Glenister v Rowe

A party exposed only to the risk that a court may order costs does not have a contingent liability for those costs before the order is made. Costs are discretionary, and no obligation to pay or right to recover them exists until the specific order is made. The statutory treatment of present, future and contingent liabilities in the Insolvency Act 1986 does not extend to a mere possibility that the court will exercise its discretion. Commencing proceedings, applying for relief or claiming costs does not itself create the necessary liability. A costs order made after bankruptcy and discharge may therefore be outside the bankruptcy debt released on discharge.

Mrs Rowe obtained a costs order against Mr Glenister after successfully appealing the striking out of her negligence and breach of trust proceedings. Mr Glenister had become bankrupt before the appeal was heard and was discharged before the Court of Appeal made the costs order. The costs were later taxed at £15,026.29, and Mrs Rowe issued a statutory demand for that sum and interest.

A Deputy Registrar refused to set aside the demand. On appeal, the Deputy High Court Judge set aside the statutory demand, holding that the prospective costs liability was a contingent liability at the commencement of the bankruptcy and had been released on discharge. The central issue was whether the possibility of a discretionary costs order amounted to a contingent liability within the bankruptcy provisions.

Mummery LJ gave the leading judgment. Thorpe LJ agreed completely, and Butler-Sloss LJ agreed with both judgments. The appeal was therefore allowed unanimously.

1. The costs in question were not a bankruptcy debt. The statutory demand concerned the costs order made by the Court of Appeal after Mr Glenister’s bankruptcy and discharge. The issue was whether that liability had already existed contingently when the bankruptcy commenced.
2. Under section 51 of the Supreme Court Act 1981 and Order 62 of the Rules of the Supreme Court, costs were discretionary and could not be recovered without an order. Before an order was made there was no obligation to pay costs and no corresponding right to recover them.
3. The possibility of a costs order was a contingency, but contingency alone was insufficient. The relevant distinction was between liability and the risk of liability. The court might decline to make an order, in which event the risk would disappear, or might later convert the risk into an actual liability. The inclusion in the Insolvency Act 1986 of future and contingent liabilities did not encompass a mere possibility that a discretionary power would be exercised.
4. The court considered the competing authorities, including [1963] AC 235. Even assuming that a contingent liability could exist without an underlying obligation, the discretionary nature of costs meant that no liability existed before the order. The issue was not altered by the statutory reference to liabilities under an enactment, because the liability arose from the particular costs order, not from the general statutory power.
5. Issuing the strike-out summons, appealing, or claiming costs merely notified the opposing party that an application for costs might be made. Those acts did not amount to an obligation incurred by Mr Glenister which necessarily led to a costs liability. The late attempt to rely separately on section 382(1)(b) was refused and would have failed in any event.

The statutory demand dated 3 December 1997 was restored in the sum of £16,531.35. Mrs Rowe was awarded the relevant costs, and leave was granted to issue a bankruptcy petition within 28 days unless a different order was made on further appeal.

1. Court of Appeal — Appeal allowed; statutory demand restored in the sum of £16,531.35.
2. High Court, Chancery Division, in bankruptcy — On 10 June 1998, the Deputy High Court Judge discharged the Deputy Registrar’s order and set aside the statutory demand.
3. Deputy Registrar — On 26 March 1998, refused to set aside the statutory demand and authorised presentation of a bankruptcy petition.