PIA Terms
Cases
O’Connor (A Debtor)
[2015] IEHC 320 Ms. Justice Baker delivered on the 21st day of May, 2015
1. This is an appeal from a decision of the Circuit Court of the 3rd October, 2014 made by Judge Enright, a specialist judge appointed for the purposes of applications under the Personal Insolvency Act 2012 (“the Act of 2012”), by which she upheld the objection of Bank of Ireland (“the Bank”) to the personal insolvency arrangement (“the PIA”) proposed by Joseph O’Connor, a debtor. The matter came on for hearing before me grounded on the documentation which was before the Circuit Court, and on lengthy legal submissions from counsel.
2. Before turning to the grounds of objection I briefly outline the facts.
Facts
3. The Bank claims that the debtor is indebted to it in the round sum of €280,000 in respect of which demand has been made. The debtor appointed Mitchell O’Brien, a Personal Insolvency Practitioner (hereinafter “the PIP”), for the purposes of making a proposal for a PIA pursuant to the provisions of the Act of 2012. No argument is made that the procedural requirements of the Act to appoint the PIP were not properly met.
4. The Bank’s debt comprises 22.2% of the total debt, and 70.1% of the secured debt of the debtor. Because the Bank is owed more than 50% of the secured debt of the debtor it had a blocking vote, and the PIA could not be approved without its support.
5. A notice of a meeting for the purpose of considering the PIA in the statutory form was sent to the Bank on the 8th July, 2014 for a meeting scheduled to be held at 11am on the 23rd July, 2014 at premises in Dungarvan, Co Waterford. The PIA was subsequently amended and the amended PIA was furnished to the Bank one day before the scheduled creditors’ meeting.
6. As is required by the legislation the PIP requested that creditors submit proof of debt within 14 days of the letter. Ulster Bank, one of the creditors, did not prove its debt, although its claim was included by the PIP for a dividend in the proposal put to the meeting. That inclusion is one of the grounds of objection raised by the Bank.
7. The Bank determined to vote against the proposal and emailed a proxy form to the PIP appointing him as its proxy to vote against the proposal at the meeting. The email was sent just before 4pm, the deadline, on the 22nd July 2014.
8. The chairman of the creditors’ meeting refused to accept the proxy instrument.
9. An officer of the Bank, Ms Ormiston, attended at the creditors’ meeting to vote in person on behalf of the Bank. For that purpose she presented evidence of her authorisation to act on behalf of the Bank to the PIP who acted as chairman of the meeting. The PIP rejected her evidence and did not permit her to vote.
10. Thus the Bank’s blocking vote was not cast against the PIA which was deemed to have been approved pursuant to the provisions of s.108 (8) of the Act.
11. By notice of objection dated the 1st August, 2014 the Bank notified the Circuit Court, the Insolvency Service of Ireland and the PIP of its objection to the PIA coming into force on the five grounds set out therein.
12. The application to approve the PIA was heard by Judge Enright on the 1st September, 2014. The objection of the Bank was grounded on the affidavit of Ms Anthea Ormiston sworn on behalf of the Bank on the 28th August, 2014. Written submissions were furnished to the court, which having reserved its judgment to the 3rd October, 2014, upheld the Bank’s objections.
13. The effect of the Circuit Court decision is that the PIA procedure has come to an end and the debtor no longer has the benefit of a protective certificate. Section 114 (3) of the Act of 2012 provides that:-
“Where the appropriate court upholds the objection to the Personal Insolvency Arrangement, the Personal Insolvency Arrangement procedure shall be deemed to have come to an end, and the protective certificate issued under section 95 shall cease to have effect.”
14. It is from this determination of the Circuit Court that the debtor has appealed. It is agreed that four issues arise for determination by me on the appeal as follows:-
1) Whether the proxy vote of the Bank was properly excluded by the chairman.
2) Whether the Bank was unlawfully prevented from casting a vote personally at the creditors’ meeting.
3) Whether the creditors’ meeting ought to have been adjourned having regard to the variations in the proposal.
4) Whether Ulster Bank was improperly included for a dividend despite not having submitted proof of debt.
Procedure on appeal
15. It fell first to me to determine the appropriate means by which this appeal would be prosecuted. The Act of 2012 is silent on the mode of an appeal, and indeed on the entitlement to an appeal. There is nothing however to displace the provisions of the s. 37 (1) of the Courts of Justice Act 1936 which provides in all cases an appeal from the decision of the Circuit Court:
“An appeal shall lie to the High Court sitting in Dublin from every judgment given or order made (other than judgments and orders in respect of which it is declared by this Part of this Act that no appeal shall lie therefrom) by the Circuit Court in any civil action or matter at the hearing or for the determination of which no oral evidence was given.”
16. The appeal, being an appeal from a decision of the Circuit Court heard other than on oral evidence, is an appeal to the High Court on Circuit sitting in Dublin. Section 37 (2) of the Courts of Justice Act 1936 provides that an appeal shall be heard and determined by one Judge of the High Court sitting in Dublin:-
“Every appeal under this section to the High Court shall be heard and determined by one judge of the High Court sitting in Dublin and shall be so heard by way of rehearing of the action or matter in which the judgment or order the subject of such appeal was given or made, but no evidence which was not given and received in the Circuit Court shall be given or received on the hearing of such appeal without the special leave of the judge hearing such appeal.”
17. Henchy J. in Northern Bank Corporation Ltd. v. Charlton & Ors. [1979] IR 149 held that the expression “re-hearing” for the purposes of s. 37(2) meant that that the matter would be determined on the evidence already heard in the Circuit Court “by examining documentary material, particularly a written version or report of the evidence”, and that only in “exceptional cases” would “fresh or re-presented evidence” be received.
18. Furthermore, the appeal is confined to the grounds already argued in the Circuit Court, and that this is clear by analogy with appeals to the Supreme Court from the decision of Denham J. in Blehein v. Murphy & Ors. [2000] 2 IR 231 at p.240:-
“There being no exceptional reasons, the additional grounds of appeal, being matters not argued in the High Court, should not be permitted.”
19. Kearns J explained the policy behind this reasoning in Quinn v. Mid Western Health Board & Anor. [2004] I.R. 1 at p.19:-
“parties to litigation must bring forward their whole case and each and every point which properly belongs to the subject of litigation in the course of trial and not seek to do so at a later time.”
20. No application was made by either party to adduce further evidence than that available before the Circuit Court.
21. The second question that fell for determination was how the appeal should proceed. Following argument, counsel for both parties agreed that, while formally the debtor ought to present the case, the only matters of substance before me on the appeal, and the only matter of substance before the Circuit Court, were the four points of objection raised by the Bank, and no argument was made that the formal proofs for the approval of the PIA were in order. Accordingly the Bank presented its grounds for objection and the debtor responded.
22. Counsel facilitated the hearing considerably by narrowing the issues to facilitate the management of the appeal process.
23. Before considering the questions raised in the appeal I briefly outline the provisions of the legislation with regard to the holding of a creditors’ meeting and procedures at such a meeting.
The Creditors’ Meeting
24. The scheme of the legislation provides for the preparation by the PIP of a proposal for a PIA which is to be considered at a meeting of creditors.
25. Section 106(2) of the Act of 2012 provides for the giving by the PIP of at least 14 days’ written notice of the meeting, and s.107 sets out the documents that must be given to creditors when a creditors’ meeting is summoned.
26. Section 108(1) provides for voting rights and mandates as follows:
“A vote held at a creditors’ meeting to consider a proposal for a Personal Insolvency Arrangement shall be held in accordance with this section, section 110 and regulations made under section 111.”
27. Section 111 enables the Minister for Justice and Equality to make regulations relating to the holding of such meetings, and the Minister did so make the Personal Insolvency Act 2012 (Procedures for the Conduct of Creditor’s Meetings) Regulations 2013, S.I. 335/2013. The Regulations provided for the voting process and the appointment of proxies to vote at a meeting.
28. The objections relate primarily to the interpretation and application by the PIP of the requirements of these Regulations in the conduct of the meeting and the counting of votes.
29. I turn now to consider the first objection, that with regard to the proxy vote.
The Exclusion of the Proxy Vote of the Bank
30. Regulation 7(1) of the Regulations of 2013 provide for the giving of a vote by proxy. The regulation is admirably short:
“Votes at a creditors’ meeting may be given either personally or by proxy.”
31. The notice summoning a creditors’ meeting is required by 7(2) to be accompanied by an instrument under which a creditor may appoint a proxy to attend and vote on behalf of that creditor, called in the Regulation “an instrument appointing a proxy”.
32. The Bank, having received notice of the creditors’ meeting, sought to vote by proxy. No issue arises as regards the delivery by the Bank of a completed proxy form prior to 4pm on the day before the scheduled creditors’ meeting. Some email correspondence occurred between the Bank’s representative and the PIP as to the time for admitting a proxy form, but the question of time limits is not now in contention. On 22nd July, 2014 an instrument creating a proxy vote was emailed by the Bank’s representative, Jane McDevitt, directing a no vote on the proposal.
33. The chairman of the meeting declined to accept the instrument creating the proxy and deemed it to be invalid, and not completed pursuant to the statutory requirements. By email of 22nd July, 2014 the PIP wrote to the Bank notifying it of this view, and furnishing the legal advice received on which the view was based. In that context the Bank appointed a person to attend and vote personally at the meeting the following day.
34. Before considering the detailed reasons for rejection, it is convenient that I set out the provisions of the Regulations providing the formal requirements for a proxy.
The Regulation providing for a proxy
35. Regulation 7(2) provides that the instrument appointing the proxy:-
“shall be in the form set out in the Schedule to these Regulations or in such form, substantially to like effect, which the chairperson in his or her sole discretion shall allow.”
36. Regulation 7(3) provides:-
“An instrument appointing a proxy shall be completed in writing under the hand of the creditor or, if such creditor is a company or other body corporate, under the hand of the secretary or other person duly authorised by the company or other body corporate.”
37. Regulation 7(5) provides:-
“The chairperson may, unless evidence to the contrary is shown and the chairperson has notice of this evidence, accept a completed instrument appointing a proxy which has been delivered in accordance with these Regulations as evidence that the appointee named therein has been validly appointed by the creditor concerned.
The proxy
38. The proxy form actually completed by the Bank is as follows, and I use the upper case format employed:
INSTRUMENT APPOINTING A PROXY IN THE MATTER OF A CREDITORS’ MEETING PURSUANT TO THE PERSONAL INSOLVENCY ACT, 2012 AND THE PERSONAL INSOLVENCY ACT, 2012 (PROCEDURES FOR THE CONDUCT OF CREDITORS’ MEETINGS) REGULATIONS 2013
AND IN THE MATTER OF JOSEPH O’CONNOR
OF Benedine, Nenagh, Co. Tipperary, A DEBTOR
Mitchell O’Brien OF the Insolvency Resolution Service, Garraun Fadda, Dungarvan, Co. Waterford is hereby appointed agent and proxy for the undersigned in the above matter, to represent and vote for the undersigned against (No) the approval of a proposal at the creditor’s meeting to be held in respect thereof on 23rd July, 2014.
For and on behalf of the Governor and Company of the Bank of Ireland ANTHEA ORMISTON (Signed) SIG8150
SIGNATURE OF WITNESS (Signed)
22nd July, 2014
39. It is accepted that Ms. Ormiston was duly authorised by the Bank to sign the proxy form by and on behalf of the Bank, and the reference “SIG8150” is her authorised signatory number.
Grounds of Exclusion
40. However the debtor argues that the instrument creating the proxy is invalid and incomplete for three reasons: first it does not show on its face the fact of authorization; second the chairman was required to seek evidence that Ms Ormiston was an authorised signatory to execute the instrument appointing the proxy for and on behalf of the Bank; and third he has a discretion to exclude the proxy.
Ground one: the form of the instrument
41. The debtor relies on case law concerning the use of proxies in corporate insolvency matters. Reliance in particular is placed on the judgment of Laffoy J. in In Re CED Construction Ltd. (in voluntary liquidation) [2011] IEHC 420 which identifies the mandatory nature of the statutory provisions with regard to proxy voting by a corporate creditor at a meeting of creditors. Order 74, rule 75 of the Rules of the Superior Courts deals with proxy votes at a creditors’ meeting convened under s.266 of the Companies Act, 1963, for the purpose of passing a resolution to wind up a company. The rule provides as follows:
“A creditor or a contributory may vote either in person or by proxy. Where a person is authorised in manner provided by section 139 to represent a corporation at any meeting of creditors or contributories, such person shall produce to the Liquidator or the chairman of the meeting a copy of the resolution so authorising him. Such copy shall either be under the seal of the corporation or be certified to be a true copy by the secretary or a director of the corporation.”
42. Laffoy J. in considering that rule said the following:-
“As is clear from the statutory provisions and rules outlined above, there are a number of means available to a corporate creditor to have its wishes in relation to the appointment of the liquidator taken into account at a s.266 convened meeting. It may act through a person duly authorised in the manner prescribed in s.139(1) b in which case the corporate creditor is deemed to be at the meeting in person, but, in compliance with rule 74, the authorised person must produce a copy of the relevant resolution either under seal or certified by the secretary or director of the corporation. Alternatively, the corporate creditor may vote by proxy, but, in that event, it must comply with the mandatory requirements under rule 82(1) in relation to lodging the instrument of proxy not later than 4pm on the previous day. Further, the instrument must be in one of the two forms prescribed in rule 75, which means that in the case of a corporation the form of proxy must be under its common seal or under the hand of some officer duly authorised in that behalf and the fact that he is so authorised must be stated.
43. Laffoy J. quoted the earlier decision of In Re Stainless Pipe Line Supplies (Ireland) Limited (in voluntary liquidation) [2010] IEHC 318 as authority for the latter proposition.
44. As is clear from that extract Laffoy J. considered a number of mandatory requirements arose by virtue of the proxy rules relating to creditors’ meetings in the context of corporate insolvency and the appointment of a liquidator. The proxy form must be in one of the two prescribed forms, and where the creditor is a corporation a form of proxy must be either under its common seal or under the hand of some officer duly authorised and, and this is the factor which is identified as missing in the proxy advanced by the Bank in this case, the fact of authorisation must be stated on the instrument creating the proxy itself.
45. Counsel for the debtor argues that the proxy form advanced by the Bank did not contain a declaration that Ms. Ormiston was an authorised person. That she was duly authorised is not now in doubt, what is argued is that the proxy form ought to have, but did not, contain a statement that she had been duly authorised.
46. Counsel for the debtor argues that in an interpretation of the Regulations for the purpose of the personal insolvency legislation the court must have regard to the authorities on the form of a proxy in the context of company legislation
47. Counsel for the Bank argues that the personal insolvency Regulations are clear, and do not fall to be interpreted in the context of the complex and mandatory nature of the corporate insolvency rules. He argues that the personal insolvency legislation is a complete statutory code, and that it would be incorrect to interpret the provisions of that code, and the Regulations made hereunder, and in particular the Regulation which provide the form of proxy, in the light of the case law in corporate insolvency, and that the new statutory personal insolvency code ought not to be trammelled by the jurisprudence in incorporate insolvency.
48. In the light of the argument I turn now to examine the Act of 2012
The Act of 2012
49. The preamble to the Act describes it as an Act “to amend the law relating to insolvency”, to amend the Bankruptcy Act 1988, and to provide for the establishment and functions of the Insolvency Service of Ireland. The recited objectives were to “ameliorate the difficulties experienced by debtors in discharging their indebtedness due to insolvency”, and “to enable creditors to recover debts due to them by insolvent debtors to the extent that the means of those debtors reasonably permits, in an orderly and rational manner without recourse to bankruptcy”.
50. The legislation states as its purpose the regulation of personal, and not corporate, insolvency and the Act expressly provides that the option of personal insolvency be considered as an alternative to bankruptcy. The legislation proposes an “orderly and rational” means by which both creditors and insolvent debtors may regulate their affairs.
51. There is nothing in the legislation that links any of its provisions to the Companies Acts, although there are a number of express references in the body of the legislation to the Bankruptcy Act 1988. I consider that the legislation provides a complete and new code by which an insolvent debtor may make binding arrangements with his or her creditors, and the Circuit Court, and in limited circumstances the High Court, has a jurisdiction to give directions with regard to certain matters, to issue a protective certificate, and ultimately to approve the coming into affect of a PIA following its approval of a proposal for such an arrangement by a creditors’ meeting.
52. The legislation fully regulates the procedures at a creditors’ meeting. It would be fair to say that the Act and the structures that it creates are, in relative terms, less complex and burdensome than those found in either the old, and to some extent the current, bankruptcy regime or those regulating corporate insolvency. In its form the legislation is intended to be a self-contained and new insolvency regime, and it is expressly sought that the regime be rational and orderly. While there is nothing in the legislation that expressly mandates that the procedure be either cost effective or speedy, the Regulations made under the Act prescribe the fees of the PIP, the form of prescribed financial statements, the power of the Personal Insolvency Service of Ireland to fix levels of reasonable expenditure etc., and taken together they establish a regime the clear purpose of which is to facilitate insolvent personal debtors whose means are clearly limited. In that regard I am fortified by s. 147 of the Act 2012 by which Court has a discretion to defer a bankruptcy petition, presumably with the aim of engaging the less burdensome procedures established by the Act.
53. Even without consideration of the purpose of the legislation it seems to me that the correct approach must be to consider whether the Regulation providing for a proxy is clear on its face.
54. The Regulations made under the 2012 Act, and in particular Reg. 7 of S.I. 335/2013 which I quoted above, while it does mandate that the instrument creating the proxy be in the form set out in the schedule, in its express terms quite clearly permits of a departure from that form provided the document is “substantially to like effect”. Thus it could not be said that the Regulation required in all cases that the statutory form and no variation thereof was always mandated. A variation, provided it is of the same substance and effect as the statutory form, is admissible.
55. I consider that Reg. 7(2) does not create a mandatory form of proxy, and permits of a proxy form which in its substance and effect sufficient to constitute authority to a person to attend and vote at a creditors’ meeting for the purpose of considering a proposal for a PIA.
56. Further Reg. 7(3) is quite clear and imposes a number of statutory and mandatory requirements as to the means of execution of the proxy form. These can be set out as follows:-
a) The instrument must be in writing.
b) The instrument must be under the hand of the creditor, if the creditor is a natural person.
c) If the creditor is a company or other body corporate it must be under the hand of the secretary or another person
d) Such other person, i.e. a person other than the company secretary, must be duly authorised by the company or body corporate but there is no express mandatory requirement that the instrument state the fact of authorisation.
57. Order 74 Rules 74 and 75 of the Rules of the Superior Courts, which provide for a voting by proxy at a meeting of corporate creditors is mandatory and with regard to each of its requirement the word “shall” is used. The form of the proxy is mandatory by virtue of it being so designated in O.74 r.75 itself, and not by virtue of any general principle arising in the common law, whether in insolvency generally or otherwise, which mandates a particular form of instrument. This statutory source of the mandatory nature is identified by Laffoy J. in In Re Michael Madden Quality Meats Ltd (in voluntary liquidation) [2012] IEHC 122 at paragraph 5 where she held that the company had not completed the form in the manner stipulated in appendix M to the relevant rules “which by virtue of Rule 75 is mandatory”.
58. In the interpretation of the Regulation and in the absence of ambiguity the words must be given their plain meaning.
59. Furthermore, regard must be had to the well established requirement that a legislative scheme inform interpretation. At paragraph 12.11 of Dodd Statutory Interpretation in Ireland (Tottel Publishing, 2008) the author makes the following general statement, which I adopt:-
“The interpreter must consider the statutory scheme as a whole, the part played in that scheme by the provision to be interpreted and the meaning, intention and objective of the legislation concerned.”
60. In Keane v. An Bord Pleanala [1997] 1 IR 184 Hamilton CJ stated at p.215:-
“In the interpretation of a statute or a section thereof, the text of the statute or section thereof is to be regarded as the pre-eminent indication of the legislator’s intention and its meaning is taken to be that which corresponds to the literal meaning.”
61. Henchy J. in State (Elm Developments) v. An Bord Plenala [1981] IRLM 108 at p.110 made the following observations:
“Whether a provision in a statute or a statutory instrument, which on the face of it is obligatory (for example, by the use of the word ‘shall’), should be treated by the courts as truly mandatory or merely directory depends on the statutory scheme as a whole and the part played in that scheme by the provision in question. If the requirement which has not been observed may fairly be said to be an integral and indispensable part of the statutory intendment, the courts will hold it to be truly mandatory, and will not excuse a departure from it. But if, on the other hand, what is apparently a requirement is in essence merely a direction which is not of the substance of the aim and scheme of the statute, non-compliance may be excused.”
62. Counsel for the debtor points to the dicta of Henchy J. as suggesting that the scheme of Regulation 7(2) ought to be seen as mandatory. He is incorrect in this, and the dicta to my mind requires the scheme as whole to be looked at, and points indeed to a requirement to look to the face of a statue or statutory instrument to ascertain whether a particular form is mandatory or merely directed.
63. I adopt the dicta of Lafoy J. in Re Michael Madden Quality Meats Ltd. (in voluntary liquidation) that to ignore the mandatory nature of O.74 r.75 would be to surrender the rule “nugatory or superfluous”, and by analogy to create a mandatory requirement, when one is not required by the clear words of the Regulation, as is the case in Reg. 7(2), would be to ignore the language of the Regulation and make its broad approach to substance and not form nugatory or superfluous.
64. In my view the provisions of Reg. 7(3) are clear and do not admit of an interpretation which would have the effect that the particular form in the appendix to the Rule is mandatory, and the Rule read in its entirety has the opposite effect and points to the substance and not the form of the instrument as being the true matter in consideration. There is nothing in the Regulation which requires the fact of authorisation to be stated in the instrument, and one ought not to be implied, whether from the wholly different operative statutory regime or otherwise.
The second point: evidence of authority
65. The second point counsel makes is that the chairman was entitled to threat the proxy as invalid as he had no evidence of the means by which Ms. Ormiston was authorised by the Bank to act on its behalf in executing the instrument creating the proxy. Again the starting point is the Regulation, specifically 7(3) and counsel for the debtor argues again by analogy from the law of corporate insolvency. He points to this law as illustrative of a particular problem which it is argued would arise where evidence of authorisation was not furnished to a chairperson prior to the creditors’ meeting. Counsel for the debtor argues that the legislature could not have intended that an instrument creating a proxy, which was sufficient in form, can obviate the requirement that a chairperson seek evidence that it was executed by a person duly authorised to do so.
66. Counsel for the Bank points to the Regulation itself as evidence of the statutory intent that no requirement of evidence of the source of authorisation is required.
67. Regulation 7(5) governs the power of a chairperson to accept a completed instrument appointing a proxy this provides as follows:-
“The chairperson may unless evidence to the contrary is shown and the chairperson has notice of this evidence, accept a completed instrument appointing a proxy which has been delivered in accordance with these Regulations as evidence that the appointee named therein has been validly appointed by the creditor concerned.”
68. Counsel for the Bank suggests that Reg. 7(5) creates a presumption that a completed instrument, provided it has been delivered in accordance with the Regulation, is presumed to be valid and that the chairperson may accept the validity of the document without further question, and is not put on enquiry.
69. It is argued in essence that the provisions of Reg. 7(5) are protective of the role of the chairman and entitle him or her to accept a document as substantially valid without further enquiry, and that to so permit is consistent with the purpose and intent of the legislation to create a rational and orderly means of dealing with personal insolvency.
70. In other areas of law the legislature has recognised and established such a presumption, and for example s. 61 of the Succession Act, 1965 provides a presumption in favour of a purchaser from a personal representative that he or she is acting correctly and within powers concerned within their powers. Equally s. 53 of that Act provides that a conveyance of land by a personal representative shall be conclusive evidence of title, and has been interpreted of being protective of purchasers and limiting the number of enquiries that need to be made. These are statutory examples of such a presumption or statutory protection, and I consider that Reg. 7(5) creates a similar class of presumption, with similar protective consequence and effect. Counsel for the debtor however, argues that there is no evidential presumption, and submits that the chairman of a creditors’ meeting cannot be expected to rely on his or her own personal knowledge of the authority of the person executing the instrument. He relies on the decision of Laffoy J. in In Re Mountview Foods Ltd. (in voluntary liquidation) [2013] IEHC 125 where Laffoy J. held that the chairman of a creditors’ meeting in the context of a resolution to wind up a company had no discretion to accept the instruments notwithstanding that he was in a position to say that he personally knew each of the persons who had signed the proxy forms and that each of them “owned” the relevant companies. Laffoy J. held that such discretion could not arise, and she did so because of what she regarded as the mandatory requirements of O.74 r.75 which I have considered above.
71. I reject that argument and I do not consider that the word “may” in Reg. 7(5) imports a discretion, but rather it seems to me to that the word is enabling i.e. the chairperson is enabled, permitted, or allowed to accept an instrument which has an appearance of being valid as sufficient evidence that the person executing the instrument has been validly appointed by the creditor concerned to effect the instrument. The enabling provision permits the chairperson to treat an appointee as having been validly appointed and does not give discretion to the chairperson to accept or reject a validly constituted instrument. Further, the Regulation creates a presumption of validity such that in the absence of evidence to the contrary a chairperson is not put on enquiry, and may accept an instrument if it is formally or substantially valid on its face.
The third point: discretion
72. A chairperson of a meeting does have discretion to consider the substance of the instrument creating the proxy, but this is contained in 7(2) which allows a chairperson “in his or her sole discretion” to allow a vote by proxy where he or she is satisfied as to either the form or the substance and effect of the instrument proffered.
73. Thus it seems to me that the chairperson of the creditors’ meeting does have the discretion to consider whether the instrument creating the proxy is adequate and effective for its purpose, and that discretion is one which enables the chairperson to look to the form or, if necessary or desirable, to the substance. This is not a broad discretion to exclude a proxy other than for want of effect. I do not consider on the other hand that Reg. 7(5) creates a requirement that the chairperson seek evidence of authority, but rather that it empowers the chairperson to accept that a nominee is validly authorised, and may do so, and is empowered to do so, unless evidence to the contrary is shown which calls that authority or the validity of that appointment into question.
74. I do not consider that Reg. 7(5) gives a broad discretion to a chairperson of a meeting to refuse to accept an instrument of proxy, and his discretion is confined to considerations of the form, substance and effect of the instrument under Reg. 7(2).
Application to the Facts
75. The evidence before the Circuit Court was that at the creditors’ meeting there was no evidence that could have led the chairman to believe that Ms Ormiston was not the validly appointed nominee of the Bank with authority to execute the instrument creating the proxy. Email correspondence with Ms. Ormiston was exhibited in the Circuit Court so the PIP knew of the role she played in the process, nor has the PIP averred in any of the affidavits that he had reason to believe, or had evidence that led him to be concerned, that Ms. Ormiston was not an authorised signatory of the bank. As a matter of fact there was nothing before the chairperson of the meeting that would have alerted him to any doubt as to the authority of Ms. Ormiston, and no evidence was before the Circuit Court that such was the case.
76. I consider that the Regulations do not require proof of the fact of authority to execute the instrument creating the proxy, and that accordingly the chairperson of the meeting was entitled to accept the proxy vote. Nothing was before the chairperson which could have or did in fact put him on notice of any frailty in authority. It was not necessary for him in the circumstances to look outside the proxy form itself which was valid on its face.
Conclusion
77. Thus it seems to me that the following findings flow from the above.
a) The instrument creating the proxy was valid in form and substance.
b) The instrument therefore was effective.
c) The chairperson had no discretion to exclude the proxy vote in the circumstances.
d) There was no evidence to suggest that want of authority on the part of Ms. Ormond was before the chairperson of the meeting, and therefore as he had no reason to doubt the effectively and validity of the instrument. He was not put on enquiry.
78. Thus in the circumstances the chairperson of the creditors’ meeting was not correct to exclude the Bank’s vote by proxy.
79. Accordingly, in answer to the first question on this appeal, I consider that the proxy vote was unlawfully excluded from voting at the creditors’ meeting. Accordingly, the first objection of the Bank is shown. As this is determinative of the issue before me I do not consider it necessary or desirable to answer or to deal with the other grounds of objection, which arise only if the proxy vote was not operative.
80. Counsel for the debtor specifically requested that I deliver judgment on each of the four points of objection but having regard to the fact that I heard the appeal as a judge of the High Court hearing a Circuit Appeal, and, partly in recognition of the dicta of Kearns P. in Wicklow County Council v. Kinsella & Anor. [2015] IEHC 229 I consider that the precedential value of any findings or determinations on the other grounds would be limited.
Varvari v The Personal Insolvency Acts 2012 to 2015
[2020] IEHC 23 (27 January 2020)
JUDGMENT of Mr. Justice Denis McDonald delivered on 27 January, 2020The issue before the court1. This judgment deals with an application by an objecting creditor, Tanager DAC(“Tanager”), for costs against a personal insolvency practitioner in connection with anunsuccessful appeal by the practitioner from an order made by the Circuit Court on 12thFebruary, 2019 refusing the practitioner’s application under s. 115A (9) of the PersonalInsolvency Act, 2012 (“the 2012 Act”) as amended by the Personal Insolvency(Amendment) Act, 2015 (“the 2015 Act”).2. In summary, the application by the objecting creditor is made on the following grounds:-(a) In the first place, it is alleged that the practitioner did not carry out adequate duediligence to establish the income position of the debtor and did not exercise his ownindependent function to satisfy himself in relation to the debtor’s income such thatthe original application before the Circuit Court was moved on a false premise as tothe extent of the household income available to sustain the proposed arrangement,the subject of the s. 115A application:-(b) Secondly, it is alleged that the practitioner determined to pursue an appeal to thiscourt notwithstanding that it was apparent to him (at the latest within 13 days offiling the notice of appeal) that the earnings of the debtor and his wife fellsignificantly short of the household income on which the proposed arrangement hadbeen predicated. It is submitted by the objecting creditor that, in thosecircumstances, the appeal was doomed to fail and, manifestly, ought not to havebeen pursued by the practitioner.Background3. On 22nd June, 2017, a protective certificate was issued by the Circuit Court in respect ofthe debtor, Mr. Ciprian Varvari. The practitioner, Mr. Daniel Rule of McCambridge Duffy(“the practitioner”) subsequently formulated proposals for a personal insolvencyarrangement which were unsuccessfully put before creditors at a meeting on 29th August,2017. Two creditors (representing 4.9% of the total debt owed by Mr. Varvari) voted infavour of the arrangement. However, the objecting creditor, Tanager, which holdssecurity over the family home of Mr. Varvari (his principal private residence for thepurposes of s. 115A) voted against the arrangement. The debt owed by Mr. Varvari toTanager represents 95.1% of Mr. Varvari’s overall indebtedness4. As Appendix 2 to the arrangement makes clear, it was formulated on the basis that theentire household income (i.e. the income of Mr. Varvari and of his wife) amounted toPage 2 ⇓€3,218.00 per month. This equates to €38,616.00 per anum. This was based on whatwas described as the net self-employed income of Mr. Varvari of €1,458.00 per monthand the net monthly income of his wife of €1,760.00 per month. In this context, althoughno arrangement was proposed in respect of Mr. Varvari’s wife, the practitioner, quiteproperly, included her income in the stream of income available to service the mortgagedebt owed to Tanager. This is in accordance with s. 104 (1) and s. 104 (2) of the 2012Act. Under s. 104 (1), a practitioner is required, in formulating a proposal for anarrangement (on terms that will not require a debtor’s principal private residence to bedisposed of), to have regard, inter alia, to the ability of other persons residing with thedebtor to contribute to the costs of the debtor remaining in occupation of the principalprivate residence.5. In proceedings under the 2012-2015 Acts, it is crucial that accurate information isprovided in relation to the means of a debtor. At the very start of the process, a debtor isrequired to execute a Prescribed Financial Statement (“PFS”) in which accurateinformation must be provided in relation to the assets, income and liabilities of thedebtor. The PFS is then circulated to the creditors of the debtor so that they can makeinformed judgements when considering any arrangement proposed on behalf of thedebtor by a personal insolvency practitioner. In this case, according to para. 15.2 of PartIV of the proposed arrangement (dealing with the “debtor-specific terms of thearrangement”) the practitioner stated that he had investigated certain statements madeby Mr. Varvari and that he had “verified the information provided by examining thefollowing documentation:…Self Employed Income …”. This statement appeared in s. 15 ofPart IV of the arrangement where the practitioner set out his comments on the proposedarrangement.6. Furthermore, in para. 15.5 the practitioner stated that, from the investigations carried outby him as outlined in para. 15.2, he could:-“…confirm that the Debtor’s true position as to assets and liabilities does not appearin any material respect to be different from those presented…”.7. In addition, at note 1 to Appendix 2, the practitioner stated that the income of Mr. Varvariwas:-“…based on information provided by the Debtor’s accountant. The Debtor iscurrently self-employed and is projected to earn €18,000 gross in 2017”.8. At a much later stage in the proceedings (after I had indicated at a hearing on 20thSeptember, 2019 that the appeal would have to be dismissed) it emerged that theinformation relied upon by the practitioner in support of the statements summarised inparas. 5-7 above comprised a very short letter dated 31st March, 2017 issued by Mr.Varvari’s accountant in the following terms:-“I confirm that Ciprian Varvari … . His estimated income for 2017 from self-employment will be around €18,000.”Page 3 ⇓9. The only other investigation that was carried out by the practitioner in relation to Mr.Varvari’s income involved a telephone conversation which subsequently took placebetween an assistant to the practitioner and Mr. Varvari’s accountant on 3rd April, 2017in which it was confirmed with the accountant that the figure of €18,000 is after tax netincome. The practitioner stated that Mr. Varvari had “declared his income” in the PFS.This figure of €18,000 was then used in the PFS made by Mr. Varvari on 18th May, 2017and confirmed by him in a statutory declaration in accordance with the requirements ofthe 2012 Act.10. Insofar as the income of Mr. Varvari’s wife is concerned, it emerged from an affidavitsworn by the practitioner in October 2019 that he had obtained weekly payslips for Ms.Varvari in respect of a sixteen-week period running from 15th September, 2016 to 2ndFebruary, 2017. These payslips suggested that Ms. Varvari earned €1,759.97 per monthwhich equated, in round terms, to the figure given in Appendix 2 to the arrangement.11. It is important to keep in mind that none of the information summarised in paras. 8-10above was known to the creditors at the time of the creditors meeting to consider andvote upon the proposed arrangement prepared by the practitioner. As it happens, thearrangement was not supported by a majority of creditors. Therefore, the only way inwhich the arrangement could come into effect was on the basis of a successful applicationunder s. 115A.12. After the proposed arrangement was rejected by a majority in value of the creditors ofMr. Varvari, the practitioner made an application (pursuant to notice of motion dated 11thSeptember, 2017) to the Circuit Court seeking an order pursuant to s. 115A (9) of the2012 Act (as amended by the 2015 Act) confirming the coming into effect of the proposedarrangement. A notice of objection was filed on behalf of Tanager. In the course of theproceedings in the Circuit Court, a number of affidavits were sworn on behalf of Tanagerby Mr. Patrick Mabry in support of Tanager’s objections. In Mr. Mabry’s second affidavitsworn on 31st August, 2018, he suggested that, in order to assess the sustainability ofthe proposed arrangement, it was necessary that Mr. Varvari should furnish a copy of hisaudited accounts over the course of the previous three years. In para. 7 of his affidavithe said:-“In light of the Debtor’s repayment history and the Objecting Creditor’s concerns inrelation to sustainability, I say and believe that it is incumbent on the PIP or,indeed, the Debtor to furnish a copy of the Debtor’s audited accounts for the pastthree years, as well as copies of any relevant income projections…in order to allowsustainability to be assessed. Moreover, given that the PIA is entirely contingent onrepayments from the Debtor’s wife, it is not unreasonable to expect that fulldisclosure would be made of her financial circumstances.”13. Although Mr. Mabry’s affidavit was sworn on 31st August, 2018, there was no replyingaffidavit filed until the eve of the Circuit Court hearing on 12th February, 2019. On theday prior to that hearing, Mr. Varvari swore an affidavit in which he suggested, in para. 8that he had “obtained stable employment”. However, this was not consistent with thePage 4 ⇓terms of the proposed arrangement in which Mr. Varvari was described as self-employed.At that point, there was insufficient time for Tanager to respond without putting thehearing date in jeopardy. I was informed by counsel for both sides that, at the hearingbefore the learned Circuit Court judge on 12th February, 2019 counsel for Tanager drewattention to material available on a “LinkedIn” page for Mr. Varvari which suggested thathe had a number of sources of potential income. Having considered all of the evidencebefore her, the learned Circuit Court judge dismissed the application under s. 115A (9)and made no order as to costs. However, it was indicated in the course of the hearingthat, in the event of an appeal, Mr. Varvari intended to make a further affidavit in whichhe would explain himself in relation to his income. Thereafter, on 21st February, 2019 anotice of appeal dated 14th February, 2019 was filed in the office of the Dublin CircuitCourt. Mr. Varvari subsequently swore an affidavit on 25th February, 2019. In para. 4,he stated that the purpose of the affidavit was to “satisfactorily evidence my income andclarify the issues raised by the Objecting Creditor” at the hearing of the application beforethe Circuit Court. A copy of his tax returns for 2017 and 2018 were exhibited to hisaffidavit. The tax return for 2017 was prepared on behalf of Mr. Varvari and his wife. Itshows two sources of income for Mr. Varvari, both a self-employed income with grosstrading profit of €19,350 for the 2017 tax year and also a PAYE income of €2,369 for thesame period. Those figures are not significantly out of line with the projected net incomefor Mr. Varvari as set out in the proposed arrangement. However, the income for Ms.Varvari was significantly less than the income set out in the proposed arrangement. Thetotal income in the tax return for the 2017 tax year from Ms. Varvari was €7,150. Thetotal gross income for both Mr. Varvari and his wife for the same period was €24,276which represents a monthly income of €2,023 per month. This is substantially less thanthe monthly income stated in Appendix 2 to the proposed arrangement of €3,218.00 permonth (on which the sustainability of the proposed arrangement was based).14. The 2018 tax return showed increased income for Mr. Varvari and also increased incomefor his wife. However, their total taxable income was €33,564 which equates to €2,797per month. This is €421 per month short of the figure given in Appendix 2 to theproposed arrangement for the total household income. However, this is on a gross basis.In fact, the net income figure for the 2018 tax year appears to be €30,770.28 (when thetotal tax liability of €2,793.72 is taken into account) which would equate to a net monthlyhousehold income of €2,564.19. This would mean that the total household monthlyincome for 2018 was €653.81 per month short of the figure of €3,218.00 set out inAppendix 2.15. It is important to record at this point that, during the course of the Circuit Courtproceedings, the practitioner, in an affidavit sworn on 21st June, 2018, confirmed, inpara. 12, that Mr. Varvari’s “current income, current expenditure, current affordability hasbeen assessed and verified”. He also said in para. 21 of his affidavit that:-“Finally, I say and believe that the PIA clearly sets out that the Debtor’s householdincome is €3,218 and expenditure is €2,328 and thereafter there is an affordabilityPage 5 ⇓of €890 which clearly shows that the Debtor is in a position to comply with theterms of the PIA and make the payments as specified”.16. That was the evidence which the practitioner placed before the Circuit Court. It was alsothe evidence which he placed before this court for the purposes of the appeal from theCircuit Court. In light of the contents of the tax returns for the 2017 and 2018 tax years,it is quite clear that these averments by the practitioner are wrong. It is important tonote that, as of the date of swearing of this affidavit by the practitioner in June 2018, thetax return for the 2017 tax year had already been filed with Revenue. It is clear fromexhibit “CV-01” to Mr. Varvari’s affidavit sworn on 25th February, 2019 that the returnwas submitted on 1st February, 2018. However, the 2018 return would not have beenavailable at that time. In this context, I cannot see any date on the 2018 return inexhibit “CV-01”.17. That was the state of the affidavit evidence when the appeal came on for hearing beforethe court on 22nd July, 2019. During the course of that hearing, counsel for Tanagerdrew attention to the discrepancy between the figures shown in the 2017 tax return forthe combined household income for Mr. Varvari and his wife and the figures shown inAppendix 2 to the proposed arrangement. Although this is an appeal from the CircuitCourt (which is heard on the evidence which was before the Circuit Court) I decided, infairness to Mr. Varvari, that an opportunity should be given to him to explain the positionon affidavit. I directed that any such affidavit should be filed not later than 6thSeptember, 2019 and that the hearing should be adjourned to 20th September, 2019.Thereafter, despite the efforts of the solicitors for the practitioner, no further affidavit wasfiled by Mr. Varvari. When the matter came on for further hearing before me on 20thSeptember, 2019, I heard additional arguments from counsel for the practitioner andcounsel for Tanager. In light of the fact that the 2017 and 2018 tax returns showed asignificantly lower household income than that required in order to meet Mr. Varvari’sobligations under the proposed arrangement, I came to the conclusion that the proposedarrangement was not sustainable. I therefore indicated that the appeal would have to bedismissed. However, I also indicated that it was crucial that the court should be in apositon to rely on averments made by a practitioner and that I was very concerned thatthe practitioner in this case had sworn an affidavit in June 2018 in which he hadsuggested that he had carried out a process of assessing, verifying and substantiating theincome and that the proposed arrangement set out the household income correctly at€3,218. Given the contents of the tax return for 2017 which shows very significantlylower figures, I indicated that an explanation was required on affidavit from thepractitioner to explain how, in those circumstances, he could have said, several monthsafter the delivery of the 2017 tax return, on affidavit, that he had verified the figures andthat the household income was as set out in the proposed arrangement. In the sameaffidavit sworn in June 2018, the practitioner had deposed in para. 16 that the paymentsspecified under the arrangement “are tailored to the exact means of the Debtor as theycurrently stand and will remain based on my assessment of their income andexpenditure.” Thus, his affidavit gave the very clear impression that the figures set out inPage 6 ⇓Appendix 2 to the proposed arrangement had been appropriately assessed and verified bythe practitioner.18. In the circumstances, I deferred making any final order in relation to the appeal to awaita further affidavit from the practitioner explaining what had occurred. Two affidavits weresworn by the practitioner. In fact, the first of those affidavits appears to have been inexistence prior to the hearing on 20th September, 2019 although it was not produced tothe court on that day. This is an affidavit sworn on 10th September, 2019. In thataffidavit (which was in quite short form) the practitioner stated in para. 4 that, at thevery outset of the process, Mr. Varvari had provided him with evidence of his income andhis wife’s income. However, the only material exhibited in support of this averment wasthe letter from the accountant of 31st March, 2017 which simply provided an estimate ofthe income for 2017 looking forward. It fell far short of evidence of income. It was nomore than an estimate.19. There is a further unsatisfactory aspect to the affidavit sworn by the practitioner on 10thSeptember, 2019. In para. 6 of this affidavit, the practitioner referred to the PFS whichwas signed by Mr. Varvari on 18th May, 2017. As noted above, this showed monthlyincome of €1,500. It provided no evidence as to the overall household income. On p. 4of the PFS the figure of “0.00” was shown in respect of: “Contribution from householdmembers”.20. Notwithstanding this, in para. 7 of the affidavit, the practitioner stated that:-“On the basis of the evidence provided by the Debtor in respect of his householdincome and Prescribed Financial Statement that I prepared a proposed PersonalInsolvency arrangement which was sought to be approved in these proceedings”.21. That averment on the part of the practitioner is manifestly inaccurate in that the materialexhibited at paras. 4 and 6 (described in paras. 18-19 above) did not in fact provide anyinformation about the total household income and in particular provided no informationabout the income of Mr. Varvari’s wife. Furthermore, the averment ignores the vital roleand responsibility which the practitioner has under the 2012-2015 Acts in relation to thePFS to be completed by a debtor. In the first place, while s. 50 (1) requires the debtor toprovide to the practitioner “information that fully discloses his or her financial affairs”, thepractitioner is required under s. 50 (2) to examine the information provided by the debtorand, having regard to the obligation of the debtor to make full and honest disclosure ofhis or her financial affairs, to assist the debtor in completing the PFS. This clearlyenvisages that the practitioner will scrutinise the information provided by the debtor andassist in ensuring that the debtor makes a complete and honest disclosure of his or herfinancial affairs. This is strongly reinforced by the provisions of s. 54 (a) under which apractitioner is required to make a statement confirming that he or she is of the opinionthat the information contained in the PFS is complete and accurate. As counsel forTanager submitted, in the course of the costs hearing, this obligation would be entirelyotiose if all the practitioner was required to do was to take at face value the informationcontained in a debtor’s PFS.Page 7 ⇓22. Remarkably, in para. 9 of this affidavit the practitioner stated:-“I say that at the time of the swearing of my Replying Affidavit on the 21st June,2018, based upon the evidence provided to me by the Debtor, that my avermentsin the Replying Affidavit reflected my assessment of the Debtor’s income at thetime of swearing of that Affidavit”.23. It should be recalled, at this point, that in that affidavit of 21st June, 2018 thepractitioner had sworn that the household income was as set out in the proposedarrangement and had given the impression that this had been verified by him as at thedate of swearing of the affidavit. However, the material described in paras. 4-6 of thepractitioner’s affidavit does not provide any evidence of household income of that scale.As noted previously, the material comprises no more than an estimate of Mr. Varvari’sfuture income for 2017. The material contained no information whatsoever in relation tothe income of Mr. Varvari’s wife. Again, it should be recalled that the affidavit suggeststhat an assessment had been made by the practitioner of the household income. It wasimpossible to see, on the basis of this affidavit sworn on 10th September, 2019 that anyassessment was carried out. Furthermore, as explained in para. 21 above, it is notappropriate for a practitioner to simply rely upon the material contained in the PFS of aDebtor. On the contrary, as outlined above, the practitioner has an obligation under s. 54(a) of the 2012 Act to consider whether the information contained in a PFS is completeand accurate.24. In para. 12 of the affidavit sworn on 10th September, 2019, the practitioner addressedthe 2017 tax return of Mr. Varvari. He said that this tax return was not provided to himprior to February 2019 when Mr. Varvari swore his affidavit of 25th February, 2019. Thatis also a remarkable averment. It entirely undermines the suggestion made in thepractitioner’s affidavit sworn in June 2018 that he had assessed the income. It seemsquite extraordinary that he would not have sought any relevant tax returns prior toswearing the affidavit in June 2018. This is particularly so in circumstances where, in thenext paragraph of his affidavit the practitioner extols the practices of his firm andsuggests that they are superior to those of other practitioners. What he says in para. 13is as follows:-“I say and believe that this firm has very strict and considerable procedures inplace to ensure income is correctly verified. I say and believe that we are one ofthe only PIP firms to expressly set out what documents and evidence we rely uponin the PIA. I must however note that in self-employment cases preciseconfirmations of monthly income is more difficult that (sic) regular capital PAYEincome.”25. This averment must be seen together with para. 16 of the practitioner’s affidavit where hehelpfully exhibits, for the benefit of the court, the Protocol put in place under the aegis ofthe Insolvency Service of Ireland (“ISI”) in March 2015 dealing with, inter alia, theverification by a practitioner of information contained in a proposed arrangement. ThisProtocol is the result of work done by a steering group which appears to have had inputPage 8 ⇓from all relevant interests in the insolvency process including creditors and practitioners.Under Clause 2.1 of the Protocol, it is expressly stated that, by accepting it, bothpractitioners and creditors agree to follow the processes and use the agreeddocumentation that forms part of the Protocol. Practitioners indicate their acceptance ofthe content of the Protocol by drawing up a proposal which is based on the standarddocumentation and which states that it follows the Protocol. The arrangement proposedin this case was expressly stated on the first page of the executive summary to be astandard arrangement following “Protocol Version March 2015”.26. Under Clause 11.1 of the Protocol, income for a PAYE or self-employed debtor is to beverified by a practitioner in accordance with the requirements of Appendix 3. Appendix 3sets out a list of documents which, where applicable, a practitioner should require from adebtor when seeking to understand and verify the financial circumstances of the debtor.In the case of employees, these include the most recent P60 along with three payslips. Inaddition, where a person is paid weekly, it is suggested that three months’ payslipsshould be obtained. In the case of a self-employed debtor, Appendix 3 indicates that apractitioner should obtain the most recent audited and certified accounts andmanagement accounts for the year to date and copies of revenue income tax returns.Thus, it is clear that the practitioner, in this case, notwithstanding what he said in para.13 of his affidavit sworn on 10 September, 2019 (quoted above), did not, in fact, verifythe financial circumstances of Mr. Varvari in the manner envisaged by the Protocol underwhich the arrangement in this case was expressly put forward to the creditors of Mr.Varvari for approval and, subsequently, to the Circuit Court and to this court on appeal.27. At para. 14 of his affidavit the practitioner said that he was “unhappy that the income wasnot as per my verifications when the matter finally ended up before this HonourableCourt.” In the same paragraph he also said that he was: “firmly of the view that thisshould not have occurred and I operate my practice to ensure the full means of allDebtors is brought to bear on a PIA. I apologise for this having occurred.” Again, it isimpossible to understand how the practitioner can say that he is unhappy that the incomeof Mr. Varvari was not “as per my verifications”. There is nothing in the affidavit of 20thSeptember, 2019 to establish that the practitioner undertook any measure of verificationof the figures presented to him by Mr. Varvari. No underlying documentation (such asaccounts or tax returns) were sought or obtained by him prior to formulating theproposed arrangement or placing it before creditors for their consideration.28. When the matter next came before me on 17th October, 2019, the affidavit sworn on10th September, 2019 was brought to my attention for the first time and presented to meas though it had been sworn in response to the direction given by me on 20th September.My attention was not drawn to the date of swearing of the affidavit. Having consideredthe averments made by the practitioner (as outlined above), I indicated that the affidavitwas plainly unsatisfactory and did not properly explain that position. I directed that afurther affidavit should be filed. Thereafter on 31st October, 2019, a further affidavit wassworn by the practitioner which addressed, for the first time, the steps taken by thepractitioner to assess the income of Mr. Varvari’s wife. In para. 5 of this affidavit thePage 9 ⇓practitioner explained that he was provided with sixteen weekly payslips for Ms. Varvariwhich showed that the average weekly income was of the order of €406.46 per week. Bymy calculations this would equate to a yearly income of the order of €20,845.22 which isslightly less than the yearly income shown for Ms. Varvari in Appendix 2 to the proposedarrangement (€21,120).29. With regard to the income of Mr. Varvari, the practitioner in this affidavit again referred tothe letter from the accountant to Mr. Varvari of March 2017 and to the telephone callwhich took place thereafter on 3rd April, 2017 (both of which have been describedabove). It is clear from the affidavit that no other steps were taken by the practitioner toverify the income of Mr. Varvari.30. In para. 7 the practitioner said as follows:-“I say and believe that verification of a Debtor’s income who is self-employed is, byits nature, a more complex exercise than it is for a PAYE worker. I say and believethat when trying to ascertain the income of a self-employed Debtor, I am of theopinion that the best way to do this is to rely on the professional services of anaccountant. When a professional accountant provides income projections, I rely onthese as they are from a qualified professional. This is similar to when a valuerprovides a valuation of the property, a PIP relies on the information being given tothem by a professional person in their capacity”.31. At para. 8 of his affidavit, the practitioner referred again to the PFS and said, at para. 9,that on the basis of the “evidence” provided by Mr. Varvari and his accountant, heprepared the proposed arrangement. In para. 11 of his affidavit, he said that, at the timeof the swearing of his affidavit on 21st June, 2018, the affidavit reflected his “assessmentof the Debtor’s income at the time of swearing of that affidavit” and was based on the“evidence” provided to him by Mr. Varvari. However, it is clear from this affidavit swornon 31st October, 2019 that the only materials which a practitioner had, at the time ofswearing of his affidavit in June 2018 were the following:-(a) A two-line letter from Mr. Varvari’s accountant estimating a projected income for2017 of €18,000;(b) While there appears to have been a further telephone conversation between anassistant to the practitioner and the accountant on 3rd April, 2017, this does notappear to have elicited any further information other than to confirm that theprojection was of net income as opposed to gross income. Curiously, this is notconsistent with Appendix 2 to the proposed arrangement which expressly statesthat the figure of €18,000 was gross income rather than net income;(c) A PFS signed by Mr. Varvari. However, as noted above, it is not sufficient for apractitioner to simply rely, without more, on the PFS. It must be borne in mind thata practitioner has the statutory obligation under s. 54 (a) to assess whether theinformation contained in the PFS is complete and accurate. Indeed, the verificationPage 10 ⇓exercise envisaged under Appendix 3 to the Protocol is expressly stated to be forthe purpose of assisting a practitioner in the necessary verification exercise;(d) The only concrete evidence which the practitioner had was in respect of the incomeof Ms. Varvari in that he had sixteen weeks payslips in respect of the periodbetween September 2016 and February 2017. He did not, however, at time ofswearing of his affidavit in June 2018, have any ongoing evidence of Ms. Varvari’sincome. In particular, he did not have any information in relation to her income inthe period between March 2017 and June 2018.32. While the practitioner has sought to suggest that it was appropriate for him to rely uponthe services of Mr. Varvari’s accountant, this suggestion does not stand up to scrutiny.That is not what is set out in the Protocol. The Protocol is quite explicit as to the materialwhich a practitioner should consider. In the case of a self-employed person, this includestax returns and accounts. Given the role accorded to a practitioner in the processesunder the 2012-2015 Act, it would make no sense that a practitioner could, in effect,delegate his role of assessing the means of a debtor to another person such as anaccountant with a professional relationship with the debtor. That would entirelyundermine the independent role which a practitioner has under the Acts and which isconstantly highlighted by practitioners in affidavits which are sworn in the course ofproceedings under s. 115 A. Obtaining a valuation from an independent valuer is entirelydifferent to obtaining a projection of income from an accountant to a debtor. Apractitioner is clearly not professionally qualified to carry out an independent valuationhimself or herself. However, a practitioner is undoubtedly qualified to call for theaccounts of a self-employed debtor and for tax returns of a self-employed debtor and toform his or her own view as to the extent of a debtor’s means. That is a very basicinquiry and investigation that must be carried out by a practitioner in all cases underChapter 3 and Chapter 4 of Part 3 of the 2012 Act (as amended).33. Notwithstanding the manifest failure of the practitioner here to undertake those basicinquiries, the practitioner reiterated in para. 15 of his affidavit sworn on 10th October,2019 what he had previously said in his affidavit sworn on 10th September, 2019. Inpara. 15 he said:-“I say and believe that this firm has very strict and considerable procedures inplace to ensure income is correctly verified. I say and believe that we are one ofthe only PIP firms to expressly set out what documents and evidence we rely uponin the PIA. I must however note that in self-employment cases preciseconfirmations of monthly income is more difficult that (sic) regular PAYE income”.34. The “very strict and considerable procedures in place” are not described anywhere in thepractitioner’s affidavit. Regrettably, what is disclosed in the affidavit demonstrates veryplainly that the practitioner in this case did not follow the very simple and straightforwardsteps envisaged under the Protocol to ascertain and verify the income of Mr. Varvari.Given the role which a practitioner has under the 2012-2015 Acts, the failure of thepractitioner in this case to call for the underlying accounts of Mr. Varvari or to call for thePage 11 ⇓records held by Mr. Varvari’s accountant is manifestly unacceptable. There is no evidenceat all in this case to support the contention of the practitioner that he has “very strict” or“considerable” procedures in place to ensure income is correctly verified. There was acomplete failure in this case to take any steps to verify Mr. Varvari’s income. It is deeplyunimpressive that a practitioner would support an application for a protective certificateand, subsequently, put forward proposals for an arrangement on the basis of thethreadbare and unverified material described in the practitioner’s affidavits sworn on 10thSeptember and 10th October, 2019. The position of the practitioner becomes even lessimpressive when one considers what occurred when the practitioner came to swear hisaffidavit in June 2018. That affidavit was sworn in response to the first affidavit of Mr.Mabry sworn on behalf of the objecting creditor on 22nd February, 2018. In paras. 11-15of his affidavit, Mr. Mabry drew attention to the poor payment history of Mr. Varvari andhighlighted that neither the arrangement nor the grounding affidavit sworn by thepractitioner explained whether there had been any improvement in Mr. Varvari’scircumstances that could give comfort that Mr. Varvari would now be in a position tosustain monthly payments of €645 per month. It is in response to this affidavit that thepractitioner confirmed, in para. 11, on oath that he had assessed Mr. Varvari’s ability tomake repayments “based on his financial positon as presented to me as of the date of theswearing of the [PFS], and thereafter as reviewed and certified during the ProtectiveCertificate process culminating in the drafting of the PIA proposal as presented tocreditors….”.35. Furthermore, in para. 12 of the same affidavit the practitioner stated that (inter alia) theincome of Mr. Varvari “has been assessed by me, verified and substantiated to mysatisfaction….it therefore leads to a situation that the current income, currentexpenditure, current affordability has been assessed and verified”.36. These averments (made on oath) by the practitioner were obviously designed to give theimpression that a process of verification had taken place such that the figures put forwardin the proposed arrangement were reliable. Furthermore, the averments clearly suggestthat the process of verification was an ongoing process and did not terminate as of thedate of execution of the PFS by Mr. Varvari. This impression is reinforced by what wassaid in para. 21 of the same affidavit where the practitioner stated that the arrangementclearly sets out Mr. Varvari’s household income and “clearly shows that the Debtor is in aposition to comply with the terms of the PIA and make the payments as specified”. Thataverment gives the impression that as of the date of swearing of the practitioner’saffidavit, the figures set out in the arrangement remained true and correct. In light ofwhat is now known to have taken place (as summarised in paras. 8 to 14 above) I find itimpossible to understand how the practitioner could have thought it to be appropriate toswear an affidavit in the terms described above. No sufficient explanation has beenprovided as to how the practitioner thought it appropriate to do so. I regret to say thatthe averments in question are plainly misleading. They give the impression that a carefuland comprehensive process of verification had taken place (which, regrettably, was notcorrect). Crucially, if, at the time of swearing of this affidavit in June 2018, thepractitioner had sought Mr. Varvari’s tax returns for 2017 (which were available at thatPage 12 ⇓time) he would have seen that the arrangement was manifestly unsustainable based onthe income actually earned by Mr. Varvari and his wife during the 2017 tax year. As theProtocol shows, the appropriate method of verifying the income of a self-employed personsuch as Mr. Varvari was to call for accounts and/or tax returns. Had that basic step beentaken, it would have been plain to everyone that there was no basis on which to pursuean application under s. 115A to the Circuit Court.37. This wholly unsatisfactory position was further compounded by the pursuit of an appeal tothis court from the Circuit Court by the practitioner notwithstanding that, within days offiling of the relevant appeal, it was apparent from the affidavit of Mr. Varvari sworn on25th February, 2019 that the true level of the household income available to Mr. Varvariand his wife for both 2017 and 2018 was significantly less than the income shown in theproposed arrangement (on the basis of which it had been suggested that the arrangementwas sustainable). In light of the information which emerged from the exhibits to Mr.Varvari’s affidavit (in particular the tax returns for 2017 and 2018) I find it impossible tounderstand how the practitioner could have considered it to be either proper or plausibleto pursue an appeal to the High Court against the refusal of the Circuit Court to approvethe arrangement. It was very obvious that the figures for household income on which theentire arrangement had been predicated were unreliable and that accordingly thearrangement could not be confirmed by the court. Yet, the appeal was pursued. In thiscontext, it is important to keep in mind that there was a significant time gap between thedate of filing the appeal in February 2019 and the date when the matter first came on forhearing before the court in July 2019. There was ample opportunity for the practitionerto take stock and to consider whether to seek a date for hearing or to withdraw theappeal. In my view, in light of the evidence of Mr. Varvari it was blindingly obvious thatthe appeal should have been withdrawn. Nonetheless, the practitioner sought a date forthe hearing of the appeal; the appeal was duly listed for hearing, and the practitionersought to proceed with the hearing as though there was a proper basis for it.38. Remarkably, notwithstanding the matters outlined above, the practitioner has still notoffered any explanation as to why he chose to pursue the appeal in circumstances where,on the evidence he himself placed before the court, the household income disclosed in thetax returns was manifestly insufficient to sustain the proposed arrangement.39. It is in the circumstances described above that Tanager, the objecting creditor, seeks anorder for costs against the practitioner in respect of the appeal. Having set out therelevant facts, it is now necessary to consider the law.Relevant law40. As counsel for Tanager observed, the starting point in any consideration of the costs of anapplication under s. 115A is s. 115A (14) which provides as follows:“The court in an application under this section, shall make such other order as itdeems appropriate including an order as to the costs of the application”.Page 13 ⇓41. There was a significant measure of agreement between counsel for the practitioner andcounsel for Tanager in relation to the relevant legal principles. Both were agreed that s.115A (14) can be seen as displacing, at least to some extent, what counsel for Tanagercorrectly described as the presumptive rule under O.99 r.1 that costs should “follow theevent”.42. Both counsel also drew attention to the case law, in particular the decisions of Baker J. inRe: James Nugent [2016] IEHC 309, Re: Darren Reilly [2017] IEHC 558 and Re: NiamhMeeley [2018] IEHC 38. Those authorities make clear that, although the court hasjurisdiction to award costs against a practitioner, this jurisdiction will be exercisedsparingly and costs will only be awarded against a practitioner in exceptionalcircumstances. As Baker J. observed in Darren Reilly at para. 71:“If a PIP lodges an application bona fide and in exercise of his or her professionaland reasonable judgement, and prosecutes an appeal in a similar fashion, it seemsunlikely that a PIP would be subject to an award of costs, and the usual order whichhas been sought by successful creditors is that an order be made against thedebtor, not against the PIP.”43. The underlying reason why an order for costs will not generally be made against apractitioner who acts in a bona fide way was described as follows by Baker J. in Re:Nugent at para. 17:“The PIP does not act in a quasi- judicial manner, but does have a unique andburdensome obligation to the court in the manner in which an application ispresented for protection, and a high degree of frankness and trust is required forthe process to function in the manner envisaged. In those circumstances there is, itseems to me, no reason in principle why costs could not be awarded against a PIPin a suitable case, although I consider, as did Costello J. in Wogan, that suchjurisdiction would be exercised sparingly and in exceptional circumstances”.44. In deciding not to make an award of costs against the practitioner in Darren Reilly, BakerJ. took the following into account:(a) The application was one of the earliest applications under the personal insolvencyregime;(b) There was a public interest in clarifying the law in the area;(c) The practitioner did not stand to gain financially from the application and the scaleof fees charged by the practitioner was modest;(d) There was no evidence of mala fides on the part of the practitioner.45. Subsequently, in Niamh Meeley, Baker J. reiterated these considerations at paras. 151-152 in the following terms:Page 14 ⇓“Having regard to the particular and express public interest that is performed by aPIP in the insolvency process, and the fact that the PIP has no economic or personalinterest in the outcome of an application, save for any fees which might come toaccrue under a PIA which might come into effect following a making of an order ofcourt, I consider that a costs order would not be made, unless it can be shown thata PIP acted without bona fides or dishonestly, or ‘acted with any impropriety’ in thelanguage of the Supreme Court in McIllwraith v. His Honour Judge Fawsitt [1990] 1I.R. 343 where the question concerned the award of costs against Circuit Courtjudge in judicial review.…The circumstances in which a costs order against a PIP would be made would beexceptional, probably more correctly, truly exceptional”.46. It is accordingly clear that, although a practitioner does not have immunity from liabilityfor costs, it will only be in exceptional circumstances that an order for costs will be madeagainst a practitioner. I do not, however, believe that Baker J. in Niamh Meeley intendedto exhaustively define or describe the circumstances in which a practitioner might bemade liable for costs. In particular, I do not believe that Baker J. intended to suggestthat a practitioner would only be made liable for costs in equivalent circumstances tothose in which a judge would be made liable for costs under the principles established bythe Supreme Court in McIllwraith v. His Honour Judge Fawsitt [1990] 1 I.R. 343. Havingregard to the fact that a practitioner is actively involved as a participant in proceedingsunder the 2012-2015 Acts, a practitioner has a significantly different role to that of ajudge of the District or Circuit Court who will only ever act in an adjudicative capacity. AsBaker J. had previously observed in Re: Nugent (in the passage quoted in para. 43 above)a practitioner does not act in a quasi-judicial manner. In my view, the reference by BakerJ. to McIllwraith was clearly intended to underline that it would only be in exceptionalcircumstances that a practitioner would be made liable for costs.47. Counsel for the practitioner and counsel for Tanager, very helpfully, sought to identifysome of the exceptional circumstances which could expose a practitioner to a liability incosts. These included:(a) The vexatious promotion of a personal insolvency arrangement or a debt settlementarrangement. As explained by Barron J. in his judgment in Farley v. Ireland(Supreme Court, unreported 1st May, 1997 at p. 3), it is vexatious to pursueproceedings which have no prospect of success. Thus a practitioner would beexposed to a liability in costs where the practitioner pursues an arrangement in theknowledge that there was no legal or evidential basis for it or where the practitionerknows that the drafting of the arrangement is fatally deficient;(b) The promotion of an arrangement where the practitioner knows that thearrangement does not include all of the debts of the debtor;(c) Counsel also instanced circumstances where an application is made to approve anarrangement where the practitioner has no instruction from the debtor to do so.Page 15 ⇓(d) Counsel for Tanager also submitted that repeated breaches of court directions(whether by creditors or practitioners) should also be capable of being admonishedthrough an appropriate order for costs.48. I fully agree with counsel that, in each of the examples cited by them, a practitionerwould be at risk for costs. That said, I do not believe that this list is exhaustive. It is,nonetheless, helpful in identifying the level of misconduct or impropriety that would haveto exist before a practitioner would be exposed to a liability for costs. It seems to me thata practitioner will also be exposed to liability in costs where he pursues an application forapproval of an arrangement where it is obvious that the figures on which the arrangementis based are incorrect and where the true figures available to the practitioner demonstratethat the arrangement is unsustainable. A practitioner who proceeds with an application insuch circumstances is, in effect, misleading the court. In this context, it is well establishedthat a high degree of frankness is required of practitioners in their dealing with creditorsand the court. This duty of good faith was emphasised by Baker J in James Nugent atpara. 17 of her judgment.49. In James Nugent, Baker J drew attention, in this context, to similar observations made inthe context of examinerships. While the position of a practitioner is not on all fours withthat of an examiner appointed under the Companies Act, 2014, there is an obviousparallel between the position of a practitioner and the position of an examiner. In Re:Wogans (Drogheda) (No. 2) (High Court, unreported, 7th May, 1992) Costello J. (as hethen was) emphasised the duty of good faith owed by an examiner to the court todisclose all relevant facts material to the exercise by the court of its discretion. Similarly,under s. 115A, the court is vested with a discretion as to whether to grant relief. While s.115A sets out a large number of statutory requirements which must be fulfilled, there is aresidual discretion in the court as to whether or not to grant relief under s. 115A evenwhere all the statutory requirements are fulfilled. It is therefore the duty of anypractitioner, as an independent professional, to fully disclose to the court all of the facts(whether good or bad) relevant to the fulfilment of the statutory conditions or relevant tothe residual discretion vested in the court. In his subsequent decision in the same case(Re: Wogans (Drogheda) Ltd (No. 3), High Court, unreported, 9th February, 1993),Costello J. refused to sanction a payment of fees to the examiner in that case by reasonof the examiner’s failure to disclose to the court a number of matters which were clearlymaterial to the issues which the court had to decide. These included the fact that theexaminer was aware of the failure by the directors of the company in question to makefull disclosure to the court at the time they petitioned the court for the appointment of anexaminer on an interim basis. At p. 25 of his judgment, Costello J. said:“I think the breach by the examiner of his duty to the court arising from hisknowledge of the abuse of the courts processes by the directors was a most seriousone and disentitles him to be remunerated for the work he performed or to bereimbursed for the costs and expenses he incurred. I must so hold (a) because theCourt must ensure the fulfilment of duties owed to it by professional persons in theinterests of justice, and should not condone what happened by the order thePage 16 ⇓examiner now seeks and (b) because in this case it is highly probable that had theCourt been informed of the fraud which had taken place and which wascompounded in the petition an order for protection would not have been made. Insuch circumstances it would be unjust to require the company’s creditors toremunerate the examiner or indemnify him for services which, had this duty beenfulfilled, would not have been performed”.50. The importance of full disclosure was subsequently emphasised by Finlay Geoghegan J. inher judgment in Re: Camden Street Investments Ltd [2014] IEHC 86. In that case,having referred to the judgments of Costello J. in Wogans, Finlay Geoghegan J. said atpara. 58:“58. Costello J. also referred to the necessity for compliance with these obligations [todisclose all relevant facts material to the exercise by the court of its discretion]because, inter alia, the Court must depend to a considerable extent on the truth ofwhat it is told by, in the first instance, the company, … and thereafter, by aninterim examiner or examiner. I respectfully agree. In many examinerships, unlikethe present one, there may be no creditor or other interested party who takes anactive role in opposing any aspect of the applications before the Court. The Court isrequired to make decisions, either at a petition hearing or subsequently on anapplication to confirm a scheme which may have an immediate and sometimesadverse impact on creditors, employees and others who are not present and notrepresented before the Court. The Court is absolutely dependent upon being able torely upon petitioners, in the first instance, and thereafter, examiners and theirprofessional advisors giving to the Court a full, frank and clear picture with all theobjectively material or potentially material facts relevant to any decision which it isrequired to take, or to the exercise by it of its discretion.”51. Finlay Geoghegan J. subsequently concluded, at para. 61 of her judgment, that theexaminer in question had acted “…in breach of his duties to act with fullest candour inputting all material matters before the Court in connection with this application forconfirmation of his proposals for a scheme of arrangement…”.52. While the observations of Costello J. and Finlay Geoghegan J. were made in the context ofexaminership, they apply, in my view, with equal force in the context of proceedingsunder the 2012-2015 Acts. The court must be in a position to rely on practitioners, in theexercise of their independent professional role in the processes under the Acts, to placeall material facts before the court (whether those facts tend to support or undermine thecase for relief under the Acts) so that the court can make a fully informed decision, in theexercise of its jurisdiction under s. 115A (or any other relevant provision of the 2012-2015 Acts that may be in issue in any individual case).53. Similarly, if a practitioner states that a proposed arrangement has been prepared inaccordance with the Protocol, this constitutes a representation to the creditors (and alsothe court) that the practitioner, in the absence of any indication to the contrary in theterms of the proposed arrangement, has taken the necessary steps to verify the debtor’sPage 17 ⇓income in accordance with the requirements of Appendix 3 to the Protocol. If thatprocess of verification has not taken place then, in the absence of some statement to thateffect in the arrangement, a practitioner would be misleading the court and the creditorsif he or she were to proceed with an application to the court based on the arrangement inquestion.54. In my view, having regard to the importance of the duty of disclosure to the court, anyattempt by a practitioner to mislead the court or any failure to make full disclosure to thecourt must, subject to any countervailing circumstances which may exist, expose apractitioner to a potential liability in costs. Such behaviour on the part of a practitionerseems to me to be so serious as to fall within the exceptional category of casescontemplated by Baker J. as justifying an award of costs against a practitioner. Whetherthe court, in any individual case, will impose a liability for costs will obviously depend onthe circumstances and whether the practitioner is in a position to offer any plausibleexplanation or justification for what has been done or what he or she has failed to do.55. In making the observations in para. 54 above, I am conscious that in both Wogans and inJames Nugent, Costello J and Baker J declined to make orders for costs notwithstandingthat, in each case, there had been failures on the part of the examiner and thepractitioner respectively to make full disclosure to the court. However, in Wogans a veryeffective admonition was delivered by the court in that the examiner was denied paymentin respect of the work done by him. That represented a significant sanction to mark thebreach of duty on the part of the examiner in that case. That sanction is not available tothe court in proceedings under the 2012-2015 Acts.56. In the case of James Nugent, the application for costs was made by an affected creditoron the basis of alleged non-disclosure on the part of the practitioner in relation to an exparte application under s. 95(6) of the 2012 Act for an order extending the protectionperiod. While Baker J declined to make an order for costs against the practitioner in thatcase, it is clear from para. 22 of her judgment that this was in circumstances where thepractitioner did not actively mislead the court in the evidence presented by him in supportof the s. 95(6) application. In that case, there had been a failure by the practitioner toproperly scrutinise the information made available by the debtor on which the practitionerhad relied. While that was unsatisfactory, this failure did not arise as a consequence ofany mala fides on the part of the practitioner. The information relied on was not known tobe incorrect by the practitioner and Baker J held that the primary blame for what occurredlay with the debtor personally. It seems to me to follow from what is said by Baker J inpara 22 of her judgment that if the practitioner had been personally responsible formisleading the court, a costs order would have been made against him.57. To my mind, where parties such as objecting creditors have been put to expense as aconsequence of steps of the kind summarised in paras. 47-48 above or where costs havebeen incurred as a consequence of a failure by a practitioner to make full disclosure to thecourt or where costs have been incurred as a consequence of misleading conduct orstatements by a practitioner, it is difficult to see why an order for costs should not bePage 18 ⇓made against the practitioner concerned unless the practitioner is in a position to offer anacceptable explanation for what occurred or where there are other excusingcircumstances. In such cases, it seems to me that the onus must lie on the practitionerto justify why an award of costs should not be made.58. Equally, it seems to me that similar issues arise where a practitioner decides to proceedwith an appeal in circumstances where the evidence available to the practitioner, inadvance of the hearing of the appeal, clearly and undeniably demonstrates that thearrangement is no longer viable. In my view, a practitioner, in such circumstances, has anobligation to bring that to the attention of the court and to withdraw the appeal. If apractitioner proceeds with the hearing of an appeal in the teeth of evidence available tohim or her which clearly shows the arrangement to be unsustainable, that would, in myview, expose the practitioner to a liability for the costs of the appeal. It would be totallyunacceptable that a practitioner would proceed with an appeal in such circumstances. Byproceeding with such an appeal, a practitioner is exposing the objecting creditors towholly unnecessary legal costs and is also taking up valuable court time that couldotherwise be made available to a more deserving case. In my view, such conduct on thepart of a practitioner is, in the absence of an acceptable justification or excuse, of such aserious nature as to warrant an award of costs in favour of the objecting creditor. To mymind, such behaviour on the part of a practitioner very obviously falls within the rubric ofexceptional circumstances as contemplated by Baker J. in her judgment in Niamh Meeley.59. It is nonetheless very important to emphasise that this does not mean that a practitionerwill be exposed to a liability in costs merely because a practitioner fails to persuade acourt (either at first instance or on appeal) to grant relief under the 2012-2015 Acts. Thejudgments of Baker J. make that very clear. I reiterate what was said by Baker J inDarren Reilly at para. 71 that: “if a PIP lodges an application bona fide and in exercise ofhis or her professional and reasonable judgment, and prosecutes an appeal in similarfashion, it seems unlikely that a PIP would be subject to an award of costs…”.60. That judgment was delivered in 2017. Since then, there have been a very significantnumber of cases under the 2012-2015 Acts both in this court and in the Circuit Court. Inonly a very small number of cases has any attempt been made by an objecting creditor toseek costs against a practitioner and, in so far as I am aware, none of those attempts hasbeen successful. This demonstrates very clearly that, in light of the guidance given byBaker J in James Nugent, Darren Reilly and Niamh Meeley, there is a recognition andunderstanding on the part of all participants in the process that an application for costsagainst a practitioner will only be entertained in exceptional circumstances and that the“costs follow the event” principle is of no application in cases where a practitioner’sapplication for relief under the Acts fails either on the merits or on a point of law.61. It is only in what should be very exceptional circumstances of the kind outlined in paras.42-54 above that a practitioner will have any reason to fear that he or she may findthemselves exposed to a liability for costs. If a practitioner behaves honestly responsiblyand professionally, the practitioner will have nothing to fear. Practitioners should bePage 19 ⇓aware that it is their duty to make full disclosure and to satisfy themselves, insofar aspracticable, that the debtor has made appropriate disclosure. Appendix 3 to the Protocolprovides extensive guidance as to the steps which should be taken for this purpose. Inthe case of applications under s. 115A, it is important that practitioners understand thatthey are independent professionals and they have a duty to place all facts before thecourt which are relevant to any of the statutory conditions in s. 115A and any facts whichmay be relevant to the exercise of the discretion of the court.62. In the case of appeals, s. 37 of the Courts of Justice Act, 1936 (“the 1936 Act”) envisagesthat appeals from the Circuit Court to the High Court proceed by way of rehearing on thebasis of the same evidence that was before the Circuit Court. Section 37 (2) providesthat no new evidence can be given in the High Court for the purposes of the appeal“without the special leave of the judge hearing such appeal”. However, it seems to methat it is crucial for the purposes of any appeal to the High Court that the court shouldhave available to it up to date information in relation to the debtor’s financial position.Given that the High Court, on any such appeal, is required to consider the matter afreshand satisfy itself that all of the statutory preconditions to the grant of relief under s. 115Ahave been satisfied and that there are no circumstances which would cause the court torefuse relief on discretionary grounds, the court must have available to it up to dateinformation in relation to the debtor’s financial circumstances. Otherwise, if the debtor’sfinancial circumstances have changed materially since the hearing in the Circuit Court,this could lead to the High Court dealing with the matter on the basis of an entirely falseor incomplete premise. It therefore seems to me to be essential that, in advance of thehearing of an appeal, the practitioner should make appropriate enquiries to satisfy himselfor herself as to whether there has been any material adverse change in the debtor’sfinancial position or whether there are any other material circumstances which should bebrought to the attention of the court. In cases where there has been a material adversechange in circumstances or where additional relevant material has come to light, it seemsto me that it must be the obligation of the practitioner to place the necessary additionalevidence before the High Court for the purposes of that appeal. While s. 37 (2) of the1936 Act envisages that special leave will be required for doing so, it seems to me thatthe High Court should readily admit such evidence so as to be in a position to make aninformed decision on the basis of the best financial information available as to whetherrelief should be granted.Decision63. In the present case, there are a number of areas of concern:(a) In the first place, it is clear that, although the practitioner purported to propose anarrangement in accordance with the March 2015 version of the Protocol, he did nottake the necessary steps to verify the income of Mr. Varvari in accordance withAppendix 3 to the Protocol. As noted in paras. 5-6 above, he also wronglyrepresented in paras. 15.2 and 15.5 of the arrangement that he had investigatedand verified the income of Mr. Varvari. However, he did disclose in note 1 toAppendix 2 to the proposed arrangement that the income of Mr. Varvari was basedPage 20 ⇓on information provided by Mr. Varvari’s accountant. Thus, anyone who closelyread the arrangement may have realised that the figure for Mr. Varvari’s incomewas not based on Mr. Varvari’s accounts or his tax returns and that, accordingly,his income had not been verified by reference to the steps outlined in Appendix 3 tothe Protocol. While I am strongly of the view that the practitioner was entitled toproceed in that way and while, for the reasons outlined in para. 34 above, I believethat the letter from the accountant came nowhere near the level of verification thatwas required to be undertaken by the practitioner, I do not believe that this failingon the part of the practitioner would, of itself, come within the rubric of exceptionalcircumstances as envisaged by Baker J. in Niamh Meeley. In my view, it was on themargin and I would be prepared, in light of the terms of note 1 to Appendix 2 tothe proposed arrangement, to give the practitioner the benefit of the doubt;(b) The second area of concern relates to the practitioner’s apparent unquestioningreliance on the PFS made by Mr. Varvari. I have already set out my views on thepractitioner’s failings in this regard in para. 21 above. In my view, the practitionerwas plainly not entitled to proceed in this way but, again, while his conduct wasunacceptable and while it comes close to the margin of exceptional circumstances, Ido not believe that, taken on its own, it could be said to give rise to a liability incosts;(c) The next area of concern arises in relation to the swearing of the practitioner’saffidavit in June 2018 which, as outlined in paras. 34 to 36 above clearly gave theimpression that the practitioner had, by that stage, taken active steps to verify theincome of Mr. Varvari and his wife. The averments made by the practitioner inparas. 11,12 and 21 of his affidavit (as summarised in paras. 34-36 above) clearlyconveyed the impression that, as of the date of swearing of the affidavit, the figurefor household income set out in the arrangement remained true and correct. Asobserved by me in para. 36 above, I find it impossible to understand how thepractitioner could have thought it to be appropriate to swear an affidavit in thoseterms. In my view, these averments by the practitioner in his affidavit aremisleading and give the false impression that a careful and comprehensive processof verification had taken place. While the application to the Circuit Court ultimatelyfailed, the averments in question were clearly designed to dispel any concern thatmight exist as to the veracity of the income. The true position was entirelydifferent. The practitioner had not taken any sufficient steps to verify the income.To make matters worse, had he done so, he would immediately have seen that theincome actually earned by Mr. Varvari and his wife fell far short of the figure usedby him to justify the sustainability of the proposed arrangement. The entire costs ofthe Circuit Court hearing and of the appeal to the High Court could have beenavoided if, at the time of swearing of this affidavit in June 2018, the practitionerhad sought Mr. Varvari’s tax returns for 2017 (which had been available sinceFebruary, 2018 four months prior to the swearing of the affidavit). Instead, thepractitioner chose to deploy the affidavit in the proceedings notwithstanding that hewas aware that, as at the date of swearing of the affidavit, he had not undertakenPage 21 ⇓any steps to verify the up to date income position of Mr. Varvari or his wife. In all ofthe circumstances, the misleading impression created by the affidavit of June 2018is clearly within the Niamh Meeley rubric and is of sufficient gravity to merit anaward of costs being made against the practitioner – subject to the existence of anycountervailing circumstances that might justify a different outcome;(d) Fourthly, the pursuit of the appeal, notwithstanding the evidence available from the2017 and 2018 tax returns (which the practitioner very properly placed before thecourt) is a further serious cause for concern which, again, in my view, falls withinthe Niamh Meeley rubric. The costs of the appeal and the time taken in hearing theappeal could all have been avoided. The tax returns plainly demonstrated that thearrangement proposed by the practitioner in this case was unsustainable. In thosecircumstances, the practitioner has pursued an appeal to this court which wasbound to fail and, moreover, which he must have known was bound to fail. As Iobserved in para. 37 above, it was blindingly obvious that the appeal should havebeen withdrawn. The pursuit of the appeal was accordingly vexatious. In my view,this undoubtedly exposes the practitioner (subject to consideration of anycountervailing circumstances) to a liability in costs for the appeal.64. Before deciding whether to impose liability for costs, I must also consider whether thereare any countervailing circumstances that are relevant to the exercise of the court’sdiscretion under s. 115A (14) of the 2012 Act. Regrettably, as noted previously, thepractitioner has not put forward any satisfactory explanation for proceeding in the waythat he did. I am, however, conscious that this is the first time that an issue of this kindhas come before the court. I also bear in mind that, although the practitioner has notsatisfactorily explained his conduct, he has shown genuine remorse and regret and I amsatisfied that, in dealing with the matter since October, 2019, the practitioner has beenfrank and has very properly and acknowledged his own failings. I also believe that it isimportant to acknowledge that the practitioner very properly disclosed the evidence inrelation to the tax returns albeit that he did not take any steps thereafter to bring theappeal to an end and instead continued to maintain the appeal. However, I do not believethat these considerations are of sufficient weight to prevent an order for costs being madeagainst the practitioner in this case. They are, however, relevant to the extent of theliability to be imposed. In this context, the court has power under O.99 r.5 to direct thata sum in gross be paid in lieu of taxed costs. That rule must now be read subject to theprovisions of Part 10 of the Legal Services Regulation Act, 2015 under which costs arenow subject to adjudication rather than taxation.65. While the conduct of the practitioner in this case (highlighted in paras. 63(c) and (d)above) well justifies an order for costs being made against him, I propose, in this case,having regard to the fact that this is the first such order to be made, and having regard tothe other considerations outlined in para. 64 above, that the appropriate course to take isto make an order that the practitioner should pay to Tanager the objecting creditor withina period of time to be fixed by the court, the sum of €6,000 together with VAT (ifapplicable). That sum represents two thirds of the fees (excluding VAT) that thePage 22 ⇓practitioner would have earned had the arrangement been confirmed by the court. I willhear the parties in due course in relation to the period to be given to the practitioner tomake this payment.66. I fully appreciate that the sum of €6,000 represents no more than a fraction of the costwhich Tanager has incurred. However, in circumstances where this is the first case inwhich such an order has been made (following full argument) I believe that it would beinappropriate, on this occasion, to fix the sum at a higher level. The amount which I havefixed should not be taken as a precedent for future cases. Now that the issue has beenfully debated, practitioners will henceforth be more fully aware of the circumstances inwhich they may find themselves liable for costs. Accordingly, subject to anycountervailing circumstances that may exist in any particular case, there is no reason inthe future why practitioners should not be fixed with a more significant liability for costsof proceedings which would never have been incurred had they acted properly.
Result: The practitioner was ordered by the Court to pay to Tanager ,the objecting creditor, within a period of time to be fixed by the court, the sum of €6,000 together with VAT (if applicable)