Fri 19 Jun 2015

Trustee's liability for costs of court actions

It is rare for a court to set out a decision on a party's likely liability in costs before hearing a case. However, the Supreme Court does so in its recent decision in BPE Solicitors and another v Gabriel [2015] UKSC 93.

This decision is the latest in the dispute between Mr Gabriel and his former solicitors, BPE which was the subject of a presentation by my colleague Richard McMeeken at last year's Morton Fraser Annual Conference in Dunkeld.

To briefly remind you of the facts - the case relates to Mr Gabriel's claim that his former solicitors were professionally negligent when acting for him in a transaction in which he lent £200,000 to a company connected to a friend of his.  Mr Gabriel argued that BPE should be held liable as they failed to pass on to him information they had about the purpose for which the loan funds would be used which was different to the purpose which Mr Gabriel understood the loan was for.  It was initially held that BPE were negligent in the way they handled the transaction and Mr Gabriel was awarded damages in the sum of £200,000.  However, the Court of Appeal reduced the damages to a nominal sum of £2 as it felt that the loss suffered by Mr Gabriel was not caused by a breach of duty by BPE. In so holding, the Court of Appeal made an important distinction between the solicitors' duty to give legal advice as opposed to commercial advice.

The Supreme Court's recent decision does not determine the appeal but instead relates to a question about liability for costs of the earlier court decisions.  Mr Gabriel was made bankrupt on 5 March 2014.  This was after a costs order had been made against him by the Court of Appeal.  One result of Mr Gabriel's bankruptcy was that the decision as to whether or not to continue with the Supreme Court rested with his trustee.

If the trustee took the decision to continue with the appeal and it was successful, there would be a substantial increase in the funds available for Mr Gabriel's creditors.  However, the trustee was concerned about the potential costs should the action not be successful because, if he was to be held liable for all the costs incurred by BPE for the duration of the case, there would not be sufficient funds in the estate to indemnify the trustee for all the costs which would have to be paid out meaning he would be personally at risk of having to cover these.

The trustee therefore asked the court for a ruling as to what extent he would be liable for costs if he chose to pursue the appeal.  He accepted that he would be at risk for the costs of the Supreme Court appeal if he proceeded with the appeal and lost.  However, he argued that he should not be at risk in relation to the costs before the trial judge and Court of Appeal - these should instead just be a claim against Mr Gabriel's bankrupt estate if the Court of Appeal's decision on costs was not overturned by the Supreme Court.

The Supreme Court held that if the trustee decides to proceed with the appeal he will not, either by virtue of his office of trustee or his adoption of the appeal, be held personally liable for the costs of the earlier hearings before the trial judge or the Court of Appeal.  This decision will provide much comfort for the Trustee and it is good news for practitioners as it makes it more likely that the Trustee will now pursue the appeal in what is potentially an important case in the field of solicitors' negligence.

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