Sheida Oraki and Another v Dean & Dean (A Firm)and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lord Justice Davis,Lady Justice Arden |
| Judgment Date | 18 December 2013 |
| Neutral Citation | [2013] EWCA Civ 1629 |
| Docket Number | Case No: A3/2013/0921 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 December 2013 |
In the Matter of Shieda Oraki
And in the Matter of Ardeshir Oraki
And in the Matter of the Insolvency Act 1986
[2013] EWCA Civ 1629
Lady Justice Arden
Lord Justice Davis
and
Lord Justice Floyd
Case No: A3/2013/0921
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
Mr Robert Ham QC sitting as a Deputy Judge
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Crystal and Katharine Stock (instructed by Hines & Co) for the appellants
David Nicholls (instructed by Locke Lord (UK) LLP) for the secondrespondent
The first respondent did not appear and was not represented
Approved by the Court
Introduction and background
The appellants, Dr and Mr Oraki ("the Orakis"), appeal an order of Mr Robert Ham QC, sitting as a deputy judge of the Chancery Division, dated 21 January 2013. Amongst other matters, Mr Ham had heard the Orakis' appeal from the decision of Deputy Registrar Cheryl Jones dated 9 April 2010 refusing to annul their bankruptcies on the ground set out in section 282(1)(a) of the Insolvency Act 1986 i.e. that the bankruptcy order should not have been made. Mr Ham permitted fresh evidence to be adduced, and decided in principle to allow the appeal and to annul the bankruptcies, subject to hearing the parties on the appropriate terms. The order makes the eventual annulment of the bankruptcies conditional on the payment by the Orakis of the costs of the second respondent, their trustee in bankruptcy. The present appeal concerns only the costs of the trustee in bankruptcy. Because of the length and complexity of the bankruptcy proceedings, those costs are now very substantial.
The conditional annulment of the Orakis' bankruptcies came at the end of a very long road, stretching back more than 10 years. In 2002 they had instructed the first respondent, Dean & Dean, to act for them as solicitors. The solicitor in the firm who dealt with their case was Dr Sharokh Mireshkandari. The Orakis were not satisfied with the service they received from Dean & Dean and Dr Mireshkandari and so declined to pay their unitemised bill. In due course they made complaints to the Law Society about the service they had received. On 16 February 2004 Dean & Dean obtained judgment against the Orakis for "damages to be assessed", for a payment on account of £5000 and costs of nearly £4000. By that judgment, Dean & Dean were directed to file a fully itemised bill, but they have never done so. Attempts by the Orakis to appeal the judgment were unsuccessful. In October 2004 Dean & Dean issued a statutory demand for some £20,000, based on the original judgment for the payment on account and further costs which had by then been ordered, and served it on the Orakis. Quite improperly, as the judge found, Dean & Dean refused to accept full payment unless the Orakis also withdrew their complaints to the Law Society about Dean & Dean's conduct. On 1 September 2005 and 10 January 2006 respectively, Mr Oraki and Dr Oraki were adjudicated bankrupt on the petition of Dean & Dean. They were both discharged about one year later.
The Orakis' assets have, it is said, always been more than sufficient to meet all possible claims against them. Their reluctance to pay Dean & Dean was based on principle, not inability. Unfortunately, the principle has taken a long time to be vindicated.
Despite the discharge of their bankruptcies, on 19 April 2007 Timothy James Bramston of Kingston Smith was appointed as the Orakis' trustee in bankruptcy. The current trustee, the second respondent, Mr Defty, is his successor in that office.
On 19 August 2008 there was a hearing before Mr Registrar Nicholls of an application by the trustee for possession of four properties belonging to the Orakis. According to the evidence at that date, the amount required to meet the debts and expenses in full was estimated at £163,000. There was, at that stage, some £150,000 held in the Insolvency Service Account. According to the trustee's representative, the trustee had previously been told that those sums were subject to a trust, but he had been told on that day that the beneficiaries were willing to consent to the sums being used to pay the debts and expenses. Mr Registrar Nicholls impressed on the trustee the need to exercise caution in allowing the costs to escalate by selling the four properties if it turned out that he needed only £163,000 to discharge all the debts and expenses, and bearing in mind also that the trustee had available to him the monies in the Insolvency Service Account.
However, Mr Nicholls of counsel, who appeared for the trustee, told us at the hearing of the appeal that disputes continued well after the hearing in August 2008 about the availability of the money in the Insolvency Service Account to discharge the debts and expenses of the bankruptcies.
The Orakis tried on a number of occasions to annul their bankruptcies and were unsuccessful. One such application, based on allegations of misconduct against Dr Mireshkandari, came before Deputy Registrar Cheryl Jones on 9 April 2010. She dismissed the application on the basis that it was premature. Although there were disciplinary proceedings pending before the Law Society against Dr Mireshkandari, they had not yet reached a conclusion.
An application for permission to appeal eventually came before Peter Smith J in the Chancery Division in June 2011. He noticed that, despite the numerous hearings which had occurred since the original judgment was pronounced, no one had appeared to question the regularity of the original judgment. It was, on the face of it, odd that a claim by solicitors for their fees should result in a judgment for damages to be assessed and a payment on account. He pointed out that there had been no properly itemised bill either before the judgment was entered or subsequently, pursuant to the direction in the judgment.
On 21 June 2012 the Solicitors Disciplinary Tribunal ordered that Dr Mireshkandari be struck off the roll of solicitors. Amongst the findings of serious misconduct made against him were dishonest representations as to his professional status, academic qualifications and experience on the basis of which he had gained admission to the roll. He had also not disclosed that he had been convicted of fraud in 1993 before he applied to the Law Society. He was ordered to pay costs of £1.4 million. Mr Ham QC admitted further evidence dealing with these findings on the appeal to him.
The judgment
The judge was prepared in principle to allow the appeal against Deputy Registrar Cheryl Jones' decision to refuse to annul the bankruptcies. He did so essentially on the ground that the fraud, collusion or miscarriage of justice which had occurred allowed the bankruptcy court to go behind the original judgment on which the bankruptcies were based. It was now plain, and open to the court to hold, that the debt did not properly exist. Dr Mireshkandari was not a properly qualified solicitor and was not entitled to charge the fees. It followed that the bankruptcy order should not have been made.
The judge addressed the issue of costs at the end of his judgment, although he received further submissions before making his order. He correctly identified that there are four categories of costs to be considered once a bankruptcy has been annulled, namely the costs of the original petition, the costs of the annulment application, the Official Receiver's costs and the trustee's costs and expenses. He accepted the trustee's submission based on London Borough of Redbridge v Mustafa [2010] EWHC 1105 (Ch) that the question of who should pay these costs was to be answered by means of a conventional exercise of discretion and not by applying any presumptions or starting points. He was not prepared to make an order directly against Dean & Dean without hearing from them. He recognised that it was unlikely that it would be possible to recover anything from them in any event.
Turning to the trustee's costs he noted that there were several disputes between the Orakis and the trustee in relation to the trustee's conduct. He then said this:
"Those matters are not before me and I can decide nothing about them. In my judgment they are not relevant to the question of costs".
Accordingly the judge decided that, without prejudice to any application against Dean & Dean and to any dispute about the trustee's remuneration and conduct raised by the Orakis, the costs of the trustee (and the Official Receiver) should be paid by the Orakis. He said that:
"So far as the Official Receiver and the trustee are concerned, the bankruptcy orders were regularly made, they have on the face of it no personal interest in the matter and there is no ground to mulct them of their costs unless and until the Orakis have established that they have acted improperly."
It is therefore clear that the judge was not persuaded at that stage that the trustee had acted in any way improperly.
The judge's order
The judge's order was arrived at after detailed further submissions of the parties. By paragraph 4 of his order, rather than annulling the bankruptcies forthwith, the judge adjourned the appeal from the Deputy Registrar with liberty to restore within 7 days of full compliance with the conditions in paragraph 8 of the order and provided that there were no outstanding...
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