Nelson v Nelson

JurisdictionEngland & Wales
JudgeLORD JUSTICE McCOWAN,LORD JUSTICE PETER GIBSON,LORD JUSTICE WALLER
Judgment Date06 December 1997
Judgment citation (vLex)[1996] EWCA Civ J1206-18
CourtCourt of Appeal (Civil Division)
Docket NumberQBENI 96/0041/E
Date06 December 1997

[1996] EWCA Civ J1206-18

IN THE SUPREME COURT OF JUDICATURE

THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE ORDER OF

HIS HONOUR JUDGE MARR-JOHNSON

Royal Courts of Justice

Strand

London WC2

Before:

Lord Justice Mccowan

Lord Justice Peter Gibson

Lord Justice Waller

QBENI 96/0041/E

Nelson
and
Nelson

MR G MANSFIELD QC (Instructed by Messrs Aslam Heath & Co, London, WC1) appeared on behalf of the Appellant.

MR R EVANS (Instructed by Messrs Harris Segal, London, W1) appeared on behalf of the Respondent.

1

( )

LORD JUSTICE McCOWAN
2

This is an appeal brought with leave of Saville L.J. from an order made on 16th May 1995 of His Honour Judge Marr-Johnson sitting as a Judge of the High Court that the Plaintiff's solicitors (hereafter called "the appellant solicitors") should pay the costs of the application for a Mareva injunction including the costs of the hearing of 31st March 1995 and the hearing of the application for costs of 16th May 1995, to be taxed on an indemnity basis (in default of agreement) and paid forthwith.

3

The Judge found that Mr. Mensah-Dankwah was at all material times a solicitor with the appellant solicitors and that he was instructed by the Plaintiff to act for him and in particular to take all appropriate steps to protect what he claimed was his interest in 18 Arundel Gardens, Ilford, Essex. The Plaintiff was at the time an undischarged bankrupt but he did not disclose that fact to the said solicitors.

4

The said solicitors instructed counsel and they obtained a Mareva injunction for the Plaintiff on the telephone from Owen J. on 21st March 1995.

5

On the return day for the injunction, namely 31st March 1995, as a result of an admission made by the Plaintiff in cross-examination, the appellant solicitors learned for the first time that the Plaintiff was an undischarged bankrupt.

6

The Judge in his Judgment said that he had heard evidence from Mr. Mensah-Dankwah and found that he acted with ordinary diligence throughout. He continued: "Nor had his firm acted in a negligent manner. The true position is that the Plaintiff had grossly misled the solicitors."

7

The Judge therefore held that there was no basis for making a "wasted costs" order under s.51(6)(7) of the Supreme Court Act, 1981, the said solicitors having acted neither improperly, unreasonably nor negligently.

8

Instead the Judge purported to make the order for costs against the appellant solicitors under the inherent jurisdiction of the Court over solicitors, based upon the following argument of the Respondents.

9

Reliance was placed upon Section 306(1) of the Insolvency Act 1986 which reads:

"The bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, in his becoming trustee."

10

Therefore, the Respondents argued to the Judge that the appellant solicitors had no authority to act for the Plaintiff in this case, behaved in a manner analogous to that of a breach of warranty of authority and were thereby in breach of their duty to the Court. The learned Judge accepted this argument and said:

"There is a common misfortune here by both solicitors and defendants alike but, on balance, the authorities have decided that the loss should fall upon the solicitors and not the parties. I accept therefore that this action was brought without authority, and, therefore, though satisfied that the plaintiff's solicitors are wholly innocent in this matter, they must pay the costs."

11

In justification of ordering that the costs be on an indemnity basis he said that "there was no reason why the defendants should be out of pocket at all".

12

Before this Court Mr. Evans for the Respondents relied on Order 80 rule 2(1) of the Rules of the Supreme Court, reading:

"A person under a disability may not bring or make a claim in any proceedings except by his next friend……"

13

Mr. Evans suggested that the situation in the case of an undischarged bankrupt is comparable. I cannot agree. A bankrupt is entitled to bring any action except one relating to his property. Thus he can bring an action for personal injury or defamation. This means that he has the capacity and the authority to retain solicitors. What is lost is the right to bring certain types of action.

14

Mr. Evans placed heavy reliance on the case of Motion v. Moojen [1872] L.R. 14 Eq. 202. For my part, however, I find this case of no assistance at all. It was decided before the Judicature Act and decided no more than that when a bankrupt pursues an action in the administration of his bankruptcy he has to bring it in the Bankruptcy and not the Chancery Court.

16

I see nothing in these authorities to contradict the contention of Mr. Mansfield Q.C. for the appellants that a solicitor who lends his name to the commencement of proceedings is saying:

1. that he has a client.

2. that the client bears the name of the party to the proceedings; and that

3. that client has authorised the proceedings.

17

He does not represent that the client has a good cause of action. What the Plaintiff in the present case was lacking was a good cause of action, since any action in respect of a claim to 18 Arundel Gardens was vested in his trustee in bankruptcy.

18

In my judgment in commencing these proceedings the appellant solicitors had authority from the Plaintiff to do so and warranted no more than that. In particular they are not to be taken to be warranting that the Plaintiff had a good cause of action vested in him.

19

In those circumstances I see no breach on the part of the appellant solicitors of their duty to the Court. Indeed such a finding seems to me to be inconsistent with the Judge's other findings, first that the solicitors were wholly innocent in the matter and, second, that they were not properly subject to a wasted costs order. At the very least he should have recognised that he had a discretion whether to make the solicitors pay any costs of the case.

20

In the light of the Judge's findings of fact as to the conduct of the solicitors, any such discretion should have been exercised in favour of the solicitors.

21

I would add that, in my judgment, in the light of those findings, it could not properly be considered a suitable case for indemnity costs.

22

For these reasons I would allow the appeal.

LORD JUSTICE PETER GIBSON
23

The central question on this appeal is not, pace Mr. Evans for the Third Defendant, the effect of the bankruptcy order upon the rights of the bankrupt in relation to the property owned by him. That effect is plain, having regard to s.306 Insolvency Act 1986 which vested in the trustee in bankruptcy property such as the bankrupt's claimed interest in 18 Arundel Gardens, Ilford on the bankruptcy. Instead the question to be answered is whether the bankrupt had the capacity to retain a solicitor to commence the proceedings which he did commence. Those proceedings are not a nullity such as would have been the case if the plaintiff did not exist. But they were liable to be stayed or struck out because the bankrupt did not have any interest in the property, such interest as he did have prior to the bankruptcy order having vested in the trustee in bankruptcy. They might be stayed pending the decision of the trustee in bankruptcy to take over the proceedings. Alternatively if the trustee did not wish to do so, a defendant could apply to strike out the action. The substantive order made by His Honour Judge Marr-Johnson was, entirely correctly, that the action be struck out unless the trustee in bankruptcy of the Plaintiff showed cause.

24

Mr. Evans submitted that by virtue of s.306 a solicitor who acts on behalf of a bankrupt does so without authority. He described the position as analogous with that of a solicitor who acts on behalf of a mentally disabled person or a minor. But the analogy does not seem to me apt. Subject only to one limited exception, the rules governing procedure in the Supreme Court and in the County Court respectively do not permit a person under disability to bring an action except by his next friend ( R.S.C. O.80 r.2(1) and C.C.R. O.10 r.1(1)). The exception is that by s.47 County Courts Act 1988 a minor may prosecute an action in a county court for any sum of money not exceeding the county court limit which may be due to him for wages or piece work or for work as a servant in the same manner and if he were of full age. There is no such procedural bar for the bankrupt.

25

There are a number of actions which a bankrupt may bring notwithstanding s.306. He may bring any action in which the claim is personal to himself and affects his person or his reputation. Thus he may bring an action in defamation, for personal injury, in assault and in negligence where his person or reputation is injured. He may bring an action as assignee, and there are other actions which the bankrupt has been held to have been able to bring (see, for example, Chitty on Contracts 27th ed. (1994) para. 20–041).

26

Yet it is said by Mr. Evans, supporting the decision of the Judge, that the bankrupt is not able to retain a solicitor to bring proceedings to assert a property claim when the property is vested in the trustee in bankruptcy. That seems to me to confuse an effective cause of action with an effective retainer, as Mr. Mansfield Q.C. for the Appellants submitted. If a person who has completed an effective assignment in accordance with s.136 Law of Property Act 1925 of a...

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