Reynard v Fox [2018] EWHC 443 (Ch)

“(a) Failing to check the appeal situation before accepting the appointment. (b) Failing to notify Creditors of the real reason for the refusal to run the claim against Thomas Westcott. (c) Failing to notify Creditors of the real reason for the refusal to run the claim against Marlow. (d) Failing to competently assess the merits of these two claims. (e) Ostensibly assessing these claims as being of "no merit" when two firms of professional negligence solicitors, and counsel, have all offered a CFA. (f) Failing to run a case which had been assessed as better than 50%, having previously given this as a criteria. (g) Failing to notify Creditors that a CFA had been offered in these cases. (h) Failing to suggest a mediation in these two cases, when a letter of just two or three paragraphs was all that may have been required, and at minimal cost. (i) Failure to have noticed an alleged fraud committed by Thomas Westcott. (j) Taking no action at all when he had been directed to this alleged fraud, the consequence of which should have vastly improved the prospect of succeeding against them. (k) Failing to notice that Savills valuation was negligent. (l) Notifying Creditors of this valuation, which was just one third of the two other valuations he had been sent. (m) Sending a copy of this valuation to NRAM. (n) Failing to make any attempt to encourage NRAM to market the property in the Creditors interests. (o) Initially preventing the Financial Ombudsman from taking action against NRAM. (p) Refusing to take any action against NRAM for selling at an undervalue. (q) Fighting the Claimant's attempt to buy the rights to this action. (r) Writing to the Exeter Court with many untruthful statements, in order to assist NRAM in evicting the Claimant, the consequence of which was a 30% loss of value of the property. (s) Misleading the Yeovil Court about the same issue. (t) Misleading the Bristol Court in stating that the Westcott claim had "virtually no information", when a vast number of documents had been sent to the Defendant. (u) Refusing to have a meeting with the Claimant, saying that it could not be afforded, and then subsequently engaging in correspondence numbering more than 200 letters. (v) Refusing 22 requests for a meeting. (w) Refusing to engage in ADR. (x) Refusing to respond to the 8 occasions when the Claimant asked what the Defendant was proposing to do which would benefit the Creditors. (y) Refusing to vest the Westcott claim in the Claimant, when it would have cost the defendant nothing to do so. (z) Writing to the Westcott solicitors to try to damage the Claimant's prospects. (aa) Writing to the Court in like manner. (bb) Failing to protect the Claimant's claim for personal damage.”

“7. So far as relevant to this appeal, the claims pursued by the appellants are for damages for loss said to have been caused to them personally for breach of duty owed by the respondents to the appellants personally. The claims are not for loss caused to their bankruptcy estates or for compensation to be paid to their estates. 8. This is an important distinction. Any claim for loss to the estate, for example by selling an asset at an undervalue, would be subject to the requirement under section 304(2) of the Insolvency Act 1986 (the Act) for the leave of the court where the claim is brought by the bankrupt. Because at all material times the estates were accepted to be solvent, in the sense that there would be a surplus, once sufficient assets had been realised to pay the provable debts and the costs of the bankruptcy, the appellants would have an obvious standing to make a claim in respect of loss to the estates. They did indeed make one claim for compensation to be paid to the estates in respect of an alleged failure to pursue debts and claims said to be owed or available to the estates and obtained permission under section 304(2) to do so. That claim was rejected by Proudman J and is not pursued on this appeal. 9. The personal claims made by the appellants raise some novel and difficult issues of law on, first, the duties, if any, owed by a trustee in bankruptcy to the bankrupt personally, as opposed to the bankruptcy estate of which he is trustee, and, second, if such duties exist, on the effect of a release under section 299 of the Act of a trustee who has ceased to hold office. [ … ] 210. On behalf of the respondents, it was submitted to the judge, and she accepted, that (i) the duties of a trustee in bankruptcy to the bankrupt are governed exclusively by section 304 of the [Insolvency] Act and that no duties are owed at common law, (ii) in any event, the effect of a release of the trustee under section 299 of the Act is to preclude any claim save under section 304, and (iii) again in any event damages were not recoverable for mental distress. [ … ] 214. Section 304 in terms provides a framework for claims for the benefit of the bankruptcy estate. 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. An application under the section may be brought by any creditor, who will clearly have an interest in the proper administration of the estate. The bankrupt may only apply under the section with the leave of the court. This is a requirement designed to provide protection to trustees, although it is to be noted that the bankrupt may be given leave even though there is not, or is not likely to be, a surplus available for him. 215. The judge held: ‘33 I observe that it would be inconsistent with the requirement that the permission of the court must be given if the bankrupt had an unfettered right to take proceedings against his trustee. In any event there is no need for the bankrupt to have a general right of action based on a common law duty which would conflict with the statutory regime of rights, for example, sections 303, 304, 325(2), 326(3) and 363 of the 1986 Act. 34 I do not therefore consider that there is a common law duty in negligence apart from the statute.’ 216. It is perfectly understandable that the bankrupt should need leave before he can apply under the section for the benefit of the estate. That does not, however, explain why in no circumstances can a trustee owe an enforceable duty to the bankrupt in respect of loss or damage caused not to the estate but to the bankrupt personally. Nor, importantly, does it explain why section 304(1) provides that the sub-section is “without prejudice to any liability arising apart from this section”

"11. There is, it is submitted, an insurmountable dichotomy which Mr Reynard is unable to reconcile. On the one hand if (as is submitted) the Potential Claims would be frivolous the Trustee ought not to assign them. If on the other hand there is some merit to them, the Trustee would be in breach of duty to the creditors to sell the Potential Claims for £1. Or to put it another way, if they are only worth £1 they are most certainly frivolous. 12. The above is more than sufficient to dispose of this application in respect of the Potential Claims, but for completeness, the Court is invited to find that the Trustee is justified in being concerned as to the potential exposure to adverse costs on an assignment as identified to Mr Reynard in the letter from the Trustee's solicitors dated 7 April 2015. 13. As a preliminary point it is noted that Mr Reynard's application seems to suggest that the Trustee will retain an interest in the outcome of the Potential Claims as in paragraph 3 it is stated that the application is made because "this seems the only way to get money for [the creditors]"

“20. Mr Fox was prepared to consider assigning causes of action to Mr Reynard for a substantial sum, namely £10,000. However he also reserved the right to open negotiations with the potential defendants to see if they wanted to buy off the claim. Mr Reynard does not have £10,000 nor has he been able to persuade creditors to fund the litigation. He blames Mr Fox and [his solicitor] Mr Barker for his inability to persuade the creditors to fund the litigation, because of the comments made by Mr Fox in the report to the creditors that he had been advised by Mr Barker that the cases were unsound. 21. Furthermore, Mr Fox was unwilling to assign the claims to Mr Reynard absolutely for a nominal consideration, both because he had been advised the claims were unsound and because he would thereby expose himself to a potential liability for costs under section 51 of the Senior Courts Act 1981. Moreover, he could not assign the claims conditionally, on terms that he would receive some of the fruits of the litigation, if successful, because he would similarly make himself potentially liable for costs, if that litigation were unsuccessful. [ … ] 107. Mr Reynard has sought to argue that this (ie mala fide and/or perversely) is precisely how the Trustee did in fact behave, so that the court can interfere with his decision. 108. Having slowly and carefully read all the material which Mr Reynard has put before me, I can find no basis whatsoever for his allegations against the Trustee in Bankruptcy and/or Mr Barker of disgraceful conduct, dishonesty, collusion, negligence, fraudulent behaviour, perversity, bad faith and/or unreasonable or absurd responses or conduct. [ … ] 112. What Mr Fox was not prepared to do was to sell them for a purely nominal amount, because he had been advised by his independent solicitor, Mr Barker, that to do so would potentially expose him to an adverse costs order, if those claims were ultimately unsuccessful and that he could not be adequately protected from all risks by taking out after the event ("ATE") insurance. [ … ] 115. If Mr Fox assigned to Mr Reynard the causes of action against his former accountants conditionally, namely on terms that Mr Reynard would remit some of the fruits of successful litigation back to the Trustee in Bankruptcy, then this would give Mr Fox in interest in the litigation which could expose him to a liability for adverse costs. It is settled law that if a trustee retains an interest in the outcome of litigation following an assignment of a cause of action he may be the subject of an adverse costs order for the defendant's costs… [ … ] 118. In Re Papaloizou [1999] BPIR 106 at 112D, Browne-Wilkinson J (as he then was) said, obiter: “Although I loyally accept the decision of the Court of Appeal in Ramsay v Hartley that the sale of a bare cause of action back to the bankrupt is not per se contrary to public policy, I think trustees should exercise their power to take such a step with great circumspection. It must not be forgotten that by so doing they are enabling the bankrupt to conduct possibly vexatious litigation against third parties who will have no effective remedy in costs against him, since all his assets have been vested in the trustee. There may be cases in which this is an appropriate course to adopt, for example if immediate substantial assets are made available for the creditors. But in general the policy of the bankruptcy legislation is for the trustee – and not anyone else – to get in the assets of the bankrupt and for that purpose to decide whether causes of action should be pursued, if necessary with funds provided for that purpose by the creditors in the bankruptcy. Before abdicating this responsibility by putting the bankrupt back in the saddle, the trustee should bear in mind the consequences to the other parties in litigation for doing so. My present view is that it should not be done unless clear and certain benefits are obtained for the creditors.” 119. In my judgment, there are no ‘clear and certain benefits’ at all for the creditors in these claims. On the contrary, scrutiny of those claims by [the defendant’s solicitor] Mr Barker has revealed that they have no merit.” “Although I loyally accept the decision of the Court of Appeal in Ramsay v Hartley that the sale of a bare cause of action back to the bankrupt is not per se contrary to public policy, I think trustees should exercise their power to take such a step with great circumspection. It must not be forgotten that by so doing they are enabling the bankrupt to conduct possibly vexatious litigation against third parties who will have no effective remedy in costs against him, since all his assets have been vested in the trustee. There may be cases in which this is an appropriate course to adopt, for example if immediate substantial assets are made available for the creditors. But in general the policy of the bankruptcy legislation is for the trustee – and not anyone else – to get in the assets of the bankrupt and for that purpose to decide whether causes of action should be pursued, if necessary with funds provided for that purpose by the creditors in the bankruptcy. Before abdicating this responsibility by putting the bankrupt back in the saddle, the trustee should bear in mind the consequences to the other parties in litigation for doing so. My present view is that it should not be done unless clear and certain benefits are obtained for the creditors.”

"170. The judge correctly directed himself, in accordance with the passage of Osborn v Cole, about the test to be applied when considering whether to interfere with the decision of the Trustee. 171. In summary, he accepted Mr Clarke's submissions on the law, adding that, on a perusal of the papers, there was absolutely nothing to support Mr Reynard's suggestion that there was any substance in any litigation that could be brought… 174. In my judgment District Judge Watkins was entirely correct in his analysis of the circumstances of the case and in the conclusion to which he came."