Welburn v Dibb Lupton Broomhead

An individual voluntary arrangement may create a trust as well as having contractual force. Whether it does so depends on the intention shown by the arrangement’s wording. Where the supervisor realises the debtor’s assets, controls relevant litigation, holds the proceeds and distributes them to creditors, the arrangement may vest the beneficial interest in those assets in the creditors. The debtor’s retained legal title does not make the debtor the person who suffers recoverable loss if negligence causes the asset to become worthless. Termination may affect assets recovered later, but does not transfer back a claim that had already become worthless. A head of loss may be struck out where the claimant repeatedly fails to provide ordered particulars of the loss and its causation.

Mr Welburn appealed from decisions of the Technology and Construction Court, Leeds District Registry, given by His Honour Judge McGonigal on 14 September 2001. He claimed damages from his former solicitors, Dibb Lupton Broomhead, for alleged failures in conducting an arbitration against Stepney Contractors Ltd.

The judge held that an individual voluntary arrangement had transferred the beneficial interest in the arbitration claim to the supervisor as trustee for the participating creditors. He held that the claimed losses relating to the arbitration were losses of the creditors, not Mr Welburn, and struck out a separate loss-of-livelihood claim for failure to provide ordered particulars. The central issues were the nature of the IVA, ownership of the loss, the effect of its later termination, and whether the strike-out was justified.

1. Appeal dismissed. Lord Justice Dyson delivered the judgment, with which Lord Justice Aldous agreed. The decisions on the preliminary issues and the striking out of paragraph 9(7) were upheld.
2. An IVA does not ordinarily create merely a contract. Under section 253(2) of the Insolvency Act 1986, the nominee may act as trustee or otherwise. Whether a trust exists depends on the intention shown by the wording of the IVA. Contractual force and a trust are not mutually exclusive.
3. The IVA covered, subject to immaterial exceptions, Mr Welburn’s entire estate. It required the supervisor to realise claims and assets, fund the arbitration costs, hold the resulting funds and distribute them for creditors. Properly construed, it created a trust of the estate, including the claim against Stepney and its proceeds. The court should not be slow to find that an IVA creates such a trust, and there is no presumption against that construction.
4. The loss of the chance to recover money from Stepney was capable of being a real loss, but it was suffered by the beneficial owners of the claim: the creditors. Mr Welburn retained only legal title and could not recover the claimed losses personally. The later termination of the IVA might matter if the claim subsequently produced a recovery, but the claim here had become worthless by January 1993 while the creditors owned it.
5. The authorities concerning the time when damage occurs, the scope of professional liability and subsequent events did not assist because the issue was whose loss had occurred. The company-in-liquidation analogy was inapposite.
6. The strike-out of paragraph 9(7) was justified. Two orders required formal particulars of the loss and its causation, but none were supplied. The deficiencies concerned the substance of the claim, including its period, amount, calculation and causal basis.

• Court of Appeal (Civil Division): Welburn v Dibb Lupton Broomhead [2002] EWCA Civ 1601. Appeal dismissed with costs.
• Technology and Construction Court, Leeds District Registry: His Honour Judge McGonigal’s decisions of 14 September 2001 dismissed the pleaded losses in paragraphs 9(1)–(6) and struck out paragraph 9(7).