Carman v Yates & Ors

An applicant seeking permission to appeal a discretionary insolvency valuation must show a real prospect that the first-instance judge adopted an erroneous approach. Where calculation of a bankrupt’s beneficial interest is necessarily imprecise, a judge may use a rough-and-ready method, provided the statutory discretion considers the bankrupt’s contributions and what would have been available to creditors if the transactions had not occurred. The Court of Appeal will not interfere merely because another calculation is possible.

The trustee in bankruptcy obtained a declaration that Yates had a beneficial interest in The Hewarths and an order setting aside his assignment of a life-policy interest. The first-instance judge found that Yates had funded the relevant transactions and attributed 60 per cent of the property’s value to the trustee.

Yates sought permission to appeal, arguing that the judge should have used a different method to calculate his interest. The application also included a challenge to the costs order. The central issues were whether the valuation approach had a real prospect of being overturned and whether there was any basis for appellate intervention on costs.

Permission to appeal

1. The application for permission to appeal was refused. Yates had to demonstrate a real prospect of success by showing that the first-instance judge had approached the calculation incorrectly. The possibility of alternative methods did not satisfy that threshold.
2. The calculation was necessarily imprecise. The judge was entitled to adopt a rough-and-ready, linear assessment of Yates’s contributions against the property’s current value, while allowing for uncertainties and the fact that some expenditure might have added little value. The approach reflected the statutory discretion under sections 423 and 339 of the Insolvency Act 1986. That discretion required regard to the contributions and their effect on the bankrupt’s position, as well as what would have been available to creditors if the transactions had never occurred.
3. The reduction of the initial 70 per cent assessment to 60 per cent was an allowance for uncertainties inherent in the exercise. The Court of Appeal could not see a real prospect that a full court would overturn the judge’s approach.

Costs

The Court of Appeal will rarely interfere with a first-instance costs decision because the trial judge has a wide discretion and is best placed to assess the conduct and history of the litigation. A strong case is required. No such case was shown: the settlement offer was inadequate and serious issues required preparation for trial. The costs application was therefore also refused.

• Court of Appeal (Civil Division) — Lord Justice Auld refused the application for permission to appeal and the related costs application.
• Nottingham County Court — Mr Justice Charles declared that Yates had a beneficial interest in The Hewarths, set aside the relevant transactions, and attributed 60 per cent of the property’s value to the trustee.