HHJ Paul Matthews :
Introduction
- This is my judgment on two applications. One was made by the claimant by notice dated 12 October 2017 to set aside an order made by Deputy District Judge Josling on 20 September 2017 transferring this claim from the County Court Money Claims Centre ("CCMCC") to the County Court at Bristol, and for an order to return the matter to the CCMCC. The other was made by the defendant by notice dated 20 September 2017, to strike out the claim under CPR r 3.4(2)(a), (b) or (c). However, that bald statement hides a wealth of history and other litigation activity which has led to the present complicated procedural dispute.
- The claimant is a former ski tour operator, who had the misfortune to be adjudicated bankrupt on 1 October 2012. The defendant, an insolvency practitioner and a partner in accountants Baker Tilly, was appointed trustee in bankruptcy on 24 July 2013. A large house in a large estate, known as Idehill Lodge, Farway, Cornwall ("the property"), was sold on 14 April 2016 by NRAM as mortgagee for £1,020,000. The claimant says that this price was a significant undervalue. The claimant says that he had significant claims against two accountants who were former advisers, Thomas Westcott and Stephen Marlow. He sought the assignment to himself from his trustee in bankruptcy of those claims for a nominal amount. The defendant trustee in bankruptcy refused.
- On 14 April 2015, the claimant thereupon made an application to the court under section 303 of the Insolvency Act 1986, for an order that the defendant should make that assignment. This application was listed before Judge Cotter QC on 29 May 2015 at Exeter. He transferred the matter to Bristol. On 24 November 2015 the application was listed before DJ Watkins, but because of a mixup the claimant was not present or represented, and the district judge dismissed the application. On 27 February 2016 the claimant made an application for disclosure. He also made an application for the order of DJ Watkins to be set aside. On 9 March 2016 DJ Watkins dismissed the application to set aside the order of 24 November 2015 and also the application for disclosure. I shall have to return to his judgment later.
- On 23 March 2016 the claimant issued an application to set aside the order of 9 March 2016 for procedural irregularity, but on 29 March 2016 he also applied for permission to appeal that order. On 10 June 2016 DJ Cope decided that the only procedural route available to the claimant from the order of DJ Watkins of 9 March 2016 was by way of appeal, and not by way of applying to set aside. That appeal proceeded, and a number of procedural orders were made by HHJ McCahill QC in the course of it. On 4 November 2016 that judge handed down a lengthy and detailed judgment refusing permission to appeal against the orders of DJ Watkins dated 24 November 2015 and 9 March 2016.
- The judgment of HHJ McCahill QC dated 4 November 2016 discussed in some detail the history of the litigation to date. In addition to refusing permission to appeal, it considered also in detail whether the judge should make a civil restraint order against the claimant. It concluded that he should not, as the relevant conditions were not satisfied. It then went on to say this:
"188. Nevertheless, I direct that any further or other application which Mr Reynard may wish to make arising out of or in connection with his Bankruptcy (including his bankrupt estate and/or Idehill Lodge and Golf Course and/or the two claims against his former accountants) must be made only in the Bristol Civil and Family Justice Centre and marked for the attention of District Judge Watson or District Judge Watkins. Any such application must have attached to it a copy of this judgment."
- The order that was made on the same day clearly refused permission to appeal to the claimant, and indeed recorded that his applications for permission were totally without merit and also directed that the claimant might not request a reconsideration of the applications at an oral hearing. It did not, however, make any such direction as is set out in paragraph 188 of the judgment.
The present claim
- On 24 April 2017, the claimant issued the claim form in the present claim against the defendant, his former trustee in bankruptcy, for damages for breach of contract and negligence in relation to the conduct of the defendant as such trustee in bankruptcy. This claim form was issued at the CCMCC. It stated that particulars of claim were to follow. Those particulars were indeed filed and served, dated 22 August 2017. They made a number of complaints against the defendant to which I will return in due course.
- On 31 August 2017 the defendant's solicitors, Clyde and Co, wrote to the CCMCC, with a copy to the Bristol Civil and Family Justice Centre. On 11 September 2017 a copy of the letter sent to Bristol was referred to the district judges, no doubt with the intention that it be seen by DJ Watkins or DJ Watson. In fact, on 18 September 2017, the letter was placed before DJ Rowe, who sensibly directed that it be referred to DJ Watkins or DJ Watson together with the file.
The applications
- Meanwhile, on 20 September 2017 the defendant had followed up the letter of his solicitors of 31 August 2017 by issuing an application at the CCMCC for an order to strike out the claim under CPR r 3.4(2)(c) on the grounds that it had been issued in breach of an order of the court (ie the direction of the court in paragraph 188 of the judgment of 4 November 2016), alternatively to transfer it to Bristol, and in the further alternatives that it be struck out under CPR r 3.4(2)(a), on the grounds that it disclosed no reasonable grounds for bringing the claim, or under CPR r 3.4(2)(b), on the grounds that it was an abuse of the court's process. This application notice was supported by a witness statement from the defendant's solicitor Simon Jackson, also dated 20 September 2017. It appears that this application was dealt with on the same day at the CCMCC by DDJ Josling, who transferred the matter to the County Court at Bristol for the attention of DJ Watkins or DJ Watson, with the usual liberty to apply to set aside the order within 7 days of receipt.
- Because of a change of address by the claimant, it took a little longer for this order to reach him, but as soon as he received it he made an application dated 12 October 2017 for an order transferring the matter back to the CCMCC. In fact, because the claimant was unsure whether he had signed the application notice, he sent a second one the following day. Nothing turns on that.
- That application was received by the court in Bristol on 20 October 2017. The same day, it was placed before HHJ Cotter QC, who directed that the application be listed before me (as the successor to HHJ McCahill QC) on the first available date. A notice of hearing was prepared and sent out the same day listing it for 2 PM on 4 December 2017. Unfortunately, the same application notice, or possibly the second version sent by the claimant, was placed before DDJ Ellery on 23 October 2017. On the same day she struck out the claim, presumably on the basis that (as alleged in the defendant's solicitors' letter of 31 August and the application of 20 September) the claim had been issued in breach of an order of the court. Whatever the grounds for the making of the order, it appears to have been made in ignorance of the existence of both the claimant's application notice of 12 October and the order of HHJ Cotter QC of 20 October.
- On 3 November 2017 the file was placed before me, and for the first time I saw the inconsistent orders of HHJ Cotter QC and DDJ Ellery. Coincidentally, on the same day the claimant made an application by notice for the adjournment of the hearing on 4 December 2017. But I did not see that application until 29 November 2017, when I refused it, for the reasons which I then gave.
The hearing
- At the hearing before me on 4 December 2017, the claimant appeared in person and the defendant was represented by Siward Atkins of counsel, instructed by Clyde and Co. I began by deciding how to approach the matters which were before me. There were two application notices. The first was that of 20 September 2017, issued by the defendant, seeking to strike out the claim, or alternatively to transfer it to Bristol. The second was that of 12 October 2017, issued by the claimant, the matter having by then been transferred to Bristol, seeking to transfer the matter back to the CCMCC. There were also the order of HHJ Cotter QC of 20 October 2017, directing the matter to be listed in front of me, and the order of DDJ Ellery, dated 23 October 2017 striking out the claim.
- So that it is not forgotten, I mention that, in his supplementary skeleton argument of 4 January 2018, the claimant says that he has decided to issue a further application, for disclosure in support of his new claim. I make clear that that application is not before me at present, and I am not now adjudicating upon it. In the same skeleton argument, the claimant also asked, if the court was not with him, "for an adjournment in order to take the Court carefully through the documents, and to call a couple of witnesses." The claimant needs to understand that that is not how the courts operate. A litigant does not have a first opportunity to convince a court and then, if he or she fails, another opportunity to do it all again, this time in more detail. If the courts did that, they would have to do it for both sides, and cases would simply never end. Moreover, evidence on applications of this kind is given by witness statement, rather than by live witnesses. The claimant had the opportunity to adduce what witness statements he wished. The court then decides on the basis of the material that the parties have chosen to put before it.
- The defendant invited me to deal first with the question whether to set aside the order of DDJ Ellery. I decided not do that, because the procedural defects in her having made an order in ignorance of the application notice of 12 October 2017 and the order of 20 October 2017 considered alone would mean, as I saw the matter, that it was at least possible, perhaps even likely, to be set aside. Yet if I thereafter considered that the claim ought nevertheless to be struck out, setting aside the order of the Deputy District Judge would have achieved nothing, and I should have (in effect) to reinstate it. So I have preferred to look at the matter from the other end: should this claim be allowed to go forward at all? In a sense, I am revisiting DDJ Ellery's decision to strike out the claim.
County Court or High Court?
- A further question is whether this case should be dealt with in the County Court or whether it should be transferred to the High Court District Registry. The High Court has more flexibility, having an inherent jurisdiction at common law, as the County Court has only a statutory jurisdiction. In addition, questions may arise as to the duties of a trustee in bankruptcy, and these are better dealt with in the High Court. Neither the claimant nor the defendant had any objection to a transfer, and I therefore ordered that this matter be transferred to the High Court.
The application to strike out
Breach of court order?
- On the basis that I am considering whether this claim should be allowed to go forward at all, the first argument of the defendant was that the claim was issued in breach of a court order. The first question which I therefore considered was what was the effect of the direction given in paragraph 188 of the judgment of HHJ McCahill QC. As I have already observed, it was not part of the formal order made at the time. Secondly, the direction does not refer to "claims" but only to "applications". Thirdly, it refers to applications "arising out of or in connection with" the bankruptcy of the claimant.
- There is a question as to what jurisdiction the court has to give such a direction. The claimant was not and is not a vexatious litigant, subject to a civil proceedings order under section 42 of the Senior Courts Act 1981. Nor was he subject to any civil restraint order made under CPR rule 3.11 and Practice Direction 3C. The forerunner of civil restraint orders under rule 3.11 was the order first made in the Chancery Division of the High Court in Grepe v Loam (1887) 37 ChD 168. Such an order barred the litigant against whom it was directed from making any further applications in the same proceedings as were then pending without the leave of the court, and provided that, if leave were not obtained, the application would be automatically dismissed without the necessity for attendance of the respondent. This was a jurisdiction wider than what is now section 42, because it could be made by any court, and not just by the Divisional Court of the Queen's Bench Division of the High Court. Moreover, the Attorney General was not involved.
- In Ebert v Venvil [2000] Ch 484, CA, the court extended the idea of the order in Grepe v Loam, so that it could apply to any steps in either the same proceedings or indeed new proceedings arising out of a range of matters defined in the order. The next step was taken by the Court of Appeal in Bhamjee v Forsdick [2004] 1 WLR 88. That court established a scheme of civil restraint orders under the inherent jurisdiction of the court, dividing them into 3 categories, namely restricted orders, extended orders and general orders. These were subsequently consolidated into Practice Direction 3C to the CPR, with effect from 1 October 2004. In R (Kumar) v Secretary of State for Constitutional Affairs [2007] 1 WLR 536, [62], the Court of Appeal pointed out that it must now be rare for the court to rely on its inherent jurisdiction to make a civil restraint order when the matter was covered by the express terms of the rules in the CPR.
- The question therefore is what jurisdiction HHJ McCahill QC had to give the direction contained in paragraph 188 of his judgment. He had already decided that he could not make a civil restraint order under CPR rule 3.11. So it would have to be a direction under the inherent jurisdiction of the court, notwithstanding the statement in R (Kumar) v Secretary of State for Constitutional Affairs that it would be rare to resort to that. But here the judge was not concerned to impose a requirement of permission. He was only concerned that any further litigation arising out of or in connection with the claimant's bankruptcy should be dealt with by particular judges who were aware of the background, and not spread around the region amongst judges without such knowledge. It was a question of the efficient use of resources. The rule-based regime in the CPR rule 3.11 does not cater for this situation, being concerned with imposing a permission requirement. It is therefore not surprising that the judge in such a case should resort to the inherent jurisdiction.
- Looking then at paragraph 188 of the judgment of 4 November 2016, I have first to ask myself whether it is an order at all, for the purposes of CPR rule 3.4 (2) (c). As I have said, the direction there given did not find its way into the formal order of the court. Yet it seems impossible to believe that the judge did not mean it to form part of the order. There would be no sense, having considered at length whether a civil restraint order could be made under CPR rule 3.11, and having decided that it could not, to make this direction (which the judge evidently considered could be made) and yet not intended it to be effective. So I conclude that its omission from the formal order is simply an oversight. It is in my judgment therefore an order for the purposes of CPR rule 3.4 (2) (c).
- The next question is whether this direction applies only to applications made in the existing proceedings or whether it also applies to new claims (such as the claimant has made here). Mr Atkins for the defendant points out first of all that the structure of the direction is to tie the "application" to certain subject matter which (it is obvious) may be found in other proceedings than the original. From this he asks me to infer that application must bear a wider meaning, and include new claims. He also points out that, in the context of insolvency proceedings, which the original proceedings were, the word "application" is used also to cover what would be claims in ordinary litigation. Lastly, he points out that the original litigation in which the judge was giving his judgment was thereafter at an end. The judge was giving judgment on an application for permission to appeal, and in fact he refused to allow the application for permission to be renewed at an oral hearing. That was therefore the end of the process. It was not likely that there would be any further application thereafter. For these reasons, he argues that the word "application" here includes new claims.
- The claimant says that the judge gave a long and careful judgment and one must take the words that the judge used at face value. Therefore the word application refers only to the original proceedings. The problem with this argument is that it ignores the context in which the word is used and it also ignores the fact that the word "application" may mean different things in different parts of the law. I have already referred to the fact that in insolvency proceedings the word application is used instead of claim. In addition to these considerations, I note that the description of the subject matter in paragraph 188 is "arising out of or in connection with his Bankruptcy". The words "arising out of" are words demonstrating a consequence, or sometimes a cause. But the words "in connection with" are wide words of connection and there need not be shown that the first has caused the second.
- I am in no doubt that, for the reasons given by Mr Atkins, but also because of the use of the words "arising out of or in connection with", this direction was intended to apply not only to any further (if unlikely) application in the same proceedings, but also to any further proceedings which dealt with the particular subject matter.
- The next question is whether, on the basis that the direction applies to new claims, it applies to the present one brought by the claimant. This claim is against his former trustee in bankruptcy in connection with alleged breaches of duty owed by the former trustee to the claimant. On any view, this claim arises out of, and is also in connection with, the claimant's bankruptcy. It is therefore covered by the direction.
- The next question is whether the claimant was in breach of the direction by issuing the new claim. On the face of it he is. He has however explained that, since about two years ago he has been told consistently by court officials that if he wished to issue a money claim in the County Court it had to go first to the CCMCC. He referred me to a letter from the County Court at Exeter, which makes exactly this point. He told me that he checked in person with the staff at the county court at Exeter who repeated this advice. He subsequently asked the staff at the County Court at Bristol and they said the same thing. On this basis, I certainly cannot find that the claimant deliberately flouted the judge's direction. He thought he was doing the right thing.
- In my judgment, there is no question of striking out this claim merely because on a strict reading of the direction it has been issued in breach of the order of HHJ McCahill QC. Apart from the fact that the claimant was advised by court staff to issue at the CCMCC, there are also the important facts (i) that the claim has not been issued in breach of a requirement for prior permission, and (ii) that the CCMCC on being asked to do so transferred the claim to Bristol and it is now here, where HHJ McCahill QC intended it should be.
Adjournment
- Having reached this position, I could simply set aside the order of DDJ Ellery and consider the matter afresh. But in that case I would have to consider the remainder of the defendant's application before DDJ Ellery, namely whether the court should strike out the claim under CPR rule 3.4 (2) (a) or (b). In my judgment, it is better to do that first, before deciding what to do about the order of DDJ Ellery. I therefore heard from Mr Atkins for the defendant as to why he says the claim should be struck out under CPR rule 3.4(2)(a) or (b). When at the hearing on 20 December 2017 I asked the claimant what he wished to say, he told me that (despite the fact that it was at least summarised in the defendant's skeleton argument) he had not understood that I would deal with that aspect of the case on that day and accordingly he had not prepared for this.
- Accordingly, I adjourned the hearing to be listed in the week of 22 January 2018, a date which was convenient to both sides. The claimant asked whether he could have a transcript of the hearing so as better to understand the arguments made by the defendant. After consulting Mr Atkins, I directed instead that the defendant should within seven days file and serve a more detailed skeleton argument. This would obviate the need for a transcript to be obtained (and thus avoid both extra expense and delay). I further directed that the claimant should file and serve a skeleton argument by 5 January 2018, and that if so advised the defendant could file and serve a further skeleton by 12 January 2018.
- The defendant filed his skeleton argument on 11 December 2017. The claimant filed his on 4 January 2018. He also filed a supplemental skeleton argument (for which there was no permission) on 22 January 2018. I have nevertheless read them all. I am not however aware that the defendant filed anything in reply to the skeleton argument of 4 January 2018.
CPR rule 3.4(2)
- In order to deal with this ground for striking-out, I must refer in some detail to the claim itself. The claim form seeks damages for breach of contract and/or negligence. The particulars of claim dated 22 August 2017 for most of their length simply tell the story. But at paragraph 60 they give particulars of alleged negligence and/or breach of contract.
- Those particulars are as follows:
"(a) Failing to check the appeal situation before accepting the appointment.
(b) Failing to notify Creditors of the real reason for the refusal to run the claim against Thomas Westcott.
(c) Failing to notify Creditors of the real reason for the refusal to run the claim against Marlow.
(d) Failing to competently assess the merits of these two claims.
(e) Ostensibly assessing these claims as being of "no merit" when two firms of professional negligence solicitors, and counsel, have all offered a CFA.
(f) Failing to run a case which had been assessed as better than 50%, having previously given this as a criteria.
(g) Failing to notify Creditors that a CFA had been offered in these cases.
(h) Failing to suggest a mediation in these two cases, when a letter of just two or three paragraphs was all that may have been required, and at minimal cost.
(i) Failure to have noticed an alleged fraud committed by Thomas Westcott.
(j) Taking no action at all when he had been directed to this alleged fraud, the consequence of which should have vastly improved the prospect of succeeding against them.
(k) Failing to notice that Savills valuation was negligent.
(l) Notifying Creditors of this valuation, which was just one third of the two other valuations he had been sent.
(m) Sending a copy of this valuation to NRAM.
(n) Failing to make any attempt to encourage NRAM to market the property in the Creditors interests.
(o) Initially preventing the Financial Ombudsman from taking action against NRAM.
(p) Refusing to take any action against NRAM for selling at an undervalue.
(q) Fighting the Claimant's attempt to buy the rights to this action.
(r) Writing to the Exeter Court with many untruthful statements, in order to assist NRAM in evicting the Claimant, the consequence of which was a 30% loss of value of the property.
(s) Misleading the Yeovil Court about the same issue.
(t) Misleading the Bristol Court in stating that the Westcott claim had "virtually no information", when a vast number of documents had been sent to the Defendant.
(u) Refusing to have a meeting with the Claimant, saying that it could not be afforded, and then subsequently engaging in correspondence numbering more than 200 letters.
(v) Refusing 22 requests for a meeting.
(w) Refusing to engage in ADR.
(x) Refusing to respond to the 8 occasions when the Claimant asked what the Defendant was proposing to do which would benefit the Creditors.
(y) Refusing to vest the Westcott claim in the Claimant, when it would have cost the defendant nothing to do so.
(z) Writing to the Westcott solicitors to try to damage the Claimant's prospects.
(aa) Writing to the Court in like manner.
(bb) Failing to protect the Claimant's claim for personal damage."
- Paragraph 61 then alleges that there was a contract between the parties. In its entirety, it says:
"There existed a contract between the parties, such that once the Creditors had been paid, and the costs of the administration had been taken, the balance of the estate would be repaid to the Claimant. It was an implied term that the Defendant would exercise reasonable care and skill."
It will be noted that no particulars of any such contract are given, although it is obvious that a defendant against whom an allegation of a breach of contract is made is entitled to know what contract is referred to, when it was made, by whom it was made and what the substance of it was (see in particular paragraphs 7.3 to 7.5 of the Practice Direction to CPR Part 16). Otherwise, it is impossible in practice for a defendant properly to mount a defence.
- Paragraphs 62 to 66 set out various losses which are alleged to flow from the breaches of contract and of duty. In summary, these are:
(1) The loss of the chance to bring actions against Westcott and Marlow, for the lost opportunity of the sale of the claimant's business and the loss of the value of the property (in total over £10 million is claimed under this head) ([62] and [63]).
(2) The loss of the value of the property is also claimed on the alternative basis that it was caused by negligent incorporation advice (not particularised) ([64]).
(3) The loss of the value of the property is also claimed on a further alternative basis of negligence by the defendant in not preventing the sale at an undervalue ([65]).
(4) Damages "for personal damage, to be assessed" (but not further particularised) ([66]).
- In argument before me at the adjourned hearing, the claimant went through all the particulars of claim under paragraph 60. I will come back to that. Let me deal first with the claim in contract. In my judgment, it is inherently unlikely that a bankrupt and his trustee in bankruptcy would enter into a contract between themselves governing the trustee's conduct and the exercise of his functions as such trustee. I see no benefit for the trustee in doing so, and none has been suggested. Indeed, I have never heard of such a case. It would potentially conflict with the trustee's duties under the statutory scheme, which are primarily concerned with advancing the interests of the creditors. But, in any event, as I have said, there are no particulars of any such contract given in the statements of case to enable the claim for damages for breach of contract to be maintained, and there is no support for it in the evidence. As it stands, that part of the claim is not sustainable and should be struck out under CPR rule 3.4 (2) (a).
- I turn therefore to the claim in negligence. This has recently been the subject of litigation, in the case of Oraki v Bramston [2017] EWCA Civ 403. The claimants in that case were made bankrupt on the basis of a judgment debt which it later transpired had been procured by fraud. The bankruptcies were set aside. The claimants subsequently sought to make the defendant former trustees in bankruptcy liable for certain losses which they claimed to have suffered. At first instance, Proudman J held that the claim failed on the facts. However, she also held that no duty of care was owed at common law by a trustee in bankruptcy to the bankrupt. On appeal, the Court of Appeal reached the same conclusion on the facts. But the court declined to express a view as to the position on the law. At the same time, some helpful statements were made.
- David Richards LJ (who gave the leading judgment, and with whom McCombe LJ merely agreed) said:
"7. So far as relevant to this appeal, the claims pursued by the appellants are for damages for loss said to have been caused to them personally for breach of duty owed by the respondents to the appellants personally. The claims are not for loss caused to their bankruptcy estates or for compensation to be paid to their estates.
8. This is an important distinction. Any claim for loss to the estate, for example by selling an asset at an undervalue, would be subject to the requirement under section 304(2) of the Insolvency Act 1986 (the Act) for the leave of the court where the claim is brought by the bankrupt. Because at all material times the estates were accepted to be solvent, in the sense that there would be a surplus, once sufficient assets had been realised to pay the provable debts and the costs of the bankruptcy, the appellants would have an obvious standing to make a claim in respect of loss to the estates. They did indeed make one claim for compensation to be paid to the estates in respect of an alleged failure to pursue debts and claims said to be owed or available to the estates and obtained permission under section 304(2) to do so. That claim was rejected by Proudman J and is not pursued on this appeal.
9. The personal claims made by the appellants raise some novel and difficult issues of law on, first, the duties, if any, owed by a trustee in bankruptcy to the bankrupt personally, as opposed to the bankruptcy estate of which he is trustee, and, second, if such duties exist, on the effect of a release under section 299 of the Act of a trustee who has ceased to hold office.
[ … ]
210. On behalf of the respondents, it was submitted to the judge, and she accepted, that (i) the duties of a trustee in bankruptcy to the bankrupt are governed exclusively by section 304 of the [Insolvency] Act and that no duties are owed at common law, (ii) in any event, the effect of a release of the trustee under section 299 of the Act is to preclude any claim save under section 304, and (iii) again in any event damages were not recoverable for mental distress.
[ … ]
214. Section 304 in terms provides a framework for claims for the benefit of the bankruptcy estate. It is concerned with, and confined to, acts or omissions on the part of the trustee that have caused loss or damage to the estate. An application under the section may be brought by any creditor, who will clearly have an interest in the proper administration of the estate. The bankrupt may only apply under the section with the leave of the court. This is a requirement designed to provide protection to trustees, although it is to be noted that the bankrupt may be given leave even though there is not, or is not likely to be, a surplus available for him.
215. The judge held:
'33 I observe that it would be inconsistent with the requirement that the permission of the court must be given if the bankrupt had an unfettered right to take proceedings against his trustee. In any event there is no need for the bankrupt to have a general right of action based on a common law duty which would conflict with the statutory regime of rights, for example, sections 303, 304, 325(2), 326(3) and 363 of the 1986 Act.
34 I do not therefore consider that there is a common law duty in negligence apart from the statute.'
216. It is perfectly understandable that the bankrupt should need leave before he can apply under the section for the benefit of the estate. That does not, however, explain why in no circumstances can a trustee owe an enforceable duty to the bankrupt in respect of loss or damage caused not to the estate but to the bankrupt personally. Nor, importantly, does it explain why section 304(1) provides that the sub-section is "without prejudice to any liability arising apart from this section". Those words are apt to extend to any claim for any common law or other duty not falling within the express terms of section 304. They wisely accommodate future legal developments, including developments in the common law, as well as providing for liabilities that could in 1986 have arisen.
217. In my judgment, section 304 cannot be read as excluding any liability on the part of a trustee to a bankrupt, save as expressly provided by the section, and I therefore respectfully disagree with the judge on this point. However, for the reasons given above, this is not the case to decide the circumstances in which a duty in respect of loss caused to the bankrupt personally may arise or the nature of that duty. I say only that section 304 does not exclude the possibility of such a duty."
- Sir Terence Etherton MR agreed that the appeal should be dismissed for the reasons given by David Richards LJ, but expressed no view on the points of law discussed, since it was not necessary to decide them on the appeal.
- It will therefore be seen that David Richards LJ distinguishes between the possible liability of the trustee to the bankrupt's estate and the possible liability to the bankrupt personally. The former is governed by section 304, and the latter (if at all) by the common law. The question is not whether the creditors are likely to be paid in full, so that subject to payment of administration costs the bankrupt is entitled to any surplus. Instead it is who suffers the loss: the estate or the bankrupt personally?
- In the present case, Mr Atkins submitted that all the particulars of breach set out in paragraph 60 of the particulars of claim related to estate losses, with the possible exceptions of (q), (y), (z), (aa) and (bb). Accordingly, with those possible exceptions, in accordance with Oraki, they should be pursued exclusively under section 304. The present claim was not an application under that section, and to that extent the claim should be struck out.
- At the adjourned hearing, the claimant accepted that head (a) fell away, but argued that most of the other heads of claim (with the exception of (x)) were largely or wholly personal losses rather than estate losses. I do not accept this argument. Heads (b)-(h), (j)-(p) and (r)-(x), so far as they can be understood at all, on proper analysis can only relate to possible estate losses. Head (i) makes no sense, because if the defendant was told about the alleged fraud (as head (j) says), then the failure to have noticed it cannot have caused any loss. But if there were any, it would be an estate loss. The claimant accepted that in any event heads (q) and (y) represented "pretty much the whole claim" by value. Whether or not the claimant could have pursued the estate loss claims by way of a claim under s 304 of the Insolvency Act 1986 (which I am not deciding, but which at present appears unlikely), that is not what he has done. In consequence, I hold that the negligence claim, so far as based on the heads other than (q), (y), (z), (aa) and (bb), is not one which the claimant has any standing to pursue as a common law claim, and it should be struck out under CPR r 3.4(2)(a).
Claim under s 304?
- I add that, in his supplementary skeleton argument of 4 January 2018, the claimant said that, if he needed permission to bring his claim under s 304, then he sought that permission now. I am afraid that that is not good enough. If the claimant wishes to bring a claim under s 304, and seeks permission for that purpose, then he must do so properly. The defendant is entitled to notice that such an application is to be made, and to put in any relevant evidence. The hearing on 4 December 2017, continued on 22 January 2018, was not convened for that purpose. There may well be factual, and certainly will be legal, points to be made. None of that has been possible here. It is not fair to deal with the matter in this way, effectively in the middle of a hearing to deal with the claimant's application to transfer the (existing) claim back to the CCMCC and the defendant's application to strike out the same claim.
- The claimant also said that he struggled to understand why a bankrupt would not receive the balance of the estate in a s 304 claim once creditors and costs had been paid. As to that, the defendant pointed out that, in his final report of 9 November 2016, he had stated that there was a shortfall for creditors in total of some £1.26m, of which £409,000 or so was owed to secured creditors and some £853,000 was owed to unsecured creditors. So the question of a balance coming back to the bankrupt did not seem likely to arise. But the more important point is that the present is simply not a s 304 claim. It is a common law claim for negligence, and the defendant says he should not be exposed to it. That is the question with which I have to deal on the present application. Whether he is liable to a claim under s 304 is not.
Litigant in person
- The claimant also argued that it would be unjust if his claim were to be struck out because he did not bring it under s 304, because he is a litigant in person and "didn't have a detailed knowledge of insolvency regulations." At the hearing there was no discussion of how far the status of a party to litigation as litigant in person could affect the proceeding. But, in fact, a month after the conclusion of the hearing in January 2018, the Supreme Court gave judgment in Barton v Wright Hassall LLP [2018] UKSC 12, where this very issue was raised. In summary, although the court was split on the particular procedural point arising in the case (whether service by email was to be validated retrospectively), on the general position of litigants in person the judges were unanimous. They held that the fact that a litigant was acting in person was not in itself a reason to disapply procedural rules or orders or directions, or excuse non-compliance with them. The exception was that a special indulgence to a litigant in person might be justified where a rule was hard to find, difficult to understand, or it was ambiguous.
- In my judgment s 304 does not fall into any of those categories. In any event, from the way in which the claimant has written in his letters and pleadings about this case, and the way in which he addressed me at the hearings, it is clear that he is an intelligent and articulate litigant, who has learned a great deal about insolvency law in particular and civil law and procedure in general since he has had the misfortune to be adjudicated bankrupt. I see no injustice arising here merely from the fact that the claimant is a litigant in person.
- But even if being a litigant in person were some sort of excuse in general, it would not avail the claimant anyway in relation to the strike out application. The fact is that, if the court strikes out a claim under CPR r 3.4(2), it does not do so to punish the claimant. It does so because the claim as formulated is either not sustainable or it is not fair in the circumstances to proceed with it. Here we are concerned with the former. It is nothing to do with the claimant's being a litigant in person. It is simply that the kind of claim he or she has chosen does not apply on the facts of the case. You cannot successfully claim that an apple is an orange, on the grounds that you do not know the difference because you are a litigant in person. Defendants also have rights, including the right not to be made liable for causes of action which do not lie against them.
The personal claims
- Let me return to the heads of claim which are potentially personal to the claimant, and so fall outside the scope of s 304. So far as concerned the exceptional cases (q) and (y), the defendant argued that the claimant's case was that the defendant was negligent in failing to assign to him, for nothing, claims worth – on his case – many millions of pounds. So the claimant's claim was in substance that the defendant owed the claimant a duty of care to procure for the claimant "a huge windfall at the expense of the creditors". In my judgment, given that the defendant's duty under the statutory scheme arising from the claimant's bankruptcy was owed primarily to the creditors, it is unarguable that the defendant owed a duty (whether in contract or in tort) to the claimant to procure that the benefit of these claims worth many millions of pounds should not be turned to the account of the creditors, but instead should go to benefit the claimant. That would have been a clear and obvious breach of his duty to the creditors, which must take priority over any possible duty to the claimant. On that ground alone, I would strike out the claim so far as it arose under heads (q) and (y). As the claimant accepts, that is "pretty much the whole claim".
Abuse of process
- But there is a further ground of objection to all the exceptional cases, (q), (y), (z), (aa) and (bb). This is that they are an abuse of process. Mr Atkins referred me to the skeleton argument of Michael Clarke, counsel for the defendant appearing before DJ Watkins, paragraphs 22 and 24 (amongst others) of DJ Watkins' judgment of 9 March 2016, and paragraphs 20, 21, and 119 of HHJ McCahill QC's judgment of 4 November 2016. I should say that during the hearing the claimant pressed on me, more than once, the argument that I should not place any reliance on anything said in the judgments of DJ Watkins and HHJ McCahill QC, because they contained many errors. I explained to the claimant, and ultimately I think he understood, that the only way he could challenge the decisions in those judgments was by way of appeal, and that I had no power in effect to hear an appeal from them. On the contrary, I had to proceed on the basis that those judgments remained in full force and unimpeached. I was therefore unable to go behind them. That is the effect of the relevant procedural rules. (I understand from his second supplementary skeleton argument that the claimant now considers that he may have the opportunity to seek to appeal the decision of HHJ McCahill QC out of time. That is, of course, a matter with which I am not concerned. On these applications, I have to deal with the position as it is at the moment.)
- I begin by noting that at the time of the hearing in March 2016 the property charged to NRAM had not yet been sold. In Mr Clarke's skeleton argument (originally prepared for the earlier hearing in November 2015) it was submitted that the trustee was entitled to await the sale by NRAM and to see what equity remained. So far as concerned the claims against Westcott and Marlow it was submitted that it was for the defendant trustee to consider and decide whether or not to pursue them. But in any event the trustee ought not to assign those claims if, having considered their merits, it was concluded that it would be frivolous to bring them. The trustee's legal advisers concluded that neither claim appeared to have sufficient merit to invest further time in contemplating, as they were "incoherent and scarcely evidenced", and one of them might be statute barred. It was submitted that the trustee was entitled to conclude that the claims were frivolous.
- The skeleton argument continued:
"11. There is, it is submitted, an insurmountable dichotomy which Mr Reynard is unable to reconcile. On the one hand if (as is submitted) the Potential Claims would be frivolous the Trustee ought not to assign them. If on the other hand there is some merit to them, the Trustee would be in breach of duty to the creditors to sell the Potential Claims for £1. Or to put it another way, if they are only worth £1 they are most certainly frivolous.
12. The above is more than sufficient to dispose of this application in respect of the Potential Claims, but for completeness, the Court is invited to find that the Trustee is justified in being concerned as to the potential exposure to adverse costs on an assignment as identified to Mr Reynard in the letter from the Trustee's solicitors dated 7 April 2015.
13. As a preliminary point it is noted that Mr Reynard's application seems to suggest that the Trustee will retain an interest in the outcome of the Potential Claims as in paragraph 3 it is stated that the application is made because "this seems the only way to get money for [the creditors]". If that is so any assignment would be made on the condition the proceeds (if any) will benefit creditors. It is settled law that if a trustee retains an interest in the outcome of litigation following an assignment of a cause of action he may be the subject of an adverse costs order for the defendant's costs.
14. However, even if, contrary to the terms of the application, no interest in the outcome is retained, it would seem possible, at least, that the Court may make an adverse costs order against the Trustee. It is accepted that such an order would be unusual, but when the Trustee is being asked to assign for nominal consideration, he is entitled to take into account low or even remote risks. The concern can be best summarised by the following passage from Osborn v Cole applying the judgment of Vickery v Modern Security Systems...
16. In addition, is the absurdity of the inference to be drawn from the application, that the Trustee ought, for £1, take the risk of challenge by or enquiry from creditors (seeking an explanation of why the Potential Claims were assigned for £1) and defendants (seeking rightfully or not to involve the Trustee whether by counterclaim or otherwise). Even if such challenges or enquiries are ill founded the Trustee would incur the time and expense of dealing with the same.
17. In order to succeed in his application Mr Reynard must show that no properly advised and reasonable trustee would refuse his request or that the Trustee has acted in bad faith or fraudulently. He has no hope of doing so and it is submitted that this application must fail."
- So those were (some of) the arguments put forward on behalf of the defendant. At the court hearing in November 2015 Mr Reynard did not attend, and his application was dismissed on the procedural ground that he was not there to make it. He then applied to set aside that order and have the section 303 application dealt with on its merits. DJ Watkins heard and dealt with this application in March 2016.
- The district judge, having dismissed the claimant's application to set aside his earlier judgment on procedural grounds, said
"14. I deal with this matter in the alternative; as if I had set aside my order so that the section 303 application could continue. I am being invited to look at the merits of that application…"
- He then considered the arguments, referred once again to the authority of Osborn v Cole [1999] BPIR 251, and concluded:
"22. I am bound to say on any perusal of the papers there is absolutely nothing to support the suggestion that there is any substance in any litigation that could be brought. It must be a requirement to find that there is in order to take this matter further.
[ ... ]
24. The decision that I made on the last occasion I now revisit and look at afresh, this time having the benefit of Mr Reynard's submissions. I find Mr Reynard's application without merit for the reasons Mr Clarke sets out eloquently in his written skeleton argument. I have refused the application to set aside my previous order. Had I granted it and looked at the matter afresh, I would have come to the same conclusion and I would have struck out the application because of the reasons I have identified; that it is one that has no merit."
- Mr Reynard sought to appeal that decision. DJ Watkins refused permission to appeal. Mr Reynard therefore sought permission to appeal from the circuit judge, who was HHJ McCahill QC. In his judgment, refusing permission to appeal, the judge said this:
"20. Mr Fox was prepared to consider assigning causes of action to Mr Reynard for a substantial sum, namely £10,000. However he also reserved the right to open negotiations with the potential defendants to see if they wanted to buy off the claim. Mr Reynard does not have £10,000 nor has he been able to persuade creditors to fund the litigation. He blames Mr Fox and [his solicitor] Mr Barker for his inability to persuade the creditors to fund the litigation, because of the comments made by Mr Fox in the report to the creditors that he had been advised by Mr Barker that the cases were unsound.
21. Furthermore, Mr Fox was unwilling to assign the claims to Mr Reynard absolutely for a nominal consideration, both because he had been advised the claims were unsound and because he would thereby expose himself to a potential liability for costs under section 51 of the Senior Courts Act 1981. Moreover, he could not assign the claims conditionally, on terms that he would receive some of the fruits of the litigation, if successful, because he would similarly make himself potentially liable for costs, if that litigation were unsuccessful.
[ … ]
107. Mr Reynard has sought to argue that this (ie mala fide and/or perversely) is precisely how the Trustee did in fact behave, so that the court can interfere with his decision.
108. Having slowly and carefully read all the material which Mr Reynard has put before me, I can find no basis whatsoever for his allegations against the Trustee in Bankruptcy and/or Mr Barker of disgraceful conduct, dishonesty, collusion, negligence, fraudulent behaviour, perversity, bad faith and/or unreasonable or absurd responses or conduct.
[ … ]
112. What Mr Fox was not prepared to do was to sell them for a purely nominal amount, because he had been advised by his independent solicitor, Mr Barker, that to do so would potentially expose him to an adverse costs order, if those claims were ultimately unsuccessful and that he could not be adequately protected from all risks by taking out after the event ("ATE") insurance.
[ … ]
115. If Mr Fox assigned to Mr Reynard the causes of action against his former accountants conditionally, namely on terms that Mr Reynard would remit some of the fruits of successful litigation back to the Trustee in Bankruptcy, then this would give Mr Fox in interest in the litigation which could expose him to a liability for adverse costs. It is settled law that if a trustee retains an interest in the outcome of litigation following an assignment of a cause of action he may be the subject of an adverse costs order for the defendant's costs…
[ … ]
118. In Re Papaloizou [1999] BPIR 106 at 112D, Browne-Wilkinson J (as he then was) said, obiter:
"Although I loyally accept the decision of the Court of Appeal in Ramsay v Hartley that the sale of a bare cause of action back to the bankrupt is not per se contrary to public policy, I think trustees should exercise their power to take such a step with great circumspection. It must not be forgotten that by so doing they are enabling the bankrupt to conduct possibly vexatious litigation against third parties who will have no effective remedy in costs against him, since all his assets have been vested in the trustee. There may be cases in which this is an appropriate course to adopt, for example if immediate substantial assets are made available for the creditors. But in general the policy of the bankruptcy legislation is for the trustee – and not anyone else – to get in the assets of the bankrupt and for that purpose to decide whether causes of action should be pursued, if necessary with funds provided for that purpose by the creditors in the bankruptcy. Before abdicating this responsibility by putting the bankrupt back in the saddle, the trustee should bear in mind the consequences to the other parties in litigation for doing so. My present view is that it should not be done unless clear and certain benefits are obtained for the creditors."
119. In my judgment, there are no 'clear and certain benefits' at all for the creditors in these claims. On the contrary, scrutiny of those claims by [the defendant's solicitor] Mr Barker has revealed that they have no merit."
- Mr Atkins accepts that the decisions being made in those two judgments were not decisions of the kind required in the present litigation, which involve the assertion of common law duties of care owed by the trustee to the claimant. Nevertheless he submitted that these paragraphs of the judgment found relevant facts which could constitute an issue estoppel between the parties on matters which would be in issue in the personal claims, and accordingly could justify the striking out of the personal claims.
- Mr Atkins referred me to passages in Halsbury's Laws of England, volume 12A (2015 edition) at paragraphs 1623, 1624, 1651, and 1652. These provide as follows (footnotes omitted):
1623. Issue estoppel means that a party is precluded from contending the contrary of any precise point which, having once been distinctly put in issue, has been solemnly and with certainty determined against him. Even if the objects of the first and second claims or actions are different, the finding on a matter which came directly in issue in the first claim or action, provided it is embodied in a judicial decision that is final, is conclusive in a second claim or action between the same parties and their privies. Issue estoppel will only arise where it is the same issue which a party is seeking to re-litigate. This principle applies whether the point involved in the earlier decision, and as to which the parties are estopped, is one of fact or one of law, or one of mixed fact and law.
There may, however, be an exception to issue estoppel in the special circumstances where there becomes available to a party further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided, and such further material could not by reasonable diligence have been adduced in those proceedings and relates to facts or a change in the law.
1624. The conditions for the application of issue estoppel require a final decision on the issue by a court of competent jurisdiction and that:
(1) the issue raised in both proceedings is the same; and
(2) the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.
Deciding if the issue is 'the same' in both cases will depend upon whether the court takes a narrow or a wide view of the extent of the issue determined in the earlier case. It is now established that the question whether the raising of an issue in subsequent proceedings amounts to an abuse of process is one to be decided in a broad, merits based way in the light of all the circumstances. Where a matter is held not to fall within the scope of issue estoppel, it may nonetheless be struck out as vexatious or frivolous; to relitigate a question which in substance has already been determined is an abuse of process. [ ... ]
1651. The law discourages relitigation of the same issues except by means of an appeal. It is not in the interests of justice that there should be retrial of a case which has already been decided by another court, leading to the possibility of conflicting judicial decisions, or that there should be actual challenges to judicial decisions; there is a danger, not only of unfairness to the parties concerned, but also of bringing the administration of justice into disrepute. The principles of res judicata, issue estoppel and abuse of process have been used to address this problem, although abuse of process is often characterised as being a rule of wider application than the rest.
1652. Where a case does not fall within the rules relating to res judicata, the court may still exercise its jurisdiction under its general inherent jurisdiction to prevent litigation that amounts to abuse of process so as to stop the party from raising an issue which was or could have been determined in earlier proceedings. The rule in Henderson v Henderson has been described as being essentially part of the court's wider jurisdiction for striking claims out as an abuse of process (or, alternatively, as an extension of res judicata). Although the rule is now understood to be separate and distinct from cause of action estoppel and issue estoppel, it has much in common with those doctrines, and the underlying public interest or policy is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter.
The rule provides that a claimant is barred from litigating a claim that has already been adjudicated upon or which could and should have been brought before the court in earlier proceedings arising out of the same facts. Parties are expected to bring their whole case to the court and will in general not be permitted to reopen the same litigation in respect of a matter which they might have brought forward but did not, whether from negligence, inadvertence or even accident. The abuse in question need not involve the reopening of a matter already decided in proceedings between the same parties, but may cover issues or facts which are so clearly part of the subject matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow new proceedings to be started in respect of them. It is, however, wrong to hold that because the matter could have been raised in early proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive; the question is whether in all the circumstances are party's conduct is an abuse.
[ … ]"
- I should say that the discussion in Halsbury of the rule in Henderson v Henderson does not appear to take account of the recent decision of the Supreme Court in Virgin Atlantic Airways Limited v Zodiac Seats UK Ltd [2014] AC 160, where Lord Sumption at [17]-[24] reviewed the authorities, and concluded that the rule was indeed part of the doctrine of res judicata. That case was not cited to me, but as it does not appear to affect any of the propositions relied on by the defendant I have not thought it necessary to refer the parties specifically to it.
- The defendant argued that, in the earlier application under s 303 of the Insolvency Act 1986 before DJ Watkins, and the appeal from his decision before HHJ McCahill QC, a number of legal and factual issues were decided against the claimant which he cannot reopen in the present claim. These included the questions whether the claims which the claimant said the defendant should have pursued or assigned to him had any merit, whether any solicitor was willing to take them on a CFA, whether the claimant was deprived of the opportunity to take an assignment of them, whether the defendant had a good reason not to assign them to the claimant for a nominal sum and whether the defendant was negligent in all the circumstances. I accept that submission.
- In his judgment on 9 March 2016, DJ Watkins refused to set aside his order of 24 November 2015 (when he dismissed the claimant's application because he was not present to make it), both on the basis that he was satisfied that the claimant knew about the application but chose not to attend, and also on the merits. As to the latter, the district judge dealt first with the question whether the defendant should transfer the property to him for a nominal sum. He then said (in a passage already quoted) that "there is absolutely nothing to support the suggestion that there is any substance in any litigation that could be brought".
- As already stated, the claimant appealed this decision to HHJ McCahill QC. In his lengthy and detailed judgment, the judge went through both the proceedings before, and the judgment of, the district judge in some detail. He said this:
"170. The judge correctly directed himself, in accordance with the passage of Osborn v Cole, about the test to be applied when considering whether to interfere with the decision of the Trustee.
171. In summary, he accepted Mr Clarke's submissions on the law, adding that, on a perusal of the papers, there was absolutely nothing to support Mr Reynard's suggestion that there was any substance in any litigation that could be brought…
174. In my judgment District Judge Watkins was entirely correct in his analysis of the circumstances of the case and in the conclusion to which he came."
- The claimant says however that his new claim is based on a number of matters which took place only after the judgment of DJ Watkins. So he argues that there can be no issue estoppel or abuse of process involved. As explained to me by the claimant at the adjourned hearing, these were: the sale of the property itself, the defendant's offering the Westcott claim to the claimant for £5,000 (which the claimant did not have), the further time which the claimant spent on pursuing his claims, and the continued refusal of the trustee to run the claim against Westcott. In my judgment, none of these makes any difference. If the claimant had a cause of action before them, they do not add to it. If he did not, they do not give him one.
Conclusion
- In my judgment, it is clear that, if the claimant is permitted to continue with the common law claims in the heads set out above, he will in substance be re-litigating issues which arose and were decided in the application under s 303 of the Insolvency Act 1986. Even if they had not been exactly the same issues as would have arisen in that application, they would still have been in substance the same, and thus would attract the operation of the abuse of process rule referred to in Halsbury's Laws (above) at [1624]. More, even if they were not so sufficiently close as to be covered by that rule, they all obviously arose out of the same circumstances, and hence should have been litigated at the same time, in accordance with the rule in Henderson v Henderson.
- This is a classic case where the litigation between the parties needs to be determined once and for all. In my judgment, it has already been so determined (subject to any possible appeal), and the present claim must therefore be struck out in its entirety. This means that the second application – to transfer the claim back to the CCMCC – does not arise, and I do not need to deal with it further.
