Trustees not entitled to recoup costs

Patley Wood Farm LLP & Ors v Kicks & Anor [2022] EWHC 3118 (Ch)Can trustees in bankruptcy recoup their costs if they were found to have acted perversely?

Overview

This case addresses the entitlement of trustees in bankruptcy to recoup costs from the bankrupt estates in circumstances where they were held to have acted perversely.

Background

On 25 November, the High Court released its reasons on an application by creditors of the bankrupts challenging the decision of the trustees in bankruptcy not to intervene in ongoing proceedings before the Court of Appeal regarding the bankrupts’ interest in a cottage (the “Eviction Proceedings”).

The Court granted the application, finding that the trustees’ decision not to intervene in the Eviction Proceedings, even if initially justified (which the Court doubted), was not justified by the time of the hearing. The Court emphasised that there was potential for significant benefits to the bankrupt estates if the trustees had intervened. The Court further ruled that, by the time of the hearing, the trustees’ decision not to intervene had become absurd, to which no reasonable trustee could have come and, in that sense, was perverse. The decision can be found HERE.

The Court then invited the parties to make written submissions on costs.

The Court’s Decision

The Court released its judgment on costs on 6 December. In it, the Court considered whether costs should be awarded against the trustees and, if so, whether the trustees should be able to recoup those costs from the bankrupt estates.

With respect to the first issue, the Court found that there was no reason to depart from the general rule that the unsuccessful party (the respondent trustees) should pay the costs of the successful party (the applicant creditors). Ultimately, the Court assessed the applicants’ costs at £20,000 plus applicable VAT of £500 on the standard basis.

On the issue of whether the trustees should be able to recoup those costs from the bankrupt estates, the Court noted that it previously held that: (1) the trustees’ decision to continue to resist intervention in the Cottage Eviction Proceedings was perverse, in the sense that no reasonable trustee in bankruptcy would have done so; (2) in so acting, the trustees did not act in the interests of the creditors but instead sought to be neutral as between the creditors and the bankrupts. In addition, the Court noted its implied criticism of the trustees “for lacking the ordinary robustness needed for officeholders”.

The Court also took into account the fact that creditors representing 60% of the total debts were among the applicants, and to allow the trustees to recoup their costs would mean the position of those creditors would be made significantly worse, even though they succeeded, which did not seem fair to the Court. On that basis, the Court ruled that this was “an obvious case where the respondent trustees should not be allowed to recoup their costs from the estates”.

The Court concluded its decision by refusing the trustees’ request for permission to appeal the underlying decision, finding that there was no real prospect of success on any of the grounds advanced by the trustees.

Judge: HHJ Paul Matthews

Counsel: William Day of Three Verulam Buildings Barristers (instructed by Moore Barlow LLP and Stewarts Law LLP) for the Applicants; Rowena Page of Maitland Chambers (instructed by Gateley Legal) for the Respondents; Alexander Learmonth KC of New Square Chambers (instructed by Direct Access) for Mrs Nihal Brake and Mr Andrew Brake