Fabb & Ors v Peters & Ors

A claimant cannot avoid the limitation consequences of a claim in malicious falsehood by recasting the complaint as negligence based on assumption of responsibility or a special relationship. Administrators do not generally owe individual creditors a common-law duty of care where the statutory insolvency remedies provide a class remedy. A person who issues proceedings knowing that the cause of action belongs to a bankrupt’s trustee abuses the court process. The same applies where a company is struck off when proceedings are issued; later restoration and statutory deeming do not cure the abuse at inception. Proceedings pursued to a substantial judgment are not ordinarily malicious or abusive merely because an exaggerated part of the claim was abandoned. A civil restraint order may be made under the inherent jurisdiction against companies controlled by a litigant who persistently issues totally meritless claims.

The claimants challenged the conduct of administrators appointed over David Fabb (Holdings) Limited. They alleged negligence, misfeasance and malicious institution or prosecution of earlier proceedings in which the defendants had asserted an indebtedness substantially greater than the amount ultimately recovered.

Mr Fabb had become bankrupt, so his causes of action were vested in his trustee. CKE Engineering Limited had been struck off when these proceedings were issued and was restored only later. Alpa Industries Limited was a dormant company proposed as a vehicle for a transaction and had not been involved in the relevant reports or earlier proceedings.

The first, second and fourth defendants applied to strike out the proceedings or obtain summary judgment. The court also considered whether to make civil restraint orders and the appropriate costs order.

1. The claims were struck out and judgment was entered for the defendants. The proceedings were declared totally without merit.
2. The negligence claims had no realistic prospect of success. The substance of the complaint was an alleged malicious falsehood. A claimant cannot transform that complaint into a duty-of-care claim merely to obtain a longer limitation period. The defendants had not assumed responsibility to the claimants or entered a special relationship with them. Kyrris v Oldham [2004] BCLC 305 and Peskin v Anderson [2001] 1 BCLC 372 supported that conclusion. The class remedy in section 212 and paragraph 75 of Schedule B1 of the Insolvency Act 1986 also militated against individual duties to creditors.
3. The misfeasance claim under paragraph 75 of Schedule B1 could be brought only by a shareholder or creditor. Mr Fabb was neither. His bankruptcy vested any relevant shares and indebtedness in his trustee, and an assignment of causes of action did not transfer that status. The earlier finding that he had no entitlement to unpaid salary was conclusive against the only creditor claim relied upon.
4. Starting proceedings while knowing that the cause of action belonged to another was an abuse of process. The court followed the reasoning in Pickthall v Hill Dickinson LLP [2009] PNLR 31. The same reasoning applied to CKE: proceedings were issued while it was struck off, and later restoration under sections 1028 and 1032 of the Companies Act 2006 did not cure the abuse at inception.
5. The malicious prosecution and related misfeasance allegations also failed on their assumed merits. The earlier proceedings had been pursued to judgment and had succeeded in substantial sums, although most of the original claim was abandoned. The court applied JSC BTA Bank v Ablyazov [2011] EWHC 1136: a proper purpose is not converted into an abuse merely because an illegitimate purpose may also have existed.
6. A general civil restraint order was made for two years against Mr Fabb under Practice Direction 3C. The inherent jurisdiction, which must be exercised rarely and cautiously, also justified equivalent orders against Alpa and CKE because they were controlled vehicles through which the meritless claims were pursued. The claimants were ordered to pay indemnity costs, subject to the specified reduction and permission to apply regarding VAT.

First-instance decision. No appellate history is stated in the judgment.