Goodnews word on vintage broken car license plates

On 17 June 2015, the Supreme Court, made a landmark ruling [1]. It was held that a trustee in bankruptcy would not ordinarily be personally liable for adverse costs awarded against the bankrupt prior to the commencement of the bankruptcy.

Background 

A trustee may adopt or continue an action already started by, or against, the bankrupt although he is not obliged to do so. Generally proceedings will become stayed if not pursued by the trustee. If the trustee decides to bring or adopt any action, he will be personally liable for any costs awarded to the opposing party.

The Court of Appeal [2] considered the position where a successful claimant was awarded costs against individuals who later became bankrupt. It was considered that the trustee had adopted the proceedings and in this case the Court of Appeal extended the personal liability of the trustee to cover the claimant’s costs incurred by the claimants prior to the adoption by the trustee. The court indicated that a trustee could not adopt one part of an action and leave the rest.

Facts 

Costs of £470,000 were awarded against Mr Gabriel after he won nominal damages for negligence from his solicitors (BPE) in proceedings that went to the Court of Appeal. Mr Gabriel then petitioned for his own bankruptcy.

Mr Gabriel’s trustee in bankruptcy considered an appeal. However, given the risks of becoming personally liable to pay the costs in the event of an appeal failing, the trustee asked the court to rule whether he would be liable for the costs awarded against Mr Gabriel prior to the bankruptcy if he lost the appeal.

The following questions of law were considered:

  1. Whether the court had jurisdiction to decide the issue of costs prior to an appeal being filed; and
  2. Whether a trustee in bankruptcy considering an appeal should be personally liable for adverse costs awarded against the bankrupt prior to the commencement of the bankruptcy.

Ruling 

The Court held that it did have jurisdiction to consider the application [3]. The Court considered that whilst it was not usual for the court to decide an issue relating to costs before the hearing of the substantive appeal, the ruling was necessary to allow the trustee to decide whether to proceed with the appeal.

The decision in this instance [2] was overruled. The Court held that it could exercise discretion in deciding whether a trustee should become liable to pay the other side’s costs incurred at a time when he was not a party to the action (i.e. those costs would not automatically become payable by the trustee on adoption). The Court also came to the conclusion that the trial and successive appeals were each separate legal proceedings for the purposes of costs. In this particular case, it was held that, Mr Gabriel should be responsible for the costs of the initial trial and appeal and those costs should be proved in the bankruptcy. To order otherwise would give BPE priority over the claims of other creditors.

Consequently the trustee would not be liable for the £470,000 costs should his appeal fail. 

Significance

The Court now has wider discretion when considering whether a trustee should be liable for costs incurred prior to his appointment as trustee.

The practical effect of this decision is that it is likely to increase the number of cases adopted by trustees due to the potentially lower risk of liability, which is positive news for trustees in bankruptcy.

This post was edited by Catherine Kilroy. For more information, email blogs@gateleyplc.com.

[1] BPE Solicitors and another v Gabriel [2015] UKSC39

[2] Borneman v Wilson (1884) 28 Ch D 53

[3] Under section 40(5) of the Constitutional Reform Act 2005 and Rule 46 of the Supreme Court Rules 2009


Leave a Reply

Your email address will not be published. Required fields are marked *

twenty − six =

This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.