Introduction
1. The Trustee in Bankruptcy (“the Trustee”) of Mr Nowrag Pasram (“Mr Pasram”) sought declarations in relation to property known as 64/64A Stapleton Road, Tooting Bec, London SW17 8AU (“the Property”). Mr Pasram is the First Respondent to the Trustee’s application; Mrs Pasram, at all material times his wife, is the Second Respondent and lives at the Property.
2. The declarations sought include declarations (a) that at all material times prior to a transfer dated 29 September 1999 (“the Transfer”) in favour of Mrs Pasram, Mr Pasram and Mrs Pasram held the Property in equal beneficial shares, (b) that the Transfer amounted to a transaction at an undervalue pursuant to section 339 of the Insolvency Act 1986 (“the Act”), and (c) that Mr Pasram’s beneficial interest in the Property vests in the Trustee pursuant to section 306 of the Act. The Trustee also sought various consequential orders, to set aside the Transfer and to realise, through a sale of the Property, the beneficial interest in the Property that is vested in the Trustee.
3. The Property has a particular feature. This is that it is divided into two maisonettes, although used as a single residence. This does not mean that work (and expense) would not be required to achieve a separation of the two maisonettes sufficient to make sale of one (alone) viable. Mrs Pasram occupies the upper maisonette more than the lower.
The decision of 7th June 2007
4. In my decision of 7th June 2007 I held that prior to the Transfer Mr Pasram and Mrs Pasram held the Property in equal beneficial shares, and that the Transfer was a transaction at an undervalue within section 339 of the Act with the result that the Court had a discretion (Re Paramount Airways (In Administration) [1993] Ch 223 at 239G-H, per Sir Donald Nicholls VC)) to make an order for restoring the position to what it would have been had the transaction not been entered into. There was no material dispute but that if Mr Pasram had a beneficial interest in the Property it vested in the Trustee.
5. In my earlier decision, I indicated that:
a. Broadly speaking, and subject to the discretion available to the Court, the Trustee should have one half of the beneficial interest in Property (for the benefit of creditors) and Mrs Pasram should have one half.
b. I could see no factor that would cause me to deny this ultimate outcome by the use of such discretion as I have, or to refrain from giving directions necessary to allow the Trustee to realise his share in due course.
c. I would consider, with the benefit of further submissions from Counsel, detailed directions (and their timing) should that be necessary because suitable arrangements cannot be agreed.
d. I would consider sympathetically and willingly any request on behalf Mrs Pasram that I tailor directions in such a way as to allow the Trustee to realise his share in the Property by taking ownership of one the maisonettes, thereby allowing Mrs Pasram to own and reside in the other, and I would expect the Trustee to make every effort to accommodate this, if the circumstances allowed.
Further Argument
6. The Trustee and Mrs Pasram were not able to reach agreement and I have therefore heard further argument. This extended to valuation, division of the Property and costs.
7. As noted in my earlier decision, costs were a potential obstacle to directions tailored in such a way as to allow the Trustee to realise his share in the Property by taking ownership of one the maisonettes, thereby allowing Mrs Pasram to own and reside in the other. If an order for costs was made against Mrs Pasram, it is apparent that this alone would put a maisonette that she retained in jeopardy.
Valuation
8. The Trustee contended that the maisonettes had different values, of £370,000 for the upper maisonette and £350,000 for the lower maisonette. This was based on the valuation of an agent; while another agent gave them a broadly equal value. It was argued for the Trustee that a difference in valuation could not be ignored, no matter how close. It was also argued for the Trustee that Mrs Pasram could take the lower maisonette although she lived primarily in the upper one.
9. I have no difficulty in finding that each maisonette should be treated as equal to a half share in the Property. The valuations are necessarily only an estimate of what might be realised on sale, and some margin of appreciation is legitimate. As Mrs Pasram lives primarily in the upper one, the Trustee should take the lower one.
Division of the Property
10. It is common ground that some work will be necessary to achieve the division of the two maisonettes so that the lower maisonette can be sold on the open market.
11. It was argued for the Trustee that the costs of division should be shared. However by a letter dated 19 July 2007 the Trustee had offered to pay the costs of division as an expense in the bankruptcy estate. I consider it is right to hold the Trustee to that offer. In any event the costs of division are costs that will enable a sale of the lower maisonette, at best value, and it is a sale that the Trustee wants.
12. Mrs Pasram and the Trustee do not agree on what the costs of division would be. Mrs Pasram’s figure is much larger than the Trustee’s. I do not need to decide what the costs of division are: they will be controlled by the Trustee will have the conduct of the work that is required, and the estate will bear the costs. It is the Trustee’s duty to ensure that only reasonable work is undertaken, and that the costs of that work are reasonable.
Timing of sale of the lower maisonette
13. I will allow Mrs Pasram the period between now and mid-February 2008 in which to organise her affairs so as to leave the lower maisonette vacant. There is no reason why work to divide the two maisonettes should not then commence promptly. As soon as that work is completed the Trustee may begin his efforts to sell the Property – which might take things into spring 2008. The Trustee will have the conduct of that sale.
Amount of Trustee’s costs of the proceedings
14. At the trial I had then been shown a schedule which revealed that the Trustee’s legal costs had by the week before the trial reached £86,000, including VAT. I was told that there was a conditional fee agreement with the Trustee’s solicitors, and on my asking what the uplift was I was told 80%. By the time the trial had happened and I heard further argument, an updated schedule showed the costs at £160,000 including VAT. This including a conditional fee agreement uplift now put at 85%, and comprised solicitors fees of £125,000 including VAT, and Counsel’s fees of £35,000 including VAT.
15. On any assessment of the Trustee’s legal costs (whether as a result of an order made in these proceedings, or generally in the bankruptcy) I believe it to be important that the need for a conditional fee agreement, and the reasonableness of an 80% or 85% uplift, are examined closely, in the context of several matters:
a. Adverse costs insurance was purchased by the Trustee for a total sum of £9,450.
b. In the course of further argument I asked whether the Trustee had asked the creditors to fund this litigation and was told that he had not.
c. Those creditors are financial institutions, owed a total of about £65,000. The largest of them held a legal charge over the Property.
d. The pursuit of a beneficial interest in the Property by these proceedings was left for many years, presumably with the acquiescence of the creditors.
e. With the uplift, the total of legal costs and bankruptcy costs and fees will, on the face of the updated schedule I have been shown, be more than three times the total of the debts.
16. More generally, as I said in my earlier decision, when the details available on costs showed them to be less than they are now, the costs seem acutely to lack proportionality in a bankruptcy that involved only one asset (a beneficial interest in the Property) and debts of £65,000.
17. I emphasise again, as in my earlier decision, that it would do nothing for the reputation of the administration of insolvent estates if large conditional fee agreement uplifts were regularly agreed with solicitors for trustees in bankruptcy in cases involving arguments over the equity in the matrimonial home that vests in the trustee. Further, the presence of a conditional fee agreement with a large uplift may also place undue pressure on the spouse of the bankrupt to accede to the trustee’s claim — the spouse who chooses to contest will jeopardise a substantial part of the remaining equity in the home if the trustee will be looking to recover costs that are substantially increased by a large conditional fee agreement uplift.
Incidence of costs of the proceedings
18. On the Trustee’s figures, if the lower maisonette is sold, the proceeds will be broadly sufficient to pay the costs of the bankruptcy (including the Trustee’s costs of these proceedings) and the creditors. If Mrs Pasram is ordered to pay the Trustee’s costs of these proceedings there will be a material surplus in the bankruptcy estate, which will accrue to Mr Pasram.
19. Mr Pasram opposed the Trustee’s application throughout, although he did not attend the trial. Whatever may be the position as against the Trustee, by the Transfer he intended to give his beneficial interest in the Property to Mrs Pasram. If the Transfer does not stand then Mrs Pasram would, at least eventually and after further costs, be entitled to ask this Court or the Family Division to assist her to have the benefit of the surplus that would result from an order now that she pay the Trustee’s costs of these proceedings.
20. Taking these rather individual features into account, in the exercise of my discretion as to costs I do not propose to order that Mrs Pasram pay the Trustee’s costs of the proceedings. Instead I shall order that the Trustee’s costs (to be assessed) be paid as an expense of the bankruptcy estate. The effect will be that the creditors are paid, that any surplus payable to Mr Pasram will be reduced, but that Mrs Pasram will not have to sell the upper maisonette to meet the Trustee’s costs.
No. 478 of 2000
IN THE HIGH COURT OF JUSTICE IN BANKRUPTCY
No. 478 of 2000
Mr Robin Knowles CBE, QC sitting as a Deputy High Court Judge
[3rd December] 2007
RE: NOWRAG PASRAM
Between:
RICHARD ANDREW SEGAL
Applicant
and
(1) NOWRAG PASRAM
(2) HEMWANTI PASRAM
Respondents
Draft ORDER
UPON the trial of the Application of Richard Segal (“the Trustee”) dated 12 May 2006
AND upon hearing Counsel for the Trustee and for the Second Respondent, the First Respondent not appearing
IT IS DECLARED, ORDERED AND DIRECTED AS FOLLOWS:
(1) It is declared that the transfer dated 29 September 1999 (“the Transfer”) by the First Respondent to the Second Respondent of his beneficial interest in the property situated at and known as 64/64A Stapleton Road, Tooting Bec, London SW17 8AU (“the Property”) was a transaction at an undervalue under section 339 of the Insolvency Act 1986 (“the 1986 Act”).
(2) It is ordered, under sections 339(2) and 342(1)(a) of the 1986 Act, that the part of the Property that comprises the lower maisonette be vested, legally and beneficially, in the Trustee as trustee of the First Respondent’s estate in bankruptcy.
(3) It is declared that the Second Respondent retains and has the sole beneficial interest in the part of the Property that comprises the upper maisonette.
(4) It is ordered that, on or before 15 February 2008 the Second Respondent shall (a) complete any transfer documentation in respect of the lower maisonette as may be reasonably be required by the Trustee to record that the legal and/or beneficial interest in the lower maisonette is held by the Trustee (the reasonable costs of that documentation to be costs in the estate in bankruptcy) and (b) give vacant possession of the lower maisonette to the Trustee.
(5) It is directed that, on receiving vacant possession of the lower maisonette, the Trustee shall cause to be carried out, at the expense of the estate in bankruptcy, reasonable works at reasonable cost to effect the separation of the upper maisonette from the lower maisonette, ensuring throughout that these works are undertaken in a manner that has reasonable regard to the Second Respondent’s continuing occupation of the upper maisonette.
(6) It is ordered that the Trustee may sell the lower maisonette, with vacant possession, on or after the completion of the works at (5).
(6) It is ordered that the Second Respondent shall cooperate with the Trustee in respect of his efforts to sell the lower maisonette.
(7) It is ordered that the Trustee’s costs of and incidental to these proceedings be assessed and then paid (in the amount assessed) as an expense of the bankruptcy.
(8) It is directed that there be liberty to the parties or any of them to apply for any further directions.
