St John Poulton's Trustee in Bankruptcy v Ministry of Justice

JurisdictionEngland & Wales
CourtChancery Division
JudgeHazel Marshall QC
Judgment Date02 Sep 2009
Neutral Citation[2009] EWHC 2123 (Ch)
Docket NumberCase No: HQ08C03247

[2009] EWHC 2123 (Ch)

IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION

Sitting at: Central London Civil Justice Centre

26 Park Crescent

London, W1B 1HT

Before : Her Honour Judge Hazel Marshall QC

(sitting as a Deputy Judge of the High Court)

Case No: HQ08C03247

Between
The Trustee In Bankruptcy Of Louise St John Poulton
Claimant
and
Ministry Of Justice
Defendant

Mr James Dawson (instructed by DWF Llp) for the Claimant

Mr Jonathan Lopian (instructedby the Treasury Solicitor) for the Defendant

Hearing dates: 1 st and 2 nd July and 2 nd September 2009

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Hazel Marshall QC

Background

1

On 25 April 2008, the trustee in bankruptcy of Louise St John Poulton (“the Bankrupt”) brought these proceedings against the Ministry of Justice, claiming damages for breach of statutory duty and/or negligence by the Courts Service, for whom the Ministry of Justice is responsible. The Ministry contends that the proceedings disclose no reasonable cause of action.

2

The claim was issued in the High Court in the Queen's Bench Division, transferred to the Chancery Division, and then transferred to the Central London Civil Justice Centre on the court's own initiative by an order of 17 th November 2008. On 20 th March 2009, HH Judge Dight ordered the trial of a preliminary issue as to whether the claim disclosed any cause of action, before one of the specialist Chancery Judges at this court. The matter came before me for trial on 1 st and 2 nd July 2009. In view of the potential importance of the issue, I was requested to hear the matter under my authority to sit as Judge of the High Court pursuant to s. 9 of the Supreme Court Act 1981. I obtained such authorisation, re-transferred the case to the High Court, and heard the matter accordingly. It may be useful for parties to be aware that this procedure can be invoked in an appropriate case.

History and circumstances

3

A bankruptcy petition was presented against the Bankrupt in the Guildford County Court by Brighton and Hove District Council on 21 January 2004. The presentation fee of £150 was paid.

4

Under the law of personal insolvency contained in the Insolvency Act 1986 (“the Act”) the commencement of a bankruptcy is no longer the presentation of the bankruptcy petition (or other act of bankruptcy) but is the making of the bankruptcy order. The bankrupt's property then vests in his trustee in bankruptcy upon the latter's appointment (s 306). Instead of the old “relation back” of the trustee in bankruptcy's title, s. 284 of the Act provides that if a bankruptcy order is made, any disposition of the bankrupt's property made after the date of presentation of a bankruptcy petition is void unless validated by the court, or excepted by the section itself. Section 284(4) makes such an exception for a disposition made to a bona fide purchaser for value of such property, without notice of the petition. Such a purchaser therefore obtains good title.

5

By statutory provisions operating since at least 1925, (and now the Land Charges Act 1972) a bankruptcy petition can be registered as a pending action. When it is registered, under s. 86(2) of the Land Registration Act 2002, (formerly s. 61 of the Land Registration Act 1925) the Chief Land Registrar must, as soon as practicable, enter a notice on the register of title of any estate or charge which appears to him to be affected. Such notice constitutes actual notice of the petition to anyone potentially dealing with the bankrupt. This registration will therefore either be a deterrent and stop any such transaction taking place, or will defeat any attempt to raise the defence of “bona fide purchaser for value” if it does and is subsequently challenged by the trustee in bankruptcy.

6

Rule 6.13 of the Insolvency Rules 1986 (which I shall call “IR 6.13”) provides:

“When the [bankruptcy] petition is filed, the court shall forthwith send to the Chief Land Registrar notice of the petition together with a request that it may be registered in the register of pending actions.”

This step thus puts in train the registration process mentioned above. In the present case, however, and as admitted by the Defendant, the Guildford County Court failed to send notice of this Petition to the Chief Land Registrar in accordance with IR 6.13.

7

In March 2004 the Bankrupt sold some land at 35 Woking Road, Guildford, Surrey in two transactions, releasing a net equity in the properties of £45,517.60 after discharging existing mortgages. Although not formally admitted as a fact by the Defendant, it is accepted for the purpose of this preliminary issue that this money was then dissipated. At any rate, it was not garnered for the benefit of the creditors, although I understand that unsuccessful attempts to trace the money were made. In fact, it seems that £40,000 of the sum may have been left unpaid by the purchaser as a set off against a debt allegedly owed by the Bankrupt.

8

The Claimant's case, as trustee in bankruptcy of the Bankrupt, is that but for the failure of the Courts Service to comply with IR 6.13, the net equity in the properties would have been preserved for the bankrupt's creditors. It is again conceded by the Defendant, but for present purposes only, that if notice of the bankruptcy petition had been sent to the Chief Land Registrar in accordance with IR 6.13, it would have been registered and the relevant sales would either not have taken place or would have been void against the Trustee.

The issues

9

By Paragraph 18 of his Particulars of Claim, the Trustee alleges

“that the obligation imposed upon the Court Service by Rule 6.13 Insolvency Rules 1986 does give rise to a statutory duty towards the Creditors of the bankrupt which duty enables the Trustee in bankruptcy of the bankrupt to bring a claim for damages against the Court Service, and further that the court service owed a duty of care to the bankrupt's creditors to ensure that it complied with its obligations pursuant to Rule 6.13.”

10

It is this allegation which is challenged by the Defendant. In its defence, as expanded in the skeleton argument of Mr Lopian on its behalf, it denies that IR 6.13 imposes any statutory duty on the Defendant at all, or alternatively (although in practice it may amount to the same thing) any duty which is enforceable by an action for damages in private law. It denies, in any event, that the Insolvency Act 1986 empowered the Minister to make regulations or rules conferring private law rights of action on individuals. It further denies that HM Courts Service owed any duty of care to the creditors of the Bankrupt in respect of IR 6.13, so as to found any cause of action in common law negligence.

11

There are therefore two basic issues between the parties:

(i) Does IR 6.13 create a statutory duty on HM Courts Service (under the Ministry of Justice) for breach of which a private law right of action for damages is available?

(ii) Alternatively, will a common law right of action in negligence lie in respect of a failure of HM Courts Service to comply with IR 6.13?

12

This is not an easy matter, and I am grateful to both counsel, Mr Jonathan Lopian for the Defendant and Mr James Dawson for the Claimant, for their excellent and persuasive arguments. In the judgment which follows, I have not thought it necessary to deal with every authority to which they have referred me, but this is no disrespect to their very clear and helpful submissions, from which I trust I have fairly extracted the essential points.

The background law

13

The Insolvency Rules 1986 were made pursuant to powers conferred by s. 412 of the Act. S. 412(1) authorises the Lord Chancellor, with the concurrence of the Secretary of State (since 2005, this is also with the concurrence of the Lord Chief Justice in the case of rules that affect court procedure)

“to make rules for the purpose of giving effect to Parts VIII – XI of the Act or the EC Regulations”

I am not concerned with the EC Regulations.

14

Section 412(2) elaborates as follows:

“(2) Without prejudice to the generality of subsection (1) or to any provision of those Parts by virtue of which rules under this section may be made with respect to any matter, rules under this section may contain

(a) any such provision as is specified in Schedule 9 to this Act or corresponds to provision contained immediately before the appointed day in rules made under section 132 of the Bankruptcy Act 1914; and

(b) such incidental, supplemental and transitional provisions as may appear to the Lord Chancellor to be necessary or expedient.”

15

Schedule 9 of the Act provides guidance as to what matters may be regarded as “capable of inclusion in individual Insolvency Rules”. It contemplates rules relating to such matters as the functioning of the courts, notices, registration of voluntary arrangements, the role of interim receivers and managers, the administration of individual insolvency, fees, the holding of moneys, information and records, bankruptcy restriction orders, and general matters including specific power to make non-compliance with any of the rules a criminal offence.

16

Part 6 of the Insolvency Rules 1986 deals with “Bankruptcy”. It gives effect to Parts IX —XI of the Act, and lays down wide ranging rules governing all stages of the bankruptcy process, starting with the statutory demand, and going through to the eventual distribution of the estate between creditors, according to their entitlements. IR 6.13 appears in the second Chapter, headed “Bankruptcy Petition (Creditor's)”. An identical rule appears at IR 6.43 in relation to a debtor's own petition.

17

IR 6.13 was not new, however. Its substance is in identical terms to the former Rule 147 of the then Bankruptcy...

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