Shierson & Anor v Rastogi (A Bankrupt)

A judgment is generally inadmissible as evidence of facts found in earlier proceedings where the later proceedings require those facts to be proved afresh. That rule does not prevent the judgment being used between the original parties or their privies to establish the existence, scope and legal consequences of an estoppel. Trustees in bankruptcy are privies of the bankrupt and are bound by an earlier judgment unless they properly go behind it on grounds such as fraud, collusion or miscarriage of justice. A bankrupt’s continuing duties under Part IX of the Insolvency Act 1986 extend to information about his financial affairs, including matters outside assets formally disclosed as belonging to his estate.

The appellants were trustees in bankruptcy of the respondent. They sought to suspend the period for his automatic discharge under section 279 of the Insolvency Act 1986, alleging failures to explain the disparity between a substantial judgment debt and disclosed assets, account for proceeds of share sales, and disclose interests connected with trusts and Clipter Holdings Ltd.

The Registrar dismissed the application, holding among other things that the earlier judgment establishing the respondent’s fraudulent conduct was inadmissible and that the evidence concerning the other matters was insufficient. The trustees appealed to the High Court. The central issues were the effect of the earlier judgment between the trustees and the bankrupt, the scope of the bankrupt’s continuing duties under Part IX, and whether discharge should be postponed.

1. Appeal allowed. The earlier judgment was admissible and conclusive between the bankrupt and the trustees for the purpose of determining the scope of any cause of action estoppel, issue estoppel or abuse of process. The trustees were the bankrupt’s privies because they were his legal assigns. The judgment established, between them, that the bankrupt had participated in the fraudulent scheme, that the counterparties were not independent, and that he was liable for the relevant breach of fiduciary duty.
2. The rule in Hollington v Hewthorn [1943] 1 KB 587, as applied in Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, remained applicable where findings in earlier proceedings were relied upon as evidence of facts. It did not prevent the use of the earlier judgment between parties or privies to establish the extent of an estoppel. The present case was therefore different from Hollington v Hewthorn and Bairstow.
3. The duties imposed by Part IX included providing information and documents relating to the bankrupt’s financial affairs generally, not merely property forming part of the bankrupt’s estate. The bankrupt had failed to provide the information required concerning the sale of Allied Deals Inc shares, including the payment instruction he was entitled to give under the sale agreement.
4. The complaints concerning the Portman Trust and Clipter Holdings Ltd were also established. It was unnecessary to determine the position concerning the Regent Trust. The Swiss attachment judgment was admissible and binding between the bankrupt and the trustees, but its conclusions under Swiss law added nothing material to the trustees’ complaints.
5. The purpose of postponing discharge under section 279 was that the disabilities of an undischarged bankrupt should continue, in the public interest, until the relevant failures had been clarified, even though postponement might also encourage compliance. The period of one year was therefore ordered not to expire until one year after the conclusion of the bankrupt’s criminal trial, including any appeals.

• High Court (Chancery Division): The Chancellor allowed the trustees’ appeal from the Registrar’s judgment dated 27 October 2006 and postponed the expiry of the discharge period.
• Registrar: The application to suspend discharge was dismissed, subject to two historic failures that were considered insufficient to justify the relief.