Sririam v Brittain — security for costs & burden of proof

The recent decision in Sririam v Brittain offers guidance for insolvency practitioners and lawyers on both security for costs and the burden of proof in bankruptcy and beneficial interest claims. 

This case clarifies the court’s approach to claimant characterisation and confirms that the burden of proof falls on the person asserting a beneficial interest against a legal title owner.

Here, Charley Thompson provides the background to the case and highlights three key takeaways.

Background & beneficial interest claims

The proceedings began with an application by the Trustee in Bankruptcy (the Trustee) of Mr Ravikanth Gupta (the Bankrupt), who was made bankrupt on 2 October 2019. As part of the administration of the estate, the Trustee sought to realise six properties registered in the Bankrupt’s name by way of an application for possession and sale in 2022.

Beneficial interest claims were made in relation to four of the six properties by various individuals. Mr Mohan Sririam (the Appellant), asserted that he held beneficial ownership and produced a number of documents to support his position.

The Appellant was a resident in India and had no identifiable assets in England. As such, the Trustee applied for security for costs, which the Judge granted. The court ordered the Appellant to provide security of almost £500,000 on the basis that:

1. He was akin to a claimant in asserting his beneficial interest in the four properties.
2. The Trustee would struggle to enforce a costs order in India. 

The Appellant sought permission to appeal that order. 

Application for permission to appeal

The Appellant advanced two key arguments in his application: 

1. That he should not have been characterised as a claimant because he was merely responding to the Trustee’s application.
2. The burden of proof should have been on the Trustee because:
   1. He had provided documentation supporting his alleged beneficial interest.
   2. The Trustee was seeking to challenge a post‑petition transfer, s.284(6) Insolvency Act 1986 (the Act) placed the burden on the Trustee to prove that the property did not belong to someone else under a trust.

Judge’s analysis

1. Characterisation as Claimant

The Judge upheld the original finding that the Appellant was correctly characterised as a claimant and considered the question raised in Hutchison Telephone (UK) v Ultimate Response [1993] B.C.L.C. 307, [1992] 8 WLUK 36.

He said: “Where there is a counterclaim, the question is posed as to whether it goes beyond a mere defence and has ‘an independent vitality of its own’”. 

The Judge concluded that the Appellant’s claim to a beneficial interest did have an independent vitality of its own because the Trustee would not have needed to determine the issue of beneficial ownership at all had the Appellant not raised that claim. Furthermore, the Judge held that the Appellant’s production of written documents and assertion of an express trust did not alter the substance of his position. In reality, the claim remained equivalent to asserting a constructive trust and he was therefore, in substance, a claimant. 

Paragraph 18 of the Judgment states: “The fact that the Appellant had produced purported written documents, namely a memorandum of understanding and declarations of trust and was asserting an express trust, did not, according to the judge, change the nature of the claim and it was the same, essentially, as a claim to a constructive trust or could not be distinguished from a claim to a constructive trust that was based purely on witness evidence.”

Accordingly, he was correctly treated as a claimant for the purpose of a security for costs application.

2. Burden of proof

Another key question the Judge considered was whether the Trustee had to prove a lack of beneficial interest in the property.

The Judge rejected this and confirmed:

• The legal title vested in the Trustee.
• The burden of proving a beneficial interest lies with the person asserting it (following the House of Lords decision in Stack v Dowden [2007] UKHL 17, [2007] 2 A.C. 432, [2007] 4 WLUK 407).
• There is no authority for the proposition that the burden shifts back to the legal owner simply because a written declaration of trust is produced.
• There is no authority to suggest that s.284(6) of the Act required the Trustee to prove that the property was not held on trust.

At paragraph 25 of the Judgment, it is stated:

“It is clear that the burden is always and remains on the Appellant to prove his beneficial interest. The production of some documents cannot change that”.

Ultimately, permission to appeal was refused and the security for costs order stands.

Three key takeaways

1. Security for costs may be ordered against an individual asserting a beneficial interest, even if they are responding to a Trustee’s application — however, the Appellant’s claim must show “an independent vitality of its own”.
2. The burden of proving a beneficial interest lies on the party asserting it.
3. S.284(6) of the Act does not reverse the burden of proof in beneficial interest disputes. 

Talk to us

When questions around beneficial interests, claimant status or costs risks arise, our insolvency and restructuring team helps businesses, stakeholders and insolvency practitioners to understand their position and chart a practical, commercial way forward. 

Talk to us by emailing hello@brabners.com, calling 0333 004 4488 or fill in our contact form below.