Appeal against Proof of Debt: Who Pays the Costs?

Appeal against Proof of Debt: Who Pays the Costs?

Appeal against Proof of Debt: Who Pays the Costs?

Appeal against Proof of Debt: Who Pays the Costs?

This particular matter has seen quite a few cases in recent years so I could perhaps have been forgiven for thinking that they might have gone out of fashion. It seems and not for the first time; I was wrong.

In terms of reported cases if I pick out a couple of the more recent highlights that I have previously referred to, we have had:

For those people to whom Fielding v Hunt rings some bells, I would recommend clicking on the above link to get to it. If you searched Bailii you might otherwise get somewhat distracted by the other six or so Burnden cases, that although fascinating in their own right, do not all cover the subject matter at large here.

Could there ever be a definite answer to the question of who pays the costs of appeal against a proof of debt? Naturally, it depends. Depends on what I fear you might ask?

Here we go again. It ‘depends on the facts of the case’. Having done a recent search of Bailii (see below) for that precise expression, it popped up 1059 times. It must presumably be a reasonably popular one.

There do however appear to be some neat little signposts from a recent case that has just sprouted having been handed down by Chief Insolvency and Companies Court Judge Briggs. The case that we now have available to refer to is that of Nimat Halal Food Ltd & Anor v Patel & Anor [2020] EWHC 734 (Ch) (“Nimat Halal Food”).

Cost Rules

12.47.  Without prejudice to any provision of the Act or Rules by virtue of which the official receiver or the adjudicator is not in any event to be liable for costs and expenses, where an office-holder, the adjudicator or the official receiver (where the official receiver is not acting as an office-holder) is made a party to any proceedings on the application of another party to the proceedings, the office-holder, the adjudicator or official receiver is not to be personally liable for the costs unless the court otherwise directs.

The next point to consider is the rule specific to the facts of this scenario ie. rejection of proof appeals which is Rule 14.9 of the Insolvency (England and Wales) Rules 2016:

(1) The official receiver is not personally liable for costs incurred by any person in respect of an application under rule 14.8.

(2) An office-holder other than the official receiver is not personally liable for costs incurred by any person in respect of an application under rule 14.8 unless the court orders otherwise.

The Insolvency Practitioner acting as office-holder is not personally liable unless the court orders otherwise. This appears to chime with Part 44.2(2)(b) of the Civil Procedure Rules which refers to costs following the event but:

(b) the court may make a different order.

Cost Issues

Having dealt with the plain unvarnished rules, what might it be that could cause the Court to order otherwise? This is arguably where it might be said the plot thickens. So to unscramble this, permit me to flesh the matter out a fraction further.

The judge in Nimat Halal Food started off the analysis by looking at what it required to deprive the office-holder of their costs. The focus turned to the rather delicate matters of serious mistakes, unjust, irrational and misconceived conduct.

In fleshing out what the judge thought to be the relevant considerations there was reference to the following cases:

However, the case about costs that appears to me to be of further notable assistance was that of the follow-up case to the aforementioned Fielding v Hunt. It is that of Fielding & Anor v Hunt ( Liquidator of the Burnden Group Ltd) [2017] EWHC 406 (Ch) and the part of it that I think is particularly instructive was the following point made by the judge in Nimat Halal Food:

In Burden Group Ltd; sub nom. Fielding and another v Hunt [2017] EWHC 406 the court dealt with costs of an appeal against the rejection of a proof of debt. His Honour Judge Stephen Davies had little hesitation in opining that if an office holder is found to act for his personal advantage, he is likely to be ordered to pay the costs of unsuccessfully resisting an appeal. Referring to Re Mordant (a Bankrupt) [1995] 2 BCLC 647 the Judge said that “the court should not direct otherwise save in a “special case” where there was a “good reason” to do so.” Simply resisting an appeal should not lead to personal liability. The usual order for costs of a successful appeal against an office-holder’s decision rejecting a proof is that the successful party is entitled to costs, and those costs are to be borne by the insolvent company.

It is apparent that the court has not spoken with one voice when it comes to nomenclature, but it has enunciated a principled approach. In my judgment the starting point is the Rule 14.9(2). An order should not ordinarily be made against an office holder personally. Something more is required. Something more relates to the conduct of the office holder. The degree of conduct deserving of a personal costs order will depend on the circumstances of each case. A mere mistake is unlikely to be sufficient. Acting in a neutral manner, on an appeal from a rejection of proof, is unlikely to be sufficient. Acting for a personal advantage in resisting an appeal is very likely to lead to a personal costs order. Such conduct would present a “special case” and a “good reason”, and may be characterised as “irrational conduct”, or “unreasonable conduct”.”

Where the conduct complained of relates to a decision made on a proof of debt, the court will take account of the duties imposed upon an office-holder to investigate the proof. It has long been the law that an office-holder is under a duty to examine every proof and consider the validity of the debt which is sought to be proved: Re Home and Colonial Insurance Co [1930] 1 Ch 102. He should require satisfactory evidence that the debt on which the proof is founded is a real debt: Re Fraser, ex parte Central Bank of London [1892] 2 QB 633, CA. And the obligation is not negated even where the proof is based on a judgment: Re Van Laun, ex p Chatterton [1907] 2 KB 23, CA.

Conclusion and Observation

The conclusion by the judge in Nimat Halal Food that I further found fruitful was the following statement:

“In my judgment the Notice of Rejection and the reasons provided for rejection must be considered holistically. If, as Miss O’Sullivan sought to do, each ground of rejection is picked apart, in an attempt to demonstrate unreasonable and unwarranted conduct, the overall picture is lost. On the information available at the time Mr Patel was justified in rejecting the claim for both Applicants for the supply of meat. He was justified in seeking clarification, requiring a paper trail, checking the accounts of the proving creditor to understand which company had made the relevant supply, if they supplied at all, probing the creditor on specific issues, asking the director of the Company and analysing the best he could the Company records. This represents reasonable and expected behaviour of a competent office holder. Much has been made of a transcript of an interview conducted by Mr Patel. It is said that leading questions were asked of Mr Ijaz. It is said that Mr Patel sought to extract from Mr Ijaz concerns about the Agreement. Yet Mr Masood did not call Mr Ijaz to support his case. Mr Patel was cross-examined on the document and, in my judgment, the charges of unfair treatment arising from the interview are unsustainable.”

The first sentence in the judge’s conclusion is in my view to be welcomed in general terms aside from the discrete issues in the case. The reason that I volunteer that, is because it is not unusual in litigating as an office-holder (as applicant/claimant or as respondent/defendant) to have your conduct examined under the microscope. However, an office-holder’s knowledge is a developing state of affairs, entering office as a relative stranger to the affairs of the insolvent.

Disclaimer: This post ‘Appeal against Proof of Debt: Who Pays the Costs? is not legal advice and is not to be relied upon as such. No liability is accepted by the writer for any reliance placed on the same. If you have a specific query then you should seek independent legal advice on the same.

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