of any such provision in this Group of Parts, property comprised in a bankrupt's estate is so comprised subject to the rights of any person other than the bankrupt (whether as a secured creditor of the bankrupt or otherwise) in relation thereto, but disregarding—
(a) any rights in relation to which a statement such as is required by section 269(1)(a) was made in the petition on which the bankrupt was [made] 3 bankrupt, and
(b) any rights which have been otherwise given up in accordance with the rules.
(6) This section has effect subject to the provisions of any enactment not contained in this Act under which any property is to be excluded from a bankrupt's estate.
- Section 436 Insolvency Act 1986 provides (in part) as follows:
"436. Expressions used generally.
(1) In this Act, except in so far as the context otherwise requires (and subject to Parts VII and XI)—
"property" includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property;"
Are fees "income" within s310?
- The first point to note about the structure of ss306, 307 and 310 is that they are mutually exclusive. S307(5) makes clear that the after-acquired property provisions of that section cannot apply to income falling (or which could fall) within s310.
- The case of Re Landau  Ch 223 makes clear that if property vests under s306 it cannot fall within s310. In that case Ferris J decided that the benefit of a pension policy which vested in the trustee under s306 could not form "income" within s310. The same was true of an annuity payable under that pension. Considering s310 he held:
"On the ordinary meaning of the language used in section 310 I would have no doubt that the section has no application to property or income which vests in the trustee under section 306. Property or income which so vests cannot, on the face of it, be a "payment in the nature of income which is from time to time made to [the bankrupt] or to which he from time to time becomes entitled," because it ought to be paid to the trustee and only the trustee is entitled to it. Correspondingly the trustee has no need to obtain any order for the purpose of getting such income into the bankrupt's estate, for it will be payable to the trustee automatically by virtue of the vesting"
He considered arguments based upon the fact that the position was otherwise under the Bankruptcy Act 1914 (as decided by the Courts) but decided that he was not compelled to, and would not, interpret the 1986 legislation so that it should have the same effect.
- The second point to note, as explained in detail by Ferris J in the Landau case, is that there are (for present purposes) two points of distinction between the regime brought in by the Insolvency Act 1986 and the previous regimes under the Bankruptcy Act 1914 and its predecessors.
- The first distinction between the pre and post 1986 Act is explained by Ferris J as follows:
" the statutory predecessor of section 310, which was section 51(2) of the Bankruptcy Act 1914, and the equivalent provisions of earlier bankruptcy statutes were held to apply both to property which vested in the trustee and to property which did not so vest."
- The second distinction is that under the Bankruptcy Acts, prior to the Insolvency Act 1986, there was no separate regime for property vesting as at the date of commencement of the bankruptcy and after-acquired property (in the sense of property acquired after the commencement of the bankruptcy and before discharge). (Under s307 of the 1986 Act the Trustee is required positively to claim after-acquired property before it will vest). In effect all property, in existence or after acquired, vested in the Trustee (s38 Bankruptcy Act 1914).
- The result was that in Ex p Huggins (1882) 21 Ch D 85 a pension payable to a former colonial judge was held to have vested in his trustee in bankruptcy under the equivalent of s306 Insolvency Act 1986. However, it was also held to be "income" of the bankrupt within s90 of the Bankruptcy Act 1890 (equivalent to s51(2) of the Bankruptcy Act 1914). Section 51(2) of the Bankruptcy Act 1914 provided that, in the case of certain salary and income and pension (among other things), the court could make such orders it thought fit for payment of the same or any part of it to the Trustee. The result in Ex p. Huggins was that the Court held that the pension had vested subject to a direction as to what proportion should be set aside for the payment of creditors. By consent it was ordered that the Trustee receive £525 of the future quarterly payments and the bankrupt £350 of the same, being the balance of the pension.
- As I have said, under the Bankruptcy Act 1914, section 51(2) was held to apply to property which vested (as in Ex p. Huggins) and also to property which did not vest in the Trustee (see e.g. Re Garrett  2 Ch 137; In Re Landau, ex p Trustee  Ch 549). The decision of Ferris J in the later Landau case is, as I have said, that s310 and s306 are in effect mutually exclusive but he indicated that his view was that s310 was not limited to after acquired property.
- I did not hear argument as to whether fees that are contractually due to a barrister, do not vest under s306 on the basis that they are "income" which falls outside the estate unless an order is made under s310. Nor was it argued that non-contractual fees, if otherwise prima facie falling within s306, should not do so because of falling within s310. The argument before me focussed solely on the issue of whether such non- contractual fee income was "property" that could vest. I make this point because the pleaded defence refers to the fees being "personal" property falling outside the bankrupt's estate, which I had taken to be a reference to "income" said to be within s310 Insolvency Act and which should not vest under s306 (or be capable of vesting under s307). This argument would meet the principle stated and accepted by the Cork Committee ("Insolvency Law and Practice: Report of the Review Committee" Cmd 8558) that "in relation to income comprising personal earnings it has always been recognised that a proportion of earnings (net of tax) necessary for the maintenance of himself and his family does not pass to his trustee. Otherwise, it has been said, he would become a mere slave to his creditors." (see paragraphs 1158 et seq. though I accept that the discussion was in the context of after acquired property which, in the normal salaried employment situation, income normally would be).
- It was accepted, as I understood it, that if such entitlement as there was to fees which arose under a non-contractual arrangement, did not vest under s306, there would nevertheless be an ability of the trustee to obtain some or all of the same as after-acquired property or pursuant to an income payments order.
- I did not hear argument as to whether s307 or s310 would apply in this situation nor the practicalities of which section would apply and how in practice the section might operate. Obviously, the bankrupt would be obliged to keep his trustee informed, but it seems likely that he could not be compelled to pursue payment of the fees or be required to assist the trustee in encouraging payment by those in honour bound to pay (see e.g. In re Henry, Horton v Henry  1 WLR 391). There might also be problems in obtaining and framing an income payments order in advance of any particular receipt of fees (though I note that the Technical Manual for Official Receivers dealing with the Income to be considered in an income payments calculation (Chapter 31) may offer some suggestions in that respect).
- It was submitted by Mr Hackett that questions about the possible operation of s310 and 307 were irrelevant to a construction of s306 and its associated sections, particularly (for these purposes) s436 Insolvency Act 1986. I disagree. It seems to me that the working of s306 can only be properly understood by understanding generally the structure of the Insolvency Act 1986 regarding vesting (including e.g. ss307 and 310). In this respect I note the arguments about the vesting provision more widely than simply s306 as they might operate in the facts of that case as considered by Warner J in re Rae  BCC 102 at 112C-E.
Are non-contractual barristers' fees "property", prior to any payment being made?
- The essential question argued before me was whether a "moral" right or a right "in honour" to fees, without any legal entitlement to the same, amounted to "property" within s436. On the face of things, it is difficult to see that an obligation which is not a contractual one and which is simply a moral obligation can be "property". Of course, the background circumstances may be different but no-one would suggest that a moral obligation on a parent to support their bankrupt adult child would be property vesting in the child's trustee, even if that obligation had been crystallised as a non-binding legal promise to pay a certain sum. Mr Hackett submitted that the parent/child relationship is very different from the commercial relationship of barrister and solicitor. I accept that, but I do not accept that the law can draw distinctions between the strength of different moral obligations and say that some are property for these purposes, and others are not. I do not even find myself being in a position akin to that where I might not be sure precisely where to draw the division between night and day but I do know that midnight is in the night and noon is in the day.
- In this respect the definition of property is similar to that under the previous legislation and I see no reason why the cases under the old legislation are not of persuasive authority (contrast the position as regards the provisions being considered by Ferris J in the Re Landau decision already mentioned).
- A few general points can be made:
(1) The definition in s436 is non-inclusive and (to some extent) circular. "It is not in truth a definition of the word "property". It only sets out what is included." (per Aldous LJ in Ord v Upton  Ch 352 at 360).
(2) "It is harder to think of a wider definition of property" (per Lord Browne-Wilkinson in British Airport plc v Powdrill  Ch 744 at 759.
(3) The principle of public policy expressed in the Insolvency Code (said in relation to the Bankruptcy Acts but in my judgment the position has not changed) is that:
"in bankruptcy the entire property of the bankrupt, of whatever kind or nature it be, whether alienable or inalienable, subject to be taken in execution, legal or equitable or not so subject, shall, with the exception of some compassionate allowances for his maintenance, be appropriated and made available for the payment of his creditors" (per Lord Atkinson in Hollinshead v Hazleton  1 AC 428 at 436
As put by Mummery LJ in Patel v Jones  PLR 217 at paragraph 39:
"..the statutory objective of the provisions of the 1986 Act [is] that, subject to certain specified exceptions, all a debtor's property capable of realisation should be vested in the trustee for him to realise and distribute the proceeds among the creditors."
The purpose of the Insolvency Legislation
- I recognise and take into account the principles stated above but they do not assist me greatly in the determination of the preliminary issue before me.
(1) The policy of the Act may be said to be met by the fact that non-contractual fees when paid would fall within s307 or s310 Insolvency Act 1986, even if not falling within s306.
(2) The statements about the purpose of the Act all fasten on the question of "property that is realisable" (emphasis supplied) but that is the question I have to answer: before any non-contractual fee is paid is there any relevant "property" of the bankrupt that vests?
- Mr Hackett submitted that because a non-contractual fee is "realisable", by virtue of pressure to pay or the pressure of morality or (possibly) the use of threats of disciplinary action against the solicitor who was honour bound to pay, therefore the same is property. In my view this is wrong. First, it ignores the fact that the concept of "realisable" in the passages cited was tied to "property". Secondly the passages are not words of statute but general description. Thirdly, this submission seems to me to be the one rejected, in my respectful view, correctly, by Warner J in Re Rae  BCC 102.
- I will return to Re Rae later but broadly speaking fishing licences were revoked in the particular circumstances as a result of bankruptcy of the licence holder. Such fishing licenses were, in each case, granted to the owner of a specific vessel. Overall the number of licences did not increase. There was found to be a practice of the Secretary of State to permit the former licence holder either to apply for a new licence in his own name or to waive his "entitlement" so that another person could apply for a licence. The Ministry would not grant a licence unless an existing "entitlement" had been surrendered and, if the previous licence was held by someone other than the applicant, the previous owner had "waived" his "entitlement" to be considered for the grant of a licence (by signing the previous owner's declaration on the application form). In that way the number of UK licences did not increase. The result was that the "entitlement" or rather, the waiver of the same in favour of another applicant, was something of value on the open market and marketable. Warner J decided that the "entitlement" was not itself "property" (in the ordinary sense). In effect, it was an expectation rather than a legal right to renew, however it fell within the wider definition of property in s436 being an interest "arising out of, or incidental to, property", the "property" for these purposes being the vessels to which the licences related and the "entitlement" to renew being "incidental" to such vessels.
- One of the submissions made to him was that because the "entitlement" to renew was realisable therefore it was property falling within ss 436 and 306. This was, in effect, the submission made to me by Mr Hackett in relation to non-contractual barristers' fees. Warner J rejected that submission as follows (at 112E-113D):
"Mr Davies put in the forefront of his argument on behalf of Mr Hobson a submission that, in view of the non-exhaustive nature of the wide definition of 'property' in s. 436 , the fact that the exclusion of Mr Rae's recognised entitlement from the property vesting in his trustee in bankruptcy would be contrary to the purposes of the Act was enough to lead to the conclusion that that entitlement was property within the meaning of the Act. Mr Davies submitted that the word 'property' in the Act included any asset of the bankrupt capable of realisation for the benefit of his creditors.
Among the authorities cited to me by Mr Davies in support of that submission was City of London Corporation v Bown (1989) 22 HLR 32 . That was a case about a non-assignable secure tenancy under Pt. IV of the Housing Act 1985 . The Court of Appeal held that such a tenancy did not vest in the tenant's trustee in bankruptcy. The case was decided on the law as it stood before the Insolvency Act 1986 was amended by s. 117 of the Housing Act 1988 in the ways that I mentioned earlier. The ratio of the decision was expressed by Dillon LJ as follows (at pp. 38–39):
'… I take the view that the non-assignable secure periodic tenancy of Mr Bown is a mere personal right dependent on the terms of the statute.' – That is a reference to the Housing Act 1985 – 'It is not an asset which the trustee in bankruptcy could realise for the benefit of the creditors and I see no reason therefore why it should be included in the property of the bankrupt which has vested, albeit without assignment, under section 306 of the Insolvency Act 1986 in the trustee in bankruptcy.'
It seems to me, however, difficult to treat that passage in Dillon LJ's judgment as authority for the converse proposition that any asset which the trustee in bankruptcy could realise for the benefit of the creditors is included in the property of the bankrupt vesting in the trustee.
Mr Davies also relied on my own judgment in Zim Properties Ltd v Procter  BTC 42 . In that case I held that a right to bring an action to seek to enforce a claim that was not frivolous or vexatious, which right could be turned to account by negotiating a compromise yielding a substantial capital sum, was an 'asset' within the meaning of that term in the capital gains tax legislation. In point was, among other provisions of that legislation, s. 22(1) of the Finance Act 1965, which provided:
'All forms of property shall be assets for the purposes of this Part of this Act …'.
My decision turned on a consideration of the reasoning of the House of Lords in an earlier case in which, so it appeared to me, the House had treated as virtually irrelevant the use by s. 22(1) of the word 'property' and had held to be dominant in the legislation the word 'asset'. That word is not used in the Insolvency Act .
Other authorities cited by Mr Davies in support of this submission were, if I may say so, even more remote from the point.
I am not persuaded that one can, merely from a consideration of the purposes of the Insolvency Act and the non-exhaustive nature of the definition of 'property' in s. 436, reach the conclusion that any asset of the bankrupt which can be realised or turned to account is 'property' within the meaning of the Act"
- I would respectfully adopt that reasoning mutatis mutandis. I also add that the undisputed evidence is that such moral right cannot itself be "realised" by sale or factor and that such evidence as there is of an ability to realise the debt by (e.g.) bringing pressure to bear on the solicitor is far from impressive.
- The matter was considered as long ago as 1853 in Johnson v Smiley (1853) 17 Beav. 223. I need not for these purposes recite the facts of the case. In discussing the question of whether the Commissioners (in a bankruptcy) make sale of something being property of the bankrupt. Sir John Romilly, MR said as follows:
"In this case, I have to consider what there was which vested in the assignees pending the bankruptcy, that is, prior to and before the bankrupt obtained his certificate. Under the 65th section, my opinion is, as I have already stated, that everything vested in them which the bankrupt could then have disposed of if he had not been bankrupt. But in saying this, I wish to distinguish or to define, more correctly, in what sense I use the words "could have disposed of." In one sense, a man may validly dispose of property which is not his; for instance, he may enter into a covenant, for value, to convey to the covenantee every species of property which might thereafter be bequeathed or devised to him by any stranger, and which he had not, at the time of entering into the covenant, any knowledge of or any expectation of receiving. This is not an unusual provision in marriage settlements, but this clearly is not an interest which can pass to the assignees. The chance of receiving a legacy from a relative a man might sell before his bankruptcy, but still, if not sold by him, that chance would not pass to his assignees. No doubt, if, before he obtained his certificate, the relation had died leaving the legacy to the bankrupt, the right to it would vest in the assignees, and this even though the legacy should be a mere possibility. When, therefore, I speak of an interest which the bankrupt could dispose of, I mean an existing interest, whether vested or contingent, and which, if conveyed or released and assigned by him, requires no further act, on the part of the bankrupt, to vest it in the purchaser."
An interest arising out of or incidental to property?
- As I have said in re Rae, Warner J found that an "asset" which was not property in itself was nevertheless an "interest" arising out of or incidental to property.
- Mr Hackett initially submitted that the moral right to fees was such an interest. The "property" he identified was that of the solicitor who might have to pay the same. As I understood matters he later resiled from this position and accepted that he could not identify any other relevant "property" to which the "moral" right to fees was incidental or from which it arose. I consider that he was right to do so. The argument was, in my judgment, the same as that (in my respectful view, rightly) rejected by Knox J in Re Campbell (a Bankrupt)  Ch 14.
- In re Campbell the question was whether a woman's outstanding application to the Criminal Injuries Compensation Board vested in her trustee in bankruptcy in 1990 so that, when in 1992 an award of £200,000 was made in her favour, it had vested in her trustee. Knox J held that there was no right in a citizen suffering injuries as a result of criminal assault to enforce any form of award from the Board. The prospect of such an aware might be a "hope" but it was not a "thing (or chose) in action". The conclusion the Judge reached was that:
"the hope that Mrs. Campbell had of being awarded an award, which in fact fructified two years later, was not at the date when she became bankrupt part of her property in such a way as to vest in the trustee in bankruptcy when she became bankrupt."
- One argument rejected was that the "hope" was an interest "arising out of or incidental to property" within the definition in s436.
"The submission made by Mr. McCulloch, for the trustee, is that although the prospect of recovering under an award by the Criminal Injuries Compensation Board is not a thing in action it was or represented something which did come within the definition of property and the way he put that claim, as I understood it, was to say that there was an interest vested in Mrs. Campbell which was either future or contingent and arose out of or was incidental to property. The property which he identified as being the relevant asset was the money that was prospectively going to be paid if and when an award was made.
Treating the matter purely as a matter of construction I am quite unable to accept that the word "property," when it is used in that definition of property, is intended to describe anything other than an existing item. In other words I do not accept that it is susceptible of referring to something which has no present existence but may possibly come into existence on some uncertain event in the future. There seems to me to be a very clear distinction between two situations. The first is when there is a contingent interest in property, for example, the right to receive £50,000 under a legacy contingently on attaining the age of x years when one is x–y years old. That is an interest which is contingent and future but, if there is a trust fund — which I assume in my example there is — there is existing property in respect of which there is a contingent interest. That seems to me to be quite different from the second situation, the possibility of achieving an interest in something which presently does not exist but may exist in the future.
Examples might perhaps be the owner of a lottery ticket in relation to the prize that may, perhaps, at the end of the following week arise in his or her possession. Similarly, the person who has filled in a coupon on the football pools might perhaps become entitled to property should that coupon have been successfully filled. In neither case there can it be described as a future or contingent interest arising out of or incidental to property because there is no underlying existing property which, or the proceeds of sale of which, are susceptible to the existence of a proprietary interest, even a future one. It seems to me that the trustee's argument, purely as a matter of construction of the Act and the definition or enlargement of the concept of property which is contained in it, cannot succeed."
- Property of the solicitor or of the lay client which might be used to pay non contractual fees is no more existing "property" out of which any "interest" can be said to arise than the money prospectively to be used in paying Mrs Campbell or the lottery ticketholder (if later winning) or the football pools entrant.
- Mr Tucker's main submission was that the "moral" right to fees did not give rise to any recognised form of property. He accepted that assignability and an ability to realise are neither necessary nor sufficient characteristics of property but submitted that they are good indicia. His submissions in this respect echo the approach taken by Morritt LJ in re Celtic Extraction Limited  Ch 475 and the guiding principle in National Provincial Bank Ltd v Hastings Car Mart  AC 1175, 1247-8:
" Before a right or an interest can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability." (per Lord Wilberforce)
- Mr Tucker relied on cases such as Campbell in support of the proposition that the non-contractual "moral" entitlement to a barrister's fee is not "property".
- In Agarwal v Conara Bank  BPIR 842 Chief Registrar Baister had to deal with the question of whether a statutory demand should be set aside. One of the arguments was that banks serving statutory demands had failed to disclose security (and its value) which they held as against A, the recipient of the statutory demand, by virtue of A's interest under a trust being subject to their security. The Chief Registrar held (among other things) that A, being a beneficiary under a discretionary trust, had no more than a hope or expectation in the trust assets, which "hope" was not property.
- In Agarwal, the Chief Registrar relied on Ex P Dever, in Re Suse and Sibeth (1887) 18 QBD 660. This was a case about an insurance policy taken out on the life of her husband by a wife. The husband subsequently became bankrupt. Under the policy the wife had an option to draw money in certain circumstances, possibly before his death. There was a question of construction as to whether that would be for her own use or also for the benefit of her husband. On the assumption that, if exercised, the option would result in the husband obtaining moneys, the Court of Appeal had to decide whether the bankrupt's contingent interest in the policy had passed to the trustee prior to the bankrupt's discharge or it had not on the basis that the right to withdraw was a mere possibility. It was held to be a mere "hope of a hope that something might come to him by reason of his surviving the 10 years [being the period which had to pass before the option was exercisable)] and of his wife's exercising her option in that particular way" (per Fry LJ); "a mere possibility which could be of no value to anybody and which was not property" (per Lord Esher MR); "not an option which he [the bankrupt] could exercise…it was nothing more than a chance ..a mere possibility…a possibility [which] is not "property" of a bankrupt passing to his trustee." (per Bowen LJ).
- Similarly, in In re Inkson's Trusts (1855) 21 Beav 310 Sir John Romilly MR, dealt with circumstances in which under a marriage settlement the husband was entitled to a life interest in all the wife's after-acquired property. He became bankrupt. After his discharge his wife became entitled to the residuary estate of her deceased sister, as next of kin. It was argued by the assignees in bankruptcy that the rights under the marriage settlement were property passing to the trustees on the husband's bankruptcy. The Master of the Rolls said:
"I have no doubt that the assignees are entitled to the benefit of contracts in favour of the bankrupt, but that principle has no application to the present case. All that passes to the assignees is an existing interest; but where it is only mere possibility or expectancy to which the bankrupt would be entitled under the contract, and it continued such till after he obtains his certificate, the assignees have no right."
- In Patel v Jones  EWCA Civ 779 the Court of Appeal held that the pension of a local government employee under a statutory occupational pension scheme vested in his trustee. The pension scheme gave rise to discretionary benefits. It was submitted that these did not vest because they were discretionary and not received "as of right". However, the Court of Appeal, following Re Rae, held that the enhanced payments were incidental to property in the form of the basic pension benefits to which the employee was legally entitled. Mr Tucker submits that if this discretionary element had not been incidental to other property it would not have been "property" and would not have vested in the Trustee. The position was the same as that in Campbell where the "interest" did not vest and even though there may have been some enforceability in Campbell by means of judicial review.
- Mr Hackett's submission was that Re Rae demonstrated that something that was not enforceable in a court of law but marketable and capable of being turned into money could be "property" for the purposes of s436. In my judgment this is too simplistic approach. True it was that the "entitlement" in Re Rae was (with hesitation) ultimately accepted to be property within s436 but that was because it was found to fall within that part of the definition of "every description of interest arising out of or incidental to property" and the question was whether that included an interest which was not enforceable in a court of law (see at 113D-H). As I have said, on my reading of the judgment, the right was not "property" in the ordinary sense of the word. I also note that it would seem in any event that the "entitlement" might well have had a measure of legal enforceability: that is because there must have been the prospect of judicial review if the "entitlement" had not been recognised by the Secretary of State.
- Mr Hackett also relied upon Re Huggins (1882) 21 Ch D 85. In that case, which I have already referred to, a colonial judge, the former Chief Justice of Sierra Leone, had retired, returned to England and entered partnership in the business of manufacturing bottle washing machines. The "result was, what might have been expected, it….brought him to ruin and bankruptcy". The question was whether his pension from Sierra Leone vested in in the trustee as part of the former judge's property. Lindley LJ held that the pension was "income" which fell within the income vesting provisions (which as I have explained was held to apply to property vesting under the equivalent of s306 and property that did not so vest). He did not in terms himself deal with vesting under the equivalent of s306. However, Sir George Jessel MR, (with whom Bowen LJ agreed), held that the former Judge had accepted office on the basis that he would receive a salary and on retirement a pension. He rejected the argument that the pension was not "property". It was true that the contract might not be enforceable but there "are many cases in which property arises from a contract quite independently of the fact that a judicial tribunal can enforce it". In that context he relied upon the position of foreign government bonds. They were analysed as being a contract not enforceable in a country outside that of the government in question (because such courts have no jurisdiction over a foreign government) and "no sovereign power would allow itself to be sued in the Courts of its own country without its consent". Still no-one would say that the bond or a foreign country is no property."
- In my judgment, the case of Huggins does not assist Mr Hackett. It seems that the pension was an entitlement under contract, albeit that the contract in question was not enforceable in the courts of law. Unlike the position in Re Inkson's trusts, the pension was not a mere possibility or expectancy but an existing interest. In this case there is no contract at all. I do not accept Mr Hackett's submission that an engagement expressly on a non-contractual basis is the same thing as engagement pursuant to a contract which is not enforceable in the courts. Contracts may not be enforceable for a number of reasons (e.g. statute see Cooper v the Queen (1889) 14 Ch D 311 (pensions) or limitation, just as they may not be assignable (eg certain pensions by statute) but that of itself will not prevent them being property and it is a very different thing from a mere moral obligation).
- Another way of looking at the matter from the perspective of s436, is to say that the pension arose from property which vested (namely the chose in action and original contract for services as a Judge, even assuming that it did not give rise to a contractual right to the pension) and that, as at bankruptcy, it was an existing "interest". This seems to have been the analysis of Mummery LJ in Patel v Jones (paragraph 43) when referring to the Huggins case.
- Finally, Mr Hackett, while accepting that it was not binding, invited me to follow the Disciplinary Tribunal decision against Mr George that I have referred to. In its ruling, the Disciplinary Tribunal held that a barrister's unpaid fees (arising from a non-contractual engagement) were "realisable" and property. For reasons that I have already given I respectfully disagree that the fact (if it is accepted) that such fees are "realisable" by sending a reminder note, a second reminder note and if necessary making a telephone call (being the basis of the decision), make the fees "property" of the bankrupt as at the date of his bankruptcy. I also note that the argument seems to have focussed on the question of enforceability rather than what I would say is the correct issue, which is whether there is a relevant chose in action or property even if the right to it cannot be enforced in the courts of law. Finally, I note that the Disciplinary Tribunal reasoned that to hold otherwise would relieve the barrister of his liabilities to his creditors while being permitted to retain realisable assets "without these being referable to his needs as a human being" but that is to ignore the potential impact of ss307 and/or 310. The Disciplinary Tribunal was referred to "Personal Insolvency a Practical Guide" 4th edn by Floyd, Brumby and Knight. A copy of the relevant extract was provided to me after I had circulated in draft a copy of this judgment. Without explanation the authors record their view that "fees due to a bankrupt barrister" vest in his trustee "notwithstanding the inhibition on pursuing the same." No reasoning is provided and the authors' view does not cause me to revise my own.
- Any unpaid fees of Mr George as at the date of commencement of his bankruptcy which arise under a non-contractual, honorarium engagement do not, or have not, vested in his trustee in bankruptcy.
- I will hand this judgment down without the need for attendance. If an order giving effect to this judgment can be agreed before then or, at the latest by 4pm on Friday 17 August 2018 then I will consider it. If, however, an agreed draft order is not lodged by then the parties must apply for a further hearing to be set with a time estimate of an hour, such application by letter, to be accompanied by dates of availability over the following three weeks, to be lodged by 4pm on Monday 20 August 2018. In the meantime, I adjourn the question of all matters arising from this judgment (costs and all consequentials, including form of order and any issue of permission to appeal). I extend the time for filing a notice of appeal until 21 days after an order giving effect to this judgment is made. In the event that no draft order giving effect to this judgment can be agreed prior to the hand down, I direct that counsel should lodge a draft order giving effect to the directions in this paragraph by 4pm on Monday 13 August 2018.
Copyright Policy |
Donate to BAILII