Nutting & Anor v Khaliq & Anor

In insolvency proceedings, the ordinary costs rules apply, subject to the special rules governing a trustee in bankruptcy’s right to reimbursement from the estate. A legally aided party’s funding status is irrelevant when deciding whether that party is the successful litigant entitled to costs. It does not convert reimbursement from a potentially surplus estate into an adverse costs order against the legally aided individual.

A trustee in bankruptcy should bear costs personally only where the trustee has fallen below the standard of a reasonable insolvency practitioner acting reasonably. Where the trustee has acted partly reasonably and partly unreasonably, the court may limit the amount recoverable from the estate. A wholly successful party who has not been criticised for misconduct should not lose the usual entitlement to costs merely because another party is legally aided.

The appeal concerned costs arising from two applications in the bankruptcy of the first appellant. The applications sought suspension of a possession warrant concerning the parties’ matrimonial home and variation of an earlier order requiring the sale of another property and cooperation with the trustees in bankruptcy.

The District Judge varied the earlier order, suspended the warrant and ordered the first appellant to pay 60% of the trustees’ costs, recoverable only as a charge on the bankruptcy estate. On appeal, HHJ Kaye QC replaced that order with no order as to costs between the first appellant and the trustees, but limited the trustees’ recovery from the estate to 30% and made no separate costs order for the second appellant. The central issues were the application of the ordinary costs rules, the effect of legal aid, and the extent of the trustees’ right to reimbursement.

1. Disposition. The first appellant’s appeal was dismissed. The second appellant’s appeal was allowed, and the trustees were ordered to pay her costs of the applications. The 30% cap applied both to the trustees’ own recoverable costs and to the costs payable by them to the second appellant.
2. Ordinary costs starting point. Under Civil Procedure Rules 1998 Part 44, as applied to insolvency proceedings by IR rule 7.51(A)(1), the starting point was that the successful first appellant should receive his costs. That starting point could be displaced by good reason. The first appellant’s legal aid was irrelevant to that assessment.
3. First appellant. The court accepted that the first appellant had succeeded on both applications, but also accepted the lower courts’ assessment that his conduct justified no order for costs between him and the trustees. His failure to cooperate fully with the sale of Sawrey Place, his wish to pursue mortgage or remortgage arrangements, and the further information required by the order were relevant circumstances.
4. Trustees’ reimbursement. The court rejected the argument based on section 11(1) of the Access to Justice Act 1999. That provision concerned adverse costs orders against legally aided parties. It did not cap a trustee’s legal right to reimbursement of properly incurred costs and expenses from the bankruptcy estate, which could benefit the bankrupt if a surplus remained. The interpretation advanced would produce unintended consequences in cases involving a potential surplus.
5. Under IR rule 6.224(1)(a)(i), trustees should bear costs personally only where they had fallen below the standard of a reasonable insolvency practitioner acting reasonably. The lower courts were entitled to find that the trustees had acted partly reasonably and partly unreasonably, and to limit their recovery from the estate to 30%. The first appellant therefore had no successful challenge to that part of the order.
6. Second appellant. The second appellant was wholly successful and had not been criticised for her conduct. There was no principled basis for depriving her of the usual costs order, or for treating her legal aid as relevant to the cap on recovery from the first appellant’s estate. Her separate position, including the potential charge relating to legal aid, had to be recognised.

• Court of Appeal (Civil Division): [2012] EWCA Civ 1726. The first appellant’s appeal was dismissed. The second appellant’s appeal was allowed.
• High Court, Leeds District Registry: HHJ Kaye QC allowed the appeal from the District Judge’s costs order on 18 January 2012, substituting no order as to costs between the first appellant and the trustees, subject to a 30% cap on the trustees’ recovery from the bankruptcy estate and their liability for the second appellant’s costs.
• Bradford County Court: District Judge Lingard ordered the first appellant to pay 60% of the trustees’ costs of the applications, those costs to be a charge on the bankruptcy estate.