Glenister v Rowe

A claim for discretionary litigation costs becomes a liability only when the court makes a costs order. Before that order, participation in proceedings creates a risk of liability rather than a contingent liability within section 382 of the Insolvency Act 1986. Commencing an application or appeal does not commit a party to an obligation which will necessarily arise upon specified events. Accordingly, discharge from bankruptcy does not release liability under a costs order subsequently made merely because the proceedings began, or the recoverable costs were incurred, before bankruptcy.

Margaret Rowe brought proceedings against her solicitor, Graham Glenister, alleging negligence and breach of trust. Glenister obtained an order striking out her claim and awarding him costs. Rowe appealed before Glenister became bankrupt. Glenister was discharged from bankruptcy after the appeal hearing but before judgment.

The Court of Appeal subsequently allowed Rowe's appeal. It ordered Glenister to pay her costs up to 8 June 1992 and his trustee in bankruptcy to pay the later costs. Following taxation, Rowe served a statutory demand on Glenister for £16,531.35, including interest. The Deputy Registrar refused to set it aside and authorised a bankruptcy petition.

On appeal, a deputy High Court judge set aside the demand. She held that the costs were a contingent liability at the commencement of Glenister's bankruptcy and that his discharge had released him from that bankruptcy debt. Rowe appealed with permission. The central issue was whether exposure to a discretionary costs order constituted a contingent liability before the order was made.

1. The appeal was allowed unanimously. Mummery LJ gave the leading judgment. Thorpe LJ expressed complete agreement, and Butler-Sloss LJ agreed with both judgments. The costs claimed by Rowe were not a contingent liability at the commencement of Glenister's bankruptcy. His discharge therefore did not prevent recovery, and the statutory demand could not be disputed on substantial grounds.

2. Under section 51 of the Supreme Court Act 1981, costs were discretionary. Order 62 of the Rules of the Supreme Court required a court order before one party could recover litigation costs from another. Until an order was made, there was neither an obligation to pay nor a right to recover. Although a costs order was a contingency, the possibility of that order did not itself constitute a contingent liability.

3. Mummery LJ held that issuing an application or appeal merely notified the opposing party that a costs order might be requested. It involved no commitment which would necessarily lead to an order against the applicant or appellant. The result remained the same even if a contingent liability could exist without an underlying legal obligation, as argued from Re Sutherland [1963] AC 235. Thorpe LJ emphasised the distinction between incurring liability and exposing oneself to a risk which the future exercise of judicial discretion might eliminate or convert into liability.

4. The extended language of section 382 of the Insolvency Act 1986 encompassed a monetary liability under a costs order once made. It did not encompass the possibility of a discretionary order. The liability arose under the particular order, rather than under the enactment conferring the court's general power.

5. The court refused permission to revive the argument under section 382(1)(b). It was raised too late, without a respondent's notice, after being expressly disclaimed in the skeleton argument. Mummery LJ added that it would in any event have failed. The statutory demand was restored. The recorded order required Glenister to pay the appeal and lower-court costs and permitted Rowe to issue a bankruptcy petition within 28 days, subject to any different order made by the House of Lords upon a petition presented within that period.

• Court of Appeal: Allowed Rowe's appeal and restored the statutory demand for £16,531.35. Leave to appeal to the House of Lords was refused.
• High Court, Chancery Division, in Bankruptcy: On 10 June 1998, Miss Barbara Dohmann QC, sitting as a deputy High Court judge, allowed Glenister's appeal, discharged the Deputy Registrar's order and set aside the statutory demand. She granted Rowe permission to appeal.
• Deputy Registrar: On 26 March 1998, Mr Deputy Registrar Jacques refused to set aside the statutory demand and authorised presentation of a bankruptcy petition.