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Bankrupt Claimant is refused relief from sanctions under CPR 3.9.

In the recent case of Cooper v Bank of Scotland plc [2013] EWHC 4645 (Ch) the High Court refused the bankrupt claimant’s application for relief from costs sanctions.

Background

The Claimant commenced proceedings prior to being made bankrupt.  Orders for the exchange of witness statements were made but the claimant was adjudged bankrupt prior to the date for exchange occurring.  Neither the claimant, his solicitors, nor the trustee took any steps to exchange witness statements by the deadline and as a result of the failure to comply with the court order, the court imposed costs sanctions under Civil Procedure Rule (CPR) 3.8. The trustee subsequently assigned the claim to the Claimant on discharge from his bankruptcy and the claimant waited a further 3 months before making an application for relief from sanctions.  In considering the claimant’s application the High Court considered the effect of the appointment of a trustee in bankruptcy.

The Claimant’s solicitors in this case had erroneously assumed the proceedings were stayed as a result of the bankruptcy and this was one of the reasons given by the claimant for the delay in applying for relief from sanctions. 

Decision

A trustee has a right to apply to a court for a stay of proceedings to which a bankrupt is party under s. 285(1) of the Insolvency Act 1986 and HHJ Pelling QC made it clear in dismissing the appeal that the trustee in bankruptcy should have applied for a stay.  His Honour went on to say:

“The Proceedings had not been stayed as I have emphasised on more than one occasion in the course of this judgment. An application could and should have been made to stay the proceedings by the trustee. The trustee chose not to do so. In those circumstances, the trustee came under an obligation to conduct the litigation just as the claimant would have been under such an obligation but for the effects of the bankruptcy. It is not open to the claimant to invite the court to ignore the delay that resulted while the cause of action was vested in the trustee, any more than it would be open to any other assignee of a cause of action to invite a court to ignore the defaults of the assignor.”

Comment

The judgment is quite clear in holding the trustee accountable for the failure to apply for a stay.  The decision raises the possibility that the Bankrupt might have an action against the trustee to recover the losses arising from that failure, although whether that action has been pursued in this instance is not known.

If a trustee does not intend to pursue litigation then it is clear from this decision that a prompt application for a stay of proceeding should be made.  The stay does not automatically arise on the making of a bankruptcy order. In this case the costs sanction could have been avoided by doing so, but having not done so the trustee was obliged to comply with the court’s orders.

Should the trustee decide to pursue litigation then he or she should consider the protection of an indemnity from the estate or from creditors if possible, before doing so.

Written: 19/05/2014

Disclaimer
The information and any commentary on the law contained in this article is provided free of charge for information purposes only. No responsibility for its accuracy and correctness, or for any consequences of relying on it, is assumed by any member or employee of Everys Solicitors. The information and commentary does not and is not intended to amount to legal advice and is not intended to be relied upon. You are strongly advised to obtain advice from a Solicitor about your specific case or matter and not to rely on the information or comments in this article. 

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