Oraki & Anor v Bramston & Anor

An action by bankrupts against successive trustees in bankruptcy failed because the alleged acts neither breached the trustees’ duties nor caused recoverable loss. On an annulment application, a trustee must attend and assist the court, represent creditors generally, and identify material facts and law. The trustee must remain neutral and must not fight the petitioning creditor’s case under section 282(1)(a). Funds whose beneficial ownership is disputed, and for which no satisfactory evidence or authority is produced, need not be treated as available to discharge bankruptcy liabilities. A trustee need not incur the costs of fully adjudicating claims while a bankrupt seeks annulment under section 282(1)(b) by paying or securing those claims. Section 304 does not exclude a possible personal common-law duty, but the effect of release under section 299 and recovery of damages for mental distress were left undecided.

The appellants claimed damages from successive trustees in bankruptcy for allegedly prolonging their bankruptcies and obstructing attempts to annul them. The underlying bankruptcy orders arose from a judgment for solicitors’ fees, which was later set aside after findings concerning dishonest conduct by the solicitor involved. The High Court, Chancery Division, Mrs Justice Proudman, dismissed the claim after a seven-day trial. The appeal concerned the trustees’ handling of disputed funds, creditor claims, possession applications and the annulment proceedings. It also raised whether trustees owed personal duties to bankrupts, the effect of statutory release, and recovery for mental distress.

David Richards LJ gave the leading judgment. McCombe LJ agreed, and the Master of the Rolls agreed with the dismissal while expressing no view on the unresolved legal issues discussed at the end.

1. Annulment framework. Section 282(1)(a) and (b) address separate situations. Paragraph (a) concerns a bankruptcy order which ought not to have been made on grounds existing when it was made. Paragraph (b) assumes a valid order and permits annulment where the bankruptcy debts and expenses have been paid or secured as required. The court may annul after discharge under section 282(3).
2. Trustee’s role. The Insolvency Rules 1986 require attendance at every annulment hearing and a report for an application under section 282(1)(b). The trustee represents creditors generally and is an officer of the court. Under paragraph (a), the trustee must remain neutral and must not fight the petitioning creditor’s case, but must draw relevant facts, law and other material matters to the court’s attention.
3. Factual grounds. The disputed ISA funds could not properly be used because the appellants maintained that they were held for family beneficiaries and supplied neither adequate evidence of the trust nor written authority for their use. The trustees were entitled to adjourn the issue while the appellants pursued annulment and related proceedings. There was also no substantial liquid fund from which the estates could have been completed. Full investigation of creditor claims was not required while the appellants were pursuing a payment-or-security annulment, particularly where the estates lacked funds for such investigation.
4. The possession applications, assignment of the right to challenge the underlying judgment, communications with an interested creditor and other criticised steps did not prolong the bankruptcies or cause the claimed losses. Counsel’s active opposition to an adjournment of the annulment application was inappropriate, but the requested adjournment would not have produced an earlier annulment because the decisive disciplinary proceedings remained unresolved.
5. Unresolved legal issues. Section 304 provides a framework for loss suffered by the bankruptcy estate, but its without-prejudice wording does not exclude the possibility of a personal common-law duty owed by a trustee to a bankrupt. The effect of section 299 release on such personal claims, and the recoverability of damages for mental distress, were left for a case in which they affected the outcome.

The appeal was dismissed.

• Court of Appeal (Civil Division) In [2017] EWCA Civ 403, the court dismissed the appeal.
• High Court, Chancery Division Mrs Justice Proudman dismissed the appellants’ damages claim after a seven-day trial.