Risk-averse Insolvency Practitioner sees claim dismissed for refusal to join in proceedings

In a recent judgment, the High Court has ruled that a Trustee in Bankruptcy has lost the right to claim for an overage entitlement as he refused to be a direct party to an expert determination application made by other joint claimants.

Flint Bishop LLP acted for the successful First Defendant within the case of Bastholm & Ors v Peveril Securities (Dalton Park Retail) Ltd & Ors [2023] EWHC 438 (Ch) and discusses the key principles arising from the Judgment of HHJ Davis-White KC (sitting as a judge of the Chancery Division) below.

What are the practical implications of this case?

This Judgment clarifies a number of points of law and jurisdiction on expert determination proceedings, but also serves as a warning to insolvency office-holders of the importance of fully considering their stance on any litigation. There is always a tendency to be risk averse, and understandably so. But in this case, the Trustee in Bankruptcy seemingly mistakenly believed that he could take the benefit of proceedings pursued by others, whilst staying risk-free by not taking an active part in proceedings.

In doing so, he and all of the other Claimants have seen their claim dismissed by the High Court and any overage entitlement lost. And ironically, the costs exposure upon losing the High Court declaration proceedings will be far greater than it would have been in the original expert determination proceedings, following an award of costs against the Claimants on the indemnity basis following the Judgment.

What was the background?

The case involved a claim for payment under overage provisions of a Payment Deed (Deed) relating to the development of a major designer outlet and shopping complex at Dalton Park, County Durham. The ‘Seller’ under that Deed comprised five individuals and the Deed contained a mechanism to value any development by way of expert determination, through an application to RICS.

The five individuals made an application to RICS in 2014 for the appointment of an expert to determine the value of development alleged to have taken place in 2002. In the interim, one of the five individuals had been made bankrupt and subsequently discharged. His Trustee in Bankruptcy was not named as a party to the application to RICS.

The First Defendant was the owner of the land in question and argued that the application was invalid as it had not been made by the ‘Seller’, since the bankrupt’s assets (including rights of action) vested in his Trustee in Bankruptcy. Accordingly, it was alleged that any expert appointed through that RICS application did not have jurisdiction to act. The RICS appointed expert refused to act unless or until his jurisdiction was agreed or determined by a court.

After many years of ad-hoc attempts to progress the claim, the Claimants eventually issued declaration proceedings in 2021 arguing the validity of the expert appointment back in 2014. The Claimants comprised of four of the five original ‘Seller’ plus the Trustee in Bankruptcy of the fifth. They argued that the Trustee in Bankruptcy had consented to being a party and/or to the application being on his behalf. The First Defendant defended the claim, seeking various rulings on jurisdiction of the expert and liability under the underlying Deed.

What did the court decide?

After a 4 day trial in the Business and Property Court sitting in Newcastle upon Tyne, the court dismissed the Claimants’ claim and made a number of rulings on the legal and factual issues concerning the Trustee in Bankruptcy’s position, including:

• The application to appoint an expert had to be jointly made by all of the parties comprising the ‘Seller’ to be valid.
• The right to make such an application vested in the Trustee in Bankruptcy in place of the original individual party.
• The application to appoint an expert was not made on his behalf
• The application to appoint an expert was not made in his name.
• The application was therefore invalid for the Trustee in Bankruptcy and all other Claimants and they were out of time to make any further application to pursue any overage entitlement.

Trustee in Bankruptcy’s position

The Judge set out a helpful summary of the Trustee in Bankruptcy’s position in his Judgment (para 184) as follows:

“The next question is whether or not Mr Pagden in fact consented to the request to appoint being made in his name as opposed to him consenting to or not minding if the request was made in the names of the persons other than Mr Dunn covered by the description in the Payment Deed of the “Seller”. Here it will be recalled that the contemporaneous correspondence showed that Mr Pagden did not mind what the members of the Matthew Fox consortium did, or even what Mr Dunn did (whether or not on their behalf), provided two points were respected. First, that any realisations from the Payment Deed which, absent Mr Dunn’s bankruptcy, would have accrued to Mr Dunn, should be paid to Mr Pagden as trustee of Mr Dunn’s estate. Secondly, that no steps taken by any of those persons would involve Mr Pagden in any liability, or risk of liability for costs.”

The Trustee in Bankruptcy’s position was, in essence, that the other potential claimants could do as they wished and he would be entitled to any proceeds for the bankruptcy estate, but that he would not himself participate in the expert determination proceedings due to the risk of exposure on costs.

Contemporaneously, solicitors acting for the Trustee in Bankruptcy confirmed his position as being:

“In so far as concerns the application to RICS for a valuer to be appointed, this was not an application that was made by our client or with our client’s consent. The balance of the Consortium are however entitled to make such application as they consider appropriate.”

The legal position and the consequences for the Trustee in Bankruptcy

Unfortunately for the Trustee in Bankruptcy, that was not correct as a matter of law and construction of the Deed. The Judge held (at para 179), “in my judgment, it is clear that the Payment Deed required each and every one of the persons collectively described in the Payment Deed as “the Seller” to join in an application for the appointment of an expert.”

Accordingly, the application for the expert appointment was invalid for all of the Claimants as a result of the Trustee in Bankruptcy not being a party to the application. As a result of additional rulings made by the Judge on matters concerning time limits for the application to appoint an expert, the Claimants are now too late to bring any further claims for overage entitlement and have therefore lost any right to claim under the Deed.

The full judgment can be read here: Bastholm & Ors v Peveril Securities (Dalton Park Retail) Ltd & Ors [2023] EWHC 438 (Ch) (03 March 2023)

Please note that this information is for general guidance only and should not substitute professional legal advice. If you have specific concerns, we recommend consulting one of our legal experts.