Oraki & Anor v Dean & Dean (A Firm) & Ors

The Court of Appeal considered the exercise of the court's discretion under section 282(1)(a) and (4) of the Insolvency Act 1986 when annulling bankruptcies and determining who should bear the trustee's costs. The court affirmed that the judge has an unfettered discretion to provide for the payment of a trustee's reasonable costs on annulment and that there is no absolute rule protecting a bankrupt who is "wholly innocent" from being ordered to pay a trustee's costs. The judge was entitled to make the annulments conditional on payment of the trustee's costs where the petitioning creditor was unlikely to be able to pay and where the trustee appeared to have incurred proper expenses, subject to the bankrupts' preserved rights to challenge the trustee's conduct and quantum of costs.

The appellants, Dr and Mr Oraki, appealed an order of Mr Robert Ham QC which in principle allowed annulment of their bankruptcies but made annulment conditional on payment of various costs, notably the trustee in bankruptcy's costs. The bankruptcies arose after solicitors (Dean & Dean) obtained a judgment for fees delivered by a solicitor later found by the Solicitors Disciplinary Tribunal to have engaged in serious misconduct; the Orakis contended they were innocent and that the bankruptcies should be annulled unconditionally.

Nature of the application: applications to annul bankruptcy orders under section 282(1)(a) IA 1986 and related dispute about who should pay the trustee's costs incurred in the bankruptcy and in the annulment proceedings.

Procedural posture: the appeal to the Court of Appeal followed a decision by Deputy Registrar Cheryl Jones dated 9 April 2010 refusing annulment as premature, and a subsequent High Court decision by Mr Ham QC (Deputy Judge) which admitted fresh evidence (including the Solicitors Disciplinary Tribunal striking off the solicitor) and decided in principle to allow annulment but made it conditional on payment of specified costs. The present appeal concerned only the costs provision.

Issues before the court:

• Whether an apparently "wholly innocent" bankrupt can be ordered to pay the trustee's costs when the bankruptcy is annulled on grounds that the bankruptcy order ought not to have been made;
• Whether the judge erred in treating the trustee's conduct as irrelevant to the costs decision;
• Whether the judge should have adjourned or made an unconditional annulment.

Reasoning and conclusion: the court reviewed section 282 IA 1986, the Insolvency Rules and authorities including London Borough of Redbridge v Mustafa, Butterworth v Soutter, Thornhill v Atherton and Mellor v Mellor. The court emphasised that the discretion to provide for payment of trustee costs on annulment is broad and not subject to a presumption in favour of bankrupts. Practical realities such as the petitioning creditor's inability to pay and the trustee's entitlement to remuneration for services properly rendered are relevant factors. The judge did not treat the trustee's conduct as irrelevant; rather, he concluded that some trustee costs would prima facie be payable but left open the bankrupts' rights to challenge conduct and quantum. Given the circumstances, conditioning the annulment on provision for the trustee's costs was within the judge's discretion. The Court of Appeal dismissed the appeal.

Appeal dismissed. The court held that the judge did not err in principle: the discretion under section 282 and the Insolvency Rules permits the imposition of conditions (including payment of trustee costs) on annulment; there is no absolute rule exempting an otherwise "innocent" bankrupt from such an order; and practical considerations (such as the petitioning creditor's inability to pay and the trustee's entitlement to reasonable remuneration) justified the conditional annulment while preserving the bankrupts' rights to challenge the trustee's conduct and costs.

The matter began with a judgment in 2004 in favour of Dean & Dean, leading to statutory demands and petitions which resulted in adjudications in bankruptcy of the appellants in 2005. Deputy Registrar Cheryl Jones dismissed an annulment application on 9 April 2010 as premature. Permission to appeal was considered by Peter Smith J in June 2011. The Solicitors Disciplinary Tribunal struck off the solicitor involved on 21 June 2012. Mr Robert Ham QC (Deputy Judge, Chancery Division) admitted fresh evidence and in a decision dated 21 January 2013 ([2012] EWHC 2885 (Ch) as cited in the record) decided in principle to allow annulment but made it conditional on payment of costs. The appellants appealed to the Court of Appeal, which handed down judgment on 18 December 2013 ([2013] EWCA Civ 1629) dismissing the appeal.