BANKRUPTCY COSTS : INSOLVENCY ACT 1986 : INSOLVENCY (ENGLAND AND WALES) RULES 2016
Key Points and Authorities
- An appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from another imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible: ; Tanfern Ltd v Cameron-MacDonald  1 WLR 1311 at 32; G v G  1 WLR 647 at 652
- Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale: ; AEI Rediffusion Music Ltd v Phonographic Performance Ltd  1 WLR 1508 at 1523; Roache v News Group Newspapers Ltd  EMLR 161 at 172
- There will in any application for annulment or rescission of a bankruptcy normally be four items of costs to be dealt with:
(1) the cost of the original petition;
(2) the costs of the annulment application;
(3) the costs of the Official Receiver arising on or after the making of the original bankruptcy order and;
(4) the costs and expenses of the trustee in bankruptcy in acting as such from the time of his appointment to the order for annulment.
- The first two items, which are litigation costs, are covered by what was r 7.33 of the Insolvency Rules 1986, now replaced by r 12.41 of the Insolvency (England and Wales) Rules 2016. Both rules have the effect of applying CPR Part 44 to the costs of insolvency proceedings, and it is therefore plain that these costs should be dealt with in accordance with the relevant parts of the CPR: ; Mustafa
- In relation to the other two items, a different regime applies. They are payable out of the bankrupt’s estate in accordance with the priority laid down in what was r 6.224 of the 1986 rules (and is now r 10.149 of the 2016 rules), but on annulment provision has to be made for them: ; Mustafa
- On an annulment the court has an unfettered discretion to determine who, if anybody, should pay the trustee’s costs: ; Butterworth v Soutter  BPIR 582 at 586
- The jurisdiction to do so would either arise under the terms of s. 282(4) of the IA 1986 or the inherent jurisdiction of the Court: ; Mustafa
- In the case of a rescission rather than an annulment, the Court’s power to rescind comes not from s. 282 but from s. 375(1) IA 1986: 
- If the Court rescinds a bankruptcy order under s. 375(1), it must have power to direct how the trustee’s costs are to be dealt with, and that must be under the Court’s inherent jurisdiction: ; Appleyard v Wewelwala  EWHC 3302 (Ch)
- Regulation 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 deems liability orders to constitute a legally enforceable debt, regardless of the underlying factual position relating to the relevant property, unless and until the liability order is set aside under the specific statutory procedure laid down for doing so: ; Yang v Official Receiver  EWCA Civ 1465
- For that reason, when a bankruptcy order has been made on the basis of a liability order and it later transpires that the person against whom it was made was not in fact liable for Council Tax, the Court should not annul the bankruptcy under s. 282(1)(a) IA 1986 but rescind it under s. 375(1) IA 1986: ; Yang
- It does not follow that a local authority that has obtained a liability order will always recover its costs, as the Court has a discretion to make a different order, and if the local authority’s conduct has been such as to be open to criticism, it can be deprived of its costs: 
- The proper expenses of the trustee should normally be paid or provided for before the assets are removed from him by an annulment order. This guiding principle flows from the fact that, prior to the annulment, the trustee has a valuable right of property, namely the right to retain such sums as may be necessary to pay the expenses of the bankruptcy: ; Oraki v Dean & Dean  EWCA Civ 1629 at 63
- Although a trustee can usually expect to look to the assets for his costs and expenses, he has in general no such expectation that he will also obtain an order for costs against either the petitioner or the bankrupt (or both). An order for the trustee’s costs to be paid personally by one or other (or both) of the parties can never be a matter of course, and must depend on it being shown to be appropriate in the particular circumstances of any particular case; ; Appleyard
- The costs of the rescission application are litigation costs, and fall to be dealt with in accordance with CPR Part 44. The starting point under CPR 44 is that if the Court decides to make an order as to costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party: 
- The Court has power to depart from the general rule, but it is an unusual thing to do to not only deprive the successful party of the benefit of the general rule but to order him to pay the entirety of the costs of the unsuccessful party. That is such a departure from the general rule that there needs to be some particular reason for doing that: 
“I do not think it right that Mr Amin should pay Redbridge’s costs of the application [to rescind]. That would mean that Mr Amin, who successfully established that he did not have the underlying liability for Council Tax, would have to pay Redbridge the costs they incurred in putting forward evidence in support of a case that he [did].” 
This was an appeal in relation to costs in a bankruptcy.
The Appellant, Mr Anjam Amin (“Mr Amin”), was made bankrupt on 10 June 2010 based on a statutory demand following liability orders being made against him for unpaid Council Tax by the Respondent, (“Redbridge”).
Mr Amin ultimately succeeded in having the liability orders set aside by the Valuation Tribunal on 12 September 2017.
He then applied to rescind the Bankruptcy Order.
By an order dated 5 January 2018 (“the Order”) DJ Dodsworth rescinded the Bankruptcy Order pursuant to s. 375 of the Insolvency Act 1986 (“IA 1986”), and dismissed the petition. But he ordered:
(i) (by paragraph 1) that the costs and expenses of the Trustee in Bankruptcy (the 2nd Respondent, Mr Paul Atkinson) (“the Trustee”) be an expense in the bankruptcy and (by paragraph 5) that the Trustee should retain and might realise any part of Mr Amin’s estate until the costs and expenses of the bankruptcy had been discharged;
(ii) (by paragraph 6(a)) that Mr Amin pay Redbridge’s costs of the petition, summarily assessed at £1,492.80;
(iii) (by paragraph 6(b)) that Mr Amin pay Redbridge’s costs of his applications, summarily assessed at £11,858.70; and
(iv) (by paragraph 6(c)) that Mr Amin pay the Official Receiver’s costs and disbursements in the sum of £1,903.00.
The appeal challenged the overall award of these costs and expenses.
The appellant accepted that he should pay something but appealed on the basis that it was unfair that the entire impact of the bankruptcy should fall on him, it having been established that he was under no liability to pay the Council Tax on which the bankruptcy was based.
Permission to appeal was given by Norris J on 9 April 2018 on the grounds that there was a compelling reason for the appeal to be heard because it related to the correct approach to costs when a bankruptcy order (properly made in the first place) is later rescinded.
There was a long and convoluted procedural history to this matter.
The Council Tax concerned related to a residential property at 111 Ashburton Avenue in Ilford (“the Property”).
Redbridge had pursued Mr Amin for Council Tax at the Property on the basis of him being the resident freehold owner, as per s. 6(2)(a) of the Local Government Finance Act 1992.
By a statutory demand dated 22 October 2009 and addressed to Mr Amin at the Property, Redbridge demanded that Mr Amin pay the £4,300.49.
The statutory demand not having been paid, on 14 December 2009 Redbridge issued a petition in the Romford County Court.
Mr Amin did not respond to the petition and on 10 June 2010 was made bankrupt by Order of DJ Bowles.
On 21 September 2010 the Trustee was appointed trustee of the bankrupt’s estate.
The only asset in the estate identified by the Trustee was Mr Amin’s interest in the Property. The Trustee obtained a valuation of the Property in October 2010 at £250,000 to £255,000. But there was in excess of £257,000 owing on the Nationwide’s mortgage. As there was no equity to realise in the Property, by notice of disclaimer dated 16 February 2012 the Trustee disclaimed his interest in the Property. On 7 March 2013 a final meeting of creditors was called and the Trustee was released.
Nothing relevant thereafter happened until September 2015 when Mr Amin telephoned Redbridge and told them he was unaware that his tenants had not been paying the Council Tax.
By an e-mail to Redbridge dated 10 November 2015 Mr Amin said that he wanted to sell the Property and had searched the title and found out he was bankrupt; he explained that:
- although he bought the house in 2007 “[he had] never lived in the house till today”;
- he bought the house from Mr Muhammad Anwar who wanted to stay in the house and pay him rent;
- Mr Anwar lived upstairs, renting out the ground floor to a Mr Umair Shazad; and
- “[he was] not responsible for the council taxes payment because [he] never lived there.”
Mr Amin asked Redbridge to remove his name from bankruptcy.
On 4 December 2015 Redbridge e-mailed Mr Amin asking him to provide documentary evidence that he had let the Property to Mr Anwar and proof of where he had been living since he bought it.
Redbridge heard nothing thereafter until August 2016 when Mr Amin sent them a witness statement from Mr Anwar, saying in his covering e-mail “[Mr Anwar] is liable for the taxes since I bought the property from him because [he] is resident with his family.” The attached witness statement of Mr Anwar was made in support of an application made in Mr Amin’s bankruptcy for a vesting order in relation to the Property.
On 5 October 2016 Mr Amin made a witness statement opposing Mr Anwar’s application. His account was that Mr Anwar was in 2007 struggling financially and offered to sell him the Property, which he did. The arrangement they came to was that Mr Anwar would be his tenant and would pay enough rent to meet the Nationwide mortgage payments. On his account he, not Mr Anwar, was the beneficial owner until he was declared bankrupt. He said he was declared bankrupt without his knowledge and that he was considering an application to the court to annul or rescind the Bankruptcy Order under s. 282 and s. 375 IA 1986 on various grounds. One of those was that he was not liable for the petition debt, being Council Tax, as the house was not in multiple occupation and he was not living there.
Mr Anwar’s account was that he had bought the Property in 2001 and had been in occupation ever since. In 2007 he wanted to raise money against it but had a poor credit rating and so turned to Mr Amin who was then his brother-in-law, being married to Mr Anwar’s sister. The arrangement they came to was that Mr Anwar would sell the Property to Mr Amin who could borrow against it. This is what they did, Mr Amin borrowing £261,000 from the Nationwide and, after paying for various costs, paying Mr Anwar £251,700. According to Mr Anwar he remained the sole beneficial owner and himself met all the mortgage payments, and on this basis he sought a vesting order having only recently learned of the disclaimer by the Trustee.
On 6 October 2016 DJ Revere joined Mr Amin to Mr Anwar’s application and directed that he must make any application to annul or rescind the bankruptcy, or any application under s. 303 IA Act 1986, by 14 November 2016, later extended to 30 November 2016. By an application notice dated 29 November 2016 Mr Amin applied to annul the Bankruptcy Order (but not in terms to rescind it) and to set aside the notice of disclaimer.
In the meantime Mr Amin was pursuing an appeal against the Council Tax liability. On 1 November 2016 a Ms Lopez of the Valuation Tribunal service told him that before applying to the Valuation Tribunal he should first make a formal appeal to Redbridge. This he did on the same day by e-mail, his e-mail saying that
- he had not been resident in the Property since he bought it from Mr Anwar, who was still living in the Property;
- he had submitted a copy of Mr Anwar’s witness statement; and
- he was formally appealing to Redbridge to declare that he was not liable for Council Tax since 2007.
On 13 December 2016 Redbridge replied that it would not be making any changes to the Council Tax records until after a directions hearing in the County Court on 15 December 2016, and on 20 December 2016 the Valuation Tribunal accepted that as a rejection letter.
The Valuation Tribunal hearing took place on 24 August 2017. At this hearing Redbridge’s position was that Mr Amin was liable either as a resident owner or as the owner of a house in multiple occupation.
There was evidence of a number of tenancy agreements, some of them purportedly granted by Mr Amin, before the Tribunal, but Mr Amin’s evidence was that the purported signatures on them were not his.
The Tribunal handed down its decision on 13 September 2017. It allowed the appeal, finding that Mr Amin was not in occupation, that another person (ie Mr Anwar) was in occupation and that Mr Amin had not issued the tenancy agreements which were in his name. He could not therefore be held liable either as the owner or as an operator of a house in multiple occupation.
On 29 September 2017 DJ Dodsworth gave further directions, including a direction that Mr Amin file and serve a formal application for rescission of the Bankruptcy Order, if so advised, by 4 October 2017. That was done by application notice dated 3 October 2017.
The application ultimately came before DJ Dodsworth on 28 November 2017.
On 5 January 2018 DJ Dodsworth handed down a reserved judgment and made the Order.
MR JUSTICE NUGEE:
31. There is no dispute between the parties as to the approach of an appellate court when considering an appeal against a decision on costs. A decision on costs is in almost all circumstances a discretionary decision and it was agreed that that was the case here. I was referred to two of the many statements of principle as to when an appellate court will disturb the exercise of a discretion by the lower court. One was in Tanfern Ltd v Cameron-MacDonald  1 WLR 1311 where Brooke LJ at  drew attention to the statement by Lord Fraser in G v G  1 WLR 647 at 652:
“…the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from another imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.”
The other was in AEI Rediffusion Music Ltd v Phonographic Performance Ltd  1 WLR 1508 at 1523 (itself an appeal on costs) where Lord Woolf MR said that the conventional approach of the Court of Appeal was conveniently summarised by Stuart-Smith LJ in Roache v News Group Newspapers Ltd  EMLR 161 at 172 in these terms:
“Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”
32. Ms Bailey’s submission was that DJ Dodsworth had taken account of certain things which he put in the scale on one side, but had failed to take account of factors going the other way or put them in the scale on the other side. I will come back to this submission after considering the principles applicable.
33. Since Norris J granted permission to appeal on the basis that the appeal relates to the correct approach to costs when a bankruptcy order properly made in the first place is later rescinded, I should state the principles that I understand to be applicable to such a situation. In the end I did not detect any significant dispute between the parties as to these.
34. First, there will in any application for annulment or rescission of a bankruptcy normally be four items of costs to be dealt with (assuming a trustee in bankruptcy has been appointed). These were itemised by Morritt C in London Borough of Redbridge v Mustafa  EWHC 1105 (Ch) (“Mustafa”) (an annulment case) at  as follows:
“(1) the cost of the original petition;
(2) the costs of the annulment application;
(3) the costs of the Official Receiver arising on or after the making of the original bankruptcy order and;
(4) the costs and expenses of the trustee in bankruptcy in acting as such from the time of his appointment to the order for annulment.”
Save that the application which DJ Dodsworth granted was for rescission rather than annulment, these were the same four items which he dealt with in the Order.
35. As Morritt C points out (Mustafa at -), the applicable regime is not the same in respect of all four items.
The first two, which are litigation costs, are covered by what was then r 7.33 of the Insolvency Rules 1986, now replaced by r 12.41 of the Insolvency (England and Wales) Rules 2016.
Since the rescission was made on Mr Amin’s application to rescind dated 3 October 2017, I think it was technically the 2016 rules which applied here rather than the 1986 rules, but it makes no difference. Both rules have the effect of applying CPR Part 44 to the costs of insolvency proceedings, and as Morritt C says it is therefore plain that costs in the first two categories should be dealt with in accordance with the relevant parts of the CPR.
36. In relation to the other two items, that is the Official Receiver’s and Trustee’s costs, Morritt C held that a different regime applies. They are payable out of the bankrupt’s estate in accordance with the priority laid down in what was then r 6.224 of the 1986 rules (and is now r 10.149 of the 2016 rules), but on annulment provision has to be made for them.
In Butterworth v Soutter  BPIR 582 (“Butterworth”) at 586 Neuberger J had accepted the submission that on an annulment he had unfettered discretion to determine who, if anybody, should pay the trustee’s costs. In Mustafa Morritt C followed this, saying that the jurisdiction to do so would either arise under the terms of s. 282(4) of the IA 1986 or the inherent jurisdiction of the Court. s. 282 IA 1986 is the section which confers power on the Court to annul a bankruptcy, and s. 282(4) provides that where the Court does so, the estate of the bankrupt if vested in the trustee shall vest in such person as the Court may appoint or in default of appointment revest in the bankrupt “on such terms, if any, as the court may direct”. Morritt C thought that would enable the Court to direct how the costs of the trustee should be dealt with, and continued:
“But if that is not so, I consider, in agreement with Neuberger J, that there must be jurisdiction under the inherent jurisdiction of the court to determine who should pay the trustee’s costs.”
He also held that the discretion is unfettered and not regulated by the provisions of the CPR.
37. It was not suggested to me that Morritt C was wrong in his analysis. In the case of a rescission rather than an annulment, the Court’s power to rescind comes not from s. 282 but from s. 375(1) IA 1986. This provides as follows:
“Every court having jurisdiction for the purposes of the Parts in this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction.”
38. There is no equivalent to s. 282(4). In those circumstances it seems to me, following Mustafa, that if the Court rescinds a bankruptcy order under s. 375(1), it must have power to direct how the trustee’s costs are to be dealt with, and that must be under the Court’s inherent jurisdiction. A similar view was reached by Briggs J in Appleyard v Wewelwala  EWHC 3302 (Ch) (“Appleyard”) where an appeal against a bankruptcy order had been allowed by Floyd J without making any provision for the trustee’s costs and expenses. Briggs J held that dealing with his expenses was a “necessary consequence of Floyd J’s order” and that the Court had inherent jurisdiction to do so. This conferred on the Court a discretion both as to whether the trustee should have his expenses paid and by whom or out of what fund: see at -. At  he said:
“I can envisage no reason why jurisdiction to deal with the trustee’s costs upon annulment should not extend equally to the case of an appeal. Both processes have the effect of divesting the trustee of the property of the estate which vested in him upon his appointment, and which would, prima facie, be available to him for the purpose of discharging his proper expenses.”
Exactly the same applies when a bankruptcy order is set aside by being rescinded under s. 375 rather than on appeal, and the same jurisdiction must also be applicable.
(1) Costs of the original petition
39. As to how the various discretions should be exercised, it is convenient to look at each of the four heads in turn. I will start with the costs of the original petition. These are litigation costs and governed by CPR Part 44 under which the principles are very familiar:
the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party (r 44.2(2)(a)), but the Court may make a different order (r 44.2(2)(b)), and in deciding what order (if any) to make about costs, the Court will have regard to all the circumstances including the conduct of all the parties (r 44.2(4)(a)).
39. It is to be noted that in Mustafa, which was a case where the bankruptcy order had been annulled under s. 282(1)(a) IA 1986, Morritt C said (at ):
“No doubt the detailed applications of those parts of the CPR to insolvency proceedings requires some moulding to make them fit the different nature of insolvency proceedings. For example, it may not always be obvious who is the successful and unsuccessful party for the purposes of CPR r 44.3(2) [the then rule]. In annulment proceedings under s. 282, conduct may assume a greater importance than may normally be the case.”
The same is no doubt true of rescission proceedings under s. 375.
40. In considering the costs of the petition in that case, he pointed out that the fact that the bankruptcy order was annulled did not mean it was not properly made in the first place. That was another case where a local authority (in fact Redbridge as it happens) had petitioned, and obtained a bankruptcy order, on the basis of a liability order for Council Tax although it later appeared that the bankrupt did not have an underlying liability for Council Tax. Nevertheless Morritt C held that the bankruptcy order was properly made, saying at :
“Thus, in this case the unsatisfied liability order justified the service of the statutory demand. The unsatisfied statutory demand justified the presentation of the petition under s 267 and the bankruptcy order was properly made under s 271. In view of the information later produced by Ms Mustafa, the application for annulment was conceded. I see no reason why in such a case there should be any starting point or presumption that the petitioning creditor should pay the costs. It is quite different where, as in other cases, either there had never been a debt or the order was the result of an abuse of court procedure.”
41. It was not suggested to me that any different approach should apply in the case of a rescission under s. 375 IA 1986. Nor was it suggested to me that the Bankruptcy Order in the present case was not properly made. That is so even though it is now established by the decision of the Valuation Tribunal that Mr Amin was not in fact liable for Council Tax. The effect of Redbridge obtaining liability orders against Mr Amin was to create a deemed debt for the purposes of the IA 1986. That is because reg 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 SI 1992/613 provides:
“Where a liability order has been made and the debtor against whom it was made is an individual, the amount due shall be deemed to be a debt for the purposes of section 267 of the Insolvency Act 1986 (grounds of creditor’s petition).”
Indeed that is why, as decided by the Court of Appeal in Yang v Official Receiver  EWCA Civ 1465,
when a bankruptcy order has been made on the basis of a liability order and it later transpires that the person against whom it was made was not in fact liable for Council Tax, the Court should not annul the bankruptcy under s. 282(1)(a) IA 1986 but rescind it under s. 375(1) IA 1986.
The position was explained by Gloster LJ at :
“In my judgment, the only sensible interpretation of section 282(1)(a) of the IA86 is that contended for by the local authority: namely that regulation 49(1) of the CTR [ie the Council Tax (Administration and Enforcement) Regulations 1992] deems the liability orders to constitute a legally enforceable debt, regardless of the underlying factual position relating to the relevant property, unless and until the liability order is set aside under the specific statutory procedure laid down for doing so.”
42. It follows that the petition in the present case was well founded. Redbridge was therefore to that extent the successful party and under the general rule could expect to recover its costs of the petition notwithstanding that the liability orders were later set aside and the Bankruptcy Order rescinded. See Mustafa at :
“Even if liable to be annulled, the order was properly made when it was made. For these reasons I consider that the costs of the petition should be paid by Ms Mustafa in any event. The London Borough of Redbridge was the successful party and there was nothing in its conduct sufficient to warrant depriving it of its costs.”
43. As that shows,
it does not follow that a local authority that has obtained a liability order will always recover its costs, as the Court has a discretion to make a different order, and if the local authority’s conduct has been such as to be open to criticism, it can be deprived of its costs.
But in the present case DJ Dodsworth expressly held that there was no basis for criticising Redbridge’s conduct leading up to the making of the Bankruptcy Order. He said (Judgment at ):
“In my judgment there is no basis on which Redbridge’s conduct both before and since the making of the bankruptcy order can be properly criticised. The bankrupt was the Property’s registered owner and prima facie liable for the Council Tax. Visits were made to the property and responses received which indicated the bankrupt lived there. The fact that the bankrupt has succeeded in setting aside the liability orders many years after they were made does not mean Redbridge acted improperly in obtaining them in the first place.”
No particular criticism of these findings has been advanced, and they seem to me to be justified in the light of the history I have referred to above.
44. Although in his Appellant’s Notice Mr Amin seeks to appeal the whole of DJ Dodsworth’s Order (and replace it with an Order that Redbridge pay all the costs, those of Mr Amin, the Trustee, the Official Receiver and its own), Ms Bailey, as already referred to, made it clear in oral submissions that she was not suggesting Mr Amin should not pay anything, and did not specifically ask for this part of the Order to be set aside.
45. In my judgment no ground is shown for reversing that part of DJ Dodsworth’s Order that required Mr Amin to pay Redbridge’s costs of the petition.
(2) Costs of the Official Receiver
46. I can deal with this very shortly. Mr Amin does not suggest that the Official Receiver should not have his costs (and indeed the Official Receiver was not a respondent to the appeal and may know nothing of it), only that Redbridge should pay them instead of him. The costs of the Official Receiver follow from the making of the Bankruptcy Order. See Mustafa at  where, after the passage cited in paragraph 42 above, Morritt C continues:
“Similarly, the costs of the Official Receiver, which effectively followed the making of the bankruptcy order largely as a matter of course, should be paid by Ms Mustafa also.”
47. In the light of my conclusion on the costs of the original petition, I see no reason why Redbridge should be liable to meet these costs any more than the costs of the petition, nor did Ms Bailey identify any such reason, or advance any separate argument in relation to the Official Receiver’s costs.
In those circumstances in my judgment no ground is shown for disturbing this part of DJ Dodsworth’s Order either.
(3) The Trustee’s costs
48. It is well established that (absent any particular criticism of the trustee) provision should be made for a trustee in bankruptcy’s costs when a bankruptcy order is (to use a neutral expression) set aside. In Butterworth (an annulment case) Neuberger J said (at 585):
“Prima facie, it cannot be envisaged that a trustee in bankruptcy will work for nothing, and normally, when a bankruptcy order has been properly made, subject to questions of reasonableness and subject to special facts, the trustee will be paid out of the estate.”
Briggs J applied a similar principle in Appleyard where an appeal had been allowed against a bankruptcy order, saying at :
“There are amply sufficient dicta in the three authorities to which I have already referred to the effect that a trustee who acts properly and innocently of any wrongdoing can expect to obtain payment of his reasonable expenses, and is not to be expected to act gratuitously, or to discharge expenses out of his own pocket.”
See also Oraki v Dean & Dean  EWCA Civ 1629 at  per Arden LJ:
“The guiding principle, in my judgment, is that the proper expenses of the trustee should normally be paid or provided for before the assets are removed from him by an annulment order. This guiding principle flows from the fact that, prior to the annulment, the trustee has a valuable right of property, namely the right to retain such sums as may be necessary to pay the expenses of the bankruptcy: see s 323 of the IA 86. It would be unusual for this court to take that right away without providing for the trustee’s position to be adequately protected.”
49. Similar principles apply to other office-holders in insolvency: see as to liquidators re Calgary and Edmonton Land Co Ltd  1 WLR 355 at 360E per Megarry J (“A liquidator who loses control of the assets by reason of a stay ought normally to be safeguarded in relation to his expenses”); as to Court-appointed receivers Mellor v Mellor  1 WLR 517 at 525C-D per Hart J (“Absent any evidence that the receiver was in some way complicit in the non-disclosure or other impropriety on behalf of the applicant in obtaining the order, the receiver is entitled to act and be remunerated for acting on the footing that his appointment is valid”); and as to administrators sch B1 para 99(3) IA 1986.
There is no reason (and none was suggested) why these principles do not equally apply on a bankruptcy order being rescinded rather than annulled or overturned on appeal.
50. In the present case DJ Dodsworth provided at paragraph 1 of the Order that the Trustee’s costs and expenses should be an expense of Mr Amin’s bankruptcy; and at paragraph 5 of the Order that:
“The Trustee shall retain and may realise any part of the Applicant’s estate until such time as the costs and expenses of the bankruptcy have been discharged, and shall only be required to deliver up the estate to the Applicant upon such discharge.”
51. In the light of the authorities, that was plainly an order that DJ Dodsworth was justified in making. It is doubtful how much practical benefit it will be to the Trustee, as the only asset which appears to have ever been in the estate was Mr Amin’s interest in the Property, and since the Trustee has disclaimed that, it is not obvious that there are now any assets to which this right of retention can apply, but it is possible that if the disclaimer were successfully set aside it might have some effect. Mr Simon Hunter, however, who appeared for the Trustee, accepted that it would be surprising if the Trustee could do anything to set aside his own disclaimer.
52. The real question is whether DJ Dodsworth should have gone further and required Redbridge to pay the Trustee’s costs, or at least part of them. There is no doubt, as explained above, that the Court does have an inherent jurisdiction to make an order not just that a trustee’s costs are payable out of the assets but also that one or other of the parties should pay them personally, and before DJ Dodsworth the Trustee contended that either Mr Amin or Redbridge should pay them. But DJ Dodsworth declined to do so, and the Trustee has not sought to appeal that.
53. Nevertheless Mr Amin does argue that Redbridge should pay the Trustee’s costs. It seems to me that that would only be of practical benefit to him if he were able to set aside the disclaimer, and there may be certain difficulties in that, but I will consider the matter on its merits.
54. DJ Dodsworth held that Redbridge could not be criticised for its conduct since the making of the Bankruptcy Order any more than it could for its conduct beforehand, saying (Judgment at ):
“Until recently the bankrupt was not taking any active steps to challenge the liability orders. Indeed when the bankrupt did issue his application he did not have any locus to do so as the cause of action was, at that time, still vested in the trustee. Redbridge have not opposed the rescission of the bankruptcy order following the Valuation Tribunal’s decision and the bankrupt’s late clarification that he was pursuing rescission rather than annulment.”
On that basis he declined to order Redbridge to pay the Trustee’s costs, saying (Judgment at ):
“But in the absence of any conduct by Redbridge that could properly be criticised I do not see why they should be ordered to pay the trustee’s costs. As a local authority the costs would be borne by their residents and I do not see that to be a fair result.”
55. Ms Bailey says that is not right and that Redbridge could and should have done more. Her first submission was that Redbridge were first put on notice that Mr Amin was not the occupier in September 2015 and that they should bear the costs from that date.
56. I do not think this is borne out. The evidence is that although Mr Amin contacted Redbridge in September 2015 and again in October 2015, he was asked to put his concerns in writing which he did not do until November 2015 (paragraph 16 above). Ms Bailey relied on the visit report from Ms Woodrow in November 2015 (paragraph 17 above), but that of course could only give information about the occupation in 2015, not what the position had been between October 2007 and March 2010 which was the period on which the liability orders were based. The upshot of the inquiries in the autumn of 2015 was Redbridge’s request to Mr Amin to provide documentary evidence (paragraph 18 above). In asking for that I do not see that they can be faulted.
57. There was then a gap between December 2015 and August 2016 in which nothing appears to have happened so far as Redbridge were concerned (paragraph 19 above). Ms Bailey told me that although it was not apparent on the papers, Mr Amin was trying in that period to get Mr Anwar to leave the Property but he would not do so. That may be so (although evidence to that effect does not appear to have been before DJ Dodsworth, or indeed formally before me), but it does not affect the fact that Redbridge cannot bear any responsibility for the delay. As Ms Rowena Page, who appeared for Redbridge, pointed out, it was unfortunate that Mr Amin did not apply to rescind the Bankruptcy Order when he first found out about it in the autumn of 2015 as if he had done it is perhaps unlikely that the Trustee would have been re-appointed as he was in March 2016, in which case all his costs incurred thereafter would no doubt have been avoided.
58. Ms Bailey’s next criticism of Redbridge is based on the receipt by Redbridge of Mr Anwar’s witness statement in August 2016 (paragraph 20 above). She said that anyone reading it would have realised that Mr Anwar was the occupier and the person liable for Council Tax, and that it was unreasonable for Redbridge to say that they were going to wait and see what the Valuation Tribunal said. At that stage however it seems to me to have been eminently reasonable for Redbridge to have declined to do anything. No application had then been made for annulment or rescission of the Bankruptcy Order. Mr Amin made a witness statement on 5 October 2016 in which he said he was considering an application to the Court to annul or rescind the Bankruptcy Order (paragraph 21 above), but he did not actually make any such application until the end of November 2016, and when he did it was an application to annul (paragraph 22 above). The receipt of Mr Anwar’s witness statement certainly raised questions, but I do not think Redbridge can be criticised for taking the view that it did not provide definitive answers, particularly in the light of the previous evidence that Redbridge had that Mr Amin had been living at the Property (that is, not only what Mr Lyon had been told but also the fact that Mr Amin was shown on the electoral roll for a number of years). Indeed Mr Anwar’s witness statement itself said that Mr Amin had granted Mr Shazad a tenancy of the Property and that he, Mr Anwar, was a beneficial owner not a tenant, which contradicted what Mr Amin had been saying. Taken altogether, I think it was reasonable of Redbridge not to have acted on receipt of Mr Anwar’s witness statement; and also reasonable of Redbridge to decline to make changes to the Council Tax records in December 2016 (paragraph 23 above).
59. Ms Bailey next said that Redbridge should have taken the opportunity to meet Mr Amin in April 2017 to see if the dispute could be settled (paragraph 27 above). But it seems to me that Redbridge, having reasonably taken the view that the evidence was unclear and that it was a question for the Valuation Tribunal to resolve, did not act unreasonably in declining to meet.
60. Ms Bailey then said that Redbridge had an opportunity to resolve matters voluntarily after receipt of the Valuation Tribunal’s decision in September 2017, for example at the directions hearing which took place on 29 September 2017 (paragraph 29 above). Ms Page told me that her recollection was that at that hearing an indication was given that Redbridge would not oppose rescission. Ms Bailey did not recollect that. I cannot resolve who is right, but what is clear is that by the time of the next hearing (on 28 November 2017) Redbridge had indeed made it clear that it was not opposing rescission, although it continued to oppose annulment if sought, and that the substantive argument would be about costs.
61. Ms Bailey also suggested that Redbridge should itself have taken steps to advise Mr Amin to go to the Valuation Tribunal. She referred to the decision of Mr Robin Hollington QC (sitting as a Deputy High Court Judge) in Okon v London Borough of Lewisham  EWHC 864 (Ch) at , but as appears from what he said that was not directed at local authorities but at those responsible for the administration of magistrates’ courts, and I do not think it is in point.
62. I was also (briefly) referred to reg 36A of the Council Tax (Administration and Enforcement) Regulations 1992. Reg 36A(1) and (2) provide:
(a) a magistrates’ court has made a liability order pursuant to regulation 34(6); and
(b) the authority on whose application the liability order was made considers that the order should not have been made,
the authority may apply to the magistrates’ court to have the liability order quashed.
(2) Where, on an application by an authority in accordance with paragraph (1) above, the magistrates’ court is satisfied that the liability order should not have been made, it shall quash the order.”
Reg 36A(3)-(5) in effect provide that a liability order in a lesser sum can be substituted where appropriate.
63. That power, introduced into the regulations in 2004, is no doubt a very useful one where the local authority is itself satisfied that a liability order was obtained in circumstances where it should not have been. But the fact that Redbridge could have applied to have the liability orders quashed if it had been satisfied that they had been wrongly obtained, does not mean that they were obliged to do so in circumstances where they considered that the true position was obscure. Beyond identifying that the power existed, the argument barely touched on this point and I did not receive any substantive submissions as to whether or in what circumstances a local authority was under a duty (as opposed to having a power) to return to the magistrates’ court to have a liability order quashed. I am very reluctant in those circumstances to say anything by way of general principle, and will simply say that I am not persuaded on the facts of this case that Redbridge acted wrongly in failing to use the reg 36A power in circumstances where it thought the position was unclear and where I am not persuaded that it was unreasonable for them to think that. Nothing should be read into that as applying to other cases, and any detailed exploration as to whether or when a local authority is obliged to use the reg 36A power will have to await another case.
64. Having considered all the criticisms Ms Bailey made of Redbridge, I remain unpersuaded that DJ Dodsworth erred in finding that this was not a case where Redbridge should have been ordered to pay the Trustee’s costs. In circumstances where I agree with DJ Dodsworth that no specific criticism of Redbridge’s conduct has been established, his decision seems to me well within the generous ambit of his discretion. The authorities referred to above all reflect the fact that
although a trustee can usually expect to look to the assets for his costs and expenses, he has in general no such expectation that he will also obtain an order for costs against either the petitioner or the bankrupt (or both): see in particular Appleyard at  per Briggs J where he refers to:
“the general perception among insolvency practitioners that a trustee is at risk as to recovery of his costs if the bankruptcy estate is insufficient for that purpose.”
In those circumstances an order for the trustee’s costs to be paid personally by one or other (or both) of the parties can, it seems to me, never be a matter of course, and must depend on it being shown to be appropriate in the particular circumstances of any particular case.
65. In the present case DJ Dodsworth was in my judgment entitled to take the view that the circumstances did not merit Redbridge being required to pay the Trustee’s costs, or any part of them. I will therefore dismiss the appeal against this part of the Order.
(4) The costs of the rescission application
66. That leaves the costs of the rescission application. Here Ms Bailey relies on all the criticisms of Redbridge’s conduct that I have considered, and rejected, when considering the question of the Trustee’s costs (above). I do not intend to go through those points again and for the reasons already given I am not persuaded that Redbridge acted unreasonably or that its conduct is open to criticism.
67. Nevertheless Ms Bailey makes another point. This is that Redbridge chose to take the stance that Mr Amin did have an underlying liability for the Council Tax, either because he was a resident owner, or because he was responsible for a house in multiple occupation. That, she said, was a gamble. In every other type of litigation, a party who adopts a particular position in the litigation and ultimately loses is at risk as to costs regardless of whether they have acted reasonably or not, and regardless of whether their conduct can be criticised. There is, she submitted, no reason why that should not apply here. Mr Amin was ultimately successful in showing that he had no underlying liability for the Council Tax and that the liability orders should be set aside, with the result that the Bankruptcy Order should be rescinded. Redbridge did not have to take issue with the substantive question, but they did, and having done so, should either bear the costs, or there should at least be no order as to costs.
68. Ms Page says that all the suggested criticisms of Redbridge were before DJ Dodsworth and he found that Redbridge had not acted inappropriately. That is true but it does not answer this particular point. DJ Dodsworth dealt with the incidence of the costs of the rescission in his Judgment at -. At  he said that the basis on which Mr Amin sought an order that Redbridge pay his costs, the Trustee’s costs and the Official Receiver’s costs was that it had:
“behaved inappropriately and/or taken insufficient steps to establish that the bankrupt was liable for the Council Tax in relation to the Property and/or serve the statutory demand and bankruptcy petition personally.”
At  he dealt with those criticisms and (as already referred to above) found that there was no basis on which Redbridge’s conduct both before and after making the Bankruptcy Order could be properly criticised. At  he said that “accordingly” he would order Mr Amin to pay Redbridge’s costs of the petition, and also Redbridge’s costs of the rescission application.
69. That may well reflect the way in which it was argued before him, so I do not criticise DJ Dodsworth for dealing with the costs in that way. Nevertheless, now that the point has been taken, I think it can be said that the overall result gives no weight to the fact that Mr Amin was the successful party in the rescission application.
The costs of the rescission application are litigation costs, and for the reasons given above fall to be dealt with in accordance with CPR Part 44. The starting point under CPR 44 is that if the Court decides to make an order as to costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party.
The Court does of course have ample power to depart from the general rule, but it is an unusual thing to do to not only deprive the successful party of the benefit of the general rule but to order him to pay the entirety of the costs of the unsuccessful party. That is such a departure from the general rule that there needs to be some particular reason for doing that.
70. But apart from rejecting the criticisms of Redbridge’s conduct, DJ Dodsworth does not really identify what justifies making Mr Amin pay their costs. Although as I have said that may be quite understandable given the way it appears to have argued before him, I accept Ms Bailey’s submission that what it amounts to is to put everything into the scales on one side (that is, that the conduct of Redbridge could not be criticised) and nothing into the scales on the other side (that is, that Mr Amin succeeded in showing that he had no underlying liability for Council Tax and hence that the Bankruptcy Order should be rescinded). I have come to the conclusion that those are circumstances which justify the appellate court in reconsidering his decision as to this element of the costs.
71. That means that it falls to me to exercise my own discretion as to these costs. Ms Page said that Mr Amin’s initial application was for annulment not for rescission, and Redbridge were quite justified in opposing that (because Yang v Official Receiver establishes that in a case like this annulment is not appropriate); that Mr Amin was also taking a point on service which Redbridge was justified in opposing; and that once Mr Amin had applied for rescission, it was not opposed and the real argument was about costs, which Redbridge had been successful on.
72. There is some force in those contentions. But there would have been more force if Redbridge’s response to the application had been entirely neutral on the question whether Mr Amin had an underlying liability for Council Tax and had pointed out that the correct application if he were right was for rescission not annulment. But it is apparent from the witness statement served by the Council in opposition to Mr Amin’s application (a witness statement of Jo Walker, a revenues officer employed by Redbridge, dated 16 February 2017) that Redbridge did not take a neutral position but positively asserted that Mr Amin was liable. At paragraph 30 Ms Walker said that Mr Amin had provided no evidence that Mr Anwar was living at the Property from 2001 onwards. At paragraph 32 she said that it was Redbridge’s position that Mr Amin had failed to provide sufficient evidence to show that anyone else should be liable for the relevant Council Tax due. At paragraph 41 she said that it was Redbridge’s position that Mr Amin was liable as owner of the Property for the period from 24 October 2007 to 31 March 2010. She concluded by asking the Court to dismiss Mr Amin’s application in the light of the evidence contained in the statement. In other words the Council did not simply take the technical position that Mr Amin was using the wrong procedure by asking for annulment rather than rescission, but sought to answer the case on the basis of the underlying merits. That was consistent with Redbridge’s decision not to amend the Council Tax records, and indeed with its attendance at the Valuation Tribunal where the Tribunal’s decision records that Redbridge’s contention was:
“that Mr Amin was residing at the property based on information from electoral registration records, credit searches and statements from other occupiers.”
73. In those circumstances I do not think it right that Mr Amin should pay Redbridge’s costs of the application. That would mean that Mr Amin, who successfully established that he did not have the underlying liability for Council Tax, would have to pay Redbridge the costs they incurred in putting forward evidence in support of a case that he was. I agree with Ms Bailey that that does not seem fair or just.
74. On the other hand, there are certainly points to make the other way. Mr Amin’s delay (described as “inordinate” by DJ Dodsworth and as having increased all parties’ costs), the fact that he initially asked for annulment rather than rescission, the fact that he took points on service of the petition and statutory demand which DJ Dodsworth held to be ill-founded, and his contention that Redbridge should pay for all the costs, will have undoubtedly increased the costs on both sides. Redbridge was responsible for none of that.
75. In all the circumstances it seems to me to be a case where there is justification for departing from the general rule, and I propose to direct that there be no order as to the costs of Mr Amin’s applications as between Mr Amin and Redbridge. That seems to me to reflect the various points on both sides that I have referred to above.
76. It is interesting to see that in Mustafa Morritt C, who was faced with a not dissimilar question, dealt with the costs in a similar way as follows (at ):
“The annulment application, when eventually made, was conceded by the London Borough of Redbridge. The order was made, notwithstanding the existence of another creditor, for whom no provision appears to have been made. To that extent Ms Mustafa was the successful party, but the need for the application was due to her original neglect to deal with the liability orders or the statutory demand, and was not due to any action of the London Borough of Redbridge, nor were the costs increased by any action of the London Borough of Redbridge. In those circumstances, I cannot see any grounds for requiring the London Borough of Redbridge to pay the costs of the annulment application. The representation of the London Borough was necessary to deal with the costs consequences. In that respect the London Borough has now been successful. It may be argued that in those circumstances Ms Mustafa should pay the costs of the London Borough of Redbridge of and incidental to the annulment application, but I consider that that would be going too far in the opposite direction. In all the circumstances I consider that the appropriate order in relation to the application for annulment is that each side should bear its own costs.”
Although the circumstances there were of course not precisely identical, this accords with my own view of a fair disposal in the present case.
For the reasons given above:
(1) I dismiss Mr Amin’s appeal against paragraph 6(a) of the Order of DJ Dodsworth dated 5 January 2018 by which he ordered Mr Amin to pay Redbridge’s costs of the petition.
(2) I dismiss Mr Amin’s appeal against paragraph 6(c) of the Order by which he ordered Mr Amin to pay the Official Receiver’s costs and disbursements.
(3) I dismiss Mr Amin’s appeal in relation to the Trustee’s costs whereby Mr Amin sought an Order that Redbridge pay the Trustee’s costs.
(4) I allow Mr Amin’s appeal against paragraph 6(b) of the Order and will order instead that there be no order as to the costs of Mr Amin’s applications.