Hunt v Harb & Anor

A trustee in bankruptcy who assigns a claim in return for a share of its proceeds cannot assume in advance that he is immune from an adverse costs order. The costs jurisdiction is wide, flexible and fact-sensitive. It should not be pre-empted at an early stage, particularly where the proposed assignment and offers have not been disclosed and no specific procedural power has been invoked. The defendant must retain the opportunity to argue at the end of the litigation that the claim was in substance pursued for the trustee’s benefit. Policy favouring assignments does not justify cutting down that jurisdiction or the defendant’s ordinary costs rights. A later direction may be possible in an appropriate case, but that question was left open.

Stephen Hunt, as trustee in bankruptcy of Janan George Harb, pursued a claim against HRH Prince Abdul Aziz Bin Fahd Bin Abdul Aziz based on an alleged oral agreement. Unable to obtain after-the-event insurance or third-party funding, the trustee discontinued the claim.

Mrs Harb applied to set aside the notice of discontinuance. The Chancery Division allowed the application and directed a procedure for obtaining offers for the claim, holding that the trustee could reject an offer structured as a share of successful proceeds because he might remain liable for costs: [2011] EWHC 714 (Ch). Mrs Harb appealed against that direction. The central issue was whether a trustee could safely assume that an assignment on those terms would prevent any later costs order against him.

Appeal and order. The court dismissed the appeal but deleted paragraph 9(i) of the order. It was inappropriate to give the direction before the existence, number, provenance and terms of any offers were known.

1. The power under section 51(1) of the Senior Courts Act 1981 to decide by whom and to what extent costs are paid is wide and flexible. Costs decisions are fact-sensitive and must leave room for the justice of the individual case. The court relied on Aiden Shipping Co Ltd v Interbulk Ltd and the authorities emphasising flexibility in costs decisions, including Symphony Group Ltd v Hodgson and Dymocks Franchise Systems (NSW) Pty Ltd v Todd.
2. A court should not pre-empt the discretion of the judge who will determine costs at the end of the substantive litigation, particularly where there is no specific proposed assignment and the facts are incomplete. The rules may control the general discretion in an appropriate case, but no relevant cost-capping provision had been invoked.
3. The position of a trustee in bankruptcy differs from that of a liquidator, administrator or receiver. Under sections 306 and 311(4) of the Insolvency Act 1986, the bankrupt’s estate vests personally in the trustee. The trustee sues in his own name and is, in principle, liable for his own costs and any adverse costs, subject to an indemnity whose value may be limited.
4. An assignment in return for a substantial share of the recovery does not establish immunity from costs. The defendant must remain free to argue at the end of the proceedings that the claim was primarily the trustee’s and was pursued for his benefit. Whether that argument succeeds depends on the circumstances and the terms of the transaction.
5. Policy favouring the sale or transfer of claims does not justify restricting the defendant’s ordinary costs rights before the relevant offers and terms are known. The question whether a direction similar to paragraph 9(i) could be made at a later stage, when the court had all relevant information and considered it just, was expressly left open.

• Court of Appeal (Civil Division). In [2011] EWCA Civ 1239, the court dismissed the appeal but deleted paragraph 9(i) of the order.
• High Court of Justice, Chancery Division. The deputy judge set aside the notice of discontinuance and directed a procedure for obtaining offers for the claim, including the disputed paragraph 9(i): [2011] EWHC 714 (Ch).