Pathania v Adedeji & Ors

The Court of Appeal dismissed the appellant's challenge to a trial judge's judgment for repayment of sums lent, holding that the appellant had not established that the claimant's cause of action had vested in a trustee in bankruptcy before judgment or that the claimant knew it had so vested. The court reviewed the relevant provisions of the Insolvency Act 1986 (in particular sections 287, 293, 306, 284 and 285(3)) and authorities on the effect of bankruptcy on litigation and on abuse of process. The court found uncertainty in the evidence as to whether the official receiver formally became trustee before judgment and concluded that, even if vesting had occurred, the consequences would not justify setting aside the judgment given the trustee's subsequent conduct (including assignment) and the availability of ratification or consent by the court.

Background and nature of the claim: The claimant, Mr Rajesh Pathania, sued for repayment of funds he had lent to Dr Edmond Adedeji to enable redemption of a mortgage on property at 99 Winsor Terrace. The deputy judge at first instance ordered repayment and interest. Unknown to the trial judge at the time, Mr Pathania had been made bankrupt on 29 June 2010, some six months before judgment was entered.

Parties and interventions: The first and second defendants (Dr Adedeji and Ms Ajayi) were defendants at trial; the Bank of Scotland intervened on appeal seeking an order that any sums recovered be paid into court pending its claims.

Procedural posture: This is an appeal from the judgment of Mr J Bowers QC (Deputy Judge), Queen's Bench Division ([2010] EWHC 3085 (QB)). The appeal raised the effect of the claimant's bankruptcy upon the continuing validity of the proceedings and of the subsequent judgment.

Issues framed by the court:

• Whether the claimant's cause of action had vested in a trustee in bankruptcy prior to entry of judgment.
• If vesting had occurred, whether that deprived the claimant of capacity to continue the proceedings so as to render the judgment void or require it to be set aside.
• Whether non-disclosure of the bankruptcy by the claimant amounted to an abuse of process entitling the court to set aside the judgment.
• Whether, if a disposition of the cause of action occurred prior to vesting, section 284 of the Insolvency Act 1986 would render the disposition void and, if so, whether the court could consent to or ratify it.

Court's reasoning: The court analysed the statutory framework (sections 287, 293, 306, 284 and 285(3)) and authorities including Heath v Tang and Pickthall v Hill Dickinson. It concluded that a bankruptcy order appointed the official receiver as receiver and manager but did not automatically vest the bankrupt's estate in a trustee until appointment under Chapter IV. The appellant failed to show that a trustee had been appointed before judgment: the only clear date of trusteeship was the appointment of Mr Nigel Fox on 14 April 2011, after judgment. The Official Receiver's Office correspondence did not satisfy the court that the formalities for the official receiver becoming trustee had occurred earlier. Even if vesting had occurred, the appellant had not shown that the claimant knew the cause of action had passed to the trustee before judgment, which is material when alleging an abuse of process. The court also observed that the trustee later adopted and assigned his rights, and that the court could, if necessary, ratify the transaction under section 284.

Outcome: The appeal was dismissed and the court granted the Bank of Scotland's unopposed application that any sums recovered under the judgment be paid into court to await the Bank's claims.

Appeal dismissed. The Court of Appeal held that the appellant had not proven that the claimant's cause of action vested in a trustee before judgment or that the claimant knew it had done so; there was insufficient evidence that the official receiver had become trustee prior to judgment and, in any event, the trustee later sought to adopt the judgment and assigned any cause of action back to the claimant. The court concluded that the non-disclosure did not justify setting aside the judgment and that ratification or consent could cure any void disposition under section 284.

Appeal from Mr J Bowers QC (sitting as a Deputy Judge), Queen's Bench Division ([2010] EWHC 3085 (QB)) to the Court of Appeal ([2014] EWCA Civ 681). Interim procedural steps included directions by Hughes LJ to obtain and disclose the bankruptcy papers, further consideration by a full court (Black LJ) which identified outstanding factual questions, and a permission decision by Patten LJ to bring the renewed application. The trustee (Nigel Fox) later intervened and ultimately assigned the cause of action back to the claimant.