Oraki & Anor v Dean & Dean (a firm) & Anor

This is the latest stage in protracted litigation, with a complex procedural history. It is unnecessary to set out the history in full, but counsel for the trustee in bankruptcy — who has very properly adopted a position of helpful neutrality — usefully summarised it in a chronology, which is appended to this judgment.

There were three matters before me:—

the Appellants’ application to rely on fresh evidence;

their application for permission to appeal out of time the order of His Honour Judge Oppenheimer dated 11 January 2010; and

their appeal from the order dated 9 April 2010 of Deputy Registrar Cheryl Jones refusing to annul the bankruptcies of the Appellants on ground (a) of section 282(1) of the Insolvency Act 1986.

Before dealing with the substance of the matter, I should say that it is quite clear that the assets of the bankrupt estates are more than sufficient to discharge all possible claims and all costs that may fall on them. Other things being equal, the sooner the bankruptcies are brought to an end the better. Too much judicial time has already been devoted to this matter.

The history can be summarised as follows

In 2002, the Appellants instructed Dean & Dean, a firm of solicitors. Dr Sharokh Mireskandari, who was at the time on the roll of solicitors, dealt with their matter. There was a dispute about fees. Dean & Dean issued proceedings, followed by an application for summary judgment.

Deputy District Judge Shelton heard the summary judgment application on 16 February 2004. He gave judgment for Dean & Dean for damages to be assessed and directed an interim payment of £5,000. The Deputy District Judge ordered Dean & Dean to file and serve a fully itemised bill of costs in a form suitable for a solicitor and own client detailed assessment, and also ordered the Appellants to pay Dean & Dean’s costs of £3,858.75.

The Appellants have exhausted every avenue for appealing the order of the Deputy District Judge. Her Honour Judge Wakefield dismissed their application for permission to appeal, and so did Bean J (on paper) and Bell J (after an oral hearing) when they sought permission to appeal to the Queen’s Bench Division. Their latest attempt to appeal the Deputy District Judge’s order failed when Peter Smith J rejected their application.

Dean & Dean have never complied with the direction to file and serve a fully itemised bill of costs. Furthermore they refused to accept payment of the full amount of the judgment debt unless the Appellants withdrew a complaint to the Law Society. Instead, they petitioned to make the Appellants bankrupt on the basis of their failure to comply with the order for an interim payment and the cost orders made against them. The 2nd Appellant was adjudicated bankrupt on 1 September 2005 and the 1st Appellant on 10 January 2006.

In March 2009, the trustee in bankruptcy assigned to the Appellants the right to apply to have the order of the Deputy District Judge set aside, and they then made that application. Judge Oppenheimer eventually heard it on 9 November 2009 and made an order setting aside the order of the Deputy District Judge unless any person with standing to represent Dean & Dean applied for relief from sanctions by 23 November 2009.

Jami Tehran, the former principal of Dean & Dean, applied to set aside that order or for relief from sanctions. The judge recognised that Mr Tehrani might not have standing to do so (because he had been adjudicated bankrupt on 5 November 2009) but considered that his evidence was material because it set out fully the convoluted procedural history in these proceedings, which had not been done by the Appellants on 9 November 2009. Judge Oppenheimer therefore set aside his order of 9 November 2009 and dismissed the Appellants’ application to set aside the order of the District Judge.

The Appellants have made several annulment applications, none of which has succeeded. Most recently, on 9 April 2010, Deputy Registrar Cheryl Jones dismissed an annulment application founded on the allegation made in pendingproceedings for professional conduct against Dr Mireskandari. She dismissed the application, essentially on the ground that it was premature until those proceedings had been determined.

On 21 June 2012 the Solicitors Disciplinary Tribunal ordered that Dr Mireskandari be struck off the roll of solicitors and ordered him to pay costs in the sum of £1.4 million. Many findings of serious misconduct were made against him, including findings of dishonest misrepresentations as to his professional status, academic qualifications and experience whereby he gained admission to the roll. Moreover, it appears that Dr Mireskandari had not disclosed that he had been convicted of fraud in California in 1993, before he applied to the Law Society.

The fresh evidence relates to the professional misconduct proceedings. I decided to admit it. My reasons were as follows.

Although the rules laid down in Ladd v Marshall [1954] 1 WLR 1489 point to relevant criteria in deciding whether or not to admit fresh evidence, they are no longer legal requirements. The power to admit fresh evidence is given by CPR 52.11 (2)(b) and is not fettered by the Ladd v Marshall rules, but must be exercised in accordance with the overriding objective. In a case such as the present where the Appellants could make a renewed annulment application it seemed to me that the overriding objective required the admission of the fresh evidence that was clearly relevant. It would not be in accordance with that objective to demand such an application: it would cause delay and additional expense and add to the demands on court time while serving no useful purpose.

Once the evidence was admitted, it seemed to me that it should be considered in relation to both aspects of the matter.

On behalf of the trustee in bankruptcy Mr Nicholls has - without departing from the position of neutrality to which I have referred - made a number of points:—

The Appellant’s Notice was not filed until 1 April 2010 so it is some two months late. This is ostensibly explained by the fact that the Appellants wrote to the court on 1 February 2010 seeking permission to appeal but the outcome of that letter was not clarified until 6 March 2010. Although they were at that stage litigants in person, given that the Appellants have appealed other orders in these proceedings on at least 3 occasions and each has been on time, this is (it is said) surprising.

It is not clear what power Judge Oppenheimer was exercising when he made the order of 11 November 2009. Power to set aside an order is limited: it may arise following a strike out order (CPR 3.6), following judgment in default (CPR Part 13), where a party does not attend trial (CPR 39.3(3)), and where a third party is affected by an order (CPR 40.9). Potentially, Mr Nicholls said it might also arise under the court’s general case management powers in CPR Part 3. But he suggested that must be doubtful that there is any proper basis to set aside a judgment once all avenues appealing that judgment have been exhausted, as was the position in this case in November 2009, even on an unless order basis.

According to Mr Nicholls the transcript of the hearing on 9 November 2009, the evidence of Jami Tehrani filed following that hearing and the transcript of the hearing on 11 November 2010 show that the order of Judge Oppenheimer setting aside his earlier order was made because he had not been fully appraised of the relevant background on the earlier occasion. In particular, he was not aware of the order of His Honour Judge Marcus Edwards of 17 June 2005 declaring the proceedings to be an end or the fact that the trustee in bankruptcy had accepted the debt claimed by Dean & Dean.

On 9 November 2009, Judge Oppenheimer had been made fully aware of the fact that the Solicitors Regulation Authority had intervened in the practice of Dean & Dean and that Mr Tehrani had been made bankrupt. He was also told that Dr Mireskandari was not a solicitor but a convicted criminal. Thus, the judge was (said Mr Nicholls) aware of the main assertion now advanced by the Appellants.

While recognising the considerable force in those points, I have concluded that I should give permission to appeal out of time. As Peter Smith J has pointed out there

The Appellant’s Notice was not filed until 1 April 2010 so it is some two months late. This is ostensibly explained by the fact that the Appellants wrote to the court on 1 February 2010 seeking permission to appeal but the outcome of that letter was not clarified until 6 March 2010. Although they were at that stage litigants in person, given that the Appellants have appealed other orders in these proceedings on at least 3 occasions and each has been on time, this is (it is said) surprising.

It is not clear what power Judge Oppenheimer was exercising when he made the order of 11 November 2009. Power to set aside an order is limited: it may arise following a strike out order (CPR 3.6), following judgment in default (CPR Part 13), where a party does not attend trial (CPR 39.3(3)), and where a third party is affected by an order (CPR 40.9). Potentially, Mr Nicholls said it might also arise under the court’s general case management powers in CPR Part 3. But he suggested that must be doubtful that there is any proper basis to set aside a judgment once all avenues appealing that judgment have been exhausted, as was the position in this case in November 2009, even on an unless order basis.

According to Mr Nicholls the transcript of the hearing on 9 November 2009, the evidence of Jami Tehrani filed following that hearing and the transcript of the hearing on 11 November 2010 show that the order of Judge Oppenheimer setting aside his earlier order was made because he had not been fully appraised of the relevant background on the earlier occasion. In particular, he was not aware of the order of His Honour Judge Marcus Edwards of 17 June 2005 declaring the proceedings to be an end or the fact that the trustee in bankruptcy had accepted the debt claimed by Dean & Dean.

On 9 November 2009, Judge Oppenheimer had been made fully aware of the fact that the Solicitors Regulation Authority had intervened in the practice of Dean & Dean and that Mr Tehrani had been made bankrupt. He was also told that Dr Mireskandari was not a solicitor but a convicted criminal. Thus, the judge was (said Mr Nicholls) aware of the main assertion now advanced by the Appellants.

While recognising the considerable force in those points, I have concluded that I should give permission to appeal out of time. As Peter Smith J has pointed out therewere serious procedural irregularities in relation to the order of the District Judge. In particular, an order for damages to be assessed was simply not an appropriate order on a claim by solicitors for unpaid fees: it was a claim in debt not damages. Furthermore, Dean & Dean had not delivered a properly itemised bill. There was no power under CPR 24 PD 5.1 to order an interim payment. Mr Nicholls suggested there might be answers to these points, but given those irregularities in my judgment the court’s general case management powers enabled Judge Oppenheimer to make his order and it is appropriate to reconsider the matter in the light of the fresh evidence that I have admitted. In the light of the decision of the Solicitors Disciplinary Tribunal the case against Dr Mireskandari is more than a matter of assertion.

I will consider the disposition of this appeal after I have considered the appeal from the annulment decision.

Mr Nicholls submitted that the question before the court was whether the Deputy Registrar erred in the exercise of her discretion by dismissing the Appellants’ annulment application. It is clear that on appeal the court should not interfere with the exercise of a discretionary power unless the court below misdirected itself or original decision exceeded the generous ambit within which a reasonable disagreement is possible: Tanfern v Cameron-Macdonald [2000] 1 WLR 1311 at 1317. But the case has moved on since the matter was before the Deputy Registrar, because of the decision of the Solicitors Disciplinary Tribunal, and in my judgment this is an appropriate case to reconsider the matter afresh.

The decision of the Solicitors Disciplinary Tribunal opens the way to an argument that because Dr Mireskandari was not a properly qualified solicitor the fees charged by Dean & Dean were not payable: see Pilbrow v Pearless de Rougemont & Co [1999] 1 Costs LR 109. That case is distinguishable because Dr Mireskandari was on the roll at the relevant time. But by holding him out as a solicitor, Dean & Dean represented that he was duly qualified and in my judgment that entitled the Appellants to rescind the retainer on the basis of misrepresentation. The authorities indicate that the bankruptcy court can go behind a judgment in circumstances where there is some fraud, collusion or miscarriage of justice: Dawodu v American Express Bank [2001] BPIR 983. In my judgment there was a miscarriage of justice in the present case. There is an even widerpower where the judgment is a default judgment and, if it can be demonstrated that the debt upon which the petition is founded did not exist, then there is a ground within the meaning of section 282(1) (a) existing at the time the bankruptcy order was made: Royal Bank of Scotland v Farley [1996] BPIR 638.

Mr Nicholls submitted however that there remained two difficulties:-

The first was that Dean & Dean’s invoice contained a disbursement for counsel’s fees, which Dean & Dean subsequently paid. But if their retainer was invalid or rescinded then I do not understand on what basis they would have been entitled to reimbursement of those fees.

The Appellants were liable for subsequent costs orders that also formed the basis of the bankruptcy petition. But all those orders flowed from the original order of the Deputy District judge.

Bearing all this in mind, the Appellants have in my judgment established that the bankruptcy orders ought not to have been made. Nevertheless, the court retains a residual discretion as to whether to grant an annulment. Mr Nicholls reminded me that in deciding how to exercise that discretion, the court is entitled to consider how the bankruptcy liabilities will be discharged and he pointed out that the court would also need to take into account the existence of the other creditors.

While I would propose to grant annulments, my provisional view is that this should be subject to the following conditions:—

a sum equal to the total amount of the proofs that have been accepted by the trustee in bankruptcy should be paid into court;

the Appellants will have to undertake not to defend any claim by the creditors on the ground that the limitation period has expired during the period of the bankruptcy.

Although it is probably a vain hope, I would encourage the Appellants to try to settle the claims of other creditors by agreement.

Coming back to the order of Judge Oppenheimer I will set aside his order of 11 January 2010 in the light of the additional evidence I have admitted. The order of the Deputy District Judge was procedurally flawed and in my judgment he had jurisdiction to put this right as a matter of case management.

There are four categories of costs that arise once a bankruptcy order has been annulled:

The costs of the original petition;

The costs of the annulment application;

The Official Receiver’s costs; and

The trustee’s costs and expenses.

There may be grounds for ordering Dean & Dean to pay all four categories of costs, but it seems unlikely in the circumstances that it will be possible to recover anything from them and I am not prepared to make an order against Dean & Dean without hearing from them.

So far as the trustee in bankruptcy is concerned, there are several disputes between the Appellants and the trustee as to his conduct and remuneration. Those matters are not before me and I can decide nothing about them. In my judgment they are not relevant to the question of costs. Without prejudice to any application against Dean & Dean and to any dispute about the trustee’s conduct and remuneration, my order is that the costs of the Official Receiver and the trustee in bankruptcy should be paid by the Appellants. So far as the Official Receiver and the trustee are concerned the bankruptcy orders were regularly made, they have on the face of it no personal interest in the matter, and there is no ground to mulct them of their costs unless and until the Appellants have established that they have acted improperly. That is not a matter for me.

I would invite the advocates to agree a form of order giving effect to this judgment and if possible giving directions for determining the disputes between the Appellants and the trustee in bankruptcy to which I have referred. If that can be agreed, then it may be possible to avoid the necessity for any attendance when this judgment is handed down. Subject to considerations of availability I will retain the matter.