The Court of Appeal refused applications by two bankrupts, Ian Michael Heath and David Stevens, for leave to appeal against the judgments upon which their bankruptcy orders were founded.
The applicants in person; the respondents, Jason Tang and David Hugh Anderson Peacock respectively, did not appear; Richard Ritchie (Treasury Solicitor) as amicus curiae.
LORD JUSTICE HOFFMANN, giving the judgment of the court, said that by section 306 of the Insolvency Act 1986, a bankrupt's estate vested in his trustee when appointed, and by section 285(3) no creditor had, after the making of the bankruptcy order, any remedy against the property or person of the bankrupt in respect of any debt provable in the bankruptcy.
The bankrupt ceased to have an interest in either his assets or liabilities except insofar as there might be a surplus to be returned to him upon his discharge.
The effect this had on legal proceedings in which the bankrupt was a plaintiff was that, apart from certain exceptions, all causes of action which were vested in the bankrupt at the commencement of the bankruptcy, whether for liquidated sums or unliquidated damages, now vested in the trustee, and the bankrupt could not commence any new proceedings based on such causes of action.
Exceptions to this rule were claims for damages to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights of property. Obvious examples were actions for defamation or assault.
If a bankrupt was aggrieved by the trustee's refusal to prosecute a claim covered by the rule, he could apply to the judge having jurisdiction in bankruptcy to direct the trustee to bring an action, or allow the bankrupt to conduct the proceedings in the trustee's name: see section 303(1).
In cases where the bankrupt was a defendant, there was usually no question of any cause of action having vested in the trustee, unless the defence was a set-off.
Any property of the bankrupt in which the plaintiff claimed an interest would have vested in the trustee, as would any assets out of which any claim for debt or damages would have to be satisfied. The bankrupt thus had no interest in such proceedings. An exception was where the action sought relief such as an injunction against the bankrupt personally, but which did not concern his estate.
Such actions could still be maintained against the bankrupt himself, and he was entitled to defend them and, if judgment was adverse, to appeal.
But a bankrupt could not in his own name appeal from a judgment against him which was enforceable only against the estate vested in his trustee.
It was submitted, however, that the bankrupt did have an interest in appealing against the judgment upon which the bankruptcy was founded, because if he got rid of the judgment he might be able to get the bankruptcy order annulled on the ground that it should never have been made.
But it could equally be said that if the bankrupt could only pursue a claim for a large sum he claimed was owed to him, he would be able to pay off his creditors and get the bankruptcy annulled on that ground. Yet it was clear this was not a ground on which he could bring proceedings.
Furthermore, an exception for the petitioner's judgment would give rise to anomalies in cases were the defence was a claim of set-off.
The claim relied on as a set-off would undoubtedly have vested in the trustee. So there was nothing sufficiently special about the petitioner's judgment to take it out of the general principle.
Accordingly, a bankrupt had no locus standi to appeal against the judgment upon which his bankruptcy was founded.