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 CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE RAYNOR QC, sitting as a Judge of the High Court)

		Royal Courts of Justice Strand London, WC2
		20 December 2004

Monday, 20 December 2004
1. LORD JUSTICE WALLER: Mr Justice Lloyd will give the first judgment.
2. MR JUSTICE LLOYD: This is an appeal by Clive William Atherton against orders made by His Honour Judge Raynor QC sitting as a Judge of the High Court, Chancery Division, in the Manchester District Registry, at the Salford County Court on 7 April 2004. The only respondent is Mr Atherton's trustee in bankruptcy. The orders were made on an application by Mr Atherton to review a previous refusal of the court to annul the bankruptcy order and, following such a review, for an order that the bankruptcy order be indeed be annulled. That application was issued in January 2004. The bankruptcy order itself was made on 1 June 2000. The gist of the judge's order of 7 April 2004 was that the bankruptcy order should be annulled, but conditionally on Mr Atherton paying the trustee's proper costs incurred during the bankruptcy. Mr Atherton, through Mr Burgess, his counsel before this court as before Judge Raynor, contends that the order should be an unconditional annulment and certainly that Mr Atherton ought not to have to pay the trustee's costs.
3. The bankruptcy itself has a long history and the relevant events go even further back in time. I will set out the history as it now appears, though a significant element of the early history was overlooked at the time of the bankruptcy order and was only rediscovered in January 2004.
4. Mr Atherton was married to Linda Atherton in 1971. Mrs Atherton petitioned for divorce in 1993 in the Blackpool County Court and a decree nisi was made at some stage. Ancillary relief issues were still pending earlier this year, and indeed were directed to be tried and determined by His Honour Judge Raynor. In the course of the ancillary relief proceedings at an early stage an order was made on 12 October 1995 by District Judge Buckley. This order recites an undertaking by Mrs Atherton to use a sum of £45,000 referred to in the order for the purpose of redeeming a mortgage in favour of the Bradford and Bingley Building Society secured on the former matrimonial home, Longton Hall Barn, Longton, and also for the purpose of paying legal fees arising from certain transactions, including the transfer of the property. The order provided for Longton Hall Barn to be transferred to a Mr and Mrs Walton by way of exchange for other properties and in consideration of the payment by Mr and Mrs Walton for the sum of £15,000, presumably by way of equality of exchange. One of the properties to be received in exchange was called 14 Pope Walk, Penwortham, in Preston. This was to be vested in the joint names of Mr and Mrs Atherton, but Mrs Atherton was to have the exclusive right to occupy it, pending the ancillary relief hearing or further order of the court. Mr and Mrs Atherton were to execute all necessary documents for the various property transactions to go through.
5. On 27 February 1997 District Judge Buckley made a further order, drawn up on 6 March, supplemental to and varying in certain respects the 12 October 1995 order. At that stage of the ancillary relief proceedings Mr Atherton was represented by Manchester solicitors, Messrs Linder Myers. It seems that by 7 February 1998 he may have parted company with those solicitors and was acting in person, but nothing turns on that.
6. On 28 August 1999, more relevantly for the bankruptcy, Mrs Atherton executed a deed of assignment to one Kola John Ogunlende of a debt which she claimed was owed to her by Mr Atherton. The debt is described as £23,500, together with interest accrued of £6,000, being money advanced by Mrs Atherton from her own personal funds and paid to Bradford and Bingley Building Society in January 1996 in respect of interest and capital payments then owed by Mr Atherton to the building society. On the same date, 28 August 1999, Mr Ogunlende, giving his address as 2 Charlotte Street, Bath, issued a statutory demand upon Mr Atherton for £29,500, which appears to have been served on Mr Atherton early in September.
7. On 11 September Mr Atherton issued an application to set aside the statutory demand. He was at that stage acting in person. The application came before Mr Registrar Baister on 19 October 1999, by which time he was represented by a solicitor, Mr Samuels, from a separate firm from Linder Myers.
8. Mr Atherton disputed the debt on which the statutory demand was based on a number of grounds. He referred to the fact that the debt to the building society had been discharged by Mrs Atherton as a matter of choice for her own purposes without reference to him, and that a shortfall had arisen on the sale of the property to accommodate her wish for a smaller property to live in. He referred to the fact that an adjustment in his favour would be required in the course of the ancillary relief proceedings. He supported his application to have the statutory demand set aside by an affidavit which it seems fairly clear he prepared himself and which was of course prepared under pressure of time. It is no criticism of him, but it is the fact that no specific reference was made to the order of 12 October 1995. By the time of the hearing he was represented by Mr Samuels, a solicitor, but he did not refer to the order either and I dare say he was unaware of it. We have a copy of the Registrar's notes of the hearing recording the submissions made on behalf of Mr Atherton at some length. The Registrar dismissed the application and gave leave to present a bankruptcy petition on or after 3 December on the basis that Mrs Atherton had paid to the building society a sum which represented partly her liability and partly that of Mr Atherton and was entitled to a contribution from him to cover his half of the debt, and that there was no other basis for disputing the debt.
9. On 13 December Mr Ogunlende did present a bankruptcy petition. After a number of adjournments it came before the court for an effective hearing on 1 June 2000, Mr Atherton being absent. Later, he said that he had been tricked by Mr Ogunlende's father into not attending by being told that the hearing would be adjourned. He was not represented and the bankruptcy order was made there and then. On 13 June 2000 he made his first application to annul the bankruptcy order. At that stage he was represented by solicitors then called Royds Treadwell, whose name was later changed to Royds RDW. That came before Mr Registrar Baister on 5 December 2000 and was dismissed. There is a note of his reasons in the papers. Mr Atherton appealed against that order with Royds Treadwell still acting for him. The appeal came before Neuberger J (as he then was) on 4 April 2001 and was dismissed. Mr Atherton was represented already then by Mr Burgess instructed by Royds Treadwell. The learned judge's judgment is reported at [2003] BPIR 21. In turn, an application for permission to appeal to the Court of Appeal was dismissed by Arden LJ on 20 November 2001. The failure of this attempt did not persuade Mr Atherton to leave the point alone. On 18 July 2002 a hearing took place in the Blackpool County Court in its bankruptcy jurisdiction, again before District Judge Buckley, by which the period running under section 279 of the Insolvency Act before the discharge of Mr Atherton from bankruptcy was to cease to run. The order recorded that Mr Atherton, who appeared in person, intended to issue another application to annul, and maintained that the bankruptcy order should not have been made. I do not know how the case got from the Bankruptcy Court at the Royal Courts of Justice to the Blackpool County Court, or from there to the Manchester District Registry, but nothing turns on that.
10. On 25 July 2003, by which time the proceedings were being dealt with in the Chancery Division in the Manchester District Registry, His Honour Judge Howarth, sitting in Liverpool, made an order by which there were to be no further applications by Mr Atherton or by the trustee without permission, pending the determination of various applications which were then before the court. There were five which he ordered to be listed before trial before Judge Raynor with a five-day time estimate, including one day for pre-reading. These five applications included two on the part of the trustee in bankruptcy relating to the sale, first, of 14 Pope Walk, and secondly, of a property in Scotland where Mr Atherton was living at the time. There were three applications by Mr Atherton, one of which was that he should be allowed to conduct the ancillary relief proceedings. Judge Howarth directed that the ancillary relief proceedings should not come on for a substantive determination until after all five interlocutory applications had been dealt with. Part of the point of directing that the matter come before Judge Raynor was that he had the necessary authorisations to hear the ancillary relief proceedings as well as Chancery matters such as the applications in the bankruptcy. Thus the matter was listed for hearing with 16 February (the Monday) the judge's reading day, and to be effective from 17 to 20 February.
11. On 15 January 2004 Mr Atherton's solicitors issued an application (a) to vacate the date of 16 or 17 February, and (b) that permission be given to Mr Atherton to renew an application to annul the bankruptcy order. The grounds for this application were that the order of 12 October 1995 had just come to light and it showed that Mrs Atherton could not properly claim that the money which had been paid to the building society was her money. This was supported by a witness statement to Mr Rodda of the solicitors to which the 1995 order was exhibited. By the time the matter came on for an effective hearing he had made five more witness statements exhibiting other materials which had been obtained from the files of Messrs Linder Myers who had previously been retained and who had been holding on to the files on the basis of a lien for unpaid fees.
12. On 26 January Mr Atherton's solicitors issued a further application notice for permission to apply to annul the bankruptcy order. On 28 January Judge Raynor dismissed the application to adjourn, but directed that the application for permission to apply for an annulment be heard on 17 February, the substantive application to follow if permission granted. Of course the need for permission to make the application lay with Judge Howarth's order of 2003, that no further applications be made until the court had dealt with the five that were already before it.
13. The matter thus came on before Judge Raynor in February with the hearing starting on the 17th. On 20 February, the Friday, he delivered his first judgment. We have this in an unusual form, which I take to be typed notes prepared by the judge from which he would have delivered the judgment. It is a full text but with abbreviations, all of which seem clear, but also some passages from orders, evidence, legislation and authorities incorporated by reference rather than set out in full. The judge set out the history up to the service of the statutory demand with the benefit of the fuller account of the ancillary relief proceedings available to him than had been before any other judge in the insolvency proceedings. In respect of this feature of the case he said this, at paragraph 17 of his notes:

"It is important to note that a significant part of the history outlined above (and in particular that set out in paragraphs 10 and 11 concerning the application under Barry v B and the order made and the undertakings given thereunder) was unknown to the judges previously seized of the bankruptcy matter. As I have stated, the Bankrupt's Solicitors only became aware of the order of 12/10/95 after 6/1/04 and the divorce court files were only inspected by them after the hearing before me on 28/1/04. It was realistically conceded by Mr Burgess, Counsel for the Bankrupt, that there was no good reason for the failure to obtain copies of documents on the divorce court file years earlier."

14. The judge then went on to consider the question whether there was a valid debt capable of being assigned to the petitioning creditor and explained his finding that there was not. Essentially, this was because the circumstances in which Mrs Atherton had paid off the building society following the 12 October 1995 order did not entitle her to assert that she had paid her husband's debt using her own money. There is no challenge to that conclusion and it is plainly right.
15. He then described the history of the bankruptcy proceedings and explained why the point had not been taken until 2004. He described, by reference to the statute and to cases, the jurisdiction to review or rescind or vary orders under Rule 375(1) of the Insolvency Act 1986 and the jurisdiction to annul a bankruptcy order under section 282(1)(a) of the same Act. Since he was dealing with the matter on material significantly different from that which had previously been before the court, he held that the discretion to review the previous order arose and was properly exercisable and that in turn the discretion to annul was one which was open to the court to be exercised.
16. It was relevant to his discretion that the order had been in force and had been acted on for a long time, and also that the material then before him could have been - and he felt should have been - before the court in 1999 or 2000. Mr Atherton, as the judge said, may not have understood the significance of the order made in October 1995, but he had lawyers acting for him who "should have obtained inspection of the divorce court file, given the arguments they were running, and had that been done the bankruptcy court would not have been misled." Despite this, he held that if undue prejudice to third parties could be avoided it would be right to annul rather than to leave the bankruptcy in place, and Mr Atherton still a bankrupt with a possible claim against his former solicitors.
17. In reviewing the position of third parties, he started with the trustee, who he said was entitled to be paid his proper costs. He said this, at paragraph 34(i) of the judgment:

"The Trustee. He acted in good faith under a court order. I cannot see how he could be exposed to any claim by [the bankrupt] if I annul the bankruptcy (although [the bankrupt] reserves any right he may have to assert a claim). I am told that he is out of pocket to the tune of about £130k in respect of fees and disbursements incurred during the subsistence of the bankruptcy. Certainly he is entitled to be paid his proper costs and disbursements and in the first instance at least I consider that [the bankrupt] (whom the Trustee says will be good for the sum if the order is annulled) should, if he is [to] obtain the annulment after such a long period, bear those costs given what I have stated above about the responsibilities of himself and his advisers for the delay in putting matters right. I have regard to the remarks of Neuberger J in the Butterworth case [to which I will be coming in a moment] regarding the liability of the Petitioner creditor. Mr Ogunlende is in Nigeria, his means are uncertain and he asserts that he has acted in good faith. It will be open to [the bankrupt] to seek to obtain redress from him (a matter further considered below) or, if he sees fit, his advisers."

The judge then considered the creditors generally and came to the conclusion that their position should not prevent annulment. Of course when the bankruptcy order is annulled that does not remove the threat of bankruptcy altogether because the bankruptcy petition will then still be pending and, although Mr Ogunlende has been held not to have a valid debt, for all that the court knows there are other creditors and if they are not satisfied that they will be paid and subject to the usual issues about disputed debts, one of them may well be able to be substituted as petitioning creditor and proceed with a view to a bankruptcy order on a more proper basis than that obtained by Mr Ogunlende.

18. Having considered the creditors generally, the judge turned to Mr Ogunlende himself. He was not before the judge, but he had sent a letter to the court which we have, from an address in Lagos. He was not a respondent to the application, but a copy of the application notice had been sent to him. He said that it was sent to his parents' address. In respect of him, the judge said this:

"34(iii) He asserts he has acted in good faith, and absent an order for costs or exposure to a claim for damages I cannot see how he will be prejudiced by the annulment. As to costs, if [the bankrupt] wishes to pursue a claim (including one for indemnity against the trustee's costs) application will have to be made, and I shall consider whether an order should be made in the light of all the evidence then adduced. As to claims for damages, if [the bankrupt] has a claim for malicious prosecution of bankruptcy he must be entitled to pursue it; I cannot see any other basis of claim (assuming good faith) and in the event I do not find that the position of Mr Ogunlende should preclude annulment."

19. He then turned to the position of Mrs Atherton and says that there is nothing in her circumstances that can properly be regarded as a reason for not annulling the order, and it is fair to say that he refers to her taking part "in what seems an extraordinary transaction whereby she assigned her alleged claim for £1 to someone who would enforce it and become entitled beneficially to the proceeds." Thus Judge Raynor's conclusion was that he ought to rescind Neuberger J's order dismissing the appeal in 2001 against Registrar Baister's refusal to annul and, in its place, he ought to make an order annulling the bankruptcy order under section 282(1)(a) of the 1986 Act. He then invited submissions about the consequential directions, having indicated in the passage that I have read that he would require Mr Atherton to pay the trustee in bankruptcy's costs. Although we have no transcript of his judgment, we do have a transcript of the debate following the judgment, where Mr Burgess represented Mr Atherton, the trustee was represented by Mr Cooper and Mrs Atherton was also before the court and was represented by Mr Booth of counsel.
20. The actual order made on 20 February was that the further hearing be adjourned to 7 April, that the trustee in bankruptcy serve on Mr Atherton by 27 February full particulars of the costs and expenses of the bankruptcy sought to be recovered, and also that the successor firm, Royds RDW, attend on that occasion to show cause on the application of the trustee in bankruptcy and of Mrs Atherton why the court should not make a wasted costs order against them. All questions of costs were reserved.
21. The judge had had cited to him the decision of Ferris J in Engel v Peri [2002] BPIR 21 in the course of which he held that there was power to make an annulment order conditional upon payment of the trustee's costs, and the judge in the course of that judgment gave guidance as to the best way of doing so. I shall come to that judgment in a moment.
22. On 7 April the matter was resumed. Mr Atherton still contended that the annulment should be unconditional. The judge first considered the trustee in bankruptcy's application for a wasted costs order against the solicitors, who then appeared by separate counsel instructed by Messrs James Chapman. By then Mrs Atherton had withdrawn her application for a wasted costs order.
23. Mr Atherton had refused to waive privilege in relation to communications between him and his former solicitors, Royds RDW, so that the evidence that they were able to put in in relation to the application was very limited. The judge refused the application for a wasted costs order in the light of the decision of the House of Lords in Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120, because he could not be sure that there was nothing the solicitor could say, if unconstrained by privilege, to resist the order. The judge had been shown a fax from Royds to counsel, dated 17 February 2004, which I should read. That was the first day of the effective hearing before Judge Raynor, in the course of which, as Mr Burgess tells us (and it seems something which would have occurred naturally) the judge raised with him the question of why it had taken so long for the October 1995 order to come to light. Mr Burgess was at court with Mr Atherton. Messrs Royds were not present by any representative of the firm, and Mr Burgess tells us that the judge having raised the question he took the opportunity of some adjournment to contact Royds and to ask for information about what had been going on. The response was a fax to counsel which was received and which was shown to the judge. He set it out at paragraph 5 of his judgment of 7 April on the wasted costs application thus:

"[A request for copies of recent orders in the ancillary relief proceedings had been made] in the context of Clive" [that is the bankrupt] "trying to resurrect the ancillary relief claim to give credence to his defence to the bankruptcy annulment application.

The request was to find out what had at last happened in the ancillary relief case. We got back a telephone mention to say in effect there were four files and too many papers for the court to go through to send copies. Clive also sent in a letter/authority but there was no response from the court I do not believe. We did not follow this up and did not inspect. Clive then went on to deal with the ancillary relief case himself and as we could not act without a matrimonial franchise, we referred him to other solicitors in February 2001 but I do not think he followed this up."

Later in his judgment Judge Raynor said this, at paragraphs 11 and 12:

"On careful consideration it does seem to me that the plea of privilege here is fatal to the application because I am not able to be satisfied that there is nothing that the practitioner could say, if unconstrained, to resist the order. Having read the documents in the court file myself, I cannot exclude the possibility that Mr Atherton may have given express instructions to the solicitors not to inspect the court file save as regards the most recent documents that are referred to in the fax of 17th February. Mr Atherton might well have had his own reasons for that, given statements that are made in the documents which he may not have wanted his solicitors or indeed anybody else to read in the course of the bankruptcy proceedings. In any event I cannot exclude that possibility and it seems to me that if such instructions were given that would negative negligence.

The fax of 17th February does not to my mind fairly answer the point. First, it is not clear that Royds were ever mandated to do anything other than to obtain the most recent orders because what the fax says is that their request to the court was to find out, no doubt on instructions, 'what had last happened in the ancillary relief case.' It does not seem to me that this fax negatives the possibility that there might have been an instruction not to inspect the court file as a whole. Secondly, as Mr Evans [counsel for the solicitors] says, obtaining the most recent orders would not itself in any event have revealed what had happened historically in 1995."

I have dealt with the fate of that application in more detail than would otherwise have been necessary because of an argument on Mr Atherton's part raised on this appeal. The trustee in bankruptcy's application against the solicitors was dismissed on that basis and the trustee in bankruptcy was ordered to pay a fairly small part of the solicitors' costs.

24. The wasted costs application having been dealt with, the judge then turned to the annulment application, and, as I mentioned, Mr Burgess sought to argue again that the order should not be conditional. He cited to the judge Butterworth v Souter (to which I will come), but the judge ruled against him. Essentially he said that it was the responsibility of Mr Atherton and/or his lawyers that the matter was not put before the court early on. Mr Atherton could claim against the petitioning creditor and against his former solicitors separately, but it was up to him to pay the costs of the trustee in bankruptcy. I should refer to two passages which appear from the transcript of the 7 April. At page 14 of the transcript, having heard a number of submissions from the three counsel who were before him as they had been in February, besides Mr Evans for the solicitors, the judge said this:

"I have heard the further submissions of Mr Burgess and nothing that he has said persuades me that the view that I expressed in my judgment of 20 February 2004 and in particular, paragraphs 34 to 36, ought in the interests of justice to be modified. Whilst I see the force of the submission that this is a case where the annulment is on the grounds that the order should never have been made, the fact of the matter is that it is the responsibility of Mr Atherton and/or his lawyers, that the matter was not put before the court earlier and in the wasted costs application that I have just determined, Mr Atherton has prevented me from investigating the mutual responsibilities because he has refused to waive privilege and at the moment I cannot readily understand why he did refuse to waive privilege but the fact is he did so, and he is entitled, first to seek redress against Mr Ogunlende, because I am not barring out such an application but it will have to be made in the proper way, on notice. He will be able, if he sees fit, and considers that he has a case in negligence against his former solicitors, to pursue such an action in negligence but I do not express any view on the merits of such action because I am not in possession of all the facts. As regards Mrs Atherton, I believe that justice will be done by considering all of the circumstances in the ancillary relief proceedings because I will then be able to exercise my discretion under section 25 of the Act [the Matrimonial Proceedings Act] having regard to any relevant circumstance including the responsibility of Mrs Atherton for the Bankruptcy proceeding, and, insofar as I am able to ascertain it the responsibility of Mr Atherton in relation to his lawyers for the wastage of assets that has occurred as a result of the fact that the true facts were not put before the bankruptcy court until this year. Therefore I do consider it is right, in the first instance at least, that the proper costs and disbursements of the trustee are paid by Mr Atherton as a condition of annulling the bankruptcy, whether that is done by making it a condition or by making an order that the order be not perfected until the costs be paid is something I can consider later.

I ought to say that I bear fully in mind the fact that this is not an annulment under sub-section (b) [of section 282(1)] but for the reasons which I have stated in my earlier judgment, I believe that the order which I have made is just in the circumstances."

For completeness, he invited counsel to address him again on a particular aspect of the matter and he came back to the point, following those further submissions, saying:

"Having considered the matter again with the benefit of the submissions of counsel, I am satisfied that the court can properly say in the circumstances of this case that the annulment order should not be perfected pending the satisfaction of the order for costs. In my principal judgment of 20 February 2004 I said that in my judgment if Mr Atherton was to obtain the annulment after such a long period, then, in the first instance at least he should bear these costs. I do not resile for a second from that and the annulment being a matter of discretion, after this length of time, I think it is entirely appropriate that the bankruptcy should continue pending the satisfaction of the order for costs, given that Mr Atherton has got properties which can be realised ideally with his co-operation in order to satisfy the order for costs."

Thus in those two separate passages on 7 April he effectively reaffirmed what he had said in paragraph 34(i) of his judgment of 20 February, and that was the basis for the order that he made, which was, first of all, that the bankrupt pay the trustee in bankruptcy's costs, including provision for detailed assessment, and the payment of £100,000 on account, together with various consequential provisions. Separately he made an order for the annulment of the bankruptcy order under section 282(1)(a) of the 1986 Act, but directed that it be not perfected until Mr Atherton had satisfied his liability for the costs. The judge refused permission to appeal, but on 21 April Mr Atherton filed an appeal notice seeking an unconditional annulment. On 7 July Judge Raynor made a further order for the sale of 14 Pope Walk, but nothing turns on that.

25. The grounds of appeal were, in summary, that the judge could not properly have attached the condition as to the payment of costs by Mr Atherton unless Mr Atherton was somehow at fault, and that there was no evidence that he was at fault as having concealed the existence of the October 1995 order. It was said that the judge deemed Mr Atherton to be at fault because of his failure to waive privilege on the wasted costs application, and that he had therefore inferred without any evidential basis that Mr Atherton may have been at fault by telling his solicitors not to inspect the matrimonial proceedings court file. It is also contended by way of grounds of appeal that the condition was impossible to perform because the trustee in bankruptcy has the assets vested in him, and that it was therefore wrong in principle.
26. On that material the application for permission to appeal came before Jonathan Parker LJ, who dealt with it on paper, and the order was made on 14 July whereby he refused permission for these reasons:

"In his judgment delivered on 20 February 2004 the judge concluded that the responsibility for the fact that the relevant order was not disclosed to the court in November 1999 lay with Mr Atherton or his lawyers... At the hearing on 7 April 2004 he reiterated that conclusion... It was not for the judge to speculate whether, had Mr Atherton waived privilege, further evidential material might have been placed before him which might have caused him to reconsider that conclusion."

My Lord concluded that the appeal had no real prospect of success.

27. On Mr Atherton's behalf, however, Mr Burgess renewed the application and put in a witness statement from Mr Atherton, dated 3 August, explaining that the reason why he had not waived privilege for the hearing on 7 April was because he had been told - no doubt this is right - that he ought to have independent advice before deciding whether or not to waive privilege and he simply had not had time to get such advice after the moment at which it became relevant. In this further witness statement he did waive privilege and put some communications between himself and the solicitors in evidence, including a fax of 2 October 2000 from him to Mr Rodda, which may be read as a request to the solicitor to check the matrimonial file in Blackpool if copy documents and orders had not been obtained from Mr Samuels, the solicitor who had acted on the unsuccessful application to set aside the statutory demand.
28. The renewed application came before Ward LJ on 12 August 2004. He was clearly troubled by aspects of the history and nature of the case, and expressed the view that it was rather a mess which needed to be sorted out by the Court of Appeal. He accordingly gave permission to appeal. Mr Burgess now appears before this court seeking to have the conditional nature of the annulment order set aside. Mr Bayfield appears for the Trustee in bankruptcy, who is the only respondent, and we have the benefit of a skeleton argument from him and of a supplemental bundle prepared and filed by his instructing solicitors. Mr Burgess has not only his application to put in Mr Atherton's August witness statement, which I think was not formally dealt with by Ward LJ, but a further application to put in additional evidence, namely a witness statement of his instructing solicitor designed to negative what is said to have been Judge Raynor's suspicion that Mr Atherton gave instructions to Royds not to inspect the matrimonial file. That evidence appears to confirm that attempts were made from late September 2000 and in early 2001 to get information from the court files in Blackpool.
29. Mr Atherton's appeal is based on the proposition that it is unfair and wrong to require him, an entirely innocent party and a victim of what has been held, in effect, to be an abuse of the process, to bear the costs of the trustee in bankruptcy, and the proposition is that these should be ordered instead to be borne by Mrs Atherton, whether or not also by Mr Ogunlende the petitioning creditor. Mr Ogunlende was not a party to the application before Judge Raynor. I have mentioned that he had been sent a copy of the application notice, but he was not a party so no order could have been made against him at that stage. Nor was any application made before Judge Raynor for an adjournment so that he could be served with an application, and one can see very good reasons for that. The doubts as to whether, even if an order were made against him, now that he is resident in Nigeria, it could effectively have been enforced would have meant that the Legal Services Commission might well not be minded to allow public funding for such an application to be made.
30. Mr Burgess submits that Mr Atherton should not be required to pay the costs because the whole bankruptcy has been the consequence of an abuse of process and that to require Mr Atherton to pay the costs would put him in just the same position as if there had been a valid petition debt at the start rather than the whole matter being initiated on a false basis, which I am prepared to accept was an abuse of process.
31. Mr Atherton started his attempt to get the bankruptcy order set aside, and indeed to resist it being made in the first place, on an assertion that there was a conspiracy against him and he said, from a very early stage of the bankruptcy, that the bankruptcy order ought never to have been made. His persistence has proved justified in that finally the material came to light in January 2004 and Judge Raynor was persuaded, rightly, that the bankruptcy order ought never to have been made. There was never a proper basis for the petition, or indeed, going further back, for the statutory demand. It is entirely fair and understandable for Mr Atherton to regard himself as the innocent victim of arrangements on the part of Mrs Atherton and the petitioning creditor which may or may not be properly called in legal terms a conspiracy, but such a label in his mouth is entirely understandable. As between him and them, he is the innocent party. But the issue is not as between him and them: it is as between the trustee in bankruptcy and him. In a sense it is true and fair to regard Mr Atherton's position as a result of the judge's order as the consequence of an abuse of process and as putting him, as he would say, quite unfairly in the same position as if there had been a valid petition debt at the outset. If the October 1995 order had come to light at an early stage it might have been a sufficient argument to say this should never have happened. By then only insignificant and insubstantial costs would have been incurred and there may not have been any difficulty in seeing that those could and would be payed by Mrs Atherton or the petitioning creditor, who at that stage might still have been resident in this jurisdiction. The trustee's position might have been fairly protected by an order such as Mr Burgess now seeks. I am certainly prepared to proceed on the basis that it was not Mr Atherton's personal fault in any sense, although there may be more to it than meets the eye because the respondent's appeal bundle includes a letter dated 1998 from Mr Atherton to the Blackpool County Court in which he refers expressly to the 12 October 1995 order, with a sense of grievance in relation to it.
32. Now I dare say, as the judge said, that Mr Atherton did not appreciate the legal significance of that order in relation to the alleged debt, the statutory demand or the bankruptcy proceedings. Whether it is true to say that he was wholly unaware of the order is another matter. However, as I say, I am prepared to proceed on the basis that it was not in fact Mr Atherton's personal fault. But Mr Burgess' proposition based on that overlooks the fact that a significant factor in what has gone to build up the present position is the failure on the part of Mr Atherton's solicitors, if it be not his fault, as I am prepared to assume, to discover the 1995 order.
33. Mr Bayfield in his skeleton argument drew our attention to the decision of Mr Michael Hart QC (as he then was) in Mellor v Mellor [1992] 1 WLR 517, which was a case concerning the discharge of a court-appointed receiver in circumstances in which the order appointing the receiver had been set aside on grounds which matter not for present purposes. The judge said that it was all very well to set the order aside, but the receiver was entitled to his remuneration and was entitled to be paid, notwithstanding the setting aside of the order. The order that the judge made, having, as he held, no jurisdiction on an interlocutory application to make any of the defendants personally liable for the receiver's costs, was that the receiver had the right to be indemnified in respect of his costs out of all the assets subject to the receivership, whether in his possession or not, and that an order should be made in his favour charging all assets available to him during the currency of the receivership and charging assets of the second defendant, for a particular reason, with the recovery of his costs and remuneration. That Mr Bayfield relies on for the basic proposition - which Mr Burgess does not take issue with - that the trustee was entitled to be paid his costs as an entirely innocent third party, whatever happens.
34. Two other cases are important to the argument and featured both before Judge Raynor and in the written submissions to us. The first is the decision of Ferris J in Engel v Peri [2002] EWHC 799 Ch, [2002] BPIR 961. That was a case where a conditional annulment order had been made, conditional on, among other things, payment of debts and various payments being made as security for the trustee's costs yet to be quantified. That order was made by the district judge in the Oxford County Court and it was the trustee who appealed in that case, contending (as the judge said at the end of his judgment it is really not at all clear to see why he should so contend) that the court had no jurisdiction to make a conditional annulment order of that kind. There was in that case a dispute about the quantum of the trustee's remuneration just as, in the present case, that quantum has not yet been settled and will have to be, by the detailed assessment process that the judge ordered. It was a case in which the debts were to be paid in full from third-party funds. The judge said this, having held that it was a proper case for a conditional annulment, at paragraph 45 of his judgment:

"The district judge's order was perhaps a little unwise because it might have produced a difficult situation if the conditions had not been satisfied or if there had been a dispute whether they were satisfied or not. There might also have been some doubt about precisely when the annulment took place on the footing that the conditions were satisfied. A better way of dealing with the position might have been for the judge to say that the order for annulment, in unconditional form, would not be perfected by the court office until evidence had been produced showing that the trustee was satisfied that all the bankruptcy debts had been paid (something which would ordinarily be covered by the trustee's report under r 6.207, but which seems to have been in doubt here) and that the requisite payments into court had been made. But the fact that there was, or might have been, a better way of doing in substance what was in fact done does not provide any support for the view that there was no jurisdiction in the court to do it in the chosen way."

So that is the guidance given by Ferris J upon which Judge Raynor acted in making the two orders that he did, one conditional on satisfaction of the other so far as it related to the payment of costs.

35. It seems to me that under this particular scheme, since the bankruptcy is not in fact annulled until the costs have been quantified and paid, the trustee in bankruptcy retains the assets vested in him until annulment and can have recourse to them to pay his costs and any properly proved debts. Judge Raynor's decision of course shows that nothing is due in respect of the petitioning creditor, but there may, for all we know, be other debts. Indeed the papers indicate that, although there may be disputes in respect of some of them. That point, as it seems to me, also disposes of one ground of appeal, namely, the point that the order is self-contradictory, in that it required Mr Atherton to pay costs when until annulment he has no money in which to do so, and unlike the case in Engel v Peri no friendly third party willing to put up the necessary money. The judge's order leaves the trustee in bankruptcy in place with the assets vested in him and he would be able to take the necessary steps to realise assets as necessary as well as to have the costs quantified.
36. The case on which Mr Burgess most relies is the decision of Neuberger J in Butterworth v Souter [2000] BPIR 482. In that case the judge ordered a bankruptcy order to be annulled and the bankrupt and the petitioning creditor jointly to pay the costs of the trustee in bankruptcy, those costs to be borne equally between them. The bankruptcy order was made on 31 August 1999. Agreement was reached between the bankrupt and the petitioning creditor by mid-November 1999 and, moreover, an interim agreement had been reached in September providing for a stay of the bankruptcy until 27 September and if an appeal notice against the bankruptcy order was served by then for that stay to continue until the hearing of the appeal. The bankrupt did appeal in time and sought annulment of the bankruptcy order. The trustee in bankruptcy sought his costs primarily from the petitioning creditor. The appeal came eventually before Neuberger J on 8 February 2000 with counsel representing the trustee in bankruptcy, the petitioning creditor, and the bankrupt himself. At page 585 in the judgment there are two passages on which Mr Burgess relies heavily:

"The parties can point to no statutory provision or a decision of the court dealing with who should pay the trustee's costs when a bankruptcy is annulled. The parties' arguments have all proceeded on the basis that I have unfettered jurisdiction to decide who, if anybody, should pay the trustee's costs. To my mind that must be right. The bankruptcy is pursuant to a court order and the court is still seised of the matter. In my judgment the question of whether the trustee should have his costs, and the question as to who should pay the costs, are at large when the court makes an order annulling the bankruptcy. Prima facie, it cannot be envisaged that a trustee in bankruptcy will work for nothing, and normally, when a bankruptcy order has been properly made, subject to questions of reasonableness and subject to special facts, the trustee will be paid out of the estate."

Later on the same page:

"... there must normally be a strong argument for saying that the petitioning creditor should pay the trustee's costs of the annulment if under s 282(1)(a), and a strong argument for saying that the bankrupt should pay the trustee's costs if the order is made under s 282(1)(b)."

Paragraph (a) applies where the annulment is ordered because it appears to the court, on grounds existing at the time the order was made, that the order ought not to have been made. Paragraph (b) on the other hand deals with the case where, since the making of the bankruptcy order, all the debts and the expenses have been either paid or secured to the satisfaction of the court.

37. Mr Burgess submits the starting point under section 282(1)(a) is that the petitioning creditor should pay the trustee's costs, and that there has to be a good reason, which does not exist in the present case, for doing anything else. Indeed he says, so far from there being any good reason to do anything else, there is a very strong reason for that being the right order, namely, that the petitioning creditor was proceeding by way of an abuse of process.
38. The reasons why Neuberger J in Butterworth v Souter ordered joint liability of the bankrupt and the petitioning creditor were special to the circumstances of that particular case and do not assist in the present case. One thing that is apparent from the history of the case as I have cited is that, as often happens, the annulment jurisdiction arises at a very early stage of the bankruptcy proceedings before anything very much has been run up in the way of the trustee's costs. One thing that is unusual about this case, certainly by no means the only thing, is the fact that the annulment application comes before the court effectively four years down the line.
39. In the present case the petitioning creditor is not a party to the application so there can be no question of an order against him for the payment of the costs. But the court, as Neuberger J accepts and as Mr Burgess accepts, has a full discretion as to what order to make as regards the trustee's costs. There is no suggestion on Mr Burgess' part that, once the correct amount has been ascertained, the trustee in bankruptcy should not be entitled to be indemnified for his costs. The only dispute is as to who should bear these costs vis-a-vis the trustee.
40. Given that this is a discretionary jurisdiction, Mr Burgess has to persuade us that the judge's order was one which was wrong in principle and outside the range of choice open to the judge in the proper and legitimate exercise of that discretion. The judge's reason for requiring the bankrupt to pay the costs in the first instance (and therefore subject to possible remedies against, for example, the solicitors or his wife or the petitioning creditor) was that the delay in raising the point, as a result of which the costs have been run up to the present large amount (which is said to be well over the £130,000 mentioned by the judge in his judgment) was the fault of either or both of the bankrupt and his solicitors.
41. It is true that at the second stage, in the April hearing, he said that he could not be sure whether the fault lay with the bankrupt or with his solicitors, and in the context of the wasted costs application that was crucial. But for the purposes of the annulment application the matter stands in a very different position. No order for the trustee's costs could be made against the solicitors, who were not before the court any more. As between the trustee in bankruptcy and the bankrupt it makes no difference whether the bankrupt was at fault or his solicitors were. The bankrupt has to be affected, and is affected, by the solicitors' advice, acts and omissions in the conduct of the proceedings. Given that substantial costs have been incurred - which is an unusual feature of these cases - but that the assets in the estate are sufficient to cover the costs, it seems to me that to order the bankrupt to pay the costs and to leave the bankruptcy in place until the costs are paid so that the trustee can use his statutory powers of realisation of assets in order to see that the costs are paid, is not only not unfair to Mr Atherton but is logical and sensible. It may be that he has a remedy against his former solicitors to recover some of the costs. He might possibly have a remedy, though it is perhaps doubtful what value there may be in it, against the petitioning creditor. He may have remedies against Mrs Atherton, especially in the context that Judge Raynor himself would be dealing with the ancillary relief proceedings and has already indicated that he will be in a position to take that matter into account as part of the circumstances which are statutorily relevant to the determination of the ancillary relief proceedings. Each of those is something for the bankrupt to pursue in order to recoup the costs that he has to bear.
42. Mr Burgess' submission to us came down in the end to say that it was quite unacceptable and an entirely inappropriate, illegitimate exercise of the discretion to order Mr Atherton to pay the trustee's costs when the whole bankruptcy was the result of an abuse of process on the part of the petitioning creditor and no doubt also Mrs Atherton.
43. It seems to me that the gap in that argument is that it deals fairly with the position as between Mr Atherton, Mrs Atherton and maybe also the petitioning creditor, but it is entirely irrelevant to the position of the trustee in bankruptcy whose costs have been properly incurred, subject of course to being quantified in the appropriate amount, and is entitled, as in Mellor v Mellor, to have security for the discharge of his costs. Mr Burgess ultimately submitted that the order that the judge should have made and the order that we should make is an unconditional immediate annulment and an order that Mrs Atherton pay the trustee's costs, leaving the trustee to do what he can to enforce that order against her, her assets of course, such as they may be, being embroiled in the ancillary relief proceedings. That would leave the trustee without any security. It seems to me it would put him in a wholly invidious position which would be a wrong exercise of the court's discretion to invoke in the circumstances of this case, particularly when there is fault, maybe, as I say, not personal fault of Mr Atherton but fault of him or his advisers, which has led to the situation in which there are such large trustee's costs, so that the liability of the person ordered to pay and the question of security for her payment is a very real point. In those circumstances, it seems to me that the judge's order was well within the range of the legitimate exercise of his discretion. It seems to me that he did not misdirect himself in any respect, particularly not by touching (in the passage that I have mentioned) on the question of whether the fault lay with Mr Atherton or with his solicitors. Where, as between them, the fault lay it does not matter. Mr Atherton does have in this respect to answer for his solicitors' faults. He may have a remedy against them. No one else does, particularly in light of the failure of the wasted costs applications.
44. For those reasons, it seems to me that the additional evidence on which Mr Atherton seeks to rely is irrelevant. For myself, although I have read it in order to consider the application to adduce it and I have referred to its essential nature, I would dismiss that application for the very reason that it does not affect the merits of the case in any way at all. Accordingly, it would not have made any difference to the judge's judgment below if it had been before him. The truth of that can be seen from the fact that already on 20 February at paragraph 34(i) he indicated his view that the bankrupt ought to pay the costs of the trustee. I would dismiss the appeal on the grounds that the judge's order was well within the legitimate exercise of his discretion.
45. For myself, I have to say that I have difficulty in seeing that any other order was sensibly open to him. On a realistic basis, in the circumstances, if an order had been made that Mrs Atherton should pay the costs, not only would it have added complications in terms of the ancillary relief proceedings, but it would be likely to have had to have been coupled with an order continuing the bankruptcy until Mrs Atherton did pay the costs, so that the trustee would have some security and not be left to the simple enforcement of a personal liability of hers under the order for costs. That would have put Mr Atherton in arguably an even worse position because the annulment of the bankruptcy would be dependent on compliance by his wife with her obligation, which seems to me to be a less satisfactory position even than that which he is in. I have sympathy for Mr Atherton in his predicament, but the sympathy is towards him vis-a-vis his wife and the petitioning creditor, not vis-a-vis the trustee in bankruptcy.
46. For those reasons, I would dismiss the application to adduce further evidence and this appeal.
47. LORD JUSTICE JONATHAN PARKER: I agree.
48. LORD JUSTICE WALLER: I also agree.

(Application refused; appeal dismissed; application for permission to appeal to the House of Lords refused; stay lifted; Appellant do pay Respondent's costs, such costs to be the subject of a detailed assessment).