Trustee in bankruptcy - Costs - Claimant trustee in bankruptcy commencing proceedings on behalf of estate

Hunt (as trustee in bankruptcy of Janan George Harb) v Harb and another: Court of Appeal, Civil Division: 27 October 2011

The first defendant, H, claimed to have secretly married the late HRH the King of Saudi Arabia (the king) in 1968. In May 2003, several years after they had separated, her solicitors sent a draft statement to the king, setting out the basis of a claim which she was bringing against him under section 27 of the Matrimonial Causes Act 1973. She claimed to have subsequently met the king’s son, the second defendant (the prince), and that he orally agreed to pay her £12m and transfer to her two properties in Chelsea in exchange for her withdrawing certain allegations made in the draft statement, withdrawing the section 27 application, and in discharge of the king’s promises to provide for her during her life. H contended that she duly complied with her obligations under the agreement but that the prince did not.

In April 2008, H became bankrupt on her own petition. Her estate consisted of assets valued at around £200,000 and liabilities of over £3.5m. There was no creditors’ committee. Upon her bankruptcy, the claim vested in H’s trustee in bankruptcy, the claimant in the instant proceedings, pursuant to sections 306 and 311(4) of the Insolvency Act 1986 (the 1986 act). The six-year limitation period for bringing a claim against the prince was running and would have expired in June 2009.

H was keen that a claim should be brought against the prince because if it were successful her creditors would be paid in full and there would be a substantial surplus for her. The claimant took the view that the claim had a reasonable prospect of success; although he had not been able to make detailed investigations. Accordingly, in June 2009, shortly before the limitation period was about to expire, the claimant issued the claim against the prince (the claim), which was served on him outside the jurisdiction.

The prince applied to set aside service, relying on the State Immunity Act 1978. In effect, his case was that, at the time of the alleged agreement in 2003, he had plenipotentiary powers as sovereign on behalf of his father, the king of Saudi Arabia. The claimant was unable to obtain after-the-event insurance (ATE) and was unable to find third-party funding. Consequently, he discontinued the claim. H applied to the court to set aside the notice of discontinuance, joining the claimant and the prince.

The application was allowed, the notice of discontinuance was set aside and directions were given ordering that the proceedings relating to the claim should be adjourned for a reasonable period while the claimant invited offers for the claim, but that if no such offers were received then he could serve a fresh notice of discontinuance.

The order allowed for the claimant to reject any offer on terms that all or any part of the net proceeds of a successful claim would be paid to him or applied for the benefit of the creditors on the grounds that the purchaser would, in pursuing the claim after sale, be acting as the mere nominee or delegate of the claimant who would accordingly continue to be at risk of liability for costs. H appealed against that part of the order.

The issue for determination was where a trustee in bankruptcy had assigned a claim on terms that the bankrupt’s estate would receive a share of any recovery on the claim, whether he could safely assume that no order for costs would be made against him if the claim failed. The appeal would be dismissed.

Pursuant to sections 306 and 311(4) of the 1986 act the bankrupt’s estate vests in the trustee in bankruptcy personally. If the trustee wished to pursue a claim which the bankrupt had before the bankruptcy he did so in his own name because the claim had vested in him. He would therefore be a party to the proceedings. Like any other trustee pursuing litigation on behalf of a trust the trustee in bankruptcy would, in principle, be liable for the costs of the proceedings: both his own and, if the claim failed, any costs awarded to the successful party.

No third-party costs order was necessary. If he acted reasonably he would be entitled to an indemnity from the trust fund; but if the trust fund was a bankrupt estate that might be of limited value. In circumstances where a trustee transferred his right to pursue a claim to an impecunious assignee on terms which involved the trustee receiving a substantial proportion of the proceeds and the assignee were successful, it would be unjust to that defendant, if he succeeded in those proceedings, if he were unable to contend that the claim was primarily that of the trustee and was pursued for the benefit of the trustee who should not then be able to hide behind the assignee to avoid liability for costs.

It would be wrong in principle and unfair on the defendant if he was precluded in advance from even being able to run such an argument at the end of the case, in circumstances where the court did not know what offers the trustee had received and what the terms of those offers were. The defendant was also entitled to have his normal rights as a litigant taken into account.

It would be wrong to cut those rights down before the court even knew the number of offers, the identity of the offerors, the amounts offered and the other terms of the offers for the assignment of the claim (see [19], [26], [28] of the judgment). The appeal would be dismissed. However, that part of the order which H had appealed against would be deleted (see [34] of the judgment). Aiden Shipping Co Ltd v Interbulk Ltd, The Vimeira (No 2) [1986] 2 All ER 409 considered; Hamilton v The Official Receiver [1998] BPIR 602 considered; Osborn v Cole [1999] BPIR 251 considered. Decision of Kevin Prosser QC [2011] EWHC 714 (Ch) affirmed.

Rebecca Page (instructed by Howes Perceval) for the claimant; Adam Deacock (instructed by Burton Woolf & Turk) for H; The prince was not represented and did not appear.