Rajesh Pathania v Edmond Adefolu Adedeji and Another Bank of Scotland Plc (Intervener)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lady Justice Rafferty,Lord Justice Maurice Kay |
| Judgment Date | 21 May 2014 |
| Neutral Citation | [2014] EWCA Civ 681 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2011/0066 |
| Date | 21 May 2014 |
and
[2014] EWCA Civ 681
Lord Justice Maurice Kay
(VICE PRESIDENT OF THE COURT OF APPEAL, CIVIL DIVISION)
Lady Justice Rafferty
and
Lord Justice Floyd
Case No: A2/2011/0066
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Mr J Bowers QC (sitting as a Deputy Judge)
[2010] EWHC 3085 (QB)
Royal Courts of Justice
Strand, London, WC2A 2LL
Carlton Christensen (instructed by Grayfield Solicitors) for the First Appellant
Steven Gasztowicz QC (instructed by Thames Chambers Solicitors) for the Respondent
Nicholas Broomfield (instructed by Walker Morris) for the Intervener
Hearing date: 7 May 2014
Introduction
This is an appeal from the judgment of Mr J. Bowers QC sitting as a deputy judge of the Queen's Bench Division dated 17 December 2010, and from his consequential order. The claim before him was for repayment of sums of money lent by the claimant and respondent, Mr Rajesh Pathania, at the time a solicitor in the firm of Newland Solicitors, to the first appellant and first defendant, Dr Adedeji, for the purposes of enabling Dr Adedeji to discharge his mortgage liability in respect of a property at 99 Winsor Terrace, London E6. The judge ordered Dr Adedeji to pay to Mr Pathania the sum of £230,558.98 together with interest to the date of judgment of £55,132.02.
Unknown to the judge, a bankruptcy order was made against Mr Pathania on 29 June 2010, at a time when the proceedings against Dr Adedeji had been pending for nearly two years, but some six months before judgment. The issue in the appeal is concerned with the effect, if any, which Mr Pathania's bankruptcy has on the judgment which he went on to obtain. There is now no challenge to the judge's judgment on the issues which were before him. Dr Adedeji contends that we should nevertheless set the judgment aside because of what he contends to be the effect of the bankruptcy on the subsequent judgment.
The Bank of Scotland ("the Bank") has been given permission by an earlier order to intervene in the proceedings. The Bank contends that it loaned money to Mr Pathania with which he made good the depletion of the Newland Solicitors client account from which Mr Pathania had taken or borrowed the money which he used to effect the loan to Dr Adedeji. The Bank claims to be entitled to recover this money from Mr Pathania and also to be subrogated to charges on the property. The only relief which the Bank asks for on this appeal is that any money recovered by Mr Pathania is paid into court to await the outcome of the Bank's pending claims. Mr Pathania did not oppose that relief. The Bank is neutral as to the outcome of the appeal.
The statutory framework
On the making of a bankruptcy order the official receiver is appointed receiver and manager of the bankrupt's estate. His estate does not thereupon vest immediately in the official receiver. This reflects the terms of section 287(1) of the Insolvency Act 1986 ("the 1986 Act"):
"Between the making of a bankruptcy order and the time at which the bankrupt's estate vests in a trustee under Chapter IV of this Part, the official receiver is the receiver and … the manager of the bankrupt's estate and is under a duty to act as such."
The bankruptcy order in the present case reflected the terms of section 287. It said:
"The/One of the/ official receiver(s) attached to the Court is by virtue of this Order Receiver and Manager of the Bankrupt's estate."
By section 293 of the 1986 Act, the official receiver is under a duty (subject to defined exceptions) within twelve weeks of the date of the bankruptcy order to decide whether to summon a general meeting of creditors for the purpose of appointing a trustee. If he decides not to do so, he must within the same period give notice of that decision (not to call a meeting) to all creditors known to him and to the court. The consequence of giving such a notice is that the official receiver becomes the trustee of the bankrupt's estate.
Section 306(1) of the 1986 Act (which is in Chapter IV) is in the following terms:
"The bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee."
The bankrupt is, however, not free to deal with his property as he wishes before the trustee is appointed. Section 284 of the 1986 Act renders void all dispositions of the bankrupt's property in the period between the presentation of the petition and the vesting of his estate in the trustee. Section 284(1) is in the following terms:
"Where a person is adjudged bankrupt, any disposition of property made by that person in the period to which this section applies is void except to the extent that it is or was made with the consent of the court, or is or was subsequently ratified by the court."
It is also relevant to have in mind the terms of section 285, in particular section 285(3), of the 1986 Act which protects the bankrupt against proceedings brought against him:
"(1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.
(2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.
(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall—
(a) have any remedy against the property or person of the bankrupt in respect of that debt, or
(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose."
In Heath v Tang [1993] 1 WLR 1421 the Court of Appeal heard two applications for permission to appeal in cases where the appellant had been adjudicated bankrupt. Hoffmann LJ explained that, in contrast to the position before the Judicature Acts, the modern position was that where a bankrupt was claimant and his estate was vested in a trustee, the action did not abate but the action would be stayed unless the trustee was willing to be substituted as claimant. Where the bankrupt is defendant, no question of any cause of action passing to the trustee arises, but the effect of section 285(3) of the 1986 Act is that no person has any remedy against the bankrupt's person or property other than his right to prove in the bankruptcy. Such actions would therefore also normally be stayed.
In the first case a Mr Heath was found liable for a sum in excess of £33,000 on a counterclaim and was subsequently adjudicated bankrupt. Although he wished to appeal, his trustee did not. The Court of Appeal held that he had no locus standi to appeal in his own right. In the second case Mr Stevens was liable under the terms of a costs order and was then adjudicated bankrupt. No trustee had been appointed, but on that point the Court of Appeal said:
"we do not think this matters. Section 285(3) made the costs order unenforceable against Mr Stevens personally as from the date of the bankruptcy order. He therefore had no interest in challenging that order. In any case, the appointment of a trustee is inevitable and it would be pointless to give leave to bring an appeal which would be stayed on his appointment."
Those two conjoined cases were concerned with giving permission for further proceedings where the bankruptcy has deprived the bankrupt of any legitimate interest in the further proceedings. In Pickthall v Hill Dickinson and another [2009] EWCA Civ 543 (unreported 11 June 2009) this court was concerned in part with preventing a litigant from taking a benefit from a past abuse of the court's process by litigating a cause of action which the litigant knew he did not possess. Mr Pickthall commenced negligence proceedings against solicitors at a time when he knew he did not have a cause of action, but hoped that he would obtain one by assignment from the official receiver who had become trustee of Mr Pickthall's estate. Mr Pickthall had issued proceedings without the benefit of the assignment because of the imminent expiry of the limitation period. The Court of Appeal held that to be an abuse of process, notwithstanding the intention to acquire the cause of action. Mann J (with whom Thomas and Laws LJJ agreed) said, at [15] and [22]:
"In my view the starting point is that where a man starts proceedings knowing that the cause of action is vested in someone else, then it is hard to see why those proceedings are not an abuse. He has started proceedings in which, even if he proves all the facts he wants to prove and establishes all the law he wants to establish, he will still lose because he does not have a right to sue. It is hard to see how that cannot be an abuse. Only people who own causes of action, or who have an appropriate interest in proceedings, have any business asserting the cause of action or starting proceedings. Any other use of the court's proceedings is improper. The position would be likely to be otherwise if the claimant does not know, or is uncertain, as to whether he has title to the relevant cause of...
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