Fabb & Ors v Peters & Ors

The court struck out the claimants' proceedings and entered judgment for the defendants. The principal legal conclusions were that administrators do not owe a general common law duty of care to individual creditors or to third parties asserting adverse interests, and that the statutory and class remedies in the Insolvency Act 1986 (notably paragraph 75 of Schedule B1 and section 212) provide the appropriate route for complaining of misconduct in administration. The judge held that the negligence and assumed-responsibility arguments were hopeless, that Alpa had no arguable claim because it was not within the defendants' contemplation, and that any misfeasance claim vested in the trustee in bankruptcy. Proceedings issued by a person who knew that the cause of action was vested in another (or by a company that was struck off at the time of issue) were an abuse of process, following Pickthall v Hill Dickinson LLP. The judge also found the proceedings to be totally without merit, made a declaration to that effect, ordered indemnity costs for the defendants (with a modest reduction), and imposed civil restraint orders against the primary litigant and, under the inherent jurisdiction, against the associated companies.

Background and parties:

• The claimants were Mr David Lawrence Fabb and two companies in which he or his daughter had interests (Alpa Industries Ltd and CKE Engineering Ltd). The defendants included the administrators of David Fabb (Holdings) Ltd and Deloitte LLP. The complaint arose from administrators' reports circulated to creditors and to Barclays Bank in December 2005 asserting ownership and indebtedness in respect of plant and machinery which the administrators later accepted largely belonged to CKE by virtue of novated hire-purchase agreements.

Nature of the claim and procedural posture:

• The claim, pleaded in various ways, relied on negligence, misfeasance under paragraph 75 of Schedule B1 of the Insolvency Act 1986 and, effectively, a claim that the earlier proceedings pursued by the administrators amounted to malicious or improper prosecution. Much of the original administrators' claim had been abandoned during prior litigation before Mr Justice David Richards, whose judgment of January 2009 left a much smaller liability which was the subject of subsequent enforcement and led to Mr Fabb's bankruptcy. The trustee in bankruptcy therefore held the relevant causes of action, and His Honour Judge Barker QC had directed a conditional assignment back to Mr Fabb subject to payment.

Issues framed by the court:

• Whether administrators owed a duty of care or had assumed responsibility to the claimants such as would support a negligence action;
• whether the misfeasance claim under paragraph 75 could be brought by Mr Fabb or CKE given the trustee's rights and the companies' status at the time the proceedings were issued;
• whether issuing proceedings in the name of claimants who lacked standing (or were struck off) amounted to an abuse of process; and
• whether the earlier proceedings could properly be characterised as malicious or brought for an improper purpose, and whether the present proceedings were totally without merit such as to justify civil restraint orders.

Court's reasoning and outcome on issues:

• The judge rejected the creation of a special duty of care by reason of the administrators' assertion of claims, observing that permitting such a duty would improperly transform litigation. He relied on authority (Kyrris v Oldham; Peskin v Anderson) and emphasised the availability of statutory class remedies under the Insolvency Act.
• The misfeasance claim was held to lack standing because any creditor or shareholder causes of action had vested in the trustee in bankruptcy; the conditional assignment did not alter the trustee's status and, in any event, had not been completed.
• Proceedings issued by CKE in December 2011 were an abuse because CKE had been struck off at the time and its restoration was anticipated; similarly, it was an abuse for Mr Fabb to issue proceedings when he knew the causes of action were vested in his trustee, following Pickthall v Hill Dickinson LLP.
• The allegation of malicious prosecution failed on the facts because the earlier proceedings were pursued to a contested hearing and resulted in judgment on substantial heads, undermining the contention that they were wholly malicious; the presence of any improper motive did not make the proceedings an abuse where there was also a proper purpose (citing JSC BTA Bank v Ablyazov).
• The judge declared the proceedings totally without merit, entered judgment for the defendants, awarded indemnity costs with a reduction of £3,500, and reserved the question of VAT. He imposed a two-year general civil restraint order against Mr Fabb under Practice Direction 3C and, using the inherent jurisdiction, similar restraint orders against Alpa and CKE, with permission applications to be directed initially to District Judge Truman.

The court struck out the claimants' proceedings and entered judgment for the defendants. The judge held there was no arguable duty of care owed by administrators to the claimants, misfeasance claims could not be brought by Mr Fabb because the relevant causes of action vested in the trustee in bankruptcy, and the proceedings were an abuse of process when issued by persons who lacked standing. The proceedings were declared totally without merit, indemnity costs were awarded to the defendants (reduced by £3,500), VAT was reserved, and civil restraint orders were made against Mr Fabb, Alpa and CKE for two years with permission to apply to the specified judge.

The judgment recounts prior proceedings: the administrators' claims proceeded to trial before David Richards J with judgment given in January 2009 and subsequent judgment entered in May 2009 for sums much smaller than the original claims; enforcement of that judgment led to a statutory demand and ultimately to Mr Fabb's bankruptcy (bankruptcy order 8 September 2009). His Honour Judge Barker QC, on 26 October (year not specified in judgment extract), directed a conditional assignment by the trustee to Mr Fabb of listed claims subject to payment of £10,000. The present application is a first-instance strike-out/summary judgment application determined by HHJ Purle QC on 18 January 2013.