Hunt v Harb & Anor

The Court of Appeal considered whether a trustee in bankruptcy who assigns a claim on terms that the bankrupt's estate will receive a share of any recovery can safely assume no order for the defendant's costs will be made against him if the claim fails. The court explained the legal distinction between trustees in bankruptcy and other insolvency office-holders: because the bankrupt's estate vests in the trustee personally (Insolvency Act 1986, sections 306 and 311(4)), the trustee will be a party to proceedings and, in principle, liable for costs if a claim fails.

The court relied on the broad costs jurisdiction under section 51(1) of the Senior Courts Act 1981 and existing authorities (including Hamilton v Official Receiver and Osborn v Cole) to hold that the court could, in an appropriate case, make a third-party costs order against a trustee who effectively benefits from the litigation by taking a share of recovery. The court refused to make a pre-emptive restriction on future costs discretion, deleted paragraph 9(i) of the deputy judge's order which purported to allow the trustee to reject offers on the stated ground, and dismissed the appeal. The court left open that, with full knowledge of offers and terms, a court might in a suitable case make an order akin to paragraph 9(i).

Background and parties:

• Mrs Janan Harb alleged an oral agreement with HRH Prince Abdul Aziz by which he promised money and land in exchange for withdrawal of allegations and a section 27 Matrimonial Causes Act 1973 application. The Prince contended state immunity.
• Mrs Harb became bankrupt on 7 April 2008. The claim vested in the trustee in bankruptcy, Mr Stephen Hunt, under the Insolvency Act 1986 (sections 306 and 311(4)). The trustee issued proceedings shortly before limitation expired and later discontinued the claim because he could not obtain ATE insurance or third-party funding.
• Mrs Harb applied to set aside the notice of discontinuance; the deputy judge (Mr Kevin Prosser QC) set aside the discontinuance and directed an offer-invitation procedure, but included paragraph 9(i) permitting the trustee to reject offers on the ground that a purchaser who would pay the trustee only from net proceeds would act as his nominee and leave him at risk of costs. Mrs Harb appealed against that paragraph.

Nature of the application and issues:

• The application before the Court of Appeal challenged paragraph 9(i) of the deputy judge's order. The central legal issues were (i) whether a trustee in bankruptcy who assigns a claim to the bankrupt in return for a share of the proceeds is necessarily safe from an order for the defendant's costs if the claim fails, and (ii) whether the court could or should make a pre-emptive direction limiting future judicial discretion on costs.

Reasoning and decision:

• The court emphasised the legal distinction between trustees in bankruptcy and other insolvency officers: because the estate vests in the trustee personally, he pursues claims in his own name and is, in principle, liable for costs. That distinguishes trustees from liquidators, administrators or receivers whose litigation is brought in the name of the company or chargor and who are less readily made personally liable for costs.
• The Court of Appeal relied on the breadth of the court's power under section 51(1) of the Senior Courts Act 1981 and earlier authorities such as Aiden Shipping (The Vimeira (No 2)), Hamilton v Official Receiver and Osborn v Cole to support the proposition that a trustee who retains a substantial share of proceeds could be subject to an order for the defendant's costs in appropriate circumstances.
• The court rejected a general rule that assignment to the bankrupt for a share of recovery always immunises the trustee from costs. It held that it would be inappropriate to pre-empt the trial judge's discretion at an early interlocutory stage without knowledge of the identity, number and terms of offers received for any assignment. For that reason paragraph 9(i) was unnecessary or inappropriate and was deleted. The appeal was dismissed, but the court left open the possibility that, in an appropriate case and with full information about offers and terms, a court might make a direction similar to paragraph 9(i).

Procedural posture: Appeal from the Chancery Division (Mr Kevin Prosser QC); deputy judge's decision reported at [2011] EWHC 714 (Ch).

Appeal dismissed. The Court of Appeal held that a trustee in bankruptcy cannot be guaranteed immunity from an order for a defendant's costs merely by assigning a claim to the bankrupt for a share of any recovery, because the trustee pursues the claim in his own name (Insolvency Act 1986, sections 306 and 311(4)) and may therefore be regarded as benefiting from the litigation. The court refused to make a pre-emptive restriction on future costs discretion and deleted paragraph 9(i) of the deputy judge's order, while leaving open that, with full knowledge of offers and terms in an appropriate case, a similar direction might be justified.

Appeal from the Chancery Division (Deputy Judge Kevin Prosser QC) whose judgment setting aside the notice of discontinuance is reported at [2011] EWHC 714 (Ch). This Court delivered judgment as [2011] EWCA Civ 1239.