Cole v Howlett & Ors

This judgment arises out of the Claimant’s application issued on 15th May 2015 for permission to amend his Claim Form and the Particulars of Claim to plead an assignment of the causes of action to the Claimant by the Official Receiver of his bankruptcy estate and thereby properly constitute the claim. Further the application seeks insofar as it might be necessary a variation of the order I made on 22nd April 2015 to prevent the action being struck out and permit it to proceed to trial with directions for the trial of the Claim.

The background for the present application is set out in my judgment of 22nd April 2015 and there is no need to repeat it in this judgment.

As a result of the late discovery of the fact that the Claimant had been made bankrupt in 1990 with the result that his cause of action had vested in the then Trustee in Bankruptcy he made an application to amend his Particulars of Claim (in identical form to the present) on 22nd April 2015. I dismissed that application. That decision was not appealed by the Claimant.

The reason why I dismissed the application was because contrary to his assertions via his solicitor Mr Carr at the time of the hearing on 22nd April 2015 the Claimant had no binding agreement from the Trustee in Bankruptcy to secure an assignment of the cause of action the subject matter of this action. It followed that his application was bound to fail.

The Claimant was then faced with the fact that the 22nd April 2015 was the date for the commencement of the trial. The Claimant’s Counsel accepted that he could not open the case because he acknowledged the Claimant had no title to sue in respect of the alleged infringement of his copyright in the music sample as regards the drum part of the song known as “Warriors Dance (“WD”)” which was released on the album “Invaders Must Die” by The Prodigy.

It is important to set out the order in full. After reciting that the Claimant had abandoned his application of 17th April 2015 to Amend his Particulars of Claim and upon the Claimant’s application to adjourn the trial The Order provides:-

As the order shows I determined the Claimant’s action was an abuse. The abuse was twofold. First as he acknowledged in a statement presented by his solicitor, when the Claimant was adjudicated bankrupt in 1990 he failed to disclose the existence of the ownership of the copyright the subject matter of this action in his Statement of Affairs. As I said in paragraph 12 of the earlier judgment that meant that he had failed to deliver documents in respect of assets such as royalty payments and the like and he had probably (emphasis added) sworn a false Statement of Affairs. Had he declared the true position and if the assets are as valuable as he now asserts, then in 1990 the Trustee would have marketed the rights and they would have been sold off. The proceeds of sale would then have been applied to the creditors’ debts with any surplus thereafter to be paid back to him. It is quite clear that without reacquiring the ownership of these rights from the Trustee whether by an annulment of the bankruptcy or outright purchase the present action would simply have failed because he would have had nothing to sue for in the present action. I determined that the action was an abuse because of the Claimant’s failure to detail his assets properly in his Statement of Affairs and attempt to take advantage of that by bringing the present proceedings. As I observed there are possible criminal consequences arising out of his failure. However I have not heard his explanation in a witness statement and I have not seen him give evidence on that point (see below on the Defendants’ point concerning illegality). The second abuse is subjecting the Defendants to a claim which he is not entitled to bring.

When the Claimant first went bankrupt in 1990 there was a view held by a significant number of lawyers and commentators on insolvency that the assets of a bankrupt insofar as they were not dealt with by his Trustee in Bankruptcy re-vested in the bankrupt on his discharge and/or release from his bankruptcy. As I said that misconception was corrected by the decision of Re: Dent [1994] 1 WLR 956. There is no reason to doubt that the Claimant believed the asset would have re-vested in him on his bankruptcy discharge. That of course is not the end of the matter because of his failure to disclose it to his Trustee in Bankruptcy in the first place.

His second bankruptcy in 2004 was annulled. The Defendant produced letters that the Claimant received from the Official Receiver which drew to the Claimant’s attention his obligation to disclose all assets and reminded him that assets do not re-vest on discharge as opposed to annulment. The Defendant relied upon that as leading to a conclusion that the Claimant probably received similar letters in 1990 reinforcing the proposition that the Claimant is abusing the process of the court. However as I said in paragraph 30 of my judgment I am not convinced that the Official Receiver would have addressed the non re-vesting in 1990 because the position on the authority was not clear. I did conclude however that the action was either an abuse because he had failed to disclose valuable assets to his Trustee in 1990 or alternatively the assets were actually worthless which demonstrates that his action was an abuse on that basis being brought to intimidate the Defendants into making a settlement because of the large costs liability. I referred to the costs liability in paragraphs 22-26 of my earlier judgment. Since then Mr Cuddigan QC who appears for the Defendants at the present hearing informed me that the pre-action costs in fact were approximately £1m. The Defendants in a letter dated 1st June 2015 set out the potential damages liability as the Defendants saw it. The total worldwide publishing for WD as at 9th October 2013 was £137,262.38. The Claimant was only seeking infringement in respect of UK income. However valuable his second stream is it is not so valuable as to take the entirety of the worldwide net recording income which according to that letter was £136,422.69. By way of update the Defendant identified that the UK publishing income was £55,168.15. In the context of the costs the amount of the Claim if the Defendants are correct is modest. As I opined in my earlier judgment the reality is that there is no money in this case for the Claimant unless there is a significant increase in the value of the Claim. That is difficult to see on the matters referred to above which are not challenged by any counter evidence. The reason for this is that given the huge size of the costs even if the Claimant wins in the light of the judicial observations of those costs it is extremely likely that on a detailed assessment as against the Defendants those costs will be significantly reduced. However Mr Adair who appears for the Claimant in this hearing (not having appeared before in the previous hearing) accepts that if the Defendants are approximately right regarding the maximum available damages bearing in mind the potential for reduction of the Claimant’s costs it is unlikely that the Claimant will receive any of his damages because they will be claimed by the insurers to make up the shortfall between their actual as opposed to assessed costs.

The abuse therefore was primarily bringing the action when he had no title to sue and failing to disclose his assets on his 1990 bankruptcy. There is another potential abuse namely the Defendants being exposed to a claim for exorbitant costs and being oppressed by this litigation which is completely unmeritorious unless the Claimant can establish his title to the right in question.

I dismissed the application to adjourn but stayed the action until 20th May 2015 so as to allow the Official Receiver an opportunity to intervene.

Under paragraphs 4 and 5 I determined first that if the Official Receiver did not intervene the claim would be struck out with indemnity costs. Alternatively in the event that he did apply by 4.30pm on 20th May 2015 the application was to be reserved to me for further directions.

Paragraphs 4 and 5 of the Order contemplated that contact would be made with the Official Receiver and that he would be in a position to decide whether or not to intervene. However that was not all of it. Paragraph 5 contemplated that the Official Receiver could apply back to me for further directions. This was clearly flagged up in my judgment (paragraph 50):-

The reason for this paragraph is quite obvious. The victim of the Claimant’s misconduct was not of course the Defendants; it was the creditors in his first bankruptcy. As is well established the consequences of a bankruptcy order against an individual is that his creditors lose their rights further to proceed against him personally and directly. Instead his creditors become a class and they (subject to the Trustee’s powers and duties) are only interested in the assets of the bankrupt to be distributed on a pari passu basis. They are either paid in full because there are sufficient assets or pro rata if there are not sufficient assets to pay all of the debts and the expenses of the bankruptcy.

Subject to control by the committee the Trustee has the duty to gather in the assets, ascertain the creditors and other liabilities, and having realised the relevant assets distribute them after payment of the costs of the bankruptcy. It is for the Trustee to decide (subject to review by his creditors and the court) what to do. Paragraph 50 contemplated quite clearly that the decision of the Trustee might not be a simple yes or no as regards joinder. This was particularly likely because of two factors. First the question of the responsibility for the large costs would loom large in the Trustee’s mind. He could avoid that as Mr Cuddigan QC acknowledged by simply abandoning these proceedings and commencing his own. Mr Cuddigan QC was extremely reluctant to acknowledge that but finally conceded he could not see that such conduct on the part of the Trustee would be an abuse. Second the Trustee would be guided by any evidence he has as to the value of the claim.

It would be quite wrong of me to attempt to fetter any exercise of the Trustee’s discretion in the bankruptcy. It would be therefore quite wrong for me to limit the extent in which he could address the difficulty of the newly discovered asset.

In the event the Trustee decided neither to decline to intervene nor to intervene. He decided to invite sealed bids for the asset from the parties to the action.

That was done against the background as set out in Mr Shepherd’s fourth witness statement on behalf of the Defendants dated 29th May 2015. He had discussed the position with Mr Tolley a representative of the Official Receiver. The position appeared to be that there was no file, the creditors were unknown except the petitioning creditor which is the Inland Revenue, there was no information relating to the amount of the debts and no information concerning the details of the Trustee of the bankruptcy estate.

In that eventuality the power to deal with the bankruptcy vested in the Official Receiver. Mr Tolley indicated to Mr Shepherd that the Official Receiver’s office had no information relating to the size of the bankruptcy claim and was not in a position to give the impression (as recounted by Mr Carr on behalf of the Claimant) that the bankruptcy was modest. He proposed that an advertisement would be put in the ubiquitous Gazette inviting creditors to come forward. If no creditors came forward after the deduction of the Official Receiver’s costs the balance would be returned to Mr Cole.

Mr Shepherd also wrote to HMRC. He was told that no files are retained more than 6 years after the event and without being given the details. Mr Brinkworth informed him that whilst he did not know about insolvency matters he stated that HMRC had no record for sums that old and it would have been written of as a revenue loss and that HMRC would not step forward now as it had no means of knowing what sums were due.

It is a fair point that is made by Mr Cuddigan QC that the Claimant was in a better position to elucidate on these areas but had not done so without explanation.

The Official Receiver decided that it would not be practicable to adopt the existing proceedings or bring separate ones. He decided to sell the cause of action and rights associated with composition and ask for bids from both the Claimant and the Defendants.

The Claimant submitted a bid for £25,000, £900 as a contribution to his costs related to his assignment and an undertaking to pay a share of the recoveries in the litigation both in the UK and worldwide.

That bid was accepted except the Official Receiver declined a right to the share of the proceeds. This was Mr Carr presumed because the Official Receiver did not want to be exposed to a potential costs liability as a result of having an interest in the outcome of the litigation. It is possible but unlikely (given the lack of knowledge of the Official Receiver) that was the required sum to discharge the bankruptcy debts.

The Defendants offered £20,000. Mr Shepherd (paragraph 7 of his 3rd Witness Statement) deposed that that was the maximum value put on the claim. It was not as Mr Cuddigan QC says in submissions in reliance upon the order (whatever that might mean). I was surprised at the low level of the Defendants bid. It was naïve to bid only in the context of the value of the asset as perceived by them. The reasons for that are twofold. First the Claimant clearly values the assets in a larger sum than £20,000. He would put a higher figure than £20,000 therefore and would be far more likely to bid (if at all) in a sum in excess of the minimal figure put forward by the Defendants. Therefore for there to be any worthwhile bid from the Defendants to assure finality they ought to have bid more than their valuation of the claim. Second the bid ignores the vexed question of costs. If the copyright in the asset could have been acquired by them then that would have been the end of the action. The Defendant would no longer be exposed to a large claim for damages. It must be noted that whilst criticisms have been made of the costs by Judges (including myself) it does not follow that the Claimant if successful will not obtain a substantial amount for costs. The Defendants have failed utterly to consider that as a possibility in making the bid they did. This is the more so when one considers that the Claimant had funding for the litigation. Those funders faced with a strike out of the action and a loss of the claim would almost inevitably have made a payment to gather in the copyright.

This I suspect has happened; I do not believe the Claimant has any assets to fund this litigation out of his own funds. The cost of the payment was £25,900. The Defendants under bid at £20,000.

The Claimant became assignee of the cause of action as a result. That led to the present application.

First it is submitted on behalf of the Claimant that the abuse finding by me has now been purged and that he should be entitled to carry the action on as assignee of the rights from the Official Receiver. In that context it is to be noted that Mr Cuddigan QC once again accepted that if the Trustee had assigned the action to anyone else he could not realistically have opposed an application by that person to be substituted as the Claimant. That to my mind is a significant concession because it demonstrates the falsity of the Defendants’ opposition to the present application. An assignee from the Trustee is not tainted with the Claimant’s misconduct. It seems to me that by analogy with the principle of a bona fide purchaser the claimant should be similarly so regarded as he derives his new title not from his own misconduct but by virtue of the person who has power to assign the asset. The second significant point is that he has taken the asset from the person who has the power to investigate and deal with his previous misconduct. He thus obtains the asset free from any complaint in that regard from the Official Receiver. The latter in my view will have been affected by the relatively low value each side placed on the asset. He doubtless concluded there was never going to be much in it for the creditors.

The second contention by the Claimant is that it has a good arguable case (see my earlier judgment) and a refusal of an application to amend will deprive him of that valuable asset. The value is unascertained as yet and the Defendants observations are speculative.

Third there is no prejudice suffered by the Defendants beyond the irrelevant prejudice that they will lose the opportunity of having an action that had merits against them dismissed on the basis of a windfall unconnected with them.

The abuse was not directed at the Defendants but was directed at the Claimant’s creditors in his first bankruptcy. That point has been resolved by the Trustee simply deciding to accept £25,900.

First the Claimant takes issue with Mr Cuddigan QC’s contention made at the hearing on 19th May 2015 that my order was a “final order” and that there was no jurisdiction on that basis alone to vary or revoke it. The Claimant submitted that neither proposition was correct.

I agree with that analysis. I adopt the observations in the White Book at paragraph 3.1.9.2:-

I do not believe my order was such. It is self evident on the face that it contemplated the possibility of further applications being made and there was no substantive decision of a final nature as against the Claimant and the Defendants which could possibly give rise to an issue estoppel.

As regards the other submission I do not accept the relevant rule relied upon by the Claimant (CPR 3.1 (7)) does not apply to final orders in any event.

The provision in full says:-

It will be observed that there are no restrictions on what order can be made nor upon what basis an order can be made. Contrast that with the provisions originally under CPR 3.9 (1) which have now been removed. Nevertheless the current CPR 3.9 requires the court in addition to considering all the circumstances so as to enable it to deal justly with the application to consider the need for the litigation to be conducted efficiently and at proportionate costs and to enforce compliance with the rules practice directions and orders.

It is not necessary fortunately for me to have to review the various decisions that have sprung up fully armed or otherwise in considering the impact of the changes made to CPR 3.9.

The editors of the White Book opine that Rule 3.1 (7) came out of a decision to create an omnibus provision to replace a situation where various provisions under the former rules expressly said that there was such a power. In so making the general provision the effect was simply to bring the general CPR Rules in line with provisions that had been in place in insolvency legislation for decades see for example section 375 (1) IA 1986 (Bankruptcy) and Rule 7.47 (1) of the Insolvency Rules 1986 (Company Insolvency). Those latter rules have attracted attempts by the judiciary from time to time to give guidance as to how the discretionary power should be exercised see for example the 6th criteria under Rule 7.47 (1) set out by Laddie J in Papanicola v Humphries [2005] 2 All ER 418 at [25]-[28].

I reviewed some of the cases in ITS v Morris [2010] EWHC 3275 (Ch) paragraphs 90-100.

Not to be outdone Mr Cuddigan QC provided me with a schedule containing 17 decisions on the rule. That schedule sets out cases where Judges make observations as to how and in what circumstances discretion should be exercised. For example (this is really the high water mark of Mr Cuddigan QC’s submissions in my view) Patten J as he then was in Lloyds v Ager-Hansen [2003] EWHC 1740 (Ch) expressed the view that an applicant must either show some material change of circumstances or that the Judge who made the earlier order was mislead whether innocently or otherwise. However that cannot be elevated to the status of a sine qua non Patten J himself prefaced that by saying:-

In the same paragraph he submitted that it was not appropriate for a party to an earlier application to seek in effect to reargue that application by relying on submissions and evidence which were available to him at the time of the earlier hearing but which for whatever reason he or his legal representatives chose not to employ.

Valuable though observations of Patten J are I do not accept that those are essential requirements. Nor if Counsel has missed something do I accept that necessarily the court is precluded from reconsidering that on an application to vary. It is absolutely essential in the case of a discretionary power (which the rule clearly is) that no attempt is made to fetter the basis for the Judge’s exercise of his discretion by attempting to provide quasi rules or observations in other cases and elevate them to the status of a rule or condition precedent to the exercise of the power.

As I said in Morris no court has for example said it is never appropriate to revisit a final order as I said in my judgment in this case earlier the approach of the Court of Appeal Judges is not to say “never” but to say “hardly ever” in that context. There is a similar subtlety in Roult v Northwest Strategic Health Authority [2010] 1 WLR 487 at 493 where Hughes LJ as he then was said “…. I agree that in its terms the rule is not expressly confined to be procedural orders. Like Patten J …..I would not attempt any exhaustive classification which it may be proper to invoke it in the case of a final order he expressed the view that an invocation of the rule (for example) of a settlement agreed between the parties after detailed and highly skilled advice should not be revisited on the basis of the interests of justice in litigants which require a final order remain such unless proper grounds for appeal exist”. I do not see Hughes LJ with respect to the submissions of Mr Cuddigan QC saying that an application can never be made in respect of a final order.

Equally in HRH Prince Abdulazziz Bin Mishal Bin Abdulazzizz Al Saud v Apex Global Management Ltd & anr [2014] EWCA Civ 1106 the Court of Appeal reaffirmed the broadly discretionary powers given to set aside an order. For example they reminded themselves in paragraph 58 that Rix LJ in Tibbles v SIG PLC [2012] 1 WLR 2591 held that the exercise of a power usually (emphasis added) involves either a material change in circumstances or a material misrepresentation. In paragraph 60 Arden LJ observed that Mann J held that there was no relevant change in circumstances because the facts relied on ought to have been clear. That is the factor that Mann J decided was relevant on the facts of the case before him.

Mr Cuddigan QC submits that there is no change in circumstances in this case from the original decision made by me. I do not agree. At the hearing in April 2015 the Claimant had no title. He now has title. It is the Counsel of perfection to expect his then lawyers to cover the possibility they might obtain the assignment having failed to do so far and make a provision for them to apply in the event they obtained an assignment. I do not think it was possible to predict with any clear confidence as to how the Official Receiver would respond.

In Kojima v HSBC [2011] EWHC 611 (Ch) Briggs J as he then was reviewed the authorities. The last case he considered was my decision in Independent Trustee Services where he said this:-

Briggs J clearly acknowledged as I had suggested that the provisions were wide and the power was (and should be) unfettered.

I draw the following conclusions from the examination of the authorities. The authorities I referred to above are not necessarily exhaustive but these are the conclusions I draw from considering the ones provided to me:-

The power to vary or revoke an order is entirely discretionary and is not prescribed by any rules or restrictions.

The court nevertheless will generally not allow a party to treat a review application as if it were an appeal or a simple attempt to re-run the previous hearing on precisely the same material.

The court will generally be less favourably inclined to consider a review of a final decision.

The court will generally require either a change of circumstances or a misleading of the Judge in the first decision.

The court nevertheless must consider all the circumstances of the case and none of the above is a requirement for the court to consider varying or revoking a previous order.

The following factors in my view are relevant to the exercise of the discretion:-

The Defendants in their written submissions as developed by Mr Cuddigan QC in his oral submissions (paragraphs 30 et seq) submitted that the Claimant should not have the discretion exercised in his favour because the Claimant breached his statutory duties, abused the process of the court and “failed to prove that the victims of that abuse had been fully compensated” .

I do not accept that last point because it confuses the liability to pay creditors in full before bankruptcy with the more limited obligations post bankruptcy. By that I mean of course the Claimant has a duty to assist the Official Receiver in the realisation of his assets. He has now done that. The size of the creditors and whether they will be fully compensated or not is neither here nor there as the Official Receiver has obtained the best price reasonably obtainable for the asset. It is not open to the Defendants to say otherwise given their own much lower estimate of its worth.

On the question of possible illegal conduct by the Claimant I determined that it was not appropriate to deal with that at this stage as I have had no evidence from the Claimant. I accordingly indicated to Mr Cuddigan QC that this would be a point which it will be open to the Defendants to maintain at the trial. This is supported by the fact that the Defendants somewhat in anticipation have produced a draft Re Amended Defence raising that point.

The arguments are finally balanced. However the matter which is predominant in my view is the fact that the Claimant has a case which will be lost if this amendment is refused. The problem does not arise out of anything that affects the Defendants. This is reinforced by the fact that if the Claimant had started the action in a properly constituted way that revealed that initially he had failed to disclose the asset but that he had done a deal with the Official Receiver in any event it would have been impossible in my view for the Defendants to object to that procedure. I accept that the breach is not technical but equally it is disproportionate in my view now the defect has been cured to deprive the Claimant of his right to have the issue ventilated in court. If the Defendants win they will be fully protected by the ability of the court to properly assess the costs in their favour. If the Defendants lose the court will be equally vigilant to ensure that the Defendants are not the subject matter of excessive or unreasonable costs.

This is not a pre trial assessment of the strength of the Claimant’s case. Such a procedure is not available see Wenlock v Maloney [1965] 1 WLR 1238.

That principle is equally applicable to cases coming under the CPR see (for example) the analysis in Hanco ATM Systems Ltd v Cashbox ATM Systems Ltd [2007] EWHC 1599 (Ch) at paragraphs 18-31 and Groveholt Ltd v Allan Hughes & Anr [2008] EWHC 1358 (Ch) at paragraphs 26-36.

Applying those principles one has to be careful as to whether or not a case can properly be considered at an interim stage. Obviously if it is clear the case has no prospect of success then it can be disposed of either under CPR 24 or on an application to strike it out. Conversely if it is arguably good the case has to go to trial. There is no intermediate procedure whereby provisional and untested assessment of evidence should be used to strike out an application. This in my view is what the Defendants are trying to do in raising matters outwith the immediate issue of failure to obtain title.

I therefore accede to the Claimant’s application. If the parties are unable to agree them I will hear submissions as to costs, any consequential orders arising out of the amendments and for the trial which arise out of this decision.