BPE Solicitors and another v Gabriel
| Jurisdiction | England & Wales |
| Judge | Lord Toulson,Lord Carnwath,Lord Hodge,Lord Mance,Lord Sumption |
| Judgment Date | 17 June 2015 |
| Neutral Citation | [2015] UKSC 39 |
| Date | 17 June 2015 |
| Court | Supreme Court |
[2015] UKSC 39
Lord Mance
Lord Sumption
Lord Carnwath
Lord Toulson
Lord Hodge
Appellant
Adam Chichester-Clark (Instructed by Ross & Co Solicitors LLP)
Respondents
Roger Stewart QC
Scott Allen (Instructed by Beale & Company)
(with whom Lord Mance, Lord Carnwath, Lord Toulson and Lord Hodge agree)
This is an application for directions in a pending appeal for which permission was granted by this court on 25 March 2014.
The appeal arises out of a transaction by which Mr Richard Gabriel, the claimant in the proceedings below, lent £200,000 to a company called Whiteshore Associates Ltd. The courts below have found that his solicitors, BPE Solicitors, were negligent in their handling of the transaction. For present purposes, all that need be said about the issues is that they relate mainly to damages. The trial judge awarded the full amount that Mr Gabriel would have recovered under the facility agreement if Whiteshore had been good for the money. The Court of Appeal held that this loss was not within the scope of the solicitors' duty. They accordingly reduced the award to a nominal £2. They also held, in the alternative, that even if substantive damages had been awarded, they would have been reduced by 75% on account of Mr Gabriel's contributory negligence.
The trial judge awarded the costs of the claim up to the conclusion of the trial to Mr Gabriel. The Court of Appeal set aside the judge's costs order and ordered Mr Gabriel to pay BPE's costs of the proceedings up to and including the appeal. The costs claimed by BPE under this head amount to £469,170.60. The Court of Appeal's order was pronounced on 22 November 2013. On 5 March 2014, Mr Gabriel was made bankrupt on his own petition by order of the Gloucester and Cheltenham County Court. On 25 March 2014, Mr Hughes-Holland was appointed as his trustee in bankruptcy. As a result, the right to pursue the appeal vests in the trustee. Mr Hughes-Holland has not yet decided whether to pursue it. The reason is the uncertainty, on the current state of the authorities, about the extent of his potential liability for costs if the appeal fails.
The ordinary rule is that a trustee in bankruptcy is treated as party to any legal proceedings which he commences or adopts, and is personally liable for any costs which may be awarded to the other side, subject to a right of indemnity against the insolvent estate to the full extent of the assets. Accordingly, Mr Hughes-Holland accepts that he is personally at risk for BPE's costs of the appeal to the Supreme Court. But he contends that he is not personally at risk by virtue of having adopted the appeal as trustee in bankruptcy for BPE's costs of the proceedings below in the event that the Court of Appeal's order against Mr Gabriel should be affirmed. The italicised words are important. The present application is not concerned with costs that may be awarded against the trustee on any other ground. I shall return to this point below.
The answer to this question has significant implications for the trustee's decision whether to adopt the current appeal. The evidence is that if the appeal is not pursued, unsecured creditors are likely to receive a modest dividend of between about 3p and 5p in the pound. If it is pursued and succeeds, that figure is expected to rise to between 23p and 25p in the pound. But if it is pursued and fails, the impact on creditors will depend on whether in that event the trustee would be personally liable only for the costs of the appeal, or for the costs of the proceedings below as well. If the trustee's liability for BPE's costs is limited to the costs of the appeal to this court, the dividend available to creditors will be reduced, subject to ATE insurance. But if the trustee's liability for costs extends to the costs below as well, they will exceed the entire assets of the estate. The creditors will receive no dividend and the trustee will be personally exposed for the balance subject to any indemnity which he is able to obtain from the creditors. It is far from clear that such an indemnity will be forthcoming. The largest creditor, accounting for about 60% by value of claims, is the Nautilus Trust, a discretionary settlement in which Mr Gabriel has a life interest. The evidence is that it has few assets other than debts owed to it by Mr Gabriel. In these circumstances, we were not surprised to learn from Mr Chichester-Clark, for the trustee, that if he is potentially liable for BPE's costs below, the appeal is unlikely to be pursued.
Mr Stewart QC, who appears for BPE, raises a preliminary issue about this court's jurisdiction to deal with this application. He submits that we have no jurisdiction to deal with the incidence of costs except (i) as a condition imposed at the time of granting permission to appeal, or (ii) as part of the ultimate disposition of the appeal.
This point is in my view misconceived. Section 40(5) of the Constitutional Reform Act 2005 confers on this court the power "to determine any question necessary to be determined for the purposes of doing justice in an appeal to it under any enactment". The Supreme Court Rules 2009 (SI 2009/1603 (L17)) provide:
"Orders for costs
46.—(1) The court may make such orders as it considers just in respect of the costs of any appeal, application for permission to appeal, or other application to or proceeding before the court.
(2) The court's powers to make orders for costs may be exercised either at the final determination of an appeal or application for permission to appeal or in the course of the proceedings."
The question which the trustee wishes to have decided is not among the substantive issues on the appeal, but it is a question which will have to be decided at some stage of the proceedings if the court is to perform its duty to determine the incidence of costs. If an order for costs may be made at any stage of the proceedings, it is clear that a decision on a question of principle arising in relation to costs may be made at any stage.
This court would not normally decide an issue going to costs before the hearing of the substantive appeal. But that is because it is not normally just or even practical to do so. In the present case there is every reason for ruling on the trustee's potential liability now, and no reason for deferring it until after judgment. In the first place, the ruling which is presently sought is necessary in order to enable the trustee and the creditors to make an informed decision about whether to proceed with the appeal. A decision on the point after judgment will be of no use to them for that purpose. There is no interest of justice and no public interest which would be served by requiring the trustee and the creditors to make their decision in ignorance of the true position. Secondly, the trustee's application is, as I have pointed out, limited to the question whether a liability for BPE's costs below would follow as a matter of law from his adoption of the appeal. There are no discretionary considerations involved. In particular, nothing that we decide now (or indeed after judgment) will affect any issue which may arise about the propriety of any decision of the trustee to pursue the appeal, which is a matter for the High Court. This court is therefore in as good a position to deal with the matter now as it would be at any other time.
A trustee in bankruptcy, unlike the liquidator of a company, is personally a party to legal proceedings which he has adopted. The reason is that the assets of the bankrupt at the time of the commencement of the bankruptcy vest in him personally, and the bankrupt has no further interest in them. The rule, which dates back to the beginning of bankruptcy jurisdiction in England, is currently embodied in section 306 of the Insolvency Act 1986. The trustee's position differs in this respect from that of a liquidator, for although a liquidator is a trustee for the proper administration and distribution of the estate, the assets remain vested in...
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