Bhogal & Anor v Knight

On an appeal concerning costs, the appellate court should interfere only where the decision was wrong, unjust because of serious procedural or other irregularity, or outside the generous ambit of reasonable disagreement. The ordinary rule that costs follow the event is a starting point, not an inflexible rule. The costs judge may consider all the circumstances, including pre-action conduct and relevant evidence available at the costs hearing. In an application under rule 14.8 of the Insolvency Rules, the court decides afresh whether the claim should be admitted, and the claimant bears the burden of satisfying the court. An office-holder is not given general costs immunity, but the court may make no order for costs where the claimant’s delay or lack of clarity materially contributed to the need for proceedings.

The appellants challenged the rejection of their claim in an individual voluntary arrangement concerning an £87,000 loan. The County Court admitted the claim under rule 14.8 of the Insolvency Rules but made no order for costs, concluding that the appellants had been slow to clarify the basis of their claim and that it would be unfair for other creditors to bear the costs.

The appellants appealed against the costs order. They argued that the judge had relied on unsupported assertions, applied the wrong approach to creditors’ interests, and failed to give effect to the respondent’s opposition to the application despite his failure to file evidence. The central issue was whether the costs decision fell outside the judge’s discretion or was unjust because of a serious procedural irregularity.

1. Appeal dismissed. Under CPR 52.21(3), an appeal could succeed only if the decision was wrong or unjust because of a serious procedural or other irregularity. In a costs decision, there had to be an error of principle or a plainly wrong decision outside the generous ambit within which reasonable disagreement was possible: [2007] EWCA Civ 368.
2. The ordinary starting point was that the successful appellants would receive their costs as expenses of the insolvency. That starting point did not prevent the judge from considering all the circumstances. Rule 14.9 of the Insolvency Rules did not create a principle that an office-holder could litigate with costs immunity.
3. The judge was entitled to consider Mr Knight’s statements at the costs hearing. They operated both as oral evidence and submissions, and were consistent with the documentary material. Any irregularity in receiving the oral evidence was not serious enough to satisfy CPR 52.21(3).
4. The judge was entitled to find that the appellants had been tardy in clarifying that the loan was made to Mr Broughton personally rather than being a guarantee claim. The documentary evidence supported that conclusion. The concern about the burden on other creditors was part of the particular circumstances, not a general rule.
5. Under rule 14.8, the court determines the claim afresh on the evidence before it rather than merely reviewing the supervisor’s decision. The claimant bears the burden of satisfying the court that the claim should be admitted. It was therefore open to the supervisors to require sufficient evidence and not simply agree a consent order. The appeal court was concerned only with whether the costs decision exceeded the lower judge’s wide discretion, not with what order it would have made itself.

• High Court (Chancery Division): appeal from the order of Deputy District Judge Harvey in the Brighton County Court made on 5 June 2018. Permission to appeal was granted by Arnold J on 29 August 2018. The appeal was dismissed.