Cooke v Dunbar Assets Plc

Costs on an unsuccessful appeal against a bankruptcy order are not automatically expenses of the bankruptcy or provable debts. The court may order the unsuccessful bankrupt personally to pay the costs. Rule 12.2 protects persons who incur proper insolvency expenses by permitting recovery from the estate where recovery from another party fails; it does not make estate recovery exclusive. An alternative order may provide that unpaid costs are treated as an expense of the bankruptcy, ranking under Rule 6.224.

The appellant appealed against a bankruptcy order made by Deputy District Judge Buckley-Clarke at Luton County Court on 18 December 2014. The appeal was dismissed in a judgment handed down on 6 April 2016. The remaining issue was the proper treatment of the respondent petitioning creditor’s costs of resisting the unsuccessful appeal.

The parties identified three possible categories: an expense of the bankruptcy, a provable bankruptcy debt, or a personal liability outside the bankruptcy. The central questions were whether categorisation was fixed by law and whether the court had discretion to order personal payment, with a fallback against the bankruptcy estate.

1. Disposition. The appeal had already been dismissed. The court ordered Mr Cooke to pay Dunbar’s costs, assessed on the standard basis, with the qualification that unpaid costs might be treated as an expense of the bankruptcy.
2. Costs jurisdiction. Rule 7.51A applies CPR Part 44 to insolvency proceedings, subject to necessary modification and inconsistency with the Insolvency Rules 1986. The ordinary starting point is that the unsuccessful party pays the successful party’s costs, although the court may make a different order.
3. Rule 12.2. Rule 12.2 is not an exhaustive code governing recovery. It ensures that costs incurred in the course of bankruptcy proceedings are treated as expenses of the bankruptcy, protecting persons such as office-holders who may need indemnity from the estate. It does not prevent an order for recovery from the unsuccessful litigant. The judge drew an analogy with Re Beddoe [1893] 1 Ch 547.
4. Provability and priority. The reasoning in Re Nortel GmbH [2014] AC 209 concerning contingent liabilities in pre-existing litigation did not determine the costs of the insolvency proceedings themselves. Treating those costs both as expenses and as provable debts would conflict with the statutory priority scheme under section 328 of the Insolvency Act 1986 and Rule 6.224. The appeal was a distinct process voluntarily initiated by the bankrupt after the bankruptcy order.
5. Policy and analogy. The costs risk deters unmeritorious appeals and protects the bankruptcy estate from dissipation. Authorities on winding-up appeals, including In re E K Wilson and Sons Ltd [1972] 1 WLR 791, supported the premise that an unsuccessful insolvent appellant may be liable for costs, but did not establish an exclusive rule requiring payment from the insolvency estate.

1. High Court (Chancery Division): The appeal from the bankruptcy order was dismissed. The court subsequently determined the costs issue and made the order described above.
2. Luton County Court: Deputy District Judge Buckley-Clarke made the bankruptcy order on 18 December 2014.