Re Brian Herbert Cooke; Cooke v Dunbar Plc

Bankruptcy – appeals – personal costs orders – IR r. 7.51A and 12.2

Following a bankrupt’s unsuccessful appeal against the making of a bankruptcy order, the court was required to consider the costs order to be made. Relying on IR r. 12.2(1), which states that all fees, costs and charges incurred in the course of a bankruptcy are to be regarded as expenses of the bankruptcy, the bankrupt argued that the costs should be treated as a cost and expense of the bankruptcy or, the alternative, as a provable debt. The successful respondent, the petitioning creditor, contended that the bankrupt should be ordered to pay the costs personally, relying on IR r. 7.51A and Parts 44 and 47 of the CPR.

The Judge concluded that he had jurisdiction to order the bankrupt to pay the costs personally. The starting point for the proper interpretation of IR r. 12.2 was IR r. 7.51A, which applies to insolvency proceedings the general rules about costs contained in Part 44 of the CPR. This includes the principle that the unsuccessful party will pay the successful party’s costs. The Judge held that IR r. 12.2 does not provide an exhaustive statement as to how costs are to be treated and, in particular, does not provide that recovery in accordance with that Rule shall be the only means of recovery.

The Judge also considered that there were sound policy reasons his conclusion. In particular, the risk of an adverse costs order would deter unmeritorious applications and would serve to protect the bankruptcy estate. The Judge rejected the argument that the costs are a provable debt because the effect of section 328 of the Insolvency Act 1986 and IR r. 6.224 would be to deal with such costs twice and differently.

This is the first reported case to deal with the costs of an appeal against a bankruptcy order and a clear deterrent to future unmeritorious appeals. Nevertheless, it remains to be seen whether in the usual case a personal costs order against a bankrupt in practice offers any greater prospect of recovery than being able to prove in the bankruptcy.