Bankruptcy: Outstanding fees not property
Any fees not yet paid to a barrister at the time of his bankruptcy do not vest in his trustee in bankruptcy if they arise on a non-contractual basis, the High Court has ruled.
His Honour Judge Davis-White QC, sitting as a judge of the High Court, ruled that the fees were not property for the purposes of insolvency law.
This meant the trustee would be restricted to seeking the fee either when paid, as after-acquired property, or by way of an income payments order.
HHJ Davis-White said barrister Nicholas George, based at New Walk Chambers in Leicester, was instructed on “express terms that there should be no contract”.
He said he was not bound by the ruling of a Bar Disciplinary Ttribunal in January 2017, which said such fees were realisable and property and fined Mr George £1,500 for failing to pay money from fees to his trustee in bankruptcy, Simon Gwinnutt.
The tribunal found that Mr George “being a self-employed barrister holding himself out as practising in (amongst other areas) insolvency law, engaged in conduct which was likely to diminish public confidence in the legal profession or the administration of justice or otherwise bring the legal profession into disrepute”.
HHJ Davis-White said counsel for Mr Gwinnutt, while accepting that the tribunal’s ruling was not binding, invited him to follow it.
“In its ruling, the disciplinary tribunal held that a barrister’s unpaid fees (arising from a non-contractual engagement) were ‘realisable’ and property.
“For reasons that I have already given I respectfully disagree that the fact (if it is accepted) that such fees are ‘realisable’ by sending a reminder note, a second reminder note and if necessary making a telephone call (being the basis of the decision), make the fees ‘property’ of the bankrupt as at the date of his bankruptcy.
“I also note that the argument seems to have focused on the question of enforceability rather than what I would say is the correct issue, which is whether there is a relevant chose in action or property even if the right to it cannot be enforced in the courts of law.”
HHJ Davis-White QC said he also disagreed with the fourth edition of Personal Insolvency a Practical Guide by Floyd, Brumby and Knight.
“Without explanation the authors record their view that ‘fees due to a bankrupt barrister’ vest in his trustee ‘notwithstanding the inhibition on pursuing the same’. No reasoning is provided and the authors’ view does not cause me to revise my own.”
Delivering judgment in Gwinnutt v George and another [2018] EWHC 2169 (Ch), HHJ Davis-White said Mr George, who was called to the Bar in 1983, had been made bankrupt in 1994 and 1999 before becoming bankrupt again in March 2012.
In a statement to the Official Receiver, Mr George confirmed he had outstanding fees of just over £76,000, but HHJ Davis-White said that although the “precise terms on which Mr George was instructed on each case has yet to be agreed”, the “overwhelming majority” if not all were “expressly carried out on a non-contractual basis (including some conditional fee agreements).”
At the time of the hearing, Mr George had received at least £29,000 in outstanding fees which he had not passed on to his trustee.
The court heard that Mr Gwinnutt reported the matter to the police in 2013, who interviewed Mr George but decided not to take the matter any further.
The following year the trustee in bankruptcy complained to the Bar Standards Board, resulting in the disciplinary proceedings.
HHJ Davis-White said the disciplinary tribunal decided that Mr George’s defence, based on the argument that “because such fees were not contractually due, they did not vest in the trustee” was “not a good one in law” and Mr George responded by pleading guilty to the charge.
The judge said the claim against Mr George was issued in 2017, Mr George arguing in defence that his services were provided on an ‘honorarium basis’.
“There is then a counterclaim for return of the monies paid to the trustee in respect of the sums said by the trustee to have been taken wrongfully and retained by Mr George.”
HHJ Davis-White said the Courts and Legal Services Act 1991 “abolished the historical rule preventing barristers from entering into contracts for the provision of their services” but barristers retained the right to be instructed on non-contractual ‘bespoke’ terms.
The judge concluded: “Any unpaid fees of Mr George as at the date of commencement of his bankruptcy which arise under a non-contractual, honorarium engagement do not, or have not, vested in his trustee in bankruptcy”.
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