Dunhill v Hughmans (a firm)

In deciding costs after a statutory demand has been withdrawn or set aside, the court must consider the parties’ conduct and the reasonableness of serving the demand, not merely whether service was technically permissible. A creditor may act within its strict entitlement yet act unreasonably by commencing satellite insolvency proceedings prematurely while an appeal is pending. Where the substantive dispute is resolved without trial, the court should do justice between the parties, assess the likely outcome where appropriate, and avoid discouraging sensible settlement. An appellate court may exercise the costs discretion afresh where the lower court omitted a material consideration or applied the wrong approach.

The appellant appealed against an order of the Chief Registrar dated 29 November 2016 refusing to award her the costs of an application to set aside a statutory demand served by her former solicitors. The demand was based on summary judgment for unpaid fees. The summary judgment was later overturned by the Court of Appeal, save in relation to the appellant’s own application for summary judgment on her counterclaim, and the underlying claim and counterclaim were held fit for trial.

The statutory demand was eventually set aside by agreement, leaving costs as the only issue. The central questions were whether the Chief Registrar had properly assessed the appropriateness and reasonableness of the respondent’s conduct, and whether the appellant should receive her costs.

1. Appeal allowed. Permission to appeal was granted. The appellant was awarded the costs of her application to set aside the statutory demand.
2. The Chief Registrar had considered whether the respondent was entitled to serve the demand, but entitlement was not the same as appropriateness. The reasonableness of serving the demand was a material consideration when assessing subsequent conduct and costs.
3. The respondent acted unreasonably by serving the demand immediately after permission to appeal had initially been refused, despite knowing that an oral renewal application would be pursued. The service of the demand commenced parallel insolvency proceedings which were likely to generate unnecessary costs. The respondent could reasonably have waited for the renewal application to be determined.
4. The appellant had not acted unreasonably. Her applications and requests to reserve costs pending the Court of Appeal’s decision were justified by the stay, the grant of permission to appeal and the developing procedural position. The respondent’s conditional drop-hands offer did not make it unreasonable for her to seek her costs.
5. In exercising the costs discretion, the court applied the principles governing cases resolved without trial. The overriding objective was to do justice without unnecessary court time and expense. The court could consider the likely outcome, the parties’ conduct and the desirability of encouraging sensible settlements. The appellate court was entitled to exercise the discretion afresh because the Chief Registrar had failed to consider the respondent’s reasonableness.
6. Obiter, the appellant would probably have succeeded under rule 6.5(4)(a) of the Insolvency Rules 1986 once permission to appeal had been granted. The evidence sufficiently indicated that the counterclaim exceeded the judgment debt; detailed quantification was unnecessary for that purpose.
7. Obiter, reinstatement of a stay would not itself necessarily justify setting aside an otherwise valid statutory demand. A statutory demand based on summary judgment would plainly be liable to be set aside if the summary judgment were later overturned, because the debt would no longer exist.

• High Court (Chancery Division): The Chief Registrar refused to award the appellant her costs and directed that the respondent’s costs application be heard.
• High Court (Chancery Division): The appeal was allowed, permission to appeal was granted, and the costs discretion was exercised afresh in favour of the appellant.