17 June 2015Print This Post

Supreme Court: Trustee in bankruptcy not personally liable for costs of previous appeals

Supreme Court

Lord Sumption: costs ‘could exceed entire assets of estate’

A trustee in bankruptcy considering an appeal to the Supreme Court can go ahead without taking on the risk of having to pay the costs of previous proceedings in the lower courts, five justices have unanimously ruled.

Giving the leading judgment, with which the four other justices agreed, Lord Sumption said that if the trustee lost, and his liability extended to the costs of the proceedings below, it would exceed the entire assets of the estate.

The court heard that the issue arose from a professional negligence action against BPE Solicitors, which resulted in the Court of Appeal awarding a former commercial client a nominal amount of £2 in damages, but making him liable for the firm’s costs of almost £470,000.

A few months after the Court of Appeal’s ruling in 2013, the claimant, Richard Gabriel, was made bankrupt on his own petition and a trustee in bankruptcy was appointed.

Delivering judgment in BPE Solicitors and another v Gabriel [2015] UKSC 39, Lord Sumption said the trustee accepted that if he lost at the Supreme Court, he would be personally liable for BPE’s costs, but not the costs of the proceedings below.

If he decided not to appeal, Lord Sumption said Mr Gabriel’s creditors would recover only between 3p and 5p in the pound, but if he won that figure was expected to rise to between 23p and 25p.

If he lost at the Supreme Court and his liability extended to the costs of the proceedings below, Lord Sumption said Mr Gabriel would be “personally exposed for the balance subject to any indemnity which he is able to obtain from the creditors”, and it was “far from clear” whether any indemnity would be forthcoming.

Lord Sumption said the only authority that dealt directly with the question was the 1882 case of Borneman v Wilson, in which the Court of Appeal extended the personal liability of the trustee to cover costs incurred by the other side before his adoption of the proceedings.

However, Lord Sumption said the Victorian ruling was “no longer good law”, because, at the time when it was decided, costs could only be awarded against a party in the proceedings.

He said the modern jurisdiction to make an order for costs against a non-party was conferred by Section 51(3) of the Senior Courts Act 1981.

Lord Sumption said there could no longer be an “absolute rule” that trustees should be required to pay the other side’s costs, including those relating to a time when the issue was conducted by the bankrupt. Instead courts had a discretion.

“The mere fact that the trustee has adopted the appeal could not possibly justify this court in ordering the trustee to pay the costs which the Court of Appeal has ordered to be paid by Mr Gabriel.

“The trustee is entitled to adopt the appeal to this court without adopting the distinct proceedings below. Indeed, the adoption of proceedings below would be contrary to principle.”

The Supreme Court declared that if the trustee appealed to it, he would not be held personally liable for any costs up to and including the Court of Appeal’s order.

By Nick Hilborne

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