16 December 2013

[2013] EWHC 4287 (Comm)

Commercial Court, Queen's Bench Division (Burton J)

Foreign trustee-in-bankruptcy personally liable for costs of restraining foreign insolvency proceedings, on an indemnity basis

Awarding costs in respect of a successful application for an anti-suit injunction (see above), the court made what it described as the “ordinary order” that the trustee in bankruptcy be personally liable for the claimant’s costs, after unsuccessfully resisting the application.  The Court cited the following passage from Muir Hunter on Personal Insolvency (which itself cites ex parte Angerstein[1874] LR 9 Ch App 479):

"A trustee in bankruptcy is generally as regards the costs of litigation, in no better position than any other litigant and if a trustee makes an unsuccessful application to the Court he will, in the absence of special circumstances, be ordered to pay the adverse costs."

In the present case, the court accepted that the trustee had been made a party to the anti-suit application.  But it held that Rule 7.39 (which provides that where the representative “is made a party to any proceedings on the application of another party to the proceedings, he shall not be personally liable for costs unless the court otherwise directs") did not apply because the application did not amount to insolvency proceedings, notwithstanding that it had been brought to restrain foreign insolvency proceedings. 

The underlying rule applies just as much to defendant insolvency representatives as to those who initiate litigation, save for the effect of Rule 7.39 of the Insolvency Rules 1986.

Nor was the trustee assisted by the cost protections covering non-parties, as in the case of a liquidator who brings or defends proceedings on behalf of the insolvent company.  Here the liquidator is protected by the usual restrictive principles governing non-party cost awards; indeed for public policy reasons, non-party awards against liquidators should be even less common than against other corporate controllers (see Metalloy Supplies Limited (in liquidation) v MA (UK) Limited [1997] 1 WLR 1613).

In the instant case, the trustee was the party and he ought to have sought an indemnity from the creditors if the estate was insufficient to cover the potential adverse costs (as in fact he appeared to have done).  Indemnity costs were awarded, the usual practice where there has been a breach of an arbitration agreement.

It is worth remembering that the mere fact that a party to litigation is an insolvency practitioner is insufficient to protect him from adverse costs orders.  In the case of bankruptcy, the trustee is almost always a party and the question then often turns on whether the proceedings can be characterised as insolvency proceedings.  There is no substitute for obtaining an indemnity from creditors in any uncertain situation.