Bankruptcy – costs – trustee in bankruptcy – appeals – liability of trustee adopting proceedings
The claimant, Mr Gabriel, brought professional negligence proceedings against the defendant solicitors. He succeeded at first instance, but failed before the Court of Appeal and was ordered to pay the costs of proceedings up to that point. Mr Gabriel applied for permission to appeal to the Supreme Court, but was adjudged bankrupt on his own petition shortly thereafter.
The Supreme Court granted permission to appeal on the day his trustee in bankruptcy was appointed. The trustee’s decision whether to adopt that appeal turned on whether he would be at risk of personal liability for the costs below in the event that the final appeal did not succeed (it was not in dispute that, in accordance with usual principles, the trustee would be personally at risk for the costs of the final appeal). The trustee sought Directions from the Supreme Court.
Lord Sumption JSC (with whom the other Justices agreed) held that the trustee could not be liable for the costs of previous proceedings. In so doing, he overruled the Court of Appeal’s decision in Borneman v Wilson (1884) 28 Ch D 53 that a trustee in bankruptcy must adopt litigation either in its entirety or not at all.
He distinguished three cases:
(i) (Obiter) Where a trustee adopts an action mid-proceedings (e.g. before trial), it will be a matter for the court’s discretion whether the trustee should be liable for costs incurred prior to the adoption.
(ii) (The ratio) Where a trustee adopts an appeal and the bankrupt has been subject to costs orders below, he is not taken to adopt the proceedings below and cannot be made liable for the associated costs.
(iii) (Obiter) Where a trustee adopts an appeal and the bankrupt has not been subject to costs orders below, Lord Sumption thought that the same result would obtain, but noted the complication that a reversal of the lower decision would necessitate the making of a provable non-party order against the bankrupt for the costs below.
The decision should embolden trustees and creditors to pursue meritorious appeals without risking the entire estate (and personal liability for the excess). While the position is not identical, it is considered the same principles would to apply to the making of (non-party) costs orders against liquidators.
