Oraki & Anor v Bramston & Anor

The Court of Appeal dismissed the appellants' claim against successive trustees in bankruptcy for breach of duty. The primary ground of dismissal was factual: the judge’s findings that the trustees had not consciously wronged the appellants and that the trustees could not properly apply the sums in the Insolvency Services Account (ISA) to end the bankruptcies were upheld. The court treated the claims as essentially professional negligence claims against trustees in bankruptcy and observed that prevailing statutory provisions (in particular section 282, section 299 and section 304 of the Insolvency Act 1986 and relevant Insolvency Rules) frame the administration and annulment process.

The court rejected the two principal factual complaints advanced on appeal: (i) that the trustees could have used available cash (notably the ISA funds) to terminate the bankruptcies and thereby minimise costs, and (ii) that the trustees unreasonably obstructed or opposed the appellants’ efforts to annul their bankruptcies. The ISA funds were treated by the trustees as potentially trust funds for other beneficiaries and the appellants failed to produce documentary proof or written consents; the trustees’ conduct in seeking a court determination or postponing enforcement while annulment proceedings and disciplinary proceedings were pending was reasonable. Having disposed of the factual case, the court declined to decide several novel legal questions about the existence of common law duties owed by trustees to bankrupts and the full effect of release under section 299, noting those issues were better decided in a suitable case.

Background and parties: Dr Sheida Oraki and Mr Ardeshir Oraki (the appellants) sued two successive trustees, Mr Timothy Bramston and Mr Ian Defty (the respondents), alleging breaches of duty in the administration of their bankruptcies. The bankruptcies stemmed from a 2004 judgment obtained by solicitors (Dean & Dean) and subsequent events, including disciplinary findings against the solicitor primarily responsible for the work. The appellants sought damages principally for loss to themselves personally arising from alleged prolonged administration and obstruction of annulment attempts.

Procedural posture: The claim was tried at first instance before Mrs Justice Proudman, who dismissed the action after a seven-day trial. The appellants obtained permission to appeal to the Court of Appeal. The appeal was heard on 6–8 December 2016 and determined on 24 May 2017.

Nature of the claim / relief sought: The claim was pleaded as negligence, breach of fiduciary duty and breach of duty as trustees: principally damages for personal loss including loss of business opportunity, legal costs and mental distress; some estate claims were brought under the statutory regime (section 304) but most claims were personal to the appellants.

Issues framed by the court: (i) Factual: whether the trustees unnecessarily prolonged the bankruptcies by failing to use liquid funds (notably sums paid into the Insolvency Services Account) and by opposing the appellants’ annulment applications; (ii) Legal: whether trustees owe duties to bankrupts personally outside the statutory framework (including section 304), and what effect release under section 299 has on any such personal claims; whether damages for mental distress are recoverable.

Court’s reasoning and conclusions: The Court of Appeal accepted the first-instance factual findings. On the question of available cash, the court found the ISA funds were asserted by Dr Oraki to be held on trust for six beneficiaries and she failed to produce proof or written consents; on that basis the trustees acted reasonably in not treating the funds as available and in seeking a court declaration or not applying them. On the annulment and related procedural matters the trustees largely accommodated or agreed adjournments at the appellants’ request and acted within the obligations of a trustee, including attending hearings and drawing relevant matters to the court’s attention. The court therefore found no causative breach of duty which produced the losses pleaded.

The court noted novel legal questions (scope of any common law duties to bankrupts; the effect of section 299 releases) but declined to decide them because the appeal failed on the facts; the judge’s finding that the claims were unsustainable on the evidence made it unnecessary to resolve those broader legal issues.

Appeal dismissed. The Court of Appeal concluded that the judge’s factual findings that the trustees did not consciously wrong the appellants and that the trustees could not properly or safely have applied the ISA funds to end the bankruptcies were unimpeachable. The trustees’ decisions to seek court directions, pursue possession where appropriate and to agree adjournments while annulment or disciplinary proceedings were pending were reasonable. Because the appeal failed on the facts the court did not decide novel legal questions about trustees’ common law duties to bankrupts or the full effect of release under section 299 of the Insolvency Act 1986.

Appeal from the High Court of Justice, Chancery Division (Proudman J), Nos 2617 and 2618 of 2005. Permission to appeal was granted from Proudman J. The appellants previously appealed to this Court in relation to the terms of the annulment order; that appeal was dismissed (see [2013] EWCA Civ 1629). This appeal was determined in the Court of Appeal, neutral citation [2017] EWCA Civ 403.