England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
(HIS HONOUR JUDGE HUMPHREY LLOYD QC)

		Royal Courts of Justice Strand London W2A 2LL
		15th October 1997

LORD JUSTICE PETER GIBSON: Sir John Vinelott will give the first judgment.

SIR JOHN VINELOTT: This is an appeal from a decision of His Honour Judge Lloyd QC, sitting as an official referee. The main issue in the appeal is whether he was right to make an order that Mr D J Cork, a trustee in bankruptcy of Christopher Vickery, the plaintiff in an action against Modern Security Systems Limited, should pay the costs of the action.

The relevant facts can be shortly stated. The plaintiff, who had carried out work for the defendant at Dungeness Power Station, commenced an action on 11th September 1991 to recover the balance of the value of work done, amounting to something over £117,000. He also claimed damages for repudiation which he said had led to his leaving the site on 17th May 1991. On 24th October 1991 a holding defence simply denying liability was served by the defendant. The defendant also served a request for further and better particulars of the statement of claim. Before it could be answered the plaintiff was adjudicated bankrupt.

On 10th January 1992 Mr Cork was appointed his trustee in place of the official receiver. He sought advice from Messrs Finers, the solicitors who had acted for the plaintiff in a litigation. Following advice he obtained funds from the creditors sufficient to meet the costs of obtaining a list of documents and of a summons for directions. He was anxious to obtain the documentary evidence in the possession of the defendant and to obtain a detailed defence in order to make up his mind whether there was any substantial defence.

On 20th May 1993 Finers, acting on his behalf served a notice to proceed. Some 20 months had expired since the request for further and better particulars of the statement of claim and five months had expired since Mr Cork's appointment.

On 1st June 1993 a Mr Eyre of the defendant's solicitors, Boote Edgar Esterkin, spoke to Mr Curtin of Finers to say that the official receiver - that is clearly a slip; it should have been Mr Cork - has instructed Finers to proceed to recover their £120,000 plus interest outstanding in this matter. On 1st July Finers served their list of documents. On 7th July there was a further conversation between Mr Eyre and Mr Curtin and Mr Eyre wrote to Finers to say:

"Can you confirm that you will be amending the title of the action bearing in mind the bankruptcy of your client."

In their reply Finers enclosed a summons for directions and asked him to note that they had requested leave to amend the parties to incorporate the fact that their client was bankrupt. In fact no application to amend the title to the action was made.

On 30th September 1993 the defendant's solicitors again wrote to Finers asking whether they had had an opportunity of seeking instructions from the trustee as regards security for costs. After a further chaser the summons for directions was listed for hearing on 6th October 1993. There was then a discussion between Mr Eyre and Mr Curtin about the time estimate. Following that discussion the summons was adjourned by consent first to 15th November 1993 and then to 10th February 1994. The summons then came before His Honour Judge Lloyd on 11th February 1994. In the meantime Mr Cork had given consideration to the possibility of assigning the cause of action to the plaintiff who could then apply for legal aid. That came to nothing.

On 11th February 1994 there was a long discussion. It will be convenient to set out the learned judge's account of what took place. He said:

"It is common ground that Mr Curtin informed the court that he was without instructions and that the defendant knew that. In view of certain differences in recollection I told the parties that so far as I was concerned Mr Curtin had also raised the question of whether legal aid could be obtained to enable the action to go ahead."

That of course would be following a reassignment to the plaintiff.

"In anticipation of that course or of the trustee providing Mr Curtin with instructions, I had made directions for a timetable which would enable the plaintiff to get his house in order. Mr Eyre's note of what took place recorded the fact that it was said, apparently by Mr Curtin, that an application should have been made to amend the writ. Mr Simon Lofthouse, who represented the defendant on that occasion had come prepared to ask for the action to be dismissed if it was not to be proceeded with, but he did not press that application (nor did he seek security) and he did not object to the plaintiff being given time to provide particulars of the claim. Mr Curtin's note recorded that I had made it clear that I was not prepared to accede to his suggestion that the summons should be adjourned and that steps would have to be taken by the plaintiff to focus on the need to decide whether to proceed with the case or not. Mr Curtin's attendance note therefore substantially agreed with Mr Eyre's note but with the addition that I had said there would be the usual provision for liberty to apply if the timetable could not be met since the purpose of the directions was to provide a businesslike framework for the future of the action. On the assumption therefore that instructions would be given for the action to proceed the orders made included one for the service by 25 March 1994 of further and better particulars of the statement of claim that had been requested on 24 October 1991; leave was given to the defendant to serve the amended defence as initialled (the document included the counterclaim); discovery was to take place by 15 April 1994 and other steps were to be taken towards the trial date which was fixed for 7 November 1994. Following the hearing Finers drew up the order and served it on the defendant's solicitors on 21 February 1994."

Further and better particulars of the statement of claim were not served. The defendant applied for an unless order. At that stage the solicitors (Finers) acting for the plaintiff received a letter from the solicitors who it had been proposed would act for the plaintiff if there was an assignment to him of the cause of action. The solicitors said they were not able to act unless and until a legal aid certificate had been obtained. But the application had yet to be determined. They suggested that an application should be made for an extension of time for continuance with the proposed unless order. A copy of that letter was faxed by Finers to the defendant's solicitors. The application then came before His Honour Judge Havery. Mr Curtin again attended but made it clear that he was there as a matter of courtesy. He made it clear that there would be no material prejudice to the defendant if there was a further extension of time. The learned judge was given a copy of the letter from the solicitors who it had been proposed would act if there was a reassignment. His Honour Judge Havery nevertheless made an unless order, requiring service of particulars by 15th May.

The particulars were not served and on 14th June 1994 the defendant's solicitors entered an interlocutory judgment for the defendant on the counterclaim. That order is admittedly irregular. No application to the bankruptcy court for leave to serve a counterclaim had been made. Moreover, by an oversight no order was made dismissing the action although the facts relied upon for the defence and the counterclaim were substantially the same.

Subsequently three applications were made which came before His Honour Judge Lloyd on 14th June 1996. The first was an application by the defendant that costs should be awarded to the defendant and paid by the trustee pursuant to section 51 of the Supreme Court Act 1981. The second was an aplication by the defendant that Finers should pay the costs from 11th February 1994. The third was an application by the defendant for an order that the judgment of 14th June 1994 should be amended by dismissing the action.

His Honour Judge Lloyd made an order that the action should be treated as carried on pursuant to Order 15, rule 7 as if the trustee were substituted for the original plaintiff. He dismissed the plaintiff's claim with effect from 14th June 1994 consequent on the failure to comply with the unless order made by His Honour Judge Havery. Finally, he ordered that the trustee should pay the defendant's costs from 20th May 1993. On 3rd July he made a further order that the trustee should pay Finers' costs occasioned by the defendant's application against them. There is no appeal from the learned judge's order dismissing the plaintiff's claim for failure to comply with the unless order. The substantial question is whether the learned judge was entitled to order that the trustee pay the defendant's costs from 2nd May 1993.

In the course of his judgment the learned judge found that Finers were expressly authorised to proceed with the action on behalf of the trustee for the trustee's own purposes; i.e. to enable the trustee to decide whether the action might result in further moneys becoming available to the bankrupt's creditors. There was ample evidence to support that finding. Indeed in the light of the history which I have outlined I do not see that any other conclusion would have been open to him.

It follows from that finding that the learned judge had jurisdiction to make an order that the plaintiff pay the costs of the action. That would not strictly extend to the cost of the counterclaim but it is not suggested that there were any separate costs. That was the very point decided by the Court of Appeal in School Board for London v. Wall Brothers (1891) 8 Morrell 202. In that case the defendant became bankrupt. His trustee consented to the action being tried in the ordinary way in the Queen's Bench Division. He appeared by counsel and contested the claim. Later he claimed that, no order having been obtained under the predecessor to Order 15, rule 7, the court had no jurisdiction to order him to pay the costs. That contention was rejected by the Court of Appeal. I think it will be convenient to read in full the judgment in the Court of Appeal. Lord Esher MR said:

"I am of opinion that this case is governed by the decision in Borneman v. Wilson (L.R. 28 Ch. Div. 53). The only difference between that case and the present is that here no order has been obtained, making the trustee a party. The trustee, however, elected to go on with the action and appeared at the trial. He came to the conclusion after consulting the committee of inspection that it would be best for the creditors to defend the action. The trustee instructed solicitors and those solicitors on his behalf instructed counsel to appear for him at the trial. The trustee, therefore, waived the irregularity - if it were one - of not obtaining an order to make him a party."

Lopes LJ having said that he thought the case was governed by Borneman v. Wilson said:

"In that case an order had been obtained making the trustee a party. Here the trustee of his own free will made himself a party."

Kay LJ agreed with both judgments.

It is important to observe that the basis of that decision was that the trustee, though not strictly a party in the absence of an order to carry on, was in the same position as a party. It was not founded on section 5 of the Supreme Court of Judicature Act 1890, the predecessor of section 51 of the Supreme Court Act 1981, which at that time was narrowly construed.

It seems that this authority was not cited to the learned judge. He reached his conclusion that the trustee should pay the defendant's costs by a different route. He said this:

"The failure to obtain an order under rule 7(2) does not go to the root of the proceedings and is simply an irregularity. Both firms of solicitors were aware that the position should be regularised but the defendant's solicitors whilst not waiving their rights did not themselves take any further action about the defect beyond requesting Finers to put it right and by appearing on the summons for directions and obtaining orders on it and by issuing the summons for and obtaining the unless order could not have had the notice of intention to proceed or any steps taken thereafter set aside. Neither party has suffered any prejudice - by the resumption of the action the trustee got a better idea of the merits of the case and the defendant got the defence amended etc. Accordingly since the trustee authorised the resumption of the proceedings and since the failure to obtain an order to carry on under Order 15, rule 7(2) is only an irregularity which can and should be put right the trustee has effectively adopted the proceedings."

This course has been criticised by counsel for the trustee on the ground that the court should not of its own motion make an order joining a person as party to proceedings solely for the purpose of making an order for costs against him. In my view it was unnecessary for the learned judge to make an order under Order 15, rule 7(2) in order to found his jurisdiction to make an order that the trustee pay the defendant's costs of the action. The plaintiff, by adopting the action and taking steps in furtherance of it, waived the irregularity of not obtaining an order to carry on the action and put himself in the same position as if he were a party. In so doing he made himself liable for the whole of the costs of the action and not merely the costs incurred after he adopted the proceedings; see Borneman v. Wilson, cited in the School Board for London case.

The learned judge also held that he had power under section 51 as interpreted in Aiden shipping Ltd v. Interbulk Ltd. [1986] 1 A.C. 965 to make an order that the trustee pay the defendant's costs even if no order were made under Order 15, rule 7. For reasons I have already given, the jurisdiction to make that order does not depend upon section 51.

The other issue raised in the appeal is whether the learned judge was justified in making an order that the trustee pay Finers' costs of the defendant's application that they pay the defendant's costs as from 11th February 1994, the date of the directions hearing. The trustee's case is that as this application failed the defendant should pay Finers' costs - the costs should follow the event.

It is necessary to look a little further into the reasons for the defendant's application against Finers. The background shortly is as follows. In an affidavit sworn on 15th June 1995 the trustee claimed that before the hearing on 11th February 1994 he had made it clear to Finers that there were insufficient funds in the bankrupt's estate to carry on the action and that, if the trustee were to become involved, the creditors would need to underwrite any costs in the litigation. He was anxious not to find himself put in a position whereby he or the estate might be responsible for an adverse costs order. The defendant, therefore, joined Finers so as to put forward the alternative case that, if Finers acted without the trustee's authority on and after 11th February 1994, Finers should pay the costs thrown away as a result of their intervention on that date. That claim was founded on the defendant's claim that Finers acted in breach of want of authority.

Having held that the claim that Finers acted without authority was unfounded, the learned judge was, in my judgment, clearly entitled to order that the trustee should pay Finers' costs.

LORD JUSTICE WARD: I agree.

LORD JUSTICE PETER GIBSON: The first, and in the event the decisive, question that arises on this appeal is whether the court has power to order a trustee in bankruptcy, not formally a party to an action brought by an individual against whom subsequently a bankruptcy order has been made, to pay the costs of the failed action. Mr Bryan for the trustee in bankruptcy of the plaintiff accepts, as he must, that section 51 of the Supreme Court Act 1981 is in terms wide enough to enable such an order to be made. But he submits that, prior to the decision of the House of Lords in Aiden Shipping Co. Ltd. v. Interbulk Ltd. [1986] A.C. 965, it was thought impossible to make any non-party liable in costs and that the guidelines laid down by the court, limiting the circumstances in which costs will be ordered against a non-party, apply in the present case. He relies in particular on an analogy between liquidators of companies and trustees in bankruptcy and what the court has said about awarding costs against liquidators.

He acknowledges, again as he must because of the decision of this court in School Board for London v. Wall Brothers (1891) 8 Morrell 202, that there is an exception from his general proposition that it was thought impossible to make any non-party liable in costs in that the trustee in bankruptcy of a litigant may be made so liable without being joined as a party. However, he submits that that case is distinguishable on its facts. He accepts that the trustee in the present case did take steps in the action but he submits that the feature distinguishing the School Board case from the present case is that the trustee in that case appeared at the trial.

If one stands back and considers the justice of the case, it would seem to me surprising if that fact ought to provide a ground of distinction. Why should a trustee who revives a moribund action by causing a notice of intention to proceed to be served, who serves the plaintiff's list of documents and who issues a summons for directions, and who by such steps in the action causes the defendant to incur costs, be immune from liability for costs? The trustee is the person in whom the right of action was automatically vested on the plaintiff becoming bankrupt. By electing to adopt the plaintiff's action, as to my mind this trustee plainly did by taking those steps, he ran the risk of an award of costs against him if the action was unsuccessful. He was extraordinarily naive if he believed that he was not at risk of an award of costs against him. If he was not warned by his solicitors of that potential liability in costs, it may be - I express no view - that he has some redress against them for failing so to warn him. But that is not to the point.

So far as I am aware it has never previously been suggested in the authorities that the trustee in bankruptcy in hostile litigation is in some way a privileged party as regards costs. Mr Bryan sought to contend that he was in a position similar to that of the liquidator of an insolvent company. But the obvious difference is that the liquidator, unlike the trustee in bankruptcy, is not the person in whom the cause of action vests. As for the authorities laying down guidelines since the Aiden Shipping case, none of them relates to a trustee in bankruptcy, and in my view it would be absurd to equate the position of a trustee in bankruptcy, who is the true litigant in proceedings which he has adopted, with a genuine non-party, in whom the cause of action was not vested.

In the circumstances it is not necessary to consider whether the judge was right to take the formal step of making the trustee in bankruptcy a party under Order 15, rule 7. As for the exercise of discretion, in my judgment it was plainly right, in the circumstances of this case, that the trustee should be made liable in costs to the extent that the judge ordered.

For these as well as for the reasons given by Sir John Vinelott, I too would dismiss this appeal.

Order: Appeal dismissed with costs.