COST BITES 162: YOU CAN’T SEND SOMEONE TO PRISON FOR NOT PAYING YOUR COSTS – YOU REALLY CAN’T

In Smith v Kirkegaard [2024] EWCA Civ 698 the Court of Appeal found that it is not possible to imprison someone for contempt if they have failed to pay costs ordered during a court action. The judgment involves a look back to the Debtors Acts of 1869 and 1878 and some, surprisingly contemporary, case law on the topic.

“The failure to pay the costs may be a contempt of court, but it cannot be enforced by imprisonment for contempt.”

THE CASE

The claimant appealed against a decision refusing to give relief from sanctions in a contempt application.  One of the issues the court had to consider was whether the respondent’s failure to pay an order for costs amounted to a contempt of court that could lead to committal to prison. The Court of Appeal held it could not.   A failure to pay costs may amount to a contempt of court.  However this was not enforceable by imprisonment for contempt.

THE JUDGMENT ON THIS ISSUE

Whether the failure to pay costs can be enforced in contempt proceedings (issue three)

1. 1. The judge stated that a failure to pay costs orders could not be pursued by contempt proceedings. Mr Smith submitted that Mr Kirkegaard’s failure to pay the sums due under the costs orders is a contempt of court. Mr Smith relied on Warby LJ’s reference when granting permission to appeal to some cases from Australia, including PT Garuda Indonesia Ltd v Australian Competition and Consumer Commission [2020] FCA 685. That judgment showed that in some states in Australia the court may treat failure a deliberate failure to pay a judgment debt as contempt if satisfied that the judgment debtor had the means to pay. This seems to be consistent with a previous line of authorities from Australia, which have noted the different statutory position in England and Wales, see Mahaffy v Mahaffy [2013] NSWSC 245. Mr Smith submitted that there was a deliberate failure to pay, and that Mr Kirkegaard had the means available to pay, pointing out that Mr Kirkegaard stated to the Court on 23 March 2020, when making an application to vary a costs order so that he could pay £500 monthly instalments, that he had an annual income of £72,000. Mr Smith also pointed out that there was a sum equivalent to £4,240 in a bank account before Mr Kirkegaard transferred his savings to prevent seizure by a third-party debt order.

1. 1. In my judgment the cases from Australia do not assist Mr Smith. This is because there is a different procedural and statutory regime relating to non-payment of judgment debts (and a costs order is a judgment debt) in England and Wales, as appears below.

1. 1. CPR rule 81.4 provides as follows: “”(1) If a person (a) required by a judgment or order to do an act does not do it within the time fixed by the judgment or order; or (b) disobeys a judgment or order not to do an act, then, subject to the Debtors Acts 1869 and 1878 and to the provisions of these Rules, the judgment or order may be enforced by an order for committal.”

1. 1. Committal to prison for non-payment of judgment debts and debtors’ prisons were, in effect, abolished by the Debtors Act 1869 (the 1869 Act). There was an interesting discussion about the effect of the 1869 Act by Arnold LJ in Hussain v Vaswani [2020] EWCA Civ 1216 at paragraphs 22 to 30.

1. 1. Section 4 of the 1869 Act provides as follows:

“4 Abolition of imprisonment for debt, with exceptions.

With the exceptions herein-after mentioned, no person shall be arrested or imprisoned for making default in payment of a sum of money.

There shall be excepted from the operation of the above enactment:

(1) Default in payment of a penalty, or sum in the nature of a penalty, other than a penalty in respect of any contract:

(2) Default in payment of any sum recoverable summarily before a justice or justices of the peace:

(3) Default by a trustee or person acting in a fiduciary capacity and ordered to pay by a court of equity any sum in his possession or under his control:

(4) Default by [a solicitor] in payment of costs when ordered to pay costs for misconduct as such, or in payment of a sum of money when ordered to pay the same in his character of an officer of the court making the order:

(5) Default in payment for the benefit of creditors of any portion of a salary or other income in respect of the payment of which any court having jurisdiction in bankruptcy is authorized to make an order:

(6) Default in payment of sums in respect of the payment of which orders are in this Act authorized to be made:

Provided, first, that no person shall be imprisoned in any case excepted from the operation of this section for a longer period than one year; and, secondly, that nothing in this section shall alter the effect of any judgment or order of any court for payment of money except as regards the arrest and imprisonment of the person making default in paying such money.”

1. 1. Section 5 of the 1869 Act empowered courts in certain types of cases to commit to prison for a term not exceeding six weeks any person who defaults on the payment of a debt due pursuant to a court order where it is proved that the person in question has or has had the means to pay the debt:

“5 Saving of power of committal for small debts.

Subject to the provisions herein-after mentioned, and to the prescribed rules, any court may commit to prison for a term not exceeding six weeks, or until payment of the sum due, any person who makes default in payment of any debt or instalment of any debt due from him in pursuance of any order or judgment of that or any other competent court.

Provided—

…

(2) That such jurisdiction shall only be exercised where it is proved to the satisfaction of the court that the person making default either has or has had since the date of the order or judgment the means to pay the sum in respect of which he has made default, and has refused or neglected, or refuses or neglects, to pay the same.

[Proof of the means of the person making default may be given in such manner as the court thinks just.

For the purpose of considering whether to commit a debtor to prison under this section, the debtor may be summoned in accordance with the prescribed rules.]

…”

1. 1. It appears that section 5 of the 1869 Act was the product of a need to maintain systems of flexible credit that emerged through the latter half of the nineteenth century. It seems that Parliament was concerned that without the sanction of imprisonment for debtors who failed to pay their debts when they could pay, others would be unable to obtain credit. The effect, however, of section 5 of the 1869 Act was further reduced by section 11 of the Administration of Justice Act 1970. That left its application relevant only to proceedings in what is now the Family Court.

1. 1. Halsbury’s Laws of England (Volume 24 (2019)), Section 3. Civil Contempt, Part 5, stated of the Debtors Act 1869 s 4, as amended: “Though default in payment of a sum ordered to be paid cannot be punished by committal, the default remains a contempt and the court has a discretion whether or not to allow the party in default to take any further proceedings in the action in which payment was ordered: see Leavis v Leavis [1921] P 299; Gower v Gower [1938] P 106, [1938] 2 All ER 283.”

1. In my judgment Mr Kirkegaard’s non-payment of a costs order does not fall within any of the exceptions set out in section 4 of the 1869 Act, and section 5 of the 1869 Act does not apply. The failure to pay the costs may be a contempt of court, but it cannot be enforced by imprisonment for contempt. As indicated in the notes in Halsbury’s Laws, some courts have exercised a discretion not to permit a party in default to take any further part in proceedings, but that does not arise in this case. The courts have developed other remedies, such as the freezing order, to assist judgment creditors to enforce judgments. This means that the judge was right to conclude that the failure to pay costs could not be enforced by committal proceedings in this case.