Topham & Anor v French (As Trustee In Bankruptcy of Topham)

This is an application for permission to appeal an order of Mr Robert Englehart QC, sitting as a deputy High Court judge in the Chancery Division, dated 11 December 2008. The order was made on appeal from an order of District Judge Merrick dated 7 January 2008, when the District Judge was sitting in Bankruptcy at the Brighton County Court. The order concerns costs, which the District Judge held should be paid by Mr and Mrs Topham. They are the applicants and they appear in person today. I have had very succinct and helpful oral submissions from Mr Topham on behalf of both applicants, as well as a carefully put together bundle which explains the position.

The facts giving rise to the present application are, briefly, as follows: Mr Topham is bankrupt. In December 2006 Mr Topham’s Trustee in Bankruptcy, Mr Jeremy Stuart French, who is the respondent to the present application (the “Trustee”), sought an order for the possession or sale of the applicants’ matrimonial home. The transfer document relating to the property shows that it was owned by Mr and Mrs Topham in equal shares. However, the Tophams’ case was that Mr Topham had only a 1% share in the property and that was in fact in trust for the children of Mr and Mrs Topham. There were several hearings before District Judge Merricks. At the last of these, on 7 January 2008, which was in fact the second day of a two day hearing, the District Judge raised an issue whilst Mr Topham was giving evidence. The District Judge said that the Tophams could not succeed in their case unless either they obtained rectification of the transfer document to reflect the true intention of the two parties, ie Mr and Mrs Topham, or they raised a new issue, which can be summarised as “the equity of exoneration”.

Effectively this is a plea that even if the property was held as to 50% by each of Mr and Mrs Topham, Mr Topham’s half share of the equity has been exhausted by virtue of borrowings (by a company) that have been made against that equity and so that his half share has been exhausted.

Because of the high value of the matrimonial home, a claim for rectification would have exceeded the jurisdiction of the County Court; therefore any such claim would have had to have been made in High Court proceedings. There had in fact been no attempt to claim rectification by Mr and Mrs Topham up to the point it was raised by the District Judge. However, it is clear from the papers that I have before me that the issue of whether or not there was an “equity of exoneration” was before the court because that is set out in the statement of issues that had been prepared at an interlocutory stage. The statement is divided into two parts, one half setting out the applicants’ comments and the other half setting out the respondent’s comments.

At the time the District Judge said that he had no jurisdiction to deal either with the rectification issue or the “equity of exoneration” issue. Therefore (he said) if these two points were to be raised then they would have to be raised in the High Court. In the transcripts for the hearing of 7 January 2008, it is clear from the opening paragraphs that the judge was offering the Tophams an opportunity to adjourn the hearing before him in order that they could “make an application for rectification and to deal with the problem that they have raised as to the doctrine of equitable exoneration”. In fact the issue of the equity of exoneration was not something that they had raised specifically but was recognised as being an issue that had to be dealt with by both sides.

The judge effectively therefore offered the Tophams three alternatives. First, to continue with the present claim with no claim for rectification and no ability to deal with the equity of exoneration issue; secondly, to proceed to the High Court where both the rectification and equity of exoneration issues could be dealt with; and lastly, an adjournment of the present claim. The judge warned that if there was any kind of adjournment for any purposes, it would lead to costs consequences.

The Tophams were quite certain in their own mind at the time that if they were to raise the issues of both rectification and equity of exoneration, they had to go to the High Court. They therefore decided to seek an adjournment. This was not strongly opposed by counsel who appeared for the Trustee in Bankruptcy at the hearing. The District Judge ordered an adjournment. He also made the following order for costs against the Tophams:

“Trustees wasted costs of two days hearing to be paid by Respondents to be subject to detailed assessment if not agreed.”

The “respondents” in that statement are of course the Tophams.

It turns out that the amount of costs at stake is some £26,350. Effectively, the Tophams could not take any further steps in this litigation until that sum was paid. The Tophams therefore sought leave to appeal that order, and obtained permission from Morgan J after an oral hearing to appeal it. Mr Englehart QC heard the appeal on 11 December 2008.

His judgment, which was given extempore, as I understand it, noted that the District Judge should have referred to “costs thrown away” by the adjournment rather than “costs wasted” by it, but otherwise he decided that the appeal should be dismissed. The deputy judge went through the background at the hearing of 7 January 2008 before the District Judge. He noted that the issue of the “equity of exoneration” had been on the List of Issues that had been drawn up before the hearing came on. The judge also noted three things in particular: first, it was most unfortunate that it was only on the second day of the hearing, ie 7 January 2008, that the District Judge fully appreciated the fact that there was no existing claim for rectification by the Tophams and that even if there had been, he would not have had jurisdiction to deal with the rectification issue. Secondly, Mr Englehart noted that the District Judge was wrong to state that he had no jurisdiction to deal with another possible argument, ie the “equity of exoneration” argument. Thirdly, Mr Englehart noted that the Trustee could have instituted proceedings to determine the beneficial ownership of the house, in accordance with the directions of the Land Registry, but he found that there was no specific fault in them not doing so.

The Deputy Judge then asked this question: can it be said that the District Judge went wrong in applying the general principle of civil litigation that if a party asks for an adjournment, then it will have to pay for the costs thrown away? The judge concluded that although other criticisms might be made of the way that the case was handled by the District Judge, his decision on costs concerning the adjournment could not be faulted. The judge said that he was sitting on appeal from the District Judge’s decision on costs, therefore the test was whether the District Judge had made an error of law such that his discretion was vitiated. He concluded that he was unable to say that the decision of the judge was “not within the generous ambit allowed to his discretion”, and that is why he dismissed the appeal.

This court, as is well known, will only consider a second appeal if it is satisfied that there is some important point of principle or practice involved or if there is some other compelling reason why the Court of Appeal should hear the matter. I am quite satisfied that there is no important point of principle or practice involved in this case. This is, I very much hope, a “one-off” case.

However, I have been satisfied by the argument of Mr Topham this morning that there is a compelling reason why this court should hear an appeal from Mr Englehart QC. I am satisfied that it is arguable that it might be grossly unfair to make the Tophams pay for the costs of the adjournment in circumstances where all parties, particularly counsel for the Trustee in Bankruptcy and the District Judge, failed to spot the fact that a rectification claim could not be dealt with by the County Court and also failed to appreciate that the County Court could have dealt with the equity of exoneration issue which was plainly on the List of Issues to be dealt with in the hearing. Therefore it seems to me that it is reasonably arguable that the District Judge erred, in a way that can be reviewed by this court, in making the order for costs that he did.

I must emphasise that I am only saying that this is an arguable point. When this case comes on for hearing by the full court it may well be that there are counter arguments which will be raised by counsel for the Trustee in bankruptcy which persuade this court that the order of the District Judge as affirmed by Mr Englehart QC should remain as it is. But it seems to me that it would only be right and just for this matter to be aired at a full hearing of this court.

Accordingly I give the Tophams permission to appeal on this costs order.