Heath v Tang ; Stevens v Peacock

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE HOFFMANN
Judgment Date26 July 1993
Judgment citation (vLex)[1993] EWCA Civ J0726-2
Docket NumberNo's. SLJ 92/6121/B

[1993] EWCA Civ J0726-2

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

CHANCERY DIVISION

(His Honour Judge Loyd Q.C.)

(Mr. Justice Lindsay)

Before: The Master of The Rolls (Sir Thomas Bingham) Lord Justice Steyn and Lord Justice Hoffmann

No's. SLJ 92/6121/B

SLJ 93/5107/C

BETWEEN
Ian Michael Heath
Applicant
and
Jason Tang
Respondent
BETWEEN
David Stevens
Applicant
and
David Hugh Anderson Peacock
Respondent

MR. I.M. HEATH and MR. D. STEVENS appeared in person.

MR. R. RITCHIE appeared as Amicus Curiae.

1

2

Monday, 26th July, 1993,

LORD JUSTICE HOFFMANN
3

This is the judgment of the court. Two bankrupts have applied for leave to appeal against the judgments upon which their bankruptcy orders were founded. They have been listed together for a hearing ex parte on a preliminary point, namely whether a bankrupt may pursue such an appeal or whether it has to be brought in the name of his trustee. The applicants appeared in person but the court had the assistance of Mr. Ritchie as amicus curiae. He helpfully put forward the arguments on both sides.

4

By section 306 of the Insolvency Act 1986 the bankrupt's estate vests in his trustee when appointed and by section 285(3), no creditor has after the making of a bankruptcy order any remedy against the property or person of the bankrupt in respect of any debt provable in the bankruptcy. The effect is that the bankrupt ceases to have an interest in either his assets or his liabilities except insofar as there may be a surplus to be returned to him upon his discharge. What effect does this have upon legal proceedings to which he is a party? We shall consider the position first when the bankrupt is plaintiff and secondly when he is defendant.

5

The bankrupt as plaintiff.

6

The property which vests in the trustee includes "things in action": see section 436. Despite the breadth of this definition, there are certain causes of action personal to the bankrupt which do not vest in his trustee. These include cases in which 1

"the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character and without immediate reference to his rights of property."

7

Actions for defamation and assault are obvious examples. The bankruptcy does not affect his ability to litigate such claims. But all other causes of action which were vested in the bankrupt at the commencement of the bankruptcy, whether for liquidated sums or unliquidated damages, vest in his trustee. The bankrupt cannot commence any proceedings based upon such a cause of action and if the proceedings have already been commenced, he ceases to have sufficient interest to continue them. Under the old system of pleadings, the defendant was entitled to plead the plaintiff's supervening bankruptcy as a plea in abatement. Since the Judicature Act 1873, the cause of action does not abate but the action will be stayed or dismissed unless the trustee is willing to be substituted as plaintiff: see Jackson v North Eastern Railway Co. 2 An illustration of the incapacity of the bankrupt to bring proceedings is Boaler v Power 3 in which an action brought by the bankrupt had been dismissed with costs. The bankrupt then commenced another action to have the judgment set aside on the ground of fraud. The successful party presented a bankruptcy petition based on the unsatisfied order for costs and the bankrupt was adjudicated on the petition. The trustee declined to proceed with the second action. The

petitioner then applied to have it dismissed and the judge's order of dismissal was affirmed by the Court of Appeal. Farwell L.J. said: 4 "The right to continue [the action] is a chose in action vested in the trustee and the bankrupt has no locus standi."
8

The rule that the bankrupt could not sue on a cause of action vested in his trustee was enforced with such rigour that he could not even bring proceedings claiming that the intended defendant and the trustee were colluding to stifle a claim due to the estate and which, if recovered, would produce a surplus. But in any case in which he was aggrieved by the trustee's refusal to prosecute a claim he could apply to the judge having jurisdiction in bankruptcy to direct the trustee to bring an action, or to allow the bankrupt to conduct the proceedings in the name of the trustee. The jurisdiction of the bankruptcy judge to give such directions is now conferred by statute. Section 303(1) of the Insolvency Act 1986 says:

"If a bankrupt or any of his creditors or any other person is dissatisfied by any act, omission or decision of a trustee in the bankrupt's estate, he may apply to the court; and on such an application the court may confirm, reverse, or modify any act or decision of the trustee, may give him directions or may make such other order as it thinks fit."

9

But the jurisdiction goes back many years, to the decisions of Lord Alvanley M.R. in Spragg v Binkes 5 and Lord Eldon in Benfield v. Solomons 6. In the latter case the

bankrupt alleged collusion between his assignees in bankruptcy and persons by whom he said he had been owed substantial sums of money and payment of which would make him solvent. He commenced an action in Chancery for an account, joining his assignees as parties. Lord Eldon allowed a demurrer to the bill, saying:

"It is clear at law, the whole interest in the property, which was his previous to the bankruptcy…is after the bankruptcy legally vested in the assignees…It is familiar therefore at law to plead bankruptcy, the bankrupt having no interest in what he is suing for. In equity the whole order, management and disposition of the bankrupt's affairs are placed under that authority, which the Lord Chancellor exercises in bankruptcy … Prima facie the bankrupt has no demand; but if he states that apparent incumbrances on the property are no substantial charge, that the assignees are prevented by the creditors from interfering or, if the creditors would permit them, refuse, or if both refuse, to interfere and give him the chance of a surplus, the Court would say, with reference to the circumstance, that the bankrupt cannot sue, the law supposing that he has no interest in the property, yet that is not to be acted upon to the effect of gross injustice. Therefore, if he can give security for the costs, the Lord Chancellor will order the assignees to permit him to use their names, to enable him to recover the property, indemnifying them. The bankrupt is therefore without any ground of complaint."

10

Thus the supervision of the insolvency administration by the bankruptcy judge protects the bankrupt from injustice which might otherwise be caused by his inability to bring proceedings outside the bankruptcy jurisdiction.

11

The bankrupt as defendant.

12

In cases in which the bankrupt is defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set-off (a situation to which we shall return later) the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. As we have seen, section 285(3) deprives the plaintiff of any remedy against the bankrupt's person or property and confined him to his right to prove.

13

On the other hand, there are actions seeking relief such as injunctions against the bankrupt personally which do not directly concern his estate. They can still be maintained against the bankrupt himself and he is entitled to defend them and, if the judgment is adverse, to appeal. This distinction was the basis of the decision of the Court of Appeal in Dence v. Mason 7 in which a bankrupt wished to appeal against an order made before the bankruptcy granting an injunction to restrain passing off and ordering him to pay costs. His trustee declined to appeal but the court said that the bankrupt himself could appeal against the injunction.

"which was a personal order against him, notwithstanding the bankruptcy, though he had no interest in the order as to costs, his estate being now vested in the trustee."

14

This implies that the bankrupt would not have been entitled to appeal against an order which was enforceable only against his estate. This appears clearly from the decision of

the House of Lords in Rochfort v. Battersby 8. The bankrupt was entitled to estates in Ireland subject to an annuity in favour of his mother. He had mortgaged the estates to a creditor who brought foreclosure proceedings in which he joined the bankrupt, his assignees and the annuitant. The action raised the question of whether the mortgage had priority over the annuity and the Lord Chancellor of Ireland decided in favour of the annuitant. The bankrupt alone appealed to the House of Lords which dismissed his appeal on the ground that he had no locus standi. Lord...

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