The Royal Court of Jersey reaffirms staunch protection for Viscount's costs in a désastre

In a recent judgment of the Royal Court of Jersey, a creditor (through its liquidators) was found not to be entitled to its costs from the Viscount (to be paid out of public funds), even though it had successfully invoked a procedure which had, in turn, led to the Viscount's decision to reject its claim in the désastre of a Jersey company being overturned.

At first, this outcome may seem surprising as the creditor was clearly successful in the review application. Why, then, was this the outcome on costs?

A creditor is bound to bear the costs of proving its claim in the désastre (Article 30(2) of the Bankruptcy (Jersey) Law 1990 (the 1990 Law). The Viscount had argued that this principle also applied to the creditor’s costs of a review under Article 31(7) of the 1990 Law. Though that argument was rejected, leaving costs to the discretion of the court, the court found that it should not generally award costs against the Viscount unless her decision or conduct in relation to the review itself was unreasonable. 

It was held that the Viscount’s decision was not unreasonable in this case (and, importantly, the court made clear that the fact that her original decision was overturned does not mean that the decision was outside the band of reasonable decisions which could have been made-a review under Article 31(7) is a review de novo and not a judicial review).  

The rationale for this is that public officers exercising public functions, like the Viscount, should not be afraid to make honest and reasonable decisions, taken in the conscientious discharge of their duties, because of financial prejudice which could arise if their decisions are successfully challenged. The court’s reticence to impose such a burden is, as the court noted, consistent with the approach taken in England and Wales in appeals against the decisions of liquidators/trustees in bankruptcy or similar officers (see Rule 14.9 of the Insolvency (England and Wales) Rules 2016). Interestingly, the court drew an analogy between the position of the Viscount and the position of a trustee in that a trustee only loses his right to be indemnified out of the trust fund if he has behaved unreasonably. 

But the creditor had mounted a secondary attack. It had also sought to argue that its claim in the désastre should rank in priority to the Viscount’s own costs in respect of the review (which would have meant, in effect, exhaustion of the fund without the Viscount receiving a penny). The court found that it did not have the jurisdiction to make such an order because the order of application of money realised in a désastre under Article 32 of the 1990 Law is mandatory. Moreover, in light of the court’s other findings, her costs had been “properly incurred”.

The moral of the story is this. If a creditor is not content with the decision of the Viscount to reject (in whole or in part) their claim in a désastre, they can invoke the review process as of right but, if they elect to do so and even if they succeed, they should be prepared to stomach the costs of that exercise.