C’s appeal of his bankruptcy order failed. He then argued that pursuant to r 12.2(1) of the Insolvency Rules 1986 (‘IR 12.2’) as a matter of law the costs of the unsuccessful appeal should be treated as an expense of the bankruptcy estate; alternatively they were aprovable debt in the bankruptcy. D (the PC) contended that IR 7.51A gave the court an unfettered discretion as to the form of order and sought costs against C personally as a post-bankruptcy liability.

Cousins QC rejected the argument that potential costs liability on an appeal became provable as a contingent liability before the BO was made and accepted D’s contention that the court had a general discretion that was not inconsistent with IR 12.2. The purpose of IR 12.2 was to ensure that costs incurred in insolvency proceedings were regarded as costs of the relevant process (and therefore prioritised) to protect the party incurring them, but that did not carry with it the implication that costs could not be ordered from another source.

C was the unsuccessful party therefore the starting point was that he should pay D’s costs. It would be undesirable to diminish the bankruptcy estate because of C’s decision to bring an unsuccessful appeal, and there were good policy reasons against allowing a bankrupt a ‘free punt’. 

D’s costs of the appeal should be paid by C; to the extent that they were not satisfied by him, they should be treated as a bankruptcy expense.