Home Information Cases Gwinnutt v George (2019)

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Gwinnutt v George (2019)

Summary

Where a bankruptcy order had been made against a barrister, fees due to them pursuant to an honorarium rather than a contract automatically vested in the trustee in bankruptcy.

Facts

The appellant trustee in bankruptcy appealed against a decision that certain unpaid fees of the first respondent bankrupt were not vested in him.

The first respondent was a barrister who had been adjudged bankrupt in 2012. The trustee argued that unpaid fees "owed" to the barrister, arising out of work carried out by him on a non-contractual basis before his bankruptcy, was "property" which vested in him as trustee under the Insolvency Act 1986 s.306. The relevant legal background was as follows. Since 2013, it was usual for barristers to enter into contracts with their instructing solicitors. Before then, there was normally no contractual relationship between a barrister and a solicitor; a barrister's fees were regarded as pure honoraria, they did not create a debt, and the barrister could not sue for them. The judge below held that fees payable pursuant to an honorarium were not "property" for the purposes of s.283(1) of the Act and therefore did not vest in the trustee.

Held

Defining "property" for the purposes of the Act - Under s.306 of the Act, the bankrupt's estate, subject to certain exceptions, vested in the trustee immediately on his appointment. Pursuant to s.283(1), the estate encompassed all "property" belonging to or vested in the bankrupt at the commencement of the bankruptcy, and s.436 set out a wide definition of "property". The following points could be derived from the case law: (a) it was necessary to bear in mind the statutory objective when interpreting the Act; (b) that objective was to ensure that, subject to certain exceptions, all the debtor's property capable of realisation should be vested in the trustee to be realised and distributed among the creditors; (c) that approach accorded with the public policy principle set out in Hollinshead v Hazleton [1916] 1 A.C. 428, namely that the bankrupt's entire property should be appropriated and made available for the payment of his creditors; (d) in keeping with that policy, successive statutes dealing with bankruptcy had progressively extended the definition of "property"; (e) "property" was not a term of art but took its meaning from its context; (f) the definition of "property" in s.436 was extremely wide and was inclusive rather than comprehensive; (g) there were, nevertheless, limits, and the fact that a possibility had a realisable value would not necessarily render it "property" (see paras 5-6, 10 of judgment).

Were a barrister's unpaid fees, due pursuant to an honorarium rather than a contract, "property"? The judge below held that where a barrister had no contractual right to a fee, they had no more than an expectation of receipt, and therefore the fee could not amount to "property". However, non-contractual barristers' fees were unique in nature. A barrister had more than a mere moral claim to such fees, and more than just a hope of receipt. Even before 2013, solicitors considered themselves to be more than just morally obliged to pay barristers' fees, and they would nearly always pay them. Indeed, a failure to do so could potentially amount to professional misconduct and, if necessary, a barrister could invoke the Bar Council's "withdrawal of credit scheme". Finally, if the client failed to provide the solicitor with funds with which to pay the barrister, the barrister could not sue to recover their fees, but the solicitor could. Every agent had a right against his principal to be reimbursed all expenses and to be indemnified against losses and liabilities incurred in the execution of their authority. A solicitor who had paid counsel's fees with his client's authority could invoke that principle to claim reimbursement, and where the barrister's fees went unpaid, the absence of any contractual liability by the solicitor to the barrister did not mean that the client could revoke the solicitor's authority to pay the fees and deny any liability in respect of them, Rondel v Worsley [1967] 1 Q.B. 443 followed. The law thus recognised that payment of an outstanding non-contractual fee was not to be regarded as voluntary and, in practice, barristers would normally be paid. Therefore, non-contractual fees were "property" for the purposes of the Act and automatically vested in the trustee in bankruptcy. It would be entirely anomalous for barristers' fees not to be regarded as property, Huggins Ex p. Huggins, Re (1882) 21 Ch. D. 85 applied. Were any other professional to become bankrupt, their aged debt would vest in the trustee, and it had to be the same for barristers. The statutory objective was that all a debtor's property capable of realisation should be vested in the trustee, and a barrister's unpaid fees, whether contractual or otherwise, were capable of realisation, Hollinshead followed. Although the mere fact that something could be realised did not invariably make it "property", it pointed in that direction (paras 11, 22-30).

Per Singh LJ - It was strongly arguable that a barrister's non-contractual aged debts should be regarded as legitimate expectations, even if there was strictly no legal right to them. There was no dichotomy between insolvency law and human rights law, and ECHR Protocol 1 art.1, which guaranteed the right to peaceful enjoyment of possessions, protected legitimate expectations as well as property rights (paras 32-26).

Appeal allowed

Court of Appeal (Civ Div)
Newey LJ, Singh LJ, Baker LJ
Judgment date
12 April 2019
References
LTL 12/4/2019 : [2019] 4 WLUK 225