Trustee’s costs not recoupable when the Court has overturned the Trustee’s decision
[Patley Wood Farm LLP and others v Kicks and another  EWHC 3118 (Ch),]
The Court had previously upheld a challenge to a decision of the Trustee in Bankruptcy under S303 Insolvency Act 1986. The Court reflected on its earlier decision and the comments it had made in arriving at the decision, being that the decision of the Trustee was absurd and that the perversity test had been met. As a result, the Trustee was barred from recouping those costs, and his own costs of the application, from the Bankruptcy estate. The Court was also asked to grant leave to appeal and, whilst the decision to refuse to grant leave to appeal was made on the usual basis, the Court commented that the Trustee is an officer of the Court and has been directed to do something by the Court, and so the Court was somewhat surprised that the Trustee felt it appropriate to seek leave to appeal that decision.
Written by Mark Sands, Head of Insolvency at Apex Litigation Finance Limited.
Patley Wood Farm LLP and others v Kicks and another  EWHC 3118 (Ch)
The Courts remain hesitant to interfere in the commercial decisions of Trustees in Bankruptcy (and other insolvency office holders). When a challenge to a decision by a Trustee is upheld the Court will have to have decided that the decision was perverse. When there is such a finding, the Court is very likely to award costs against the Trustee and to decide that the Trustee should not be allowed to recoup those costs, and their own costs of the challenge, from the bankruptcy estate. That risk will be mitigated if the Trustee has remained neutral in the application, which the Court held was not the position in this case.
When a challenge to a decision is mooted the IP should review their decision, consider whether it should be reversed and if the decision stands set out to the party threatening the challenge how and why the decision has been arrived at. The IP should also ensure that during both those exchanges and any subsequent challenge they remain neutral. Seeking to avoid litigation can be in conflict with the Trustee’s role which is to realise the assets and when the decision is made to avoid litigation that may undermine any attempt by the Trustee to take a neutral stance in such applications.
Two bankrupts had been involved in long running complex litigation with numerous judgements and appeals relating to two properties. The Trustee was not a party to ongoing possession proceedings regarding one of the properties and chose not to seek to be joined in. Two key creditors and a third applicant, offered to indemnify the Trustee and to pay a monthly licence to occupy the property until a purported sale had been resolved. When the Trustee continued to refuse to be joined in they successfully challenged the Trustee’s decision despite there being no equity in the property to benefit the bankruptcy estate, due to a charging order in favour of one of those creditors. The Court was then asked to consider an application by the Trustee for leave to appeal and, if that failed, to determine what costs orders were to be made, and in so far as any costs orders were made against the Trustee, to determine whether the Trustee could recoup those costs, and his own costs of the application, from the bankruptcy estate.
The Court decided not to grant leave to appeal. Four grounds were considered and rejected – there is no authority that the Trustee’s costs (which it was argued would leave no benefit to the creditors of the proposed action) are capable of denying a creditor standing to challenge their decision, there is no authority that the Court may not take into account events since the application was made (that dealt with two points in the application for leave to appeal) and the finding of perversity is based on findings of fact and there is no real prospect of the Court of Appeal interfering with the Judge’s assessment of the evidence and facts. The Court also commented that it was incongruous of the respondents to seek leave to appeal – they are trustees in bankruptcy, officers of the Court and the Court has directed them to do something, so why do they not simply do as they have been directed?
The Court decided that the applicants had been successful, despite the Court having decided to amend the Order sought in one respect. The Court therefore made costs orders, on a summary assessment basis, against the Trustee.
The Court had, in its earlier judgement, made a finding that the Trustee’s decision not to become a party to the litigation was absurd and so the perversity test in S303 had been met. The Court also found that the Trustee had not been neutral in the application and had resisted the application tooth and nail (but had sought to be neutral as between the creditors and the bankrupt, where they should not have been neutral). Given the findings of the Court in the substantive hearing, the Court ordered that the Trustee be barred from recouping the costs orders, and his own costs of the application, from the bankruptcy estate.
- Court: Chancery Division, Bristol District Registry
- Judge: HHJ Paul Matthews (sitting as a High Court judge)
- Date of judgment: 06/12/2022
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