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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Gwinnutt v George & Anor [2018] EWHC 2169 (Ch) (14 August 2018) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2018/2169.html Cite as: [2018] WLR(D) 544, [2019] Ch 52, [2018] EWHC 2169 (Ch), [2018] 3 WLR 1323 |
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BUSINESS AND PROPERTY COURTS IN LEEDS
BUSINESS LIST (ChD)
1 Oxford Row Leeds LS1 3BY |
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B e f o r e :
(SITTING AS A JUDGE OF THE HIGH COURT)
____________________
SIMON MATTHEW GWINNUTT (as the First Defendant's Trustee in Bankruptcy) |
Claimant |
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- and - |
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(1) NICHOLAS FRANK RAYMOND GEORGE (2) MICHAEL RYAN |
Defendants |
____________________
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
____________________
Crown Copyright ©
His Honour Judge Davis-White QC :
The Facts
The Pleadings and the preliminary issue
"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
Prior to 1991
"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 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."
"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 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"
"..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."
"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".
"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."
"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!"
" "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).
"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."
"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?"
"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.
"…..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).
"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
"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."
"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"
"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
"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")).
"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 [1964] 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 [1969] 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."
(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.
"…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."
"cumbersome and indirect means of securing the payment of outstanding fees". .
(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.
(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".
2013 onwards and today
(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.
(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.
Fees: realisable?
HMRC: view on death
Vesting of property in bankruptcy
"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."
"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."
"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.
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.
"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?
"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 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."
Are non-contractual barristers' fees "property", prior to any payment being 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 [2000] 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 [1990] 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 [1916] 1 AC 428 at 436
As put by Mummery LJ in Patel v Jones [2001] 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
(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 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 [1985] 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"
"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?
"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."
"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?
" 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)
"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."
Conclusion