Mr Justice Nugee:
Introduction
- This is an appeal from the County Court in a bankruptcy matter. The Appellant, Mr Kulvern Singh, ("Mr Singh") was made bankrupt as long ago as 28 July 2009 on the application of the London Borough of Luton, which had obtained liability orders against Mr Singh in respect of Council Tax.
- A trustee in bankruptcy, Mr Robert Pick of Grant Thornton, was appointed on 21 September 2009. He was succeeded by two other office-holders from the same firm, first (with effect from 3 February 2011) by Mr Michael Gerrard and then (with effect from 12 November 2012) by the Respondent, Mr Richard Hicken, who is the current trustee. I will use "the Trustee" to refer to the successive office-holders, it not being generally necessary to distinguish between them, and "Mr Hicken" where it is necessary to refer to the Respondent specifically.
- The liabilities of the estate were relatively modest. Luton's claim was for £9,690 (all sums are rounded to ignore pence), and HMRC had a claim for £2,001, making £11,691 in all. To that was later added another claim, from Birmingham Midshires, who had sold a property as mortgagee but was left with a shortfall, of £4,931. But even with this addition the total amount of liabilities (before statutory interest) was only £16,622.
- The total amount required to discharge the liabilities and costs in full however was very much larger. The Trustee has produced a number of statements giving the estimated amount required for payment in full as at various dates (referred to as "payment in full" statements), and the most recent payment in full statement (that as at 5 December 2017) gives a figure for the estimated amount required to discharge the liabilities and costs in full as £285,089. A substantial amount of this is attributable to the amounts claimed in respect of the Trustee's own time costs, amounting to over £75,000, and the costs of two successive firms of solicitors who have acted for the Trustee (first Wilkin Chapman, and then Wright Hassall), amounting together to over £90,000, and the VAT thereon.
- By rule 18.35 of the Insolvency Rules (England and Wales) 2016 ("rule 18.35") a bankrupt may, with the permission of the Court, make an application on the grounds that the remuneration or expenses charged by a trustee are excessive. In April 2017 Mr Singh made an application under rule 18.35 in which he sought such permission as he wished to challenge the costs charged by the Trustee and the Trustee's solicitors. After being adjourned that ultimately came before Employment Judge Lewis, sitting as a Deputy District Judge (whom I will refer to as "DDJ Lewis") in the County Court at Luton on 19 March 2018. By his Order dated 19 March 2018 he refused permission for the reasons given in a brief oral judgment.
- Mr Singh now appeals to the High Court. His essential complaint is that DDJ Lewis should not have refused him permission under rule 18.35 but should have granted him permission so as to allow his application to go forward for a full hearing. Permission to appeal was given by me by Order dated 30 July 2018.
Rule 18.35
- It is convenient to set out rule 18.35 at the outset. It provides as follows:
"18.35. Remuneration and expenses: application to court by a bankrupt on grounds that remuneration or expenses are excessive
(1) A bankrupt may, with the permission of the court, make an application on the grounds that—
(a) the remuneration charged by the office-holder is in all the circumstances excessive;
(b) the expenses incurred by the office-holder are in all the circumstances excessive.
(2) The bankrupt may make such an application for one or more of the orders set out in rule 18.36(4).
(3) The application must be made no later than eight weeks after receipt by the bankrupt of the report under rule 10.87.
(4) The court must not give the bankrupt permission to make an application unless the bankrupt shows that—
(a) there is (or would be but for the remuneration or expenses in question); or
(b) it is likely that there will be (or would be but for the remuneration or expenses in question), a surplus of assets to which the bankrupt would be entitled.
(5) Paragraph (4) is without prejudice to the generality of the matters which the court may take into account in determining whether to give the bankrupt permission."
- Rule 18.36(4) sets out the orders the Court may make, as follows:
"If the court considers the application to be well-founded, it must make one or more of the following orders—
(a) an order reducing the amount of remuneration which the office-holder is entitled to charge;
(b) an order reducing any fixed rate or amount;
(c) an order changing the basis of remuneration;
(d) an order that some or all of the remuneration or expenses in question is not to be treated as expenses of the administration, winding up or bankruptcy;
(e) an order for the payment of the amount of the excess of remuneration or expenses or such part of the excess as the court may specify by—
(i) the administrator or liquidator or the administrator's or liquidator's personal representative to the company, or
(ii) the trustee or the trustee's personal representative to such person as the court may specify as property comprised in the bankrupt's estate;
(f) any other order that it thinks just."
Facts in more detail
- It is common ground that apart from a very small balance in a bank account, the bankruptcy estate consisted of three residential properties in Luton registered in Mr Singh's name. All three were subject to mortgages, but two of them had valuable equity as follows:
(1) 68 Handcross Road, Luton ("the Handcross Road property"). This was eventually sold in September 2014 for £185,500. The amount required to redeem the mortgage was £142,437, leaving a surplus (before solicitors' costs and disbursements, and agents' commission) of £43,063.
(2) 32 Elmore Road, Luton ("the Elmore Road property"). This was unsold at the time of the hearing before DDJ Lewis and was valued for that hearing by a jointly-instructed valuer at £255,000. The most recent evidence he had of the amount required to redeem the mortgage was as at 31 December 2016 in the sum of £157,136, which he took at a round figure of £157,000, giving a prospective surplus of some £98,000.
(3) There was a third property. Somewhat surprisingly, the evidence shows some confusion over which this property was, some of it referring to 38 Farringdon Road, Luton and some to 203 Runley Road, Luton. I need not however attempt to resolve this confusion as it is not disputed that whichever the property was, it was sold by its mortgagee for less than the mortgage amount. This was the sale which gave rise to the claim against the estate by Birmingham Midshires for the shortfall of £4,931.
- There were five payment in full statements in evidence before DDJ Lewis:
(1) The earliest was as at 26 October 2010. This showed estimated figures as follows:
| Liabilities |
£11,691 + statutory interest = |
£12,860 |
| Costs and expenses |
|
£21,076 |
| Total required |
|
£33,936 |
Included in the costs and expenses were estimated sums for the Trustee's remuneration and his solicitors' costs as follows:
| Trustees remuneration |
£13,501 |
| Trustees solicitors costs |
£350 |
(2) The next payment in full statement was as at 30 August 2013. The corresponding figures were:
| Liabilities |
£11,691 + interest (51 mths @ 8% pa) = |
£15,666 |
| Costs and expenses |
|
£48,664 |
| Total required |
|
£74,925 |
(The total required was more than the sum of liabilities and costs and expenses because it included a fee payable to the Secretary of State on realisations).
Included in costs and expenses:
| Trustee's fees (to date and estimated) |
£23,917 |
| Solicitor's costs |
£11,014 |
(3) The next payment in full statement was as at 28 January 2017. The corresponding figures were:
| Liabilities |
£11,691 + interest (90 mths @ 8% pa) = |
£18,705 |
| Costs and expenses |
|
£104,601 |
| Total required |
|
£145,749 |
(The total required now included not only a higher fee payable to the Secretary of State but also a sum in respect of CGT).
Included in costs and expenses:
| Trustee's fees (to date and estimated) |
£51,250 |
| Solicitor's costs (paid, incurred and estimated) |
£22,309 |
This was the latest payment in full statement at the time that Mr Singh brought his application. Before the hearing however the Trustee produced two further updated statements as follows:
(4) A payment in full statement as at 28 September 2017. The corresponding figures were:
| Liabilities |
£11,691 + interest (98 mths @ 8% pa) = |
£19,329 |
| Costs and expenses |
|
£188,026 |
| Total required |
|
£245,384 |
Included in costs and expenses:
| Trustee's fees (drawn, undrawn and estimated) |
£58,349 |
| Solicitor's costs |
|
| Wilkin Chapman (drawn, balance, disbursements) |
£62,453 |
| Wright Hassall (costs, further costs, disbursements) |
£23,818 |
(5) The final payment in full statement as at 5 December 2017. The corresponding figures were:
| Liabilities |
£16,622 + interest (103 mths @ 8% pa) = |
£28,036 |
| Costs and expenses |
|
£213,255 |
| Total required |
|
£285,089 |
Included in costs and expenses:
| Trustee's fees (drawn, undrawn and estimated) |
£75,560 |
| Solicitor's costs |
|
| Wilkin Chapman (drawn, balance, disb) |
£62,453 |
| Wright Hassall (costs, further costs, disb) |
£28,885. |
- On the basis of the figures in the 5 December 2017 payment in full statement, it could be seen that there would be no surplus for Mr Singh. The realisations to date were £43,130 (almost all being the surplus proceeds of the sale of the Handcross Road property), and the prospective realisation from the Elmore Road property a further £98,000, which together were a very long way short of the £285,089 estimated to be required.
- Mr Singh brought his application under rule 18.35 in April 2017 supported by a witness statement of his solicitor, Ms Louise Delgado. She had by that stage been provided with timesheets from the Trustee and the two successive firms of solicitors who acted for the Trustee. By the time of the final hearing she had annotated these line-by-line to produce her own estimate of the costs and expenses that should properly be charged. This resulted in the following figures:
| Trustee's costs |
£19,068 |
| Wilkin Chapman |
£10,519 |
| Wright Hassall |
£6,641 |
Her calculation was that if these figures were adopted, the total amount needed to discharge both the liabilities and the costs and expenses was £92,397, and after taking account of the realisations of £43,130 only a further £49,267 was required, which was more than adequately covered by the equity in the Elmore Road property. (Her calculation was in fact based on the £11,691 figure for creditor claims, which with interest came to £19,563, rather than the £16,622 figure, which with interest would come to £28,036, but even substituting the latter there would be ample headroom on her figures).
- Mr Hicken's evidence in opposition to the application set out in some detail the history of the bankruptcy and in particular referred to a large number of applications made by Mr Singh (and by his mother who claimed a beneficial interest in the Handcross Road property). He said that he considered that Mr Singh's conduct (and that of his mother) had been wholly causative of the level of costs incurred. He listed Mr Singh's applications and the other steps that had been taken both in relation to the Handcross Road property (itemising 27 separate steps) and in relation to the Elmore Road property (16 steps).
Judgment of DDJ Lewis
- DDJ Lewis (entirely properly and unsurprisingly, given that this was a permission application) gave a short unreserved judgment. At paragraph 5 he identified the value of the equity in the Elmore Road property (the only asset remaining in the estate) at £98,000, using the valuation of £255,000 and a figure of £157,000 for the mortgage redemption sum. He then said:
"The question for me, therefore, is this: "Accepting for today's purposes a working figure for net realisation of £98,000, can the applicant show that the respondent's costs are likely to be reduced below that figure?" "
- At paragraph 6 he referred to the five payment in full figures that he had before him, saying that he would take the appropriate figure to be that of 5 December 2017 (that is the most recent), which he identified as a fraction under £242,000, adding:
"from which it can be seen that the applicant's task is to show the court that that figure will be reduced by at least £145,000."
The figure of just under £242,000 (in fact £241,959) is the difference between the total estimated to be required as shown on the 5 December 2017 payment in full statement (£285,089) and the realisations to date (£43,130).
- At paragraph 7 he referred to two authorities which had been cited to him, Mattu v Toone [2015] EWHC 3506 (Ch) ("Mattu") and Brook v Reed [2011] EWCA Civ 331 ("Brook"), and which I will look at in more detail below, and said that he was helped by the observation in Brook:
"that I should avoid falling into the simplistic error of simply saying, "How can it be that collecting a debt of £11,000 incurs costs more than 20 times the principal sum?" I accept that that was my original reaction and one from which Mr Davies was careful to steer me away."
- Then at paragraphs 8-11 he referred to the factors which he had taken into account, albeit that he said he was not giving them exhaustively. They can be summarised as: (i) the length of time the dispute between the parties had gone on (paragraph 8); (ii) the fact that (as was agreed) the legal dispute had at times been acrimonious and that there had been a multiplicity of issues (paragraph 9); (iii) the number of steps in relation to the Handcross Road and Elmore Road properties respectively set out in Mr Hicken's witness statement (paragraph 10); and (iv) the time records that had been produced (paragraph 11). In relation to the latter he said that he was not asked to go into detail, and agreed with both parties' representatives that that must be the correct approach at this stage; but he bore in mind that the records were professional requirements of professions that were regulated, adding:
"That is not to be naïve and simply say that that if there is a time record that means that work must have been done, but it does mean that, looking at the time records in isolation, I have to give the creation of the record some respect and bear in mind that it may well be subject to an assessment and/or regulation, at a later stage."
- He then gave his conclusions at paragraph 12 which I should cite in full:
"The fundamental difficulty which I find with the application, however, is this. It can, I accept, happen that there are substantial reductions in costs on an assessment, but reductions of this order, in these circumstances – and I refer to the history of these events set out in Mr Davies' skeleton and in the paragraphs quoted from Mr Hicken – reductions of that order, in a case with this history and circumstance, do not seem to me likely. For the purposes of today, Ms Delgado had a very high hurdle to cross. Although her submissions could not have been more clear, I do not find that that hurdle has been crossed. I therefore refuse permission."
- He therefore made an Order dismissing the application under rule 18.35 and directing Mr Singh to pay Mr Hicken's costs of the application, with Mr Hicken being at liberty to recover them in the bankruptcy if not paid.
Ground 1 of the appeal
- Mr Singh puts forward four grounds of appeal. The first is that DDJ Lewis was wrong to find that the question to be asked on the application was whether Mr Singh could show that the Trustee's costs could be reduced below £98,000 (as expressed in paragraph 5 of the judgment) or that Mr Singh's task was to show the Court that it was likely that the total figure of £242,000 shown in the 5 December 2017 payment in full statement would be reduced below £145,000 (as expressed in paragraph 6 of the judgment). The appropriate test was that laid down in rule 18.35(4) and (5), the matters which the Court might take into account being set out in Part Six of the Insolvency Practice Direction.
- It became apparent in the course of argument that there was considerable common ground as to the structure of rule 18.35. The following matters were by the end of the argument not in dispute:
(1) There are two distinct questions in an application for permission under rule 18.35.
(2) The first is whether the requirements of rule 18.35(4) are satisfied. This is a threshold or gateway question or pre-condition. It is (expressly) a matter for the bankrupt to show that the condition is satisfied, and it is a binary or hard-edged question: either the bankrupt shows the condition is satisfied or he does not. If he fails to do so, the Court is obliged to refuse permission.
(3) The rule 18.35(4) question can be seen from the terms of the rule. It requires a comparison between the assets remaining in the estate, and the liabilities and costs to be paid out of the estate, leaving out of account the remuneration and expenses which are challenged by the bankrupt. This does not require the Court to form any view as to the prospect of the bankrupt being successful in his proposed challenge. It simply requires the Court to form a view as to what the assets are (or are likely to be) and what the unchallenged liabilities and costs are (or are likely to be) to see if there would be (or it is likely that there would be) a surplus of assets for the bankrupt if the challenge were entirely successful.
(4) That makes obvious sense. If there would not be any surplus of assets for the bankrupt even if his proposed challenges were successful in full, then he has no interest in pursuing them. It is the creditors, and the creditors alone, who would in those circumstances have an interest in the level of remuneration and expenses, not the bankrupt.
(5) In the present case, the threshold condition was satisfied. If one left out of account the Trustee's remuneration and the solicitors' costs, both of which Mr Singh wished to challenge, then the assets (taken at a likely value of £98,000) exceeded the other liabilities, costs and expenses. That was shown by Ms Delgado's calculation which showed that the total of liabilities and undisputed costs and expenses (£92,397), less the existing realisations (£43,130), was well below £98,000, even allowing for the increase in the amount of creditor claims: see paragraph 12 above.
(6) If the threshold condition is satisfied however, there is then a second question. This is whether the Court should grant permission. This is not a hard-edged question but is a discretionary question. The terms of rule 18.35(5) make it clear that the mere fact that the condition in rule 18.35(4) has been satisfied does not mean that permission should be granted: it is without prejudice to "the generality of the matters which the court may take into account in determining whether to give the bankrupt permission".
- As I have said none of that was in the end in dispute. In the skeleton argument prepared for Mr Singh by his solicitors it was suggested that DDJ Lewis did not, as he should have done, apply the rule 18.35(4) test. It is correct that he nowhere expressly says that the threshold condition in rule 18.35(4) was satisfied, but I doubt it was necessary for him to do so: it may not have been in dispute and the fact that he considered whether to grant permission suggests that he appreciated that he had a discretion to exercise. In any event the failure expressly to address the rule 18.35(4) condition has not prejudiced Mr Singh, as DDJ Lewis went on to consider the application on its merits.
- The real question under Ground 1 is whether DDJ Lewis' exercise of his discretion can be overturned. In the skeleton argument prepared for Mr Singh, it was suggested that once the bankrupt had satisfied the condition in rule 18.35(4), the onus switched to the office-holder to provide sufficient information to enable the Court to form a reliable view of his remuneration and expenses, and that the Court then had to apply the guiding principles laid down in the Insolvency Practice Direction.
- The relevant Insolvency Practice Direction at the time of the hearing was that issued in July 2014 [2014] BCC 502. Part Six (para 21) dealt with applications relating to the remuneration of appointees. The 2014 Practice Direction has since been replaced by the Practice Direction: Insolvency Proceedings issued in July 2018 [2018] BCC 421, but the relevant provisions are virtually unchanged. I will refer to the 2014 provisions as they were the ones in force at the time.
- Para 21.2.3 set out a number of guiding principles by reference to which remuneration applications were to be considered by the Court. These included: (1) "Justification" (namely that it was for the appointee to justify his claim and be prepared to provide full particulars of it); (2) "The benefit of the doubt" (namely that the corollary of (1) was that if the Court was left in any doubt as to the appropriateness, fairness or reasonableness of the remuneration, it should be resolved against the appointee); and (6)(b) "Proportionality of remuneration" (namely that the amount of remuneration should be proportionate to the nature complexity and extent of the work done by the appointee, and to the value and nature of the assets and liabilities).
- The basis for the submissions advanced in the skeleton argument was the decision of Snowden J in Mattu. This was also an appeal to the High Court against a decision of a District Judge refusing permission to a bankrupt to challenge the remuneration and expenses of his trustee in bankruptcy. In that case the assets were estimated at £200,000 and the proved claims and undisputed costs were some £178,000. The trustee claimed £62,500 for his own fees and legal costs, and the District Judge was told in the hearing that they had increased to about £100,000 but she had no breakdown of these figures. Snowden J allowed the appeal and remitted the case to be determined on proper evidence. The basis for his decision can be seen at [11]-[12] as follows:
"11 In this particular case it seems to me that the District Judge did err in principle. She reached her decision that she was bound to refuse the application on a finding that there was unlikely to be a surplus of assets on inadequate evidence. The position as presented to her was that there was equity of £200,000 and proved claims of, at most, £177,000-odd. She was simply presented with bald statements on behalf of the trustee as to the level (or simply the estimated level) of the trustee's costs and remuneration. The District Judge did not have the benefit of any breakdown of those costs and hence was not in fact in a position to form any reliable view as to whether they would, on an assessment, exceed the surplus likely to arise from sale of the property.
12 Although the onus is on the bankrupt under rule 6.142(2A) to show that there is or is likely to be a surplus, once the bankrupt shows that the assets exceed the creditor claims, it must be for the trustee to provide sufficient information for the court to form a reliable view as to his remuneration and expenses. It seems to me that this had not been done in this case and that there was an inadequate factual basis in the evidence for the District Judge to reach a conclusion that she was prohibited from giving permission to the bankrupt to challenge the assessment of the remuneration of the trustee in bankruptcy. I therefore think that there are good grounds upon which to allow the appeal if permission is given for it to be brought out of time."
- That undoubtedly supports the proposition that once the bankrupt has shown that the assets exceed the creditor claims (and, I would add, the undisputed costs and expenses), then it is for the trustee to provide sufficient information for the Court to form a reliable view rather than just make a bald assertion as to the likely extent of his costs and expenses. In the present case Mr Hicken did provide a complete breakdown of both the Trustee's costs and the solicitors' costs, itemised line by line, and it cannot be said, as it was in Mattu, that DDJ Lewis was simply presented with bald statements by the Trustee or that there was any shortage of evidence before him.
- What cannot however be derived from Mattu is any support for the suggestion in the skeleton prepared for Mr Singh that the Court should determine a permission application by applying the guiding principles in the Practice Direction. I do not accept that this is required. This is for two reasons, one technical and one practical.
- The technical one is that by para 21.1.1 Part Six of the Practice Direction applied to:
"any remuneration application made under the Act or the Insolvency Rules"
and by para 21.2.2 the relevant principles were referred to as:
"the guiding principles by reference to which remuneration applications are to be considered both by applicants, in the preparation and presentation of their application, and by the court determining such applications."
So the question is whether the application made to DDJ Lewis was a "remuneration application". In my judgment it was not. It was an application for permission to make a remuneration application, and the Court in determining that application was not determining a remuneration application but merely determining an application for permission. This seems to me technically a prior application, just as an application for permission to appeal is not an appeal, but an application preliminary to an appeal.
- More significantly, however, the suggestion is quite impractical. An application for permission is by its very nature not intended to be the substantive hearing. The Court is not assessing the amount of remuneration at the permission stage – it is simply deciding whether to grant permission. One would expect that to be a relatively short and preliminary application, not a dress rehearsal of the application itself. I think one can infer that at least one of the reasons why rule 18.35 imposes a permission requirement is to ensure that the trustee should not be put to the expense of preparing for a full-scale hearing unless it is an appropriate case. It would tend to defeat that object if the trustee could only avoid the grant of permission by establishing his entitlement by reference to the guiding principles such as "Justification" and "Proportionality".
- It is only fair to add that Mr Woodhouse in oral argument accepted that DDJ Lewis was right not to conduct a line-by-line examination of the Trustee's costs. He made a rather different point in his oral submissions which is that once Ms Delgado's summary was before the Court, the evidential burden shifted to Mr Hicken to show that his costs and expenses overtopped the available surplus such that permission should be refused, and in the absence of him doing that permission should have been given.
- That led to a debate as to what the test for granting permission should be. Mr Woodhouse, picking up a suggestion initially made by me, submitted that the appropriate test, by analogy with the test for permission to appeal, was whether the bankrupt had a real prospect of success in the proposed application.
- Despite the fact that it was my own suggestion, I have come to the conclusion that it is not a sound one. In the case of permission to appeal, the relevant test is whether there is a real prospect of success because that is what the rules provide (in CPR r 52.6(1)(a)). But rule 18.35 does not provide any such test. Instead rule 18.35(5) refers to the "generality of the matters which the court may take into account" which indicates that the drafter of the rules intended a broad discretion, not a narrow one based on the satisfying of any particular test. And in those circumstances I do not think I should seek to lay down a prescriptive test when the rules themselves do not do so.
- So although the relevant test was debated in argument, I do not intend to suggest any particular test for the exercise of the discretion. I will therefore simply say that the test is no more prescriptive than that permission should be granted if it is appropriate to do so having regard to all the relevant circumstances. I appreciate that that is little more than a statement of the obvious, but that is what the open-textured language of the rule suggests.
- But what can I think be said is that there is nothing wrong in the Court considering whether the application is likely to be of benefit to the bankrupt, or in other words whether the claimed remuneration and costs would be likely to be reduced to such an extent that there would be an overall surplus for the bankrupt. It is only if that is the case that the bankrupt has any real interest in the application. If the Court concludes that it is unlikely that the costs and expenses will be reduced sufficiently, then to grant permission would be to condemn both parties to spending time, effort and further costs on a detailed investigation which in the Court's view is unlikely to be of any material benefit to the bankrupt. Such an application would also take up a substantial amount of the Court's own time for what is likely to turn out to be no good purpose. This is I think also a relevant consideration: the Insolvency Rules generally incorporate the CPR (see rule 12.1(1) of the 2016 Rules) and hence the overriding objective in CPR r 1.1, which includes allotting to a case an appropriate share of the Court's resources.
- I should make it clear that I do not intend to suggest that the only material consideration is the Court's assessment of how likely it is that the application will be of benefit to the bankrupt. That would be to substitute a likelihood test for a real prospect of success test, and I have already said that I am not intending to lay down any particular test. In some cases the Court might not think it likely that the bankrupt would benefit but nevertheless harbour sufficient doubts about it to justify granting permission, or there may be other reasons why the Court thinks it appropriate for the trustee to have to justify his costs or expenses; in other cases the Court will no doubt feel able to conclude with confidence that the application should not go ahead. The discretion whether to grant permission is as I have said one that is to be exercised having regard to all the circumstances. All that I am intending to decide is that it cannot be wrong for the Court, in deciding whether to grant permission, to form an assessment of how likely it is that the application will benefit the bankrupt, as that is likely to be a very material consideration.
- Such an assessment can necessarily only be carried out as a high level review, as to require the Court to embark on anything like a detailed consideration would defeat the whole purpose of there being a permission stage. And in considering whether it is likely that the application would be of any benefit to the bankrupt, the Court will no doubt bear in mind that if the matter goes forward to a substantive hearing to determine the trustee's remuneration, that hearing will be decided in accordance with the guiding principles under which it is for the trustee to justify his remuneration and the like. But for reasons already given that does not mean that there is any onus on the trustee to satisfy those requirements at the permission stage.
- Nor do I accept Mr Woodhouse's submission that an evidential burden shifts to the trustee once the bankrupt has put forward a calculation showing how the trustee's costs and expenses should be reduced. Technically I do not think there is a "burden of proof" in a hearing such as this at all: as I understand the law, a burden of proof arises in a situation where one party has the burden of adducing sufficient evidence to prove some particular fact in issue. But a permission hearing, speaking generally, is not a fact-finding exercise at which the Court resolves disputed issues of fact; it is the exercise of a discretion. If there is a burden on anyone however I think the burden, not so much of proof, but of persuasion, rests throughout on the applicant to make out a case for permission to be granted on the simple basis that it is the applicant who is asking for permission.
- Those being in my judgment the relevant principles it is now possible to consider if there is anything flawed in the way DDJ Lewis exercised his discretion. I do not see that there is. He correctly identified that the relevant amount shown on the latest payment in full calculation, after taking account of realisations to date, was just under £242,000; he correctly identified that there would be no surplus for Mr Singh unless that figure could be brought down to £98,000, a reduction of about £145,000; and he conducted, as he was not only entitled, but in practical terms obliged, to do, a high-level or broad-brush survey of the history of the case to see if that was something that was realistically likely to be achieved. He expressly said that he had been helped by reference to Brook at [50]-[51]. That was a judgment of the Court of Appeal considering in some detail the whole question of the remuneration of trustees in bankruptcy and the way in which the guiding principles were to be applied, and at [50]-[51] David Richards J said this:
"50 The ground of appeal in the present case asks whether the remuneration allowed was "disproportionately high in relation to the circumstances of the bankruptcy". The word "circumstances" is important. The duties of an office-holder are not confined to the realisation and distribution of assets. There are statutory duties which must be performed, such as communicating with creditors and reporting on the events leading to the insolvency, with particular regard to the conduct of the bankrupt or directors of an insolvent company. The office-holder may need to investigate the existence of possible assets or the merits of possible claims, which may in the event not lead to assets available for distribution, although in all cases the office-holder will be expected to exercise commercial judgment in pursuing such matters. Dealing with particular claims of creditors may be time-consuming, and there may be other activities, such as the disclaimer of onerous leases and other property, which do not increase the assets for distribution. An example of costs incurred as a result of disclaimers is Freeburn v Hunt [2010] BPIR 325 at [26]-[38]. A further factor which can be seen in the reported cases as sometimes leading to a justifiable increase in remuneration is the conduct of particular creditors or of the debtor: see Barker v Bajjon [2008] BPIR 771 at [14] and Freeburn v Hunt at [54]–[55].
51 Thus the value of the office-holder's services which has rightly been emphasised as the touchstone for an office-holder's remuneration and which is not measured by a mechanical totting-up of hours multiplied by charge-out rates denotes more than the realisation and distribution of assets. They are features of central importance, but it is all the circumstances of the insolvency which have to be considered."
That explains the way in which DDJ Lewis phrased his conclusion, namely that "reductions of that order, in a case with this history and circumstance, do not seem to me likely". That is a conclusion which I consider to have been open to him; and having reached that conclusion, I see nothing wrong in his refusing permission under rule 18.35. It was an exercise of his discretion that was in my judgment within the generous ambit of the discretion entrusted to him.
- I therefore dismiss Ground 1 of the appeal. Ground 1 was the substantive ground and was the focus of the oral argument. I can deal with the remaining grounds much more briefly.
Grounds 2 and 3
- I can take these grounds together. Ground 2 was that DDJ Lewis was wrong to have regard to the latest payment in full calculation, that of 5 December 2017. At the time of the application the latest payment in full calculation was that of 28 January 2017. The later two, of 28 September 2017 and 5 December 2017, were produced during the currency of the application and showed very marked increases. Ground 2 asserted that these large increases were unexplained. It also asserted that it was unclear to what extent they included the costs of the permission application.
- Ground 3 was that of the 43 steps listed by Mr Hicken only a very small number (4 in all) were said to have taken place since January 2017, so these steps could not explain the large increases between the January and September/December statements.
- Under both Ground 2 and Ground 3 it was submitted that DDJ Lewis should have taken as a starting point the January 2017 payment in full statement not the later ones.
- I do not think these criticisms can be sustained. In principle the Court was obviously right to work off the most up-to-date information available, as if the application went ahead, the whole of the Trustee's remuneration and expenses would be relevant, not just those that had been incurred before the application was launched. It was therefore relevant to the question whether permission should be granted.
- And the suggestion that the large increases were unexplained is incorrect. Mr Hicken explained in his witness statement that in the January statement he had only included the amounts which Wilkin Chapman had billed to date. He had by mistake not included the work which Wilkin Chapman had done but not billed, and the bankruptcy estate remained liable to pay Wilkin Chapman for this work. The amount claimed was supported by itemised timesheets. In other words Mr Hicken was not suggesting that the increase in solicitors' costs was attributable to the steps between January 2017 and the later statements. He was suggesting that the January 2017 statement was incomplete. Itemised timesheets were also produced for the Trustee and for Wright Hassall. There is no reason to doubt that the timesheets record the work actually done, and it was not suggested to me that they did not support the figures claimed in the later statements.
- Mr Davies confirmed in his written submissions that Wright Hassall's costs did include the costs of the rule 18.35 application, on the basis that it was a liability of the bankruptcy estate. I heard no argument as to whether that was appropriate or not, and I do not propose to decide it; but not all of Wright Hassall's costs (which dated back to December 2015) fell into that category. In any event even if one removed all their costs and disbursements from April 2017 (amounting to some £25,000) it seems very unlikely that it would have made any substantive difference to DDJ Lewis' decision.
- For these reasons I propose to dismiss Grounds 2 and 3.
Ground 4
- Ground 4 is that the decision of DDJ Lewis that it would be a simplistic error to take into account the fact that the costs were more than 20 times the value of the bankruptcy debts was unjust to Mr Singh because the findings made by him against this proposition did not reflect a proper application of the guiding principles in the Insolvency Practice Direction. In oral submissions Mr Woodhouse said that DDJ Lewis, while saying that one should not give too much weight to the 20 times figure, erred in not giving any weight to it at all.
- Again I do not think this criticism is sustainable. DDJ Lewis was obviously alive to the fact that at first blush the discrepancy between the amount of the bankruptcy debts and the level of the costs and expenses was very striking. But he went on to consider why that was so and whether there was any likelihood of the costs and expenses being reduced sufficiently. In deciding that that was not so, he referred in particular to the history. He had ample evidence of that history in the shape of Mr Hicken's witness statement, as well as a narrative account of the bankruptcy.
- It is sufficient to summarise some of the evidence. In September 2009 Mr Singh applied to annul his bankruptcy. That was dismissed in January 2010. A second annulment application made in November 2010 was dismissed in January 2011; and a third made in March 2011 was dismissed in January 2012. An application to rescind the annulment application was dismissed in May 2012. In August 2012 an application for permission to appeal the dismissal of the annulment was itself dismissed. The Trustee applied for, and in October 2012 obtained, an order for possession and sale of the Handcross Road property. Mr Singh's application to appeal that was dismissed in January 2013. The Trustee obtained a warrant for possession of the Handcross Road property which was due to be executed in July 2013; Mr Singh's mother then registered a restriction against the title on the basis she had a beneficial interest in it. That effectively put off a sale of the Handcross Road property until July 2014.
- I need not detail the steps in relation to the Elmore Road property but that was not straightforward either.
- Mr Hicken's evidence was that the numerous applications made by Mr Singh were unfounded and unmeritorious, that he had no alternative but to address them, and that Mr Singh's conduct had resulted in the costs that had been incurred.
- There is no doubt that DDJ Lewis had these factors in mind when deciding that it would be too simplistic to simply compare the level of bankruptcy debts and the amount of costs and expenses. Again I do not think his approach can be faulted, and there is in my judgment nothing in Ground 4.
Conclusion
- For the reasons given above I dismiss this appeal.
Postscript
- I circulated a draft judgment in the above form in the usual way, and counsel made written submissions on the form of Order. There is one outstanding point on the form of Order which is whether I should include paragraph 3 of the draft put forward by Mr Davies, or omit it as submitted by Mr Woodhouse. I propose to omit it and should briefly explain why.
- By a Consent Order made by DJ Sparks sitting in the County Court at Luton on 4 July 2018 a stay was granted of a warrant of possession in the following terms:
"The warrant of possession (number 07157/18) dated 1 May 2018 be stayed pending disposal [A] of the Applicant's request dated 11 May 2017 for an oral hearing under Part 52.4(2) of the Civil Procedure Rules for permission to appeal the order dated 23 September 2016 and any subsequent appeal of that order (if granted an oral hearing and permission to appeal) under claim number 3LU20003 in the Luton County Court and [B] of the application dated 19 April 2018 for permission to appeal the order of Employment Judge Robin Lewis dated 19 March 2018 and any subsequent appeal of that order (if granted permission to appeal) before the High Court of Justice Business and Property Courts under claim reference CH-2018-000098."
I have added the letters [A] and [B] for clarity.
- Mr Davies' draft order includes at paragraph 3 provision for this stay to be lifted and for Mr Hicken to be entitled to execute the warrant or seek a fresh warrant. It can be seen that the stay was granted pending the outcome of two potential appeals, the second of which (limb [B]) is the appeal before me and which I have dismissed. The question therefore is whether the first potential appeal (limb [A]) has also been disposed of.
- It appears that the position is as follows:
(1) In June 2016 Mr Hicken sought an order for possession and sale of the Elmore Road property (where Mr Singh was living with his wife and child).
(2) On 23 September 2016 DJ Duchenne (sitting in the County Court at Luton) made an Order for possession of the Elmore Road property in favour of Mr Hicken.
(3) Mr Singh sought to appeal that Order. His Appellant's Notice is undated but there is a letter from the County Court at Luton to him dated 4 November 2016 which encloses a sealed copy and tells him that it has been referred to a Circuit Judge.
(4) By an Order dated 19 April 2017 HHJ Perusko refused permission to appeal on the ground that there was no real prospect of success.
(5) Mr Woodhouse's submissions indicate that a request for an oral hearing for permission to appeal was made on 11 May 2017 (consistently with the terms of limb [A] of the stay) and is still outstanding.
- Mr Davies' submission is that the County Court at Luton lacks any jurisdiction to deal with the appeal. That is on the basis that the claim for possession was an insolvency matter, and hence that the route of appeal is to a High Court Judge. He also points out that the appeal was predicated on the challenge being made to the Trustee's fees in the present appeal, which challenge has now failed.
- Mr Davies would appear to be right about both points. Mr Woodhouse suggests that the appeal flowed from an order made in separate proceedings under claim number 3LU20003, not out of the insolvency proceedings, but on the face of it that is incorrect, as Mr Hicken's application for possession and sale was brought by an Application Notice in Form 7.1A (which was then the appropriate form for an application in insolvency proceedings), was headed "In the Matter of the Insolvency Act 1986", and was given the case number 163/2009, which was the number for the existing bankruptcy proceedings. I do not know what the reference 3LU20003 refers to but it may be that it is the reference given in the County Court at Luton to the appeal. But the underlying Order for possession would indeed appear to have been made in the insolvency proceedings, in which case I agree with Mr Davies that any appeal lies to the High Court not to a Circuit Judge: see Practice Direction 52A Table 2. And without going into the Grounds of Appeal in any detail it does appear that they were based on Mr Singh having an outstanding challenge to the Trustee's fees, which has now effectively come to an end.
- But the stay granted by the consent order was granted until the "disposal of" the Applicant's request for an oral hearing. On the basis that that has not been disposed of, I do not think I can properly declare that the stay is lifted. It is true that on the view I take Mr Singh's request for permission to appeal to be granted at an oral hearing is bound to fail because the County Court lacks jurisdiction to hear the appeal and hence lacks jurisdiction to grant permission to appeal, but if the request is outstanding it has not yet been disposed of and I do not think it is for me to dismiss an application which has not been made to me, and is pending, however erroneously, in a different Court. I appreciate that Mr Davies was understandably trying to avoid having to apply to the County Court, but it seems to me that Mr Hicken will indeed have to apply to the County Court either to have the request for permission disposed of, or to vary the terms of the stay (under the express liberty to apply in the Order), before it can be said that the stay which he consented to has come to an end.
- I will therefore make an Order in the terms of paragraphs 1 and 2 of Mr Davies' draft (dismissing the appeal and providing for Mr Hicken's costs to be costs in the bankruptcy estate) but not paragraph 3.
