Can a Trustee in Bankruptcy be liable
to the bankrupt for loss caused by
breach of duty?
in that the trustee in bankruptcy through
their acts and omissions failed to carry
out their duties to the standard required
of insolvency practitioners. It was argued
that they ought to have known that the
bankruptcy orders ought not to have been
made and should have taken steps to
bring the bankruptcies to an early end. In
not doing so it was alleged that they had
prolonged the duration of the bankruptcies
and caused the bankrupts loss and mental
distress. The Appeal failed on the facts
in that there was no breach of duty, nor
loss caused as a result of their actions.
The section 299 issue was not therefore
determined.
Earlier this year the Court of Appeal gave judgment in the case
of Oraki and another v Bramston and another. The case involved
the Court considering the liability of the Trustee in Bankruptcy
for an alleged breach of duty to the bankrupts in the conduct of
their respective bankruptcies, in particular it was alleged that they
had prolonged the administration of the bankruptcy estates and
that the bankrupts had been frustrated by them when they were
seeking to annul the bankruptcies. Following a seven day trial
the claims were dismissed, it was that decision which led to the
Appeal.
Dr Oraki and her husband were made
bankrupt in quick succession following
judgment against them by a firm of
solicitors in 2004. A payment in full had
been offered but was not accepted as they
had refused to withdraw a complaint made
by them to the Law Society regarding the
solicitors.
The Bankruptcy Orders were made in late
2005 and early 2006. In October 2012 it
was ruled that the judgment should be set
aside and the bankruptcies annulled. The
annulment was ordered in January 2013
and was conditional; one condition being
the payment of costs and expenses of the
bankruptcies, a time limit was also set as a
back stop for any application to challenge
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the conduct of the Trustees.
In the Appeal the claims being pursued
were that Dr Oraki and Mr Oraki were due
damages for loss allegedly caused to them
personally for breach of duty owed to them
personally by their Trustees. In the lead
judgment of Lord Justice David Richards
he described the claims as raising “some
novel and difficult issues of law on first,
the duties, if any, owed by a trustee in
bankruptcy to the bankrupt personally,
and, second, if such duties exist, on the
effect of a release under section 299 of the
Act of a trustee who had ceased to hold
office.” The history of the matter was fully
set out in the judgment, essentially the
claims were for professional negligence
Whilst the findings of the Court meant
that no investigation of the scope and
limit of a trustee’s duty was carried out the
Court observed that section 304 of the
Insolvency Act provides a framework for
claims for the benefit of the bankruptcy
estate and whilst it is concerned with,
and confined to, acts or omissions on
the part of the trustee that have caused
loss or damage to the estate and that
the bankrupt may only apply under that
section with leave of the court. What is of
particular not is that it was stated this does
not explain why it should be that no duty
was owed to the bankrupt or “why section
304(1) provides that the sub-section is
‘without prejudice to any liability arising
apart from this section’. Those words are
apt to extend any claim for any common
law or other duty not falling within the
express terms of section 304.”
In observing that that the duties of the
trustee may extend beyond section 304
the potential for claims by bankrupts
against their trustees for liability arising
from breach of duties has been recognised
and may well lead to further litigation on
the point.
Mayo Wynne Baxter have specialists who
can give advice on all matters arising from
insolvency of individuals or companies,
should you wish to discuss any issues
arising from the above please contact
Darren Stone, Head of Insolvency at Mayo
Wynne Baxter.
By Darren Stone