Shepherd v Official Receiver

This is a renewed application for permission to appeal from an order made on 7 November 2006 by Mr Gabriel Moss QC, sitting as a Deputy Judge of the High Court in the Chancery Division, on an application made by Mr John Shepherd by notice dated 26 June 2006. In order to put that application in context it is necessary to refer to some of the history of the litigation in which the applicant, Mr Shepherd, has been involved over the past five years or more.

On 19 February 2002 the applicant was adjudged bankrupt in the Birkenhead County Court. The petitioning creditor was the Legal Services Commission. The petition debt arose from orders for costs made against Mr Shepherd in proceedings which he had brought against the Legal Services Commission.

The applicant appealed from the bankruptcy order. That appeal came before Mr Moss, again sitting as a Deputy Judge of the High Court, on 23 May 2002. The judge dismissed the appeal for the reasons which he gave in a judgment delivered on that day. The principal argument advanced by Mr Shepherd had been to the effect that the bankruptcy order was sought by the Legal Services Commission for an improper purpose. Mr Shepherd’s position was that he had no assets, save a claim against the Legal Services Commission, and that the Commission’s object in seeking a bankruptcy order was to stifle further litigation which he might seek to bring against it. The judge addressed that point at page 10B to 11B in the transcript of his judgment:

“In the present case, it seems to me that the effect of the bankruptcy is not to stifle any proceedings against the Legal Services Commission if they have any merit; the trustee, as is his duty, will undoubtedly consider the merits of the debtor’s claim. If it has merit, he will undoubtedly consider whether or not it would be proper to take proceedings himself, if he is able, or alternatively to assign the alleged cause of action back to the debtor on the basis that a proportion of any proceeds would flow to his creditors. It is of course possible that the Legal Services Commission will be the debtor’s only creditor but that is not something of which I can be certain at this stage.

The real question in the present case in this regard appears to be whether it would be sensible to allow the debtor to continue with what so far has been futile litigation creating considerable liability as to the court costs which he has no prospects of paying and thereby causing the Legal Services Commission very considerable loss which it has no realistic prospect of recovering, or allowing an objective and independent officer of the court to consider the matter in a dispassionate way and see whether there can sensibly and properly be brought any further proceedings against the Legal Services Commission. It seems to me that that purpose, which seems to be the purpose for which the Legal Services Commission has brought these bankruptcy proceedings, is a proper purpose because it seeks “the proper administration” of the debtor’s assets within the meaning of that phrase as used by Harman J in the Re A Company case I have referred to above. It seems to me that a bankruptcy order is justifiable on the grounds that there is a proper reason other than simply the realisation and distribution of assets, mainly an investigation by the trustee of the affairs of the debtor and in particular these very serious allegations against the conduct of the Legal Services Commission.”

So the judge dismissed the appeal from the bankruptcy order in 2002.

The Official Receiver became the Trustee in Bankruptcy. Mr Shepherd wrote to him on 23 October 2002, no doubt to seek an assurance that the trustee would pursue a claim against the Legal Services Commission. I put it that way because the letter of 23 October 2002 does not appear to be in the bundle. But the Official Receiver replied to that letter on 31 October 2002 in a letter which contained these paragraphs:

“The Legal Services Commission are a creditor of your estate. I note your position with regard to your claim against the creditor but that is not something which will be pursued by me as a trustee of your estate. I believe it inconceivable that the creditors would support any action should I propose it and in the circumstances of this case I intend to exercise my discretion in not canvassing the views of creditors.

I have suggested to you that you may wish to consider seeking an assignment of the right of action but this is something you have not sought to further …

The above I believe states my decision as a trustee and the reasons for it. You are clearly aware of the provisions of S. 303 should you wish to challenge that decision. In addition I enclose a leaflet explaining the insolvency services internal complaints procedure should you not be satisfied with this response.”

Mr Shepherd did not, at that stage in 2002, seek relief under Section 303 of the Insolvency Act 1986. He chose to seek judicial review of the Official Receiver’s decision contained in the letter of 31 October 2002. He gave notice of his intention to do so on 16 December 2002. The Official Receiver instructed the Treasury Solicitor who wrote to Mr Shepherd on 16 January 2003 in these terms:

“The Official Receiver’s decision of 31 October 2002 was not, as stated in your letter before claim, “not to properly discharge [his] statutory duties to investigate [your] affairs, both in accordance with Section 289 of the Insolvency Act 1986, and as an objective and independent Officer of the Court, in accordance with the Judgment of Deputy High Court Judge Moss QC, dated 23 May 2002.

“Rather, the Official Receiver’s decision of 31 October 2002 was not to pursue a purported claim against the Legal Services Commission (“LSC”) as trustee of your estate. The reasons for that decision, as set out in the Official Receiver’s letter to you dated 31 October 2002, were:

“The Legal Services Commission are a creditor of your estate. (…) I believe it is inconceivable that creditors would support any action should I propose it and in the circumstances of this case I intend to exercise my discretion in not canvassing the views of creditors.

“I will not consider any claim unless and until a distribution is likely.”

The Treasury Solicitor pointed out that judicial review was not the appropriate remedy for Mr Shepherd to pursue. He wrote:

“The first ground on which your proposed claim is contested is in relation to the inappropriateness of judicial review. You will be familiar with the provisions of Section 303 Insolvency Act 1986, which provide an established route for challenging the decisions of the trustee of your estate. I note the Official Receiver referred you to those provisions in his letter of 31 October 2002. As your complaint relates to the refusal of the Official Receiver, as trustee of your estate, to pursue your action against the Legal Services Commission further, the appropriate way to challenge its decision is by way of a Section 303 application. The Court will not generally grant permission to proceed with a judicial review where there is an adequate alternative remedy available. I should make it clear that, for the reasons set out below, it is considered that on the facts, an application pursuant to Section 303 would be bound to fail.”

The letter of 16 January 2003 went on to explain why the Treasury Solicitor had advised the Official Receiver that a claim against the Legal Services Commission had no reasonable prospect of success; in other words, to develop the proposition that an application pursuant to Section 303 of the 1986 Act would be bound to fail. The explanation is detailed. It extends over some three and-a-half pages. It concludes with these paragraphs:

“Moreover, you have had the benefit of advice, both in writing and in conference, of two experienced Counsel… [naming them] regarding any potential claim you may have against the LSC. Both have advised you you have no reasonable prospects of success on any potential claim against the LSC.

In the light of all the above, it is apparent to us that your proposed claim against the LSC is without prospects of success. Even if the question of funding did not arise, there would no merit in the estate pursuing this proposed claim.”

Mr Shepherd did pursue his claim for judicial review. That claim came before Collins J in the Administrative Court in May 2003. Collins J dismissed the claim. In the course of his judgment he said this, at paragraph 16:

“The answer to any judicial review is, quite independently of the merits, (indeed there are no merits) Section 303 of the Insolvency Act 1986, which provides that there can be an application to the court, that is the Chancery Division, if a bankrupt or any of his creditors, or any other person, is dissatisfied by any act, omission or decision of the trustee of the bankruptcy estate, that is the route.”

He went on at paragraph 17 to say:

“But, as I say, for really the same reasons as apply in the case against the Legal Services Commission, there is no merit whatever in the suggestion that there ought to be permission for any claim.”

So, Collins J was seeking to bring home to Mr Shepherd, first, that there was no valid claim against the Legal Services Commission; and second that, in any event he had pursued the wrong route. The correct route to pursue such a claim was that provided by Section 303 of the Insolvency Act.

That hearing was in May 2003. Mr Shepherd was automatically discharged from his bankruptcy on 19 February 2005. In May 2006, he invited the Official Receiver to reconsider the decision not to pursue claims against the Legal Services Commission: claims which, if they had any substance, would of course continue to benefit to the estate notwithstanding the discharge from bankruptcy. On 6 June 2006, the Official Receiver reaffirmed his earlier decision. In a letter of that date he said:

“I made a decision on 31 October 2002 the very decision you applied for permission to judicially review. I have seen nothing within the file you now sent me or otherwise to persuade me to change that decision.”

By letters of 7 June and 10 June 2006, Mr Shepherd requested the Official Receiver to give “statutory reasons” to support the statement that:

“I have seen nothing within the file you have now sent me or otherwise to change that decision.”

The Official Receiver replied to those requests on 12 June 2006. He referred to an assertion by Mr Shepherd in the letter of 10 June 2006 that he was entitled to the information which he sought under rule 7.60 of the Insolvency Rules 1986 and CPR 18 of the Civil Procedure Rules. The Official Receiver wrote:

“I am not aware of any current proceedings to which either rule 7.60 or CPR 18 apply. You have my letter of 31 October 2002 setting out my stance on your claim at the time and those reasons still apply. Two hours was sufficient for me to read and consider the information as supplied within your bundle and I saw little to be gained by delaying my response. There is no prospect of your claim being pursued by me and I will not investigate the matter further.”

On 13 June 2006 Mr Shepherd responded to the letter of 12 June. He wrote:

“The central issue upon which having regard to all the information that came into your possession after 31 October 2002 and upon which information you have again confirmed you will still refuse to give any reasons as to why it will not affect your original decision of 31 October 2002 is ‘was there or was there not an actual assessment on 18 March 1992 in 1119 claims in the sum of £81,924.88 and if there was such an actual assessment was it lawful or unlawful. Your refusal to give such reasons being a direct contravention of Deputy High Court Judge Moss’s judgment on this specific point and the fact that Deputy High Court Judge Moss confirmed the bankruptcy order on 19 February 2002 on this specific ground that you as Official Receiver could give such reasons.”

It was following those letters that Mr Shepherd issued the application of 26 June 2006. By that application he sought an order:

“That the Official Receiver under CPR 18 PD 5 provide the further information and/or clarification requested by the applicant under CPR 18 PD1-3 on 10 June 2006 waived the Official Receiver’s statutory decision dated 6 June 2006 because the Official Receiver on 12 June 2006 informed the applicant that he would not voluntarily respond to the applicant’s preliminary request under CPR 18 PD1-3. The applicant’s preliminary request under CPR 18 PD1-3 being made pursuant to the applicant’s binding statutory duty under Section 291 4 5 of the Insolvency Act 1986. This application is in accordance and complies with Section 303 of the Insolvency Act 1986.”

The provisions in CPR 18.1 are in these terms:

“1)

The court may at any time order a party to –

“a)

clarify any matter which is in dispute in the proceedings; or

“b)

give additional information in relation to any such matter, whether or not the matter is contained and referred to in a statement of case.”

Rule 7.60 in the Insolvency Rules is to the like effect. The notes to CPR 18.1 require that, when considering whether to make an order under the rule, the court must have regard a) to the likely benefit which will result if the information is given; b) to the likely cost of giving it; and c) as to whether the financial resources of either party against whom the order is sought are likely to be as sufficient as to enable that party to comply with such order. Those considerations are stated to be consistent with the overriding objective in CPR 1.1.

The application of 26 June 2006 came before Mr Moss in November 2006. The judge had the benefit of a report by the Official Receiver dated 10 October 2006. That report set out the history of the matter, summarising the points to which I have already referred and the correspondence in May and June 2006. The Official Receiver went on to say this, at paragraphs 9 and 10:

“9.

On 31 July 2002 I offered to consider assigning to Mr Shepherd the right to proceed against LSC (I do not appear now to have this letter on my file but other correspondence on my file makes clear reference to the date of this letter and I verily believe this to be the correct date.) Mr Shepherd has never responded to this suggestion. Since that time I have had legal advice during the Judicial Review proceedings and now during this Application that Mr Shepherd has no chance of success were he to pursue an Action against LSC. I have also noted from the Bundle of Documents that since the Judicial Review there have been at least two more failed attempts by Mr Shepherd to take legal action against LSC. In all the circumstances, and on legal advice, I am no longer prepared to consider any offer for assignment to Mr Shepherd.”

10.

I exhibit to this report a copy of my letter of 31 October 2002 and the letter written to Mr Shepherd by the Treasury Solicitor on 16 January 2003 setting out very fully my position.”

The judge had before him, also, a skeleton argument prepared by counsel on behalf of the Official Receiver. That set out, at paragraphs 13.1 to 13.3, the reasons why it was said that insolvency rule 7.60 and CPR 18 were not in point. In short, it was said that there were no proceedings on foot which would lead to the application of those rules; alternatively, that the court should, in any event, exercise its discretion to dismiss the application as the request served no useful purpose. Reference was made to the note in Civil Procedure to which I have referred.

The judge gave judgment on 7 November 2006. He treated the application before him as an application under section 303 of the Insolvency Act 1986 challenging the decision of the Official Receiver as trustee in bankruptcy not to investigate further the claim alleged by Mr Shepherd to exist in his estate against the Legal Services Commission. The judge said so at paragraph 1 of his judgment. He explained the principles upon which a challenge to a decision by a trustee in bankruptcy must be approached. And he went on to say this, at paragraphs 14 and 15:

“14.

I make no comment about Mr Shepherd’s reasons and tactics in taking alternative steps, but it does seem to me to be thoroughly unreasonable whatever the rights and wrongs of the Official Receiver’s decision in 2002 to wait until 2006 to come to the Chancery Division and challenge the Official Receiver’s decision not to investigate further. Even if there had been an arguable case in 2002 that there should be more investigation and even if there had been a reasonable point to raise in 2002 or 20003, that does not mean that a party wanting to challenge a decision of the Official Receiver can simply wait until 2006 because he is busy with other tactics. The Official Receiver has long ago closed his file and obtained his release and cannot really be expected to keep this matter open while Mr Shepherd pursues alternative routes.

15.

Even leaving aside the delay, it seems to me that Mr Shepherd cannot now and could not in 2002 and 2003 make out a case that meets the required standard. He has produced no evidence which shows that the Official Receiver’s decision can be challenged under the stringent test set out above.”

At paragraph 20 of his judgement, the judge dealt with the argument that there had been a further decision in 2006. He said that he would treat resistance to Mr Shepherd’s application as a fresh decision not to investigate further. He went on at paragraph 21 to say this:

“I cannot see that Mr Shepherd is raising anything new in 2006 which could reasonably alter the Official Receiver’s decision in 2002. I cannot rule out the possibility in exceptional cases that there may be some striking or surprising development which would require the Official Receiver to investigate either in the public interest or in the interest of the estate, notwithstanding closure of the file and the fact of his release. However, there are no new or surprising facts or developments here. The points made by Mr Shepherd with his usual courtesy skill and tact are much the same as the points he was making to me in 2002.”

So the judge took the view that the Official Receiver was entirely reasonable in declining to investigate the matter further.

In his appellant’s notice -- in a most helpful brief written statement of the points which he proposed to raise at this hearing -- Mr Shepherd takes the point that the judge has misunderstood the nature of the application of 26 June 2006. He points out that that application was, as he terms it, a “double-barrelled application” under CPR 18 PD5 and Section 303 of the Insolvency Act 1986. It was a double-barrelled application seeking to oblige the Official Receiver to provide the further information and/or clarification requested by the appellant in the application of 26 June 2006: namely that the Official Receiver set out his statutory reasons why

“I have seen nothing within the file you now sent me or otherwise to persuade me to change that decision.”

There is, as it seems to me, force in the criticism that the judge did not, in terms, address the application on that basis. He made no reference in his judgment either to rule 7.60 of the Insolvency Rules 1986 or to the provisions of CPR 18.1; notwithstanding that the matter was raised before him not only by the application itself, but also by the skeleton argument put in by counsel on behalf of the Official Receiver (see in particular paragraph 13 of that skeleton to which I have referred). But it is plain that, without addressing the point in terms, the judge did take the view that there was nothing new in the material which Mr Shepherd was seeking to put before the Official. Receiver or the court. There was nothing which had not been available to him in 2002. In effect the application was simply an attempt to rerun the point as to which Mr Shepherd had always persuaded himself: namely that the Official Receiver was wrong in the decision which he took in 2002, and that the Treasury Solicitor’s advice contained in the letter of January 2003 was wrong.

The basis of Mr Shepherd’s belief is that he believes there to have been a misunderstanding between two separate assessments. He thinks that it has not been properly appreciated that the assessment on which he relies has not been the subject of some earlier decision. He referred me, at some length, to proceedings before Morrison J in October 1999 and to his own affidavit in April 1999. Whether or not he is right about that, those were points which were all available back in 2002. He sought to persuade Collins J that the Official Receiver’s decision had been wrong. He failed to do that; and he chose, in 2003, not to take the steps which both the Official Receiver and Collins J had suggested might be open to him, namely to apply to challenge that decision under Section 303 of the 1986 Act.

Mr Shepherd refers, also, to a passage in counsel’s skeleton argument of October 2006: which he says supports the view that there has been a misunderstanding on the part of the Official Receiver. Again, he may or may not be right about that, but that is not a matter for me on this application. I have to consider whether there is any real prospect that this court would differ from the decision reached by the judge in November 2006 to the effect that Mr Shepherd had reached the end of the road.

It seems to me that -- although it is arguable that the judge failed to give consideration, specifically, to the application under rule 7.60 and CPR 18.1 -- if he had addressed those points he would have been bound to come to the conclusion urged by counsel in the skeleton argument at paragraph 13: namely, that there were no proceedings on foot -- whether insolvency proceedings or other proceedings -- to which those rules could apply. Those rules are simply not applicable in the present case. The present application is properly seen, as the judge saw it, as an application under Section 303 of the Insolvency Act 1986 challenging the Official Receiver’s refusal to provide further reasons and information. A refusal which stems, as the report makes it clear, from the Official Receiver’s view, on advice, that there is no prospect of success on any proceedings against the LSC.

Mr Shepherd has convinced himself that that view is wrong. But the judge has explained the hurdle which he would need to overcome in order to persuade a court to interfere with a decision taken by the trustee on advice. Mr Moss, and other judges who have considered the matter before him, was quite satisfied that there is indeed no claim against the LSC. He was satisfied that the advice which the Official Receiver has received to that effect cannot be disregarded as being inadequate or unsatisfactory.

In those circumstances, I share the view expressed by Sir Martin Nourse when he refused permission to appeal on the papers on 22 March 2007, that the judge could not have arrived at any decision other than the decision which he did reach. As Sir Martin Nourse pointed out, the judge was correct in saying there was no reasonable, or indeed any, prospect of success in the Court of Appeal. An appeal would be hopeless. I share that view. I am not persuaded that this Court would think it right, in these circumstances, to make an order under rule 7.60 or CPR 18.1, even if those rules applied in the present case. By analogy, I cannot see this Court taking the view that it would be right, in the circumstances of the present case, to require the Official Receiver to provide information in circumstances in which the provision of that information would serve no useful purpose.

For those reasons this renewed application is refused.