London Borough of Redbridge v Mustafa

Judgment

THE CHANCELLOR:

1. This is an appeal of the London Borough of Redbridge brought with the permission of Sales J from the order for costs made against it by District Judge Bowles, sitting in the Romford County Court on 23^rd December 2009. On that occasion the District Judge ordered the annulment of the bankruptcy order made in respect of Guldal Mustafa, also known now under her married of Basturk. The order required the London Borough of Redbridge to pay the costs and expenses of the Trustee in Bankruptcy and provided that the annulment order should remain on file until the Trustee in Bankruptcy confirmed in writing that such costs had been paid.

2. The argument on this appeal has disclosed three points of principle requiring my decision before arriving at any conclusion as to whether I can and should interfere with the exercise by the District Judge of his discretion as to the costs of both the proceedings before him and the costs and expenses of the Trustee in Bankruptcy. They are (1) what are the basic principles to be applied in determining who should pay these costs? (2) whether a local authority which ascertains that the debt on which it has obtained a bankruptcy order should be reduced to nothing is under a duty to do anything and if so, what? and (3) whether when a bankruptcy order is annulled under s.282(1)(a) of the Insolvency Act 1986 there is any presumption that the Petitioner should pay the costs of the petition, annulment and of the Official Receiver and Trustee in Bankruptcy.

3. Before dealing with those points it is necessary to describe in some detail the facts of this case, which have given rise to them. On 9^th January 2007, the London Borough of Redbridge issued a statutory demand to Ms Mustafa in respect of the sum of £2,761.64 due under three liability orders in respect of council tax for number 14 Inverclyde Gardens, Chadwell Heath, Romford, Essex, made by the Redbridge Magistrates’ Court on 30^th September 2004, 26^th May 2005 and 1^st June 2006. Part B of the statutory demand in the normal form, set out the names, address and telephone numbers of the responsible individuals in the London Borough of Redbridge with whom Ms Mustafa should communicate if she wished.

4. On 24^th January 2007, the process server, Ms Lyon, deposed to having effected substituted service of the statutory demand by putting it in a sealed envelope through the letterbox addressed to Ms Mustafa at the address of the property in question. He deposed to two visits to the property on 15^th and 20^th January, when a man and a woman separately, told him that Ms Mustafa continued to reside there and to receive mail addressed to her there. This was put in somewhat different terms in his report to his client. There she wrote:

“We did actually make contact with the subject and she stated that she did not live at the address and that she rents it out. However, a woman resident had already confirmed that she did live there and was even specific stating that she was away at that time, but would be returning home “tomorrow evening”. The subject refused to give us her current address and when we went back on the appointment time we met a male, who claimed that she lived in Cyprus. We did not believe this for a second and we do believe that the reason why she would not give us another current address is that she was in fact living at the address.

However, needless to say she did not keep the appointment time and would not meet with us. We therefore sub-served the documents.”

5. No steps were taken to set aside the statutory demand and on 6^th March 2007, a bankruptcy petition based on it was issued by the London Borough of Redbridge in the Romford County Court. The petition indicated that the date of the first hearing was 31^st May 2007, and gave the telephone number of the Borough’s solicitors, with whom Ms Mustafa could get in touch if she so wished.

6. On 27^th March 2007, the same process server swore an affidavit in support of the application for an order for substituted service of the petition. This affidavit is at variance with the affidavit sworn on 24^th January. On this occasion he stated in effect what he had reported to his client in his note dated 24^th January, from which I have already quoted.

7. The order for substituted service was duly made on 18^th April 2007, and required service by means of a sealed copy of the petition and of the order for substituted service being inserted through the letterbox at number 14 Inverclyde Gardens. The petition was duly served in accordance with that order on 25^th April 2007, indicating that the hearing was due on 31^st May. The bankruptcy order was made on 31^st May by Deputy District Judge Sterlini, no one having appeared for Ms Mustafa.

8. On 6^th June 2007, Ms Mustafa -- having spoken to Ms Walker, the debt recovery officer of the London Borough of Redbridge -- faxed through a letter to the Borough dated 30^th May 2007, explaining that she, Ms Mustafa, had attended at the offices on 30^th May, but no one could see her on that day. She said that the property had been let to tenants throughout the relevant period and produced copies of the various shorthold tenancies concerned. She gave her current address as being that of her house, somewhere other than the address at which the documents had been served.

9. On 8^th June 2007, the London Borough of Redbridge wrote to Ms Mustafa at the address she had given saying this:

“As a result of the receipt of paperwork received on 6^th June 2007, by fax from you I would advise that the council tax records have been amended to make various tenants liable.

These amendments have resulted in the amount of debt that you were made bankrupt for being reduced to a nil balance.

It would be in your interests to approach the Insolvency Service with a view to making an appeal to have the bankruptcy annulled.

I would suggest that you seek independent advice as to the options available to you.”

That letter was not signed, but there is in evidence a signed version of the letter, this time dated 12^th June, in identical terms save that the penultimate sentence from the passage I have quoted reads as follows:

“It would be in your interests to approach the Insolvency Service with a view to making an application to have the bankruptcy annulled.

10. On 24^th July 2007, Mrs Susan Maund, was appointed the Trustee in Bankruptcy with effect from that date. On 9^th August, Ms Mustafa telephoned her office having received the normal notification of her appointment. She spoke to the Trustee in Bankruptcy’s assistant, Dawn Watkins, who advised her to go along to her local Citizen’s Advice Bureau and seek advice. Ms Mustafa told Dawn Watkins that she had given the Official Receiver a copy of the letter from the London Borough of Redbridge acknowledging that the debt was nil, but that he seemed only interested in getting her to complete the usual questionnaire.

11. On 13^th August 2007, the Trustee in Bankruptcy’s representative, Miss Dawn Watkins, wrote to Ms Mustafa in these terms:

“I refer to our recent telephone conversation and note that you are going to write to me to provide a history in relation to the making of the bankruptcy order against you together with copy documentation received from the Council. As previously advised no immediate action is going to be taken in relation to your property.

In the meantime, you will appreciate that I have to continue to administer the bankruptcy estate and am obliged to send out the standard letters relating to your administration.”

I omit the next two sentences which refer to various rules relevant to the bankruptcy. The letter then continues:

“If you are uncertain as to any aspect of your bankruptcy estate may I suggest that you seek legal advice or visit your local Citizen’s Advice Bureau who may be able to assist?”

12. The following day, 14^th August, Ms Mustafa sent a copy of the London Borough of Redbridge’s letter dated 12^th June, from which I quoted the penultimate sentence, to the Trustee in Bankruptcy, but seemingly made no attempt to describe the history of the matter as the Trustee had requested. On 23^rd August the Trustee in Bankruptcy wrote again. She reiterated the advice to obtain legal advice. She set out details of the other creditors and the various items of cost involved and concluded in these terms:

“I appreciate that you find yourself in a very difficult position at the present time and I would once again urge you to seek legal advice either from a Solicitor or alternatively, your local Citizen’s Advice Bureau. Although the debt of the Council appears to have been reduced to nil there are other liabilities and costs of the bankrupt estate which need to be addressed.”

On the same day there was a further telephone call by Ms Mustafa to the Trustee’s office. She again spoke to Dawn Watkins, who again urged her to seek legal advice, if from no one else, from the Citizen’s Advice Bureau as a matter of urgency. On 11^th October 2007, the Trustee in Bankruptcy wrote to Ms Mustafa asking if she had obtained legal advice and whether she had any proposals for payment of the debt and costs. There was, seemingly, no reply.

13. On 30^th January 2008, the Trustee in Bankruptcy wrote again, pointing out that there was a creditor other than the London Borough of Redbridge with a debt of some £1,092 and in addition, there were the costs of the bankruptcy proceedings. She concluded:

“I now write to enquire whether or not you are in a position to put forward a proposal to settle the debts and costs of the bankruptcy in full. I would also urge you to return the various questionnaires concerning your bankruptcy affairs.”

14. On 27^th February 2008, two similar letters were sent by the Trustee in Bankruptcy, but this time warning of the possibility of the sale of her house if Ms Mustafa did not put her affairs in order. On 19^th May 2008, solicitors of the Trustee in Bankruptcy wrote to Ms Mustafa informing her of the costs etc, of by then some £19,000 plus and, absent some acceptable proposals, that they were instructed to commence proceedings for possession. On 6^th August, the solicitors for the Trustee in Bankruptcy sent a further reminder and on 4^th September, the solicitors for the Trustee in Bankruptcy wrote to Ms Mustafa informing her that the Trustee had instructed them to commence proceedings for possession. Those proceedings were duly commenced and served on 21^st October 2008. On 13^th November 2008, the solicitors for the Trustee wrote enquiring whether Ms Mustafa had received the relevant documents, because they had heard nothing from her.

15. So far as the evidence goes, the next event was that, on 22^nd January 2009, another District Judge stayed the possession proceedings pending an application from Ms Mustafa to annul the bankruptcy. On 27^th January 2009, the Trustee in Bankruptcy told Ms Mustafa of this event and told her that if no such application, that is to say to annul the bankruptcy order, had been made by 19^th February, that the Trustee in Bankruptcy would apply for the restoration of the possession proceedings. On 9^th February, the Trustee in Bankruptcy wrote expressing her concern that no application for an annulment had been made.

16. The application was made on 13^th February 2009, seeking an annulment under s.282(1)(a) of the Insolvency Act 1986, but it seems that the application was initially rejected by the court, because Ms Mustafa had failed to pay the court fee required before it could be issued. In due course she obtained remission of that and proceedings were duly issued. They were supported by an affidavit she swore in her married name by now of Basturk, and she alleged in that document that the house had been let to tenants and that all her mail had been destroyed. She said she knew nothing of the matter until, “the insolvency people,” started writing to her. An affidavit in response was sworn by the council tax team leader of Redbridge London Borough Council, Miss Tracy Miles, on 26^th May 2009, setting out in detail and by reference to the Borough’s documents the course of events leading up to and following the making of the bankruptcy order.

17. The application to annul first came before the District Judge on 6^th August, when District Judge Chrispin made an order for directions and adjourned the annulment application to 23^rd December 2009. The applications required further evidence and a further affidavit was made by Ms Mustafa on 21^st October 2009. In this document she referred in some detail to her discussions with an official of the London Borough of Redbridge in about February 2004, advising him that the house was to be let and that her address was with her parents in 24 Zangwill Road. She was aware of the problems with the Council in about February 2007, and she deposed to the fact that she had spoken to an official called Brian, who told her that she was about to be made bankrupt and that in consequence, she had attended at the Council’s offices with all the relevant papers on 30^th May 2007. Her statement continues as follows:

“Soon after this, Redbridge Council had seen that the property had been let out and told me that I didn’t actually owe them any money. They were satisfied with the information I had provided. I asked them what would happen regarding the bankruptcy and they informed me that I had to go to the Romford County Court to have it annulled. When I contacted the court I was told I needed to fill in various forms and that this would also cost me approximately £1,500. By this time I had spent a considerable amount of money repairing my house and was not in a position to afford paying £1,500.”

18. On 2^nd November 2009, Miss Miles made a further affidavit on behalf of the Council. She confirmed that on 18^th July 2002, Ms Mustafa had informed the Council that she was living at 24 Zangwill Road, but went on to relate how on 29^th April 2004, she told the Council that she was moving back and had communicated further with them in July and September of that year. On 4^th November 2009, the officer representing the Trustee in Bankruptcy made a report to the Romford County Court. He suggested that the only asset was the equity in the house, valued at £100,000, but there were claims from creditors of £1,220 odd and costs and expenses of £23,241.

19. Thus it was that the matter came before the District Judge on 21^st December 2009. He made an order for annulment of the bankruptcy order, but directed that it should remain on file until the Trustee’s costs had been paid by the London Borough of Redbridge as the petitioning creditor. Ms Mustafa appeared in person on that occasion and the transcript of the hearing indicates that the District Judge took a strong line with counsel for the London Borough of Redbridge. The passage at page 6 of the transcript of that hearing is indicative, it reads as follows:

“The District Judge: ‘A simple letter from the authority to the Official Receiver would have stopped this happening, would it not?’ Mr Winfield: ‘Well that may well be, yes.’ The District Judge: ‘You chose to use bankruptcy. You chose to use a sledgehammer to crack this little nut.’”

The District Judge’s judgment is relatively short. It is appropriate that I read it in full:

1. I find that she tried to contact the Local Authority before the making of the bankruptcy order and for whatever reason was not able to communicate that information, because there was not time to see her.

2. I find that the Local Authority were aware five or six days after making the bankruptcy order that the liability was not outstanding, and the order should not have been made. Two options then arose, which they should adopted. Either they should have applied to set the order aside knowing full well what the consequences of the order being executed would be in terms of costs and, secondly, they should have contacted the Official Receiver to put the Official Receiver on notice of the position so that the Official Receiver did not go ahead and incur substantial costs.

3. Three failings, therefore, on the part of the Local Authority. Firstly, in not being able to see Ms Mustafa before making the order, and secondly, the two failings I have outlined:

(a) failing in applying themselves to set the order aside and;

(b) failing to contact the Official Receiver, which would have avoided the costs being incurred, because the Official Receiver would not, in those circumstances, have taken steps to administer the bankruptcy, it seems to me, and would have tried to contact Ms Mustafa to explain the position.

4. The final point: The Local Authority giving misleading information to Ms Mustafa as to what she had to do and giving no additional explanation in that regard. They chose to use bankruptcy. The primary position is the bankruptcy order is annulled on the basis that it should never have been made, the costs should be paid by the petitioning creditor - the trustee’s costs - and I can see nothing in this instance that should detract from that basic principle. That is the order I am going to make.”

20. There was then further discussion and an application was made by the representative of the local authority for permission to appeal. The District Judge refused to give such permission, but in doing so and giving another short judgment, he repeated what he had said before, but in addition he indicated his view that the London Borough of Redbridge could, and by inference should have applied for the annulment themselves.

21. The Appellant’s notice was issued by the London Borough on 12^th January 2010. They challenge the costs order made by the District Judge, but not the order annulling the bankruptcy. The order the Borough seeks is an order that Ms Mustafa pay the costs and disbursements of the Trustee in Bankruptcy as such, and the costs of the London Borough of Redbridge and of the Official Receiver and Trustee in Bankruptcy of, and concerning the bankruptcy proceedings and of the application to annul. As I have indicated, Sales J, gave permission to appeal on 28^th January 2008. In doing so he wrote this:

“The Appellant has an arguable case that the District Judge may have erred in law by omitting to have regard to the whole evidential picture, including the evidence by the Appellant to establish an effective line of communication with the First Respondent regarding the service of the statutory demand, witness statement of Tracy Miles; the Appellant’s letter of 8^th June advising her to take action and to seek legal advice and the attempts by the Trustee in Bankruptcy to engage with the First Respondent, to which it appears she did not respond.”

22. The case for the London Borough of Redbridge can be summarised as follows. They complain that the judge placed some reliance on the failure of Redbridge to notify the Official Receiver or to inform him that Ms Mustafa’s debt was now nil, but he was wrong to do so, because first, the Official Receiver and the Trustee in Bankruptcy both knew that the council tax had been reduced to nil by early August 2007, because Ms Mustafa herself told them so. Second, that no creditor is under a duty to do anymore than the Council did, given the unsatisfied liability orders and the statutory demand. And third, that the costs were incurred, because Ms Mustafa failed to take the advice given, not because of any failure on the part of the Official Receiver or the Trustee in Bankruptcy to write to anybody. They complain that the District Judge failed to take proper account of Ms Mustafa’s own delays in relation both to the original liability orders, the statutory demand, the petition and the application for annulment. They contend that the Council’s letter was not misleading. The one that was signed and sent does not use the word ‘appeal’ and Ms Mustafa’s own written statement, which I have quoted, shows that she was not misled by any suggestion that her remedy was by way of appeal. They complain that the District Judge gave excessive weight to the factors of the Council’s failure to write and gave no weight at all to the delays to which I have referred.

23. On behalf of Ms Mustafa, counsel has submitted that the order made was within the jurisdiction of the District Judge, was the consequence of the exercise of his discretion and that this court can only interfere on the well known basis, to which I shall refer in due course. He contends that ordinarily the costs of an annulment under sub-paragraph (a) of s.282(1) are payable by the Petitioner and in that respect relies on Butterworth v. Soutter[2000] BPIR 582 and Formhill v. Apperton [2004] EWCA 1858. He submits the judge was entitled to criticise the conduct of the London Borough of Redbridge in the terms he did by analogy with the dictum of Lord Bridge in R v. Tower Hamlets Borough Council ex Party Chetwynd Developments Ltd[1988] 1 AC 858, to which I shall refer in greater detail in due course. He submits that the judge decided that the facts did not warrant displacing the normal order, and that no ground had been no ground had been shown to justify interfering with his conclusion.

24. Before I turn to the three issues of principle I mentioned before, I should refer to the legislation imposing liability for council tax, namely the Local Government Finance Act 1992. Section 14 provides for enforcement of payment in accordance with the provisions of schedule 4. That schedule authorises regulations to provide for liability orders to be made by the local Magistrates Court and for enforcement of the liability by attachment of earnings, distress, committal to prison, charging orders and bankruptcy or winding up. There appears to be no fetter or signpost as to which of those remedies should be chosen by a local authority in any particular circumstance. The relevant regulations authorised by schedule 4 are the Council Tax (Administration and Enforcement) Regulations 1992, SI 1992/613. Regulation 49 so far as relevant provides as follows:

“Insolvency

(1) 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).”

I omit sub-rule 2, which relates to the equivalent position if the debtor is a company, and it continues in 3:

“(3) For the purposes of this regulation the amount due is an amount equal to any outstanding sum which is or forms part of the amount in respect of which the liability order was made.”

Accordingly, the amount due under the three liability orders specified in the statutory demand, namely £2,761.64, is deemed to be a debt in that amount for the purposes of s.267 of the Insolvency Act 1986.

25. I turn now to the three issues of principle to which I referred earlier. The first is, what are the basic principles to be applied in determining who should pay these costs. This issue arises because of the various components of costs incidental to an annulment of a bankruptcy order. There are, as it seems to me, four, namely: (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. For my part, I cannot see that there is any real doubt in relation to the first two. Insolvency Rule 7.33 provides as follows:

“Subject to provision to inconsistent effect made as follows in this chapter, CPR 43, the scope of costs rules and definitions; Part 44 of the General Rules about Costs; Part 45 of Fixed Costs; Part 47 Procedure for detailed assessment of costs in default provisions and; Part 48 costs for special cases, shall apply to insolvency proceedings with any necessary modifications.”

No doubt the detailed applications of those parts of the Civil Procedure Rules 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 the unsuccessful party for the purposes of Civil Procedure Rule 44.3(2). In annulment proceedings under s.282, conduct may assume a greater importance than may normally be the case. Insolvency proceedings are defined in Insolvency Rule 13.7 as any proceedings under the Act or the Rules. Plainly therefore, costs in the first two categories I have mentioned should be dealt with in accordance with the relevant parts of the Civil Procedure Rules.

26. Contrary to my initial views, I accept the submissions of both counsel that the costs and expenses of the Official Receiver and the Trustee in Bankruptcy have to be determined under a different regime. They are payable out of the bankrupt’s estate in accordance with the priority laid down by Insolvency Rule 6.224, but on annulment of a bankruptcy order provision has to be made for them, otherwise than as part of the costs of the insolvency proceedings. In Butterworth v. Soutter[2000] BPIR 582 at 586 when faced with a similar problem, Neuberger J, as he then was, said this:

“The parties can point to no statutory provision or a decision of the court dealing with who should pay the trustee’s costs when a bankruptcy is annulled. The parties’ arguments have all proceeded on the basis that I have unfettered jurisdiction to decide who, if anybody, should pay the trustee’s costs. To my mind that must be right. If the bankruptcy is pursuant to a court order the court is still seized of the matter. In my judgment the question of whether the trustee should have his costs, and the question as to who should pay the costs, are at large when the court makes an order annulling a bankruptcy. Prima facie, it cannot be envisaged that the 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.”

I end the quote at that point, but I will refer to that page later.

27. It appears to me that the jurisdiction may arise either under the terms of s.282(4)

or the inherent jurisdiction of the court. Section 282.4 is in these terms:

“Where the court annuls a bankruptcy order whether under this section or under s.261 or 263(d) in Part 8: (a) any sale or other disposition of property, payment made or other thing duly done under any provision in this group of parts by or under the authority of the Official Receiver or a Trustee in the bankrupt’s estate or by the court is valid, but; (b) if any of the bankrupt’s estate is then vested under any such provision in such a Trustee, it shall vest in such person that the court may appoint or in default of any such appointment revert to the bankrupt on such terms, if any, as the court may direct and the court may include in its order such supplemental provision as may be authorised by the rules.”

The proposition would be, as I see it, that on annulling the bankruptcy order, the property of the bankrupt, having vested in the Trustee, would ordinarily revert to the bankrupt and it is open to the court to make directions under sub-paragraph (b) as to how the costs of the Trustee should be dealt with. 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. Whether that is so or not, the discretion conferred on the court is unfettered and not regulated by the provisions of the Civil Procedure Rules concerning costs in insolvency proceedings although the principles they enshrine are likely to be equally applicable.

28. I turn then to the second issue of principle set out above. Is a local authority, which ascertains that the debt on which has obtained a bankruptcy order should be reduced to nothing under any duty to do anything and if so, what? It is evident from the judgment of the District Judge I have quoted, that he considered that the London Borough of Redbridge should have applied to set aside or annul the bankruptcy order and/or should have informed the Official Receiver of the true position. Counsel for Redbridge submitted that a local authority is under no such obligation. He contended that the bankruptcy order was properly made at the time, Redbridge dealt with the further information Ms Mustafa produced in a timely fashion and promptly advised her what to do. Counsel for Ms Mustafa sought to support the view of the District Judge by reference to the dictum of Lord Bridge in R v. Tower Hamlets Borough Council ex parte Chetwynd Developments Limited[1988] 1 AC 858. In that case Chetwynd Developments Limited had developed land in accordance with a building consent which required them to obtain consent as to its user before the land was occupied. Chetwynd paid rates on the land when developed, even though the property was unoccupied and when it discovered its mistake sought to recover the amounts so paid under s.9 of the General Rate Act 1967. The application was initially dismissed as not complying with the conditions of s.9. An appeal was allowed by the Court of Appeal on the ground that the court below had failed to take sufficient account of the purpose of s.9. The appeal to the House of Lords was dismissed. At page 874 Lord Bridge, with whom the other members of the appellate committee agreed, said this:

“The rule that money paid under a mistake at law is irrecoverable is said to stem from the principle that there must be an end to litigation. But there is an instructive line of authority showing circumstances in which the court will not permit the rule to be invoked.”

He then referred to the well known case of Ex Parte James [1874] LR 9 Chy Appeal 609 and the other well known cases which followed it and continued at page 877 where he said this:

“It was, as I understand their reasoning, from this anomalous position and in consideration of a legitimate sense of grievance which might be felt by the rate payer who, like the present respondents, is in no position to avail himself of the right of set off, that the Court of Appeal derived their view of the purpose of s.9 of the Act of 1967 as stated in the passage I have earlier quoted in that judgment.

I in no way dissent from this reasoning, but I should myself be content to derive the same conclusion from a broader consideration that Parliament must have intended rating authorities to act in the same high principled way expected by the court of its own officers and not to retain rates paid under a mistake of law, or in paragraph (a) upon an erroneous valuation, unless there were, as Parliament must have contemplated there might be in some cases, special circumstances in which a particular overpayment was made such as to justify the retention of the whole or part of the amount overpaid.

I agree with the Court of Appeal that the rating authority’s decision not to refund the rates overpaid by the respondents was made in this regard of the legislative purpose of section 9 and that the reasons given in the letter of 8 November 1983 were irrelevant to the question of how the discretion conferred by the section should be exercised.”

29. Counsel for Ms Mustafa sought to derive from this case the general proposition that the local authority must act in the same high principled way expected by the court of its own officers. He submitted that viewed in that light the observations of the District Judge as to the conduct of London Borough of Redbridge in this case were well founded. On the other hand, counsel for the London Borough of Redbridge submitted, that such submissions were not warranted by the dictum of Lord Bridge. He contended that such dictum not only applied to conduct of a local authority which was otherwise unconscionable, such as retaining rates paid under a mistaken law. He suggested there was nothing unconscionable in obtaining the bankruptcy order in the first place, reducing the council tax liability to nil when further information was produced or in its advice to Ms Mustafa what to do. He submitted that the dictum imposed no duty on Redbridge to do anything more than in fact it did. I accept the submissions of counsel for the London Borough of Redbridge. I do not understand any creditor to be under any legal obligation to obtain the annulment of a bankruptcy order properly made when it was made. There is nothing in Chetwynd to cast any additional burden in this respect on the local authority. That is not say that the conduct of the London Borough of Redbridge and Ms Mustafa is irrelevant to the resolution of the issues of costs, far from it and I will consider that in due course later.

30. So I turn to the third issue of principle. When a bankruptcy order is annulled pursuant to s.282(1)(a) of the Insolvency Act 1986, is there a presumption that the petitioner should pay the costs of the petition, the annulment and of the Official Receiver and Trustee in Bankruptcy. Section 282.1 of the Insolvency Act 1986 is in these terms:

“1. The court may annul a bankruptcy order if it at any time appears to the court:

(a) that, on the grounds existing at the time the order was made, the order ought not to have been made, or

(b) that, to the extent required by the rules, the bankruptcy debts and expenses of the bankrupt have all, since the making of the order, been either paid or secured for to the satisfaction of the court.” (

31. It is suggested that there is some presumption that stems from the judgment of Neuberger J in Butterworth v. Soutter, to which I referred earlier. In that case the petitioner and the debtor had agreed to the annulment of the bankruptcy order, but not as to who should pay the costs of the Trustee in Bankruptcy. I have already quoted from the judgment of Neuberger J and immediately after that quotation His Lordship referred to the terms of s.282(1) of the Insolvency Act, and continued:

“On the face of it, particularly in the light of the handwritten account of the contents of Mr Woodward’s affidavit, it would appear that Mr Butterworth’s contention that this application is pursuant to s.282(1)(a) is right. However, it is fair to say that that it is not spelt out in the application, nor is it spelt out in the documents signed by Mr and Mrs Soutter on 13 September 1999. I think the point is potentially of some significance because there must normally be a strong argument to say that the petitioning creditor should pay the trustee’s costs if the annulment is made under s.282(1)(a), and a strong argument for saying that the bankrupt should pay the trustee’s costs if the order is made under s.282(1)(b).”

This passage was quoted by Lloyd J in his judgment when sitting in the Court of Appeal in Thornhill v. Apperton[2005] BPIR 437. In that case a bankruptcy order was made on the petition of the assignee of an alleged debt arising from an order made in matrimonial proceedings. It later transpired that the debt was not assigned to it and the bankruptcy order was annulled on terms that the erstwhile bankrupt paid the Trustee in Bankruptcy’s costs and expenses. The bankrupt’s appeal was dismissed, because as between himself and the Trustee in Bankruptcy, the only other party to it, the Trustee in Bankruptcy was entirely innocent and entitled to his costs and expenses. In paragraph 36 Lloyd J quoted the material passage from the judgment of Neuberger J in Butterworth v. Soutter. In paragraph 39 he pointed out that as the petitioning creditor was not a party to proceedings there could be no question of making any order against him. Nothing more was said by any member of the Court of Appeal concerning any such presumption.

32. The third case to which I was referred in this context was that of Tetteh v. Lambeth Borough Council[2008] BPIR 241. In that case Mr Registrar Nicholls referred to the passage in the judgment of Neuberger J in Butterworth v. Soutter, which have quoted. At paragraph 16 he concluded on the facts of that case:

“I have to consider this matter on the basis of what is being asked and required of the court to do which is to deal principally with the trustee’s costs. Those costs, we are told, were over £8,000 on each bankruptcy. The root of the problem lay with the actions taken by the London Borough as petitioning creditor. However, the delay that has been occasioned in making the application has substantially altered that position in the manner I have set out. In those circumstances, the presumption that is referred to in the judgment of Neuberger J is rebutted. It is the starting point but one has to look at the underlying issues. “

33. In my view, Neuberger J did not purport to lay down any legal presumption, the language that he used and the context in which he uses it is quite contrary to any such contention. Further, caution needs to be exercised in relation to what he described as the starting point. Given the decision of the Court of Appeal in Royal Bank of Scotland v. Farley [1996} BPIR 638, a bankruptcy order may be annulled under s.282(1)(a) on the basis of, “Grounds existing at the time it was made,” notwithstanding that when made it was properly made. 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 never had been a debt or the order was the result of an abuse of the court procedure. Accordingly, in my judgment it is not a question of whether a presumption has or has not been rebutted. The issue before the District Judge was how to exercise his discretion and the issue before me is whether there are grounds to interfere with the exercise of the discretion by the District Judge and if so, how I should now exercise that discretion.

34. I turn then to consider whether there are grounds to interfere with the order made by the District Judge. The test is well known and I take it from the judgment of Stuart-Smith LJ in Roache v. Newsgroup International Limited [1998] ENLR 161 at page 172:

“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.”

35. Notwithstanding the submissions of counsel for Ms Mustafa, I am satisfied that there are ample grounds for interfering with the decision of the District Judge. First, there is no rebuttable presumption or primary position such as the District Judge thought. He had been referred to the decision of Registrar Nicholls in Tetteh in support of a different proposition, namely that if there is delay in seeking annulment, then the onus is on the bankrupt to demonstrate why he should not pay the costs of the Trustee in Bankruptcy. Though the case for annulment under s.282(1)(a) had been conceded, this did not absolve the District Judge from considering why the bankruptcy order had been made in the first place. As I have pointed out, the debt on which the statutory demand and the petition was founded was a legal liability. Further, its constituent parts comprising the three liability orders have been outstanding for, in one case over three years, in another case over 20 months and in the third case over six months. In such a case even if there were a presumption or starting point it is not where the District Judge put it.

36. Second, the London Borough of Redbridge was under no obligation to take either of the steps the District Judge referred to. The fact that they might have taken either or both of them may be relevant to a consideration of the facts as a whole, but in that event it would be necessary to consider the consequences. In particular the fact that Ms Mustafa took no steps, notwithstanding the advice given to her on many occasions, to seek annulment of the bankruptcy order for some 18 months must cast some doubt on the District Judge’s conclusion that the Trustee in Bankruptcy’s costs could and should have been avoided. But the District Judge did not consider the subsequent delay at all.

37. Third, the District Judge was critical of the passage in the letter of 8^th June 2007, suggesting that the annulment of the bankruptcy order would be by way of appeal. But it is by no means clear that that is the letter which was received by Ms Mustafa. But even if it was, there was no evidence that it had any material bearing on the understanding or subsequent conduct of Ms Mustafa. The passage in her affidavit which I have already quoted suggests otherwise.

38. Fourth, the District Judge describes the inability of the London Borough of Redbridge to deal with Ms Mustafa on 30^th May 2007 when she attended at the offices of the Borough, seemingly without an appointment, as a “failing” and as justification for making the local authority pay the Trustee in Bankruptcy’s costs. I cannot see that it is a failing, rather, it is a part of the history to be taken into account.

39. Fifth, nowhere in his judgment did the District Judge consider at all the events leading up to the making of the bankruptcy order or the events following the end of the week after it was made. For all these reasons I consider that I am entitled to and should set aside the order of the District Judge and determine the matter afresh.

40. So, the question arises, what order I should now make? Counsel for Ms Mustafa submitted that I should remit the matter to a different District Judge for a rehearing in the Romford County Court, because there had been no cross-examination or findings of relevant fact. The disputes of fact, he said, which arose, related to first, the discrepancy in the accounts given by the process server, second, whether Ms Mustafa had attended the offices of Redbridge on 30^th May and third, whether she had received the letter from the Redbridge Borough Council dated 8^th June 2007, and/or that dated 12^th June 2007.

41. It is not in doubt that I am entitled to order a rehearing in the Romford County Court -- see Civil Procedure Rule 52.10(2)(c), but to do so would give rise to further costs and delay, which the overriding objective enjoins me to avoid if I may justly do so. Having regard to the nature of the issues I do not think it is appropriate to order a new trial. The issues of fact are either peripheral or do not now arise. The discrepancy in the accounts given by the process server is not now material to any issue I have to decide. The judge accepted that Ms Mustafa did attend the offices of Redbridge on 30^th May 2007, and there is no appeal against that conclusion. Which version of the letter Ms Mustafa received is of little importance, given the fact that she was correctly informed on many later occasions that she should apply for annulment, and she did not suggest that the distinction between an application and an appeal had any significance to her.

42. For these reasons I consider that I should exercise the court’s discretion rather than order a new trial. I start from the position that the original bankruptcy order was properly made. The Magistrates had made three liability orders. None of them had been challenged. The statutory demand had been properly issued and served in accordance with the court’s order. No application to set it aside had been made. Accordingly, the petition was properly presented. Had the Redbridge officers had the time and had they seen Ms Mustafa on 30^th May 2007, then the debt might have been extinguished on that day, so that the order might not have been made the day after, but they could not. That is not a matter of blame or fault on the part of Redbridge. Council tax payers who do not pay, do not resist liability orders and do not seek to set aside statutory demands when they have the opportunity to do so, can hardly complain when the officers of the local authority are unable to see them, without prior appointment, on the eve of the hearing of the bankruptcy petition. 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. 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.

43. I am prepared to accept for the sake of argument, that on receipt of the letter from Ms Mustafa dated 30^th May 2007, and the various tenancy agreements enclosed with it, the officers of the Redbridge London Borough might have notified the court and/or the Official Receiver, but I cannot accept, as the District Judge appears to have done, that in that event the subsequent costs of the Trustee in Bankruptcy would have been avoided. First, it is clear that the Official Receiver did know by at least early August, but did nothing. Second, the fact is, that after the making of the order Ms Mustafa was advised, indeed urged to seek advice from the Citizen’s Advice Bureau, if she could not go anywhere else. That advice was given on at least 9^th and 23^rd August and 10^th October 2007, 27^th February, 19^th May and 4^th September 2008. It appears to have been ignored until, on 21^st October 2008, the Trustee in Bankruptcy issued her application for possession of the property. Third, there was at least one other debt of Ms Mustafa, with which the Official Receiver and the Trustee in Bankruptcy were obliged to deal, so even if the Official Receiver had been informed, as the District Judge thought that he should have been, he could not have held his hand for more than a week or so similarly in relation to a letter to the court. If Redbridge had notified the court, as the District Judge considered that it should, the court could not have annulled the bankruptcy of its own motion nor, given the existence of the other creditor, could it have stayed proceedings other than for a short time. In those circumstances I infer that the Trustee Bankruptcy’s costs would have been incurred even if the Official Receiver or the court had been informed by Redbridge shortly after the beginning of June 2007, as the District Judge considered that they should have been. It follows that the costs of the Trustee in Bankruptcy were incurred in the amounts claimed because of Ms Mustafa’s failure to follow the advice she had been given at the earliest time she might have done. In those circumstances it seems to me that as between Ms Mustafa and the London Borough of Redbridge, those costs should be borne by Ms Mustafa.

44. 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 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. The costs, if any, of the Trustee in Bankruptcy in relation to the annulment application will be added to her other costs and expenses to be paid by Ms Mustafa.

45. In summary therefore, I allow this appeal and set aside paragraph 4 of the order the District Judge. I order Ms Mustafa to pay the costs of the London Borough of Redbridge of and incidental to the bankruptcy petition. Save as aforesaid, I make no order for the costs of the annulment application. I will hear further argument on whether I should order Ms Mustafa to pay the costs and expenses of the Official Receiver and the Trustee in Bankruptcy, or just leave paragraphs 1, 2 and 3 of the District Judge’s order as they now are. I will also hear argument on how to deal with the costs of this appeal.