Salliss v Hunt
| Jurisdiction | England & Wales |
| Judge | Sir Terence Etherton |
| Judgment Date | 10 February 2014 |
| Neutral Citation | [2014] EWHC 229 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH/2013/210 |
| Date | 10 February 2014 |
[2014] EWHC 229 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BANKRUPTCY COURT
IN THE MATTER OF MICHAEL DAVID SALLISS
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
The Chancellor of the High Court
Sir Terence Etherton
Case No: CH/2013/210
Mr Matthew Collings QC (instructed by Shakespeares) for the Applicant
Mr Tony Beswetherick (instructed by Dentons UK MEA Llp) for the Respondent
Hearing dates: 21 January 2014
The Chancellor ( Sir Terence Etherton):
This is a regrettable case of litigation over the fees and expenses claimed by a trustee in bankruptcy where the bankruptcy was discharged long ago and the few creditors have either been paid or decided not to prove and the realisable property is very limited. Substantial amounts have been incurred in litigating about the amount of the trustee's fees and expenses, and the fate of an annulment application which is related to that dispute. This could and should have been avoided.
This is an appeal from the order of Deputy Registrar Garwood dated 25 March 2013 by which, among other things, (1) he dismissed the application of the appellant, Michael David Salliss ("Mr Salliss"), for the annulment of his bankruptcy ("the Annulment Application"), (2) he granted the application of the respondent, Stephen John Hunt ("Mr Hunt"), who is Mr Salliss' trustee in bankruptcy, that he and Martin Freeman ("Mr Freeman"), Mr Hunt's predecessor as trustee, be remunerated by reference to the time properly given by them and their staff in attending to matters arising in the bankruptcy ("the Remuneration Application"), and (3) he granted Mr Hunt's application ("the Pensions Application") for an order that Mr Salliss sign relevant documents and for other directions to enable Mr Hunt to deal with and realise Mr Salliss' interest in two pension policies, namely Salliss Construction Limited (1976) Executive Retirement Pension Plan (policy no. Z8123A/003) and Salliss Construction Limited (1978) Executive Benefit Plan (policy no. Z3565A) ("the Pension Plans").
The statutory provisions and rules
There are set out in the Appendix to this judgment the most significant of the provisions of the Insolvency Act 1986 ("the Act") and the Insolvency Rules 1986 ("the Rules") to which I refer below. Where appropriate, the relevant Rules are those which were in force at the time of Mr Salliss' bankruptcy.
Background
A bankruptcy order was made against Mr Salliss on 20 December 1993 on the creditor's petition of Barclays Bank plc ("Barclays"). Barclays' debt arose from liabilities incurred by Mr Salliss as the guarantor of two companies controlled by him. The Official Receiver recorded an estimated debt to Barclays of £2,432,166. Barclays has never submitted a proof of debt. Aside from Barclays there were claims from four other unsecured creditors amounting in aggregate to approximately £14,000. They each submitted a proof of debt.
On 27 February 1996 Mr Freeman was appointed Mr Salliss' bankruptcy trustee with effect from 1 March 1996. The first meeting of creditors was held on 20 May 1996. The meeting was chaired by Mr Hunt, who was at that time managing the bankruptcy on behalf of Mr Freeman. At the meeting the creditors agreed the trustee's fees "at the First Two Thousand Pounds realised and thereafter laid down by the Official Receiver's Scale of Fees". In other words, after the first £2,000 of realisations, the fee was fixed on the basis of a percentage of the assets realised and distributed.
The only assets of the bankruptcy available to meet the claims of creditors were the Pension Plans. There was, however, no transfer to Mr Freeman of them or any benefit under them. Pension Plans could not be drawn down until Mr Salliss reached the age of 60 in May 2002. Prior to then Mr Sallis was automatically discharged from bankruptcy in December 1996. The creditors therefore remained unpaid at that time.
Mr Salliss subsequently deferred taking his benefits under the Pension Plans until he reached 65 years of age in May 2007.
Mr Hunt replaced Mr Freeman as Mr Salliss' bankruptcy trustee by an order made on 9 November 2007.
Having reached 65 Mr Salliss wished to take the benefits under the Pension Plans. In order to do so it was necessary to have his bankruptcy annulled. Mr Salliss paid the four creditors who had submitted proofs of debt (one of them being paid less than the amount of the proof). They have all indicated that there is nothing further due to them. He did not pay Barclays.
Mr Hunt sent an email to Steven Hopkins of Barclays on 4 February 2011, in which he said:
"Mr Sallis has approached me to annul his bankruptcy to purchase his pension rights in the estate. He has cleared the other creditors but he has not provided me with evidence that he has settled any Barclays claims and Barclays never submitted a proof of debt in the bankruptcy for the guarantee debt … I attach all the documents that I hold in relation to the claim. I need to establish who the bankrupt might speak to at Barclays to come to an arrangement or to confirm that you have already settled with him. If a deal can be struck then I can agree to his request."
On 19 April 2011 Chris Tracey, the assistant manager of the corporate insolvency department of Barclays, wrote to Mr Hunt as follows:
"Further to your previous discussions with Steve Hopkins relating to the above customer, I can confirm that the matter has been referred to the Bank's Legal team and the Head of Corporate Insolvency. Notwithstanding that the Bank has a guarantee from Mr Salliss in respect of his former companies' liabilities to the Bank it has been decided that due to the age of the case Barclays will not be making a claim in the bankruptcy estate."
On 27 April 2011 Mr Hunt wrote to Mr Salliss a letter in which he said:
"[the Bank] have now confirmed that they will withdraw their right to claim in the bankruptcy. As a result of this I am now satisfied that all the debts of the bankruptcy have been dealt with …"
The applications
On 3 December 2011 Mr Salliss issued the Annulment Application in the Croydon County Court for the following relief:
"1. The court annul the bankruptcy order made against Michael David Salliss on 20/12/1993 under section 282(1)(b) of the Insolvency Act 1986 [on the ground that] that the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured to the satisfaction of the court.
2. Determine the reasonable costs of the Trustee in Bankruptcy and associated expenses to conclude this process. To date these costs have been unreasonably inflated including an error in the sum of £51,016.20 and additional work required to rectify the situation. No break-down of these costs has been provided. The above has resulted in unnecessary delay and unjustified increases in costs preventing a desired commercial settlement being reached."
The return date was 27 March 2012.
Mr Hunt filed in court a report dated 6 March 2012 ("the Trustee Report") as required by r.6.207 where an annulment application is made under s.282(1)(b). The Trustee Report stated, among other things, that the estimated tax free lump sums under the Pension Plans amounted in total to £56,492.30. It also stated that trustee time costs incurred amounted to £39,259.18 excluding VAT. Mr Hunt said in the Trustee Report that he considered it appropriate to base his fees on time costs, for the purpose of annulment, since there had been no realisations to date and that he did not consider it appropriate for him to incur the cost of convening a meeting of creditors for the purpose of resolving that he be remunerated on that basis rather than on the percentage basis agreed at the meeting on 20 May 1996. He mentioned that the fees of a pension specialist amounting to £4,500 had been incurred as well as legal fees and expenses totalling £19,088.10. There were other disbursements totalling £1,080.40. He said that the trustee's fees and expenses, agent's fees and legal fees and expenses amounting in total to £63,672.09 (including VAT) remained unpaid. The Trustee Report stated that Mr Salliss had made three offers in full and final settlement of the outstanding fees, the largest being £25,000, but they were rejected as too low and Mr Hunt therefore intended to realise his interest in the Pension Plans in order to settle the outstanding fees and expenses.
On 13 March 2012 Mr Hunt issued the Pensions Application, also returnable on 27 March 2012, for an order pursuant to s.363(2) that Mr Salliss be ordered to sign the relevant forms in order that Mr Hunt could deal with and realise Mr Hunt's interest in the Pensions Plans and such further or other relief and directions as the court might consider appropriate. Mr Hunt filed a witness statement dated 13 March 2012 mostly dealing with the work done by him and Mr Freeman since their appointment as Mr Salliss' bankruptcy trustee, their remuneration on a time basis and the expenses incurred by them.
Mr Salliss made a witness statement dated 21 March 2012. I only need to refer to the following parts for the purpose of this judgment. He acknowledged that Mr Hunt was entitled to a reasonable fee for work done but said that the fees claimed were "distorted and … racked up". He said that the lump sum payable under the Pension Plans was £56,000. He described the negotiations in respect of the amount and payment of fees and expenses of the bankruptcy.
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