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Introduction
The court held that a trustee in bankruptcy was entitled to all of his costs relating to an application for a private examination and provision of information, pursuant to section 366 of the Insolvency Act 1986 (“IA 1986“).
The court rejected the respondents’ argument that the trustee was the unsuccessful party, as an order for private examination had not been granted. The court noted that the pursuit and issue of the application led to the disclosure of significant information. The court further noted that it was unrealistic to suggest the trustee had not had any success because evidence which was disclosed ‘in answer’ to the application, eliminated the requirement for an order for private examination.
Issues
The court considered the costs position of an IA 1986, section 366 application when an order for a private examination is not granted.
Background
The trustee in bankruptcy (“the Trustee“) requested information and documents in relation to alleged transactions, on multiple occasions. The trustee initially requested this from the debtor. Following unsuccessful attempts of obtaining this information, the trustee made enquires with Eurobeam (acting by Mr Roth) and Eurobeam’s solicitors during that time, BNI. Due to further failed attempts, the trustee issued the application.
Following several hearings in relation to the application some information and documents were provided including a witness statement by Mr Roth.
Overall, the information provided was limited which meant the Trustee had follow up questions. In particular, the witness statement given by Mr Roth was insufficient and raised further questions. The respondent objected to providing answers to these follow up questions in the form of a supplemental statement, bearing a statement of truth. The court held it was reasonable and proportionate for the Trustee to request this and, had Mr Roth done so, significant time and costs could have been avoided. However, the court noted Mr Roth chose to instruct solicitors to respond by letter, who answered some matters, and provided only partial information on others.
The trustee applied for a further hearing to be listed on the issues of costs.
Decision
The court considered that a section 366 application was an iterative process. The respondent may put forward some or all of the information and documentation requested in order to avoid ‘substantive relief’ being granted in the form of a private examination. Success is based on more than if the private examination was ordered or not. The court must consider the realities of the situation.
The general rule under CPR 44.2(2), that the ‘loser pays the winner’ was tempered by the Insolvency (England and Wales) Rules 2016, SI 2016/1024, r 12.22(3). This provided that the trustee’s costs must be paid out of the bankrupt’s estate, unless the court orders otherwise. The emphasis was different and the court would consider all the circumstances such as the conduct of the parties before and during the proceedings. The court has a discretion when making a decision on costs.
Where evidence is given ‘in answer’ to the application and it removes the need for a private examination, the court will need to review conduct. The court should consider “whether the officeholder was reasonably entitled to conclude that there was a serious risk that the proposed examinee would not cooperate with him without the discipline imposed by proceedings brought under s.366” [124].This draws an analogy with Miller v Bain & Ors [2013] BPIR 959.
The court held that the Trustee was entitled to think that there was a risk that the respondents would not cooperate with him without the compulsion of a court order. The continued involvement of the court meant the requested information and documentation on the debtor’s dealings, affairs and property was provided.
The court held that the approach by the respondents was obstructive and ambiguous from the outset. After the proceedings the court noted there were repeated failures to respond and/or to properly engage with the Trustee.
The lines of enquiry pursued by the trustee were held to be entirely reasonable, legitimate and proportionate. The respondents were under a public duty to assist.
Despite a private examination not being ordered, the application achieved its purpose due to the provision of documentation and information on the debtor’s dealings, affairs or property. The trustee was seen as the successful party and the respondents’ request for their costs of and occasioned by the application, or their costs of compliance, to be paid from the estate were rejected.
The court ordered instead that the Trustee’s costs should be paid by the respondent. These included costs arising from the application for a hearing to be listed to determine the costs
Takeaways
This case shows that the general rule of the ‘loser pays the winner’ under CPR 44.2(2) is not clear cut. It is tempered by the Insolvency (England and Wales) Rules 2016, SI 2016/1024, r 12.22(3) that the trustee’s costs must be paid out of the bankrupt’s estate, unless the court orders otherwise. The court will consider all the circumstances such as the conduct of the parties before and during the proceedings. The court has a discretion when making a decision on costs and it may not follow the general rule.
When evidence is given ‘in answer’ to the application and it takes away the need for a private examination, the court needs to consider conduct. This includes where the officeholder reasonably concludes that there will be a serious risk of non-cooperation by the proposed examinee without the discipline provided by proceedings under section 366.
Should you wish to discuss any of the issues raised in this article, please contact Sacha Pickering.
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