Oraki & Anor v Bramston & Anor

In this case the claimants, Dr Sheida Oraki and her husband Mr Ardeshir Oraki (together “the Orakis”, although Dr Oraki has very much taken the lead in all correspondence and in this action, apparently acting under a power of attorney from her husband) were made bankrupt (on 10 January 2006 and 1 September 2005 respectively) on petitions based on a judgment of Deputy District Judge Sheldon at Brentford County Court dated 16 February 2004 (“the Judgment”) for costs of an entity Dean and Dean (“the firm”) which was apparently at that time a firm of solicitors. Although the Orakis each received their discharge one year after the bankruptcies pursuant to s. 279 (1) Insolvency Act 1986 (“IA”) they continued to challenge the fact that they had been made bankrupt.

There were many deficiencies in the Judgment and thus the bankruptcy order. The firm was intervened in by the Law Society towards the end of 2008 and the principal of the firm, Mr Shahrokh Mireskandari, a flamboyant character with powerful friends, such as Mr Keith Vaz MP and Commander Ali Dizaei of the Metropolitan Police, was struck off the roll of solicitors by an order dated 21 June 2012 of the Solicitors Disciplinary Tribunal. Many findings of professional misconduct were made against him, including findings of dishonest misrepresentations as to his professional status, academic qualifications and experience whereby he gained admission as a solicitor. He had been convicted of fraud in California.

Mr Robert Ham QC, sitting as a deputy judge of the High Court, by Order dated 21 January 2013, allowed in fresh evidence about the professional misconduct proceedings. He then found (“because of the decision of the Solicitors Disciplinary Tribunal”: see [11]-[12] of his judgment) pursuant to s. 282(1)(a) IA that the bankruptcy orders should never have been made, and granted the Orakis annulment of their bankruptcies subject to conditions. He thus allowed an appeal from Deputy Registrar Cheryl Jones’s dismissal on 9 April 2010 of the application to annul.

Mr Ham QC also allowed an appeal against an order of HHJ Oppenheimer dated 11 January 2010 which set aside the Judge’s earlier order of 9 November 2009, “in the light of the additional evidence I have admitted”, (see [17]). This in effect (although not technically) allowed an appeal against the Judgment since the order of 9 November 2009 set aside the Judgment.

The Orakis were represented before me by Mr Paul French of counsel and the defendant trustees in bankruptcy by Mr John Briggs of counsel. The parties had originally certified the case as lasting four days, which was clearly an underestimate, bearing in mind the number of witnesses (six) and the points of law and fact arising. The defendants had revised this estimate but the Orakis had not. Mr French told me in criticism of Mr Briggs that the original time estimate was four days and when I pointed out that this was preposterous for a trial of this sort, he merely said that for a time estimate of four days he would have curtailed his cross-examination accordingly. Although I asked for an updated trial timetable each morning where required so that I could guillotine the parties if necessary, counsel thought that it was in order to settle the matter between them and Mr French sought on each occasion to argue the toss with me. It was only after much explanation on my part that I was provided with what I had asked for, a matter for which I give credit to Mr French’s instructing solicitor Mr Hines.

The requirement in Mr Ham QC’s order was that the Orakis should make three payments: (i) that they should pay the costs of the Official Receiver relating to the bankruptcies, (ii) that they should pay the costs of the Trustee of and occasioned by the applications made by the Orakis on the indemnity basis and (iii) that they should pay the costs and expenses of the bankruptcies. In addition, proving creditors were to have 42 days from the date of the order to apply to the court for the imposition of additional conditions (on the basis that the ability to recover the debts had been prejudiced) before any order annulling the bankruptcy was made. The Trustee was entitled to retain and realise assets out of the estates of the Orakis sufficient to discharge their liabilities under [8] and to distribute dividends to proving creditors other than the firm. The Orakis gave an undertaking not to defend any claim by proving creditors on limitation grounds.

The conditions imposed by Mr Ham QC have not been satisfied because, as they were entitled to do, the Orakis have challenged the Trustee’s costs and expenses. The bankruptcies therefore continue during the relevant period and there is a new trustee who has replaced Mr Defty, Mrs Michaela Hall (“Mrs Hall”). However since the Orakis are claiming that the Trustee should have no remuneration because they have caused the bankruptcies to be unnecessarily prolonged and are in breach in that they have failed to pursue debtors and maintain property in the estates, the trusteeship has effectively ground to a halt.

The Orakis contend that the Trustee did not comply with [6] (leading to [7]) of the order, requiring him forthwith to serve the proving creditors with a copy of the order, and [11], requiring him to “endeavour to agree” with the Orakis which assets to keep as security for discharging the Orakis’ obligations under the order and for distributing dividends to all proving creditors other than the firm while returning the rest.

It was common ground before me that the burden was on the Orakis to prove that the creditors were not so served. It seems to me that the Trustee did serve the creditors, or at any rate that the Orakis have not proved that they did not. However if that matter is live before the judge who determines the matter of the Trustee’s costs and expenses, nothing I say should be taken as binding him or her on that application. It may be that insufficient evidence was adduced for present purposes.

[11] follows [10] and cannot in the circumstances yet be satisfied. It is anyway open to the Orakis to apply to the court under the terms of [11] for a determination of this issue and for any consequential orders that may be necessary.

In this action the Orakis contend that the Trustee (an expression I shall use to refer compendiously to the first defendant Mr Bramston who was appointed as trustee in bankruptcy with effect from 19 April 2007 (taking over from the Official Receiver after discharge from the bankruptcies) until he handed over to the second defendant Mr Defty in December 2008, and Mr Defty thereafter) simply did not do his job properly. It is alleged that the Trustee mismanaged the bankruptcy estates, causing the Orakis loss and damage. The pleaded claim is essentially one of professional negligence, but added to that are claims of improper conduct.

The Orakis were in what I can only describe as a Kafkaesque situation. Dr Oraki has always stoutly maintained, and so it has proved, that they were wrongly made bankrupt but no-one in authority would listen to them when they said so. Appeal after appeal and application after application were dismissed. The Orakis tendered the amount of the petition debt to the petitioners shortly after the bankruptcies by way of a banker’s draft from third party funds but it was refused. They say that they also produced a cheque from their own funds for the same amount prior to their bankruptcies in order to avert bankruptcy but that this cheque too was refused. I note (see [2] of Floyd LJ’s judgment and [3(4)] of Mr Ham QC’s judgment) that it was found as a fact that the firm, “refused to accept payment of the full amount of the judgment debt unless the appellants withdrew a complaint to the Law Society.” The Orakis repeatedly asked the Trustee for a final figure to pay off the bankruptcies but one was not forthcoming other than the estimated outcome statements. Then, although it must have been obvious, the Orakis say, that there was always going to be a surplus, and a large one at that, the Trustee proceeded to realise properties used in the family for a business and also the home in which they lived.

Dr Oraki sees conspiracies everywhere, and refuses and has always refused to accept the fact of her bankruptcy, believing that she has been totally vindicated by events. Although she is wrong in many instances, I do not entirely blame her. She is a lay person in, as I have said, a Kafkaesque situation. Because the first defendant was appointed at the instance of the firm, she regards him as tainted, and she has accused every solicitor with which she has had dealings of being in league with Mr Mireskandari. Although I do not find any conscious wrongdoing by either of the defendants, I cannot be as robust as Mr Briggs in dismissing all these allegations as nonsense since in other unconnected cases (I am referring to the sexual wrongdoing by Jimmy Savile and others) it is clear that powerful people, of whom Mr Mireskandari was one, have powerful friends and exert a far-reaching influence that ought not to be so dismissed. Dr Oraki told me that Mr Mireskandari said he could and would break her and I have no doubt that before he was exposed he could do so.

Again, Dr Oraki in her oral evidence said that she did not believe that the Judgment on which the petition was based could have been fairly made. This is because it was made by a Deputy District Judge who sat at the same court as other deputies (whom she named) who had acted for the firm against her. Again, she complained that the Deputy District Judge concerned recommended his firm to her when she asked him for a recommendation without telling her that it was his firm. I have no doubt that all these deputies acted properly, but the perception of improper behaviour remains.

Mr Ham QC’s order and the reasons for it given in his judgment dated 23 October 2013 were upheld by the Court of Appeal on 18 December 2013, the Orakis’ appeal against the costs orders being dismissed. It is evident that Dr Oraki believes that it is grossly unfair that she has to pay the costs of the Trustee, but that is part and parcel of her general attitude (a) that she was never a bankrupt in any real sense and (b) that the defendants were not the innocent parties that the Court of Appeal evidently thought, but were in league with Mr Mireskandari. I am bound by the Court of Appeal judgment, which, with respect, I consider to have been correct in any event. Mr French did not specifically rely on point (b) (which was not as far as I can see pleaded), but frequently mentioned it in passing in his submissions.

Mr Ham QC made various critical observations about the bankruptcy. In particular he said (as Peter Smith J had already pointed out on 17 June 2011 in giving permission to appeal the Order of Deputy Registrar Cheryl Jones) that there were serious procedural irregularities in relation to the Judgment. The Judgment was for damages to be assessed in what was an action for debt, the solicitors had not delivered a fully itemised bill in accordance with a direction of Deputy District Judge Shelton and there was no power under CPR 24 or PD 5.1, to order an interim payment. Mr Ham QC also found that the assets of the Orakis’ estates were “more than sufficient” to discharge all possible claims and all costs falling on them. He added,

“Other things being equal, the sooner the bankruptcies are brought to an end the better. Too much judicial time has already been devoted to this matter.”

Peter Smith J had also identified, at [6] of his judgment of 17 June 2011, that the proceedings were stayed pending a mediation but that the firm nevertheless obtained a hearing for summary judgment.

The Orakis accuse the Trustee of deliberate wrongdoing. Thus in Dr Oraki’s first witness statement in this action she takes many sideswipes at the defendants. For example, she accuses the first defendant of complicity with the firm, “knowing full well Mr Mireskandari’s dubious background”, lying and deliberately deceiving the court, and the second defendant of conduct deliberately intended to prolong the bankruptcies for financial gain. Also, the Orakis retained one Elizabeth Watson, a self-proclaimed forensic investigator and legal strategist who claimed (to the Institute of Chartered Accountants of England and Wales, the Solicitors Regulation Authority, the Insolvency Service, the Law Society, the Daily Mail, the MP Mr Vince Cable and Mr Defty’s senior partner among others) that both defendants were acting fraudulently and that the second defendant was a criminal, scammer and forger with dirty hands who engaged in unlawful racketeering, asset stripping and rampant white collar fraud laundered through the courts with the help of dishonest officers of the court namely the solicitors Salans LLP (who acted for the defendants through Mr Varley) and the defendants’ firm, the insolvency practitioners Kingston Smith LLP. There is much more of the same in the abusive, scurrilous and totally unfounded allegations made by Ms Watson.

It is suggested in Mr Briggs’s skeleton argument (at [34]) that,

“The proceedings represent a crude and unjustified attempt by the Orakis to reverse the effects of the Order of Mr Robert Ham QC (confirmed by the CoA) that they are liable for the bankruptcy costs and expenses.”

However that liability was in effect dependent on these very proceedings. It was part of Mr Ham QC’s Order of 21 January 2013 [9] that (provided they issued such an application on or before 11 February 2013, which they did) it was open to the Orakis to apply to challenge the Trustee’s conduct. At [18] the parties had permission to apply generally; any such application should (subject to availability) be heard by Mr Ham QC. The Court of Appeal held (see for example Arden LJ at [60]) that Mr Ham QC could not determine any dispute over the Trustee’s expenses on the evidence before him. Floyd LJ said, (at [44], [48] and [49]-my emphasis-),

“…This left the Orakis free to pursue the various challenges to the trustee’s conduct, and to apply to the court for those findings to be taken into account to reduce their liability under the order….

[Under the heading “Should the judge have decided that the trustee should get nothing?”]

In my judgment this court should not embark on such a fact finding exercise for a number of reasons. Firstly, it seems to me that the right place for such arguments to be mounted is in the proceedings which the judge authorised and in which it is open to the Orakis to challenge the trustee’s conduct either as a whole or from a particular date. Secondly, I was not in any event satisfied by the submissions of Mr Nicholls [for the trustee] that the position was not as plain as Mr Crystal [for the Orakis] maintained. It appears that the Orakis were maintaining at some stages that the money in the Insolvency service account was subject to a trust and was not available for the payment of their creditors. Whether or not this is so is a matter that can be investigated in the proceedings authorised by the judge. Thirdly, it seems to me to be unlikely that the trustee will not be able to demonstrate that he is entitled to at least some costs…

…He [the judge] allowed the Orakis to challenge the trustee’s conduct and to apply to him for an adjustment of his order if necessary…”

Dr Oraki sees Mr Ham QC’s judgment as an encouragement to bring the present proceedings. I gave Mr French permission to explain to Dr Oraki overnight, during the course of her evidence, that the judgment was merely intended to give the Orakis the opportunity to do so as Mr Ham QC was unable to decide such matters. His judgment was plainly not intended as a positive encouragement to the Orakis to bring the current proceedings. However I suspect that I was wasting my breath in this regard.

The claim is made at common law and (relating to some of the claims only) S.304 IA. One issue before me is therefore whether a trustee owes any duty at common law to the bankrupt outside s. 304 IA. Mr Nicholas Strauss QC (sitting as a deputy judge of the High Court) held, on an appeal from Deputy Master Julia Clark on an application by the Trustee for summary judgment or to strike out the claim, and a cross appeal by the Orakis to amend their Particulars of Claim, that it is arguable in a case where the assets exceed the liabilities of a bankrupt, that the existence of the surplus gives rise to a duty in the tort of negligence on the trustee’s part to the bankrupt.

It is argued by Mr French that the duties of a trustee in bankruptcy are different where it is evident that there is going to be a surplus and readily available cash assets will be sufficient to discharge the bankruptcy debts and costs, “and even more so when the bankruptcy orders ought not to have been made”. In other words it is argued that the bankruptcies were both solvent and cash-rich.

In the ordinary case, a trustee in bankruptcy’s duties are owed to the creditors as a group, because they are the persons interested in the bankruptcy. However, Mr French contends that at any rate in the solvent cash-rich case the trustee holds the assets on trust for the creditors for the purposes of IA and then for the benefit of the bankrupt: see s.305 and s.330 IA. S 330 (5) provides:

“If a surplus remains after payment in full and with interest of all the bankrupt’s creditors and the payment of the expenses of the bankruptcy, the bankrupt is entitled to the surplus.”

The bankrupt is, asserted Mr French, a person with a direct interest in the administration of the estate, and his interests are as much affected by proper administration as the creditors’ interests. In fact, he argues, his interests are even more affected in the surplus case because the creditors will be paid in full anyway but the conduct of the trustee will directly affect the amount of the surplus.

The defendants’ response was that the structure of the IA is exhaustive and does not include common law duties.

Mr Briggs referred me to s.305 (2) IA headed “General functions of trustee”, which are to,

“…get in, realise and distribute the bankrupt’s estate in accordance with the following provisions of this Chapter; and in the carrying out of that function and in the management of the bankrupt’s estate the trustee is entitled, subject to those provisions, to use his own discretion.”

Under s. 311 IA the trustee is under a duty to acquire control of the bankrupt’s property, including all his books, papers and other records. That makes sense, said Mr Briggs, for otherwise it would be impossible in practice to know what is comprised in the estate vested in him by s. 306 IA. Commensurate with this are the obligations of the bankrupt under s. 312 to deliver up possession of property, books, papers and records, without prejudice to the bankrupt’s duties under s. 333 IA, namely (even after discharge) to,

Sir Kenneth Cork GBE’s Report on Insolvency Law and Practice Cmnd 8558 (published 1982) (and the report by Justice on Bankruptcy chaired by Allan Heyman QC to which the Cork Report referred) recognised that there was no remedy open to a bankrupt against his trustee before s.80 of The Bankruptcy Act 1914 (“the 1914 Act”) and little practical remedy thereafter. Thus the Cork Report advocated the imposition of a statutory duty of care (see [780] and [784]) but with statutory protection for insolvency practitioners.As Romer J said in Knowles v. Scott [1891] 1 Ch 717 about a liquidator (at 721-2),

“The ground on which it is based is, that at law the Defendant is a trustee for the Plaintiff of his proportion of the assets in the liquidator's hands, and that the liquidator is liable in his capacity of trustee for negligence. In my judgment the liquidator is not a trustee in the strict sense, with such a liability affecting his position as has been contended for by the Plaintiff. The consequences would be very serious if such a doctrine were to be upheld. If a liquidator were held to be a trustee for each creditor or contributory of the company, his liability would indeed be onerous, and would render the position of a liquidator one which few persons would care to occupy.”

Bankruptcy case law has long recognised that a trustee in bankruptcy is not a trustee for the bankrupt until it has been established that there is a surplus after payment in full of all the creditors: see Bird v. Philpott [1901] 1 Ch 822 at 828, In re Leadbitter (1878) 10 Ch D 388 at 391, Re a Debtor [1949] Ch 236 at 240-241 and James v. Rutherford-Hodge and Hudson [2005] EWCA Civ 1580; [2006] BPIR 973 at [12] and [14].

In James v. Rutherford-Hodge it was held (see especially Chadwick LJ at [12]) that the ability of the bankrupt to challenge the actions of the trustee was limited. A bankrupt had no beneficial interest in his property. He merely (subject to his rights to pursue a remedy under s. 303(1)) had a right to participate in any surplus once the bankruptcy was concluded with all creditors and expenses paid: see also Heath v. Tang [1993] 1 WLR1421 esp at 1424 E per Hoffmann LJ.

Mr French relied to the contrary on Phillips v. Symes [2005] EWHC 2867 (Ch); [2006] BPIR 1430, saying that this case had not been cited to the Court of Appeal in James v. Rutherford- Hodge which was therefore per incuriam. I observe that it would be a brave puisne judge indeed who would make any such finding of per incuriam as he or she will always believe that the Court of Appeal is more likely to be right than he or she is. Most importantly, Phillips v. Symes is about charging orders. In that case Peter Smith J applied Bird v. Philpott, saying that it was not necessary to wait until a surplus was ascertained before making a charging order, even if no surplus could be ascertained. The Judge said (at [6]-[7]),

“If Wedlake Bell’s argument was correct and the applicants in this case had, for example, petitioned for a second bankruptcy based on the non-payment of the moneys which were out with the first bankruptcy, there would be a second bankruptcy. The applicants would prove in that second bankruptcy but on Wedlake Bell’s arguments any surplus not then ascertained would not vest in the second trustee in bankruptcy because it is not trust property for the purposes of the section, so it cannot vest in the trustee in bankruptcy of the second bankruptcy. Then the second bankruptcy would be discharged and Mr Symes would then be released from the debt on which the second bankruptcy was based, and if a surplus was then found under the first bankruptcy he would then have that surplus (because it then vests in him) free from the claims in the second bankruptcy. It seems to me that it would be a bizarre result if that was the law.

…in …Bird v. Philpott…the same arguments were put up at the suggestion of a second bankruptcy, that the charge was ineffective because until ascertainment there was no interest that was capable of being charged in respect of the bankrupt’s surplus. Farwell J dismissed those arguments…”

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, s.303, 304, 325 (2), 326(3) and 363 IA.

I do not therefore consider that there is a common law duty in negligence apart from the statute. However, the trustee owes a statutory duty to the bankrupt because of s. 330 (5) IA, at any rate where the estate proves to be solvent: see Hoffmann LJ in Heath v. Tang at 1422 G, “The effect is that the bankrupt ceases to have an interest in either his assets or his liabilities except in so far as there may be a surplus returned to him upon his discharge”. Common humanity dictates -and all the courts in this country always have common humanity firmly in mind as an ingredient of justice in the overriding objective- that the trustee should not ride roughshod over someone who either should obviously not have been made bankrupt in the first place or who it can be seen has assets greater than liabilities.

I should deal first with the Orakis’ contention (see [6] of the Re-Amended Particulars of Claim) that the procedural defects (referred to by Peter Smith J and by Mr Ham QC) were so obvious that the Trustee ought to have known that the bankruptcy orders should not have been made.

While I accept that in certain circumstances it is open to a trustee to look behind a judgment (see e.g. Re Menastar Finance Limited (in liquidation) [2002] EWHC 2610 (Ch); [2003] 1 BCLC 338 and Re Shruth Limited [2005] EWHC 1293 (Ch); [2006] 1 BCLC 294) there were at the relevant times apparently definitive judgments of the court (the Orakis appealed everything in every possible way and made many applications) to the effect that the bankruptcy orders were properly made.

It is accepted that many of the Orakis’ challenges were launched during their bankruptcies so that their standing to make the challenges was dubious, but there were five unsuccessful applications prior to the bankruptcies as well as numerous unsuccessful applications after discharge. It was not in my opinion incumbent upon the defendants to look behind those orders even though with hindsight it became apparent that there were procedural defects in the Judgment. It was not part of the Trustee’s role to review the legitimacy of the Judgment which, directly or indirectly, had been subject to appeals which had been rejected. I observe that the Orakis themselves have had numerous advisers who did not take any point other than the standing of Mr Mireskandari and deficiencies in the bills, including the solicitors KA Majid, Boardmans, Ellis Taylor, Ronald Fletcher & Co and currently Hines & Co.

I have taken into account Evans-Lombe J’s observations in Ella v. Ella [2008] EWHC 3258 (Ch); [2009] BPIR 441 that it may in appropriate circumstances be right for a trustee to challenge the bankruptcy order or the judgment underlying it. However, even if it were, as Deputy Master Julia Clark said (at [27] of her judgment dated 15 November 2013, (or [28], depending on whether one is looking at the official transcript or the BPIR report- I have not been taken to the order itself)),

“There is no basis in principle or policy for placing the trustee under a duty not to accept the successive judicial decisions confirming the legitimacy of the basis of his appointment.”

Indeed, Mr Ham QC recognised at [20] of his judgment that,

“So far as the Official Receiver and the trustee are concerned the bankruptcy orders were regularly made…”

I know this is hard for Dr Oraki to accept as Mr Mireskandari’s disgrace was on the front pages of national newspapers in September 2008, but until he was struck off by the Solicitors Disciplinary Tribunal on 21 June 2012 he was still on the roll of solicitors.

I therefore turn to the questions arising on the facts of the case.

Were the Trustee’s requirements as to information and meetings reasonable within s. 312 IA? Mr French says that they were not. He relies on the fact that Dr Oraki repeatedly told the Trustee that Mr Mireskandari was not properly qualified.

As both the defendants pointed out in evidence, it is generally the case that a person made bankrupt is aggrieved by the bankruptcy. But bearing in mind the judgments that had been given, what Dr Oraki told the Trustee about Mr Mireskandari was not so persuasive that the Trustee should have given credence to it. The fact that Dr Oraki has been proved right is irrelevant to the Trustee’s state of knowledge at the time.

In other words, should the Trustee have assumed and worked on the basis that these were not only solvent but cash-rich estates?

It is instructive to look at the background generally. There are questionnaires submitted by the Official Receiver in relation to the bankruptcies, both (that is to say relating to both of the Orakis) filled in by Dr Oraki. Dr Oraki says at 6.1 of her questionnaire dated 10 (or 11) August 2006 (although I note on 24 January 2006 she produced a Supplement to an Preliminary Information Questionnaire (the date of which is not given- I have not seen the original Questionnaire, if any) that no-one owes her any money, but the value of this to the Trustee is reduced by the fact that it is evident from her answer to the question at 2.1 (f) (“Money owed to you: see also question 6.2 on page 14”) that she thought that the question was addressed to money which she owed rather than the other way round. Under “List of creditors” she has written “I do not have. But there are three disputed judgments”, of which she gives details and then moves on to a complaint against the Official Receiver, to the effect that the Official Receiver acted in the firm’s interests in freezing the accounts and advertising the bankruptcy. Again, it is plain that Dr Oraki was refusing to accept the fact of her bankruptcy and did not understand the situation she was in. She also said, in the box provided for giving the names and ages of her household, “members of my family do not like to be listed here.” And in the box 17.1 “Give your average take-home pay” she has put “At the moment there is no regular income.”

Under “Properties (including land)” she has given the addresses of three properties. First, the house in which she lives with Mr Oraki, 68 Gladstone Avenue, Twickenham, of which she states she is the owner; secondly, 26 Denehurst Gardens, Twickenham, of which she states she is the joint owner; thirdly, 375 Bury New Road Manchester, of which again she says she is the joint owner. Then in box 7.4, she says that her mother, Mrs Parast, has an interest in 26 Denehurst Gardens and her father, Mr Parast, in 375 Bury New Road. She also says “I have a share”, under the heading “Nature of interest”.

On 12 February 2007, Dr Oraki provided at interview a Supplement to her Preliminary Information Questionnaire (dated 10 August 2006) for the Official Receiver. In that document she said about these three properties,

“1.

68 Gladstone Avenue was purchased in 1998 for £180,000. The deposit was 35%, with the remainder being financed by a mortgage from the Bradford Building Society. This is held by myself solely. I cannot estimate its present value. It is comprehensively insured, and is inhabited by myself and husband.

2.

26 Denehurst Gardens was purchased in 2003 for £230,000 approximately. The deposit on this was 25% with the balance being covered with a mortgage from Bradford Building Society. This is held by myself and my husband. It is

presently occupied by my sister, Mrs Yeganah, who is also paying the mortgage directly to the mortgage company. There is a written agreement between her and myself for the payment of the mortgage.

3.

375 Bury New Road was purchased in 1980, I cannot recall the purchase price. It was encumbered with a mortgage which has been fulfilled; and is presently unencumbered. This is owned partly with my brother, Mr Yeganah, and a split of interest based on 50% each represents our interest. It is presently being used as a kebab takeaway and is currently trading under the trading style “Me and You”. I do not have an interest in the business…

I have no interest in any other property whether registered in my name or not.”

As to creditors, she says,

“1.

Mountford and Co, the[y] were the solicitors representing Mr Gill, who was the landlord of a post office which I was involved with…A judgement was awarded against me for the unpaid rent. This is the basis of their claims in the bankruptcy. It remains disputed and I believe I have supporting evidence re: my arguments against them/Mr Gill; shows there is no judgement registered against me.

2.

Dean and Dean Solicitors [the firm]. [She says at some length that the person whom she instructed was not a solicitor, that he had been negligent and that there were irregularities in his invoice.]

3.

Bathurst Brown, Downie and Airey [(“BBDA”)], Solicitors. [She says that BBDA were negligent in pursuing a claim she had against Mr Singh/Birson Construction Limited]. A county court judgment has been registered against me by Mrs Airey in this regard, and I presently have an action in the Brentford county court to have this overturned.

4.

Inland Revenue. This relates to an outstanding amount of approx £5000; I do not understand what this is for. ”

Under the heading “Employment” she said (again my emphasis),

“…From around 2003 I have not been employed per se. I have been assisting my father with his business (and my family), earning a salary.”

On 11 August 2006, the Orakis were granted a stay of proceedings in both bankruptcies, pending an appeal, which stay was lifted on or about 16 January 2007.

On 3 May 2007 (that is to say a fortnight after his appointment) the first defendant wrote to the Orakis telling them of his appointment and asking for a meeting to be arranged in order to form his own view of the creditor position rather than simply relying on what the Official Receiver had said. Dr Oraki telephoned the first defendant’s assistant, Mrs Wilson, and when Mrs Wilson asked her to make an appointment to attend on the Trustee, the attendance note reads:

“Dr Oraki rang to confirm that it was ok to send the list of creditors which were requested by Mr Harfitt, who is apparently acting for her. I told Dr Oraki that I would have to confirm with the Trustee that he was willing to do this.

Dr Oraki then was shouting down the phone, saying she wasn’t insolvent, he [sic] should never have been made bankrupt, asked why she should have to make a meeting to see the trustee, the conversation which was all one sided, as I could not get a word in became louder and she was quite abusive. She told me not to interrupt and I could speak when she was finished but even after that she would not let me finish a conversation.

She was complaining saying that people were ripping her off and how much was this call and any meeting going to cost her, another £50!!

She said that Mr Harfitt was acting for her and we should go through him and she should not have to be involved.

After 10 minutes of constant argumentative, abusive conversation she said that she did not wish to speak to me any further and did not agree with what was going on and started shouting again. I said in that case then I think that we should finish this conversation as she was not listening and the call was ended.”

Dr Oraki’s version of the telephone call appears in the letter she wrote dated 6 May 2007:

“I called your office on Wednesday 3 May and spoke to Ms Christine Wilson asking for your email address to tell you of my intended instruction of Mr Harfitt, Insolvency Practitioner, to act for us. She refused to supply it. Unfortunately, we talked about the case and it ended with her threatening to take me to court and prison.

I am not insolvent. Please provide me with the figure required to pay the bankruptcy debts, costs and expenses for the case of Ardeshir Oraki and also for myself.

Mr Stephen Harfitt, licensed Insolvency Practitioner, of Haines Watts BRI Ltd… is authorised to act for us. Please forward the figure and correspondence to him so that he can supply a third party cheque to resolve this matter quickly.”

The first defendant says that as he had not met the Orakis to discuss assets and liabilities he could not provide the figure requested but only an estimated outcome statement.

On 10 May 2007, having written formally to all known alleged creditors, the first defendant wrote to the Orakis asking them to complete an enclosed questionnaire about their assets and liabilities. They did not do so. On the same day he also wrote to Mr Harfitt saying that he needed to meet the Orakis and asking him to liaise with them for the purpose. Mr Harfitt replied saying that he had stressed many times to Dr Oraki that she should meet the Trustee. However, the Orakis did not do so and indeed (see his letter of 11 May 2007) Dr Oraki took a sentence requesting an appointment out of a letter he had amended for her to send. In a file note of a conversation with him on 13 June 2007 Christine Wilson says that he believed that Dr Oraki did not realise the severity of the situation.

The first defendant wrote a letter chasing an interview on 19 June 2007 and Dr Oraki replied on 29 June 2007 that she was challenging the bankruptcy and that she had complied with s. 333 IA by attending an interview with the Official Receiver. The Orakis had both been discharged and, said Dr Oraki, if she had not cooperated the order would have been extended. Again she asked for the interest to date and for the first defendant to give her a “final figure”.

In the meantime the first defendant had issued an application to the court for an order compelling the Orakis to attend for cross-examination on oath. On 4 September 2007 Dr Oraki sent a letter complaining that her previous letter had not been answered and saying,

“Our assets are far more than the alleged debt. You have the report showing this. All you need do is to calculate the interest of the alleged debt and give us the final figure. There is an application in court to annul the bankruptcy order on the basis that this order should not have been made as we had a good claim against [the firm] for professional negligence. If this application had failed we would have then paid the alleged debt under protest.

Please withdraw your application scheduled for 11.10.07 as I am not available on that date. If you agree to the withdrawal I will attend [the first defendant]’s office during the first week of October.”

On 27 September 2007 Mrs Wilson received a call from John Hynds of Barclays Bank plc saying that Dr Oraki had opened an account in August 2007 into which £156,369 had been deposited on 25 September 2007 and that Dr Oraki had tried to transfer £120,000 from the account. It transpired that the funds had come from the sale of a property, 22 Simpson Road, Hounslow, registered at the time of her bankruptcy in Dr Oraki’s sole name. This property had not been disclosed to the Official Receiver, even on the basis that Dr Oraki had no beneficial interest in it.

At the hearing seeking a private examination Dr Oraki sought unsuccessfully to adduce a witness statement which said that the property had come from Dr Oraki’s mother’s estate which belonged jointly to Dr Oraki, her brothers and her sister and that her brothers and sister would bring proceedings to reclaim the money. The Trustee considered that he could not conclusively decide that the £156,369 was part of the bankruptcy estate because of Dr Oraki’s assertion that the funds were subject to a trust. On 18 October 2007 Salans wrote to Dr Oraki on behalf of the Trustee again asking for an interview and saying that it was impossible for the Trustee to be able to determine whether the moneys in the account belonged to the bankruptcy estate or not. The letter sets out in detail the kind of information needed by the Trustee to make such a determination, such as a copy of Dr Oraki’s mother’s will. Such information has never been provided.

On 17 October 2007 AST Hampsons Solicitors wrote to the Trustee saying that Dr Oraki was trying to sell another property registered in her name, 13 Estridge Close. The Trustee was unable to determine whether 13 Estridge Close formed part of the bankruptcy estate and that sale too did not go ahead.

Dr Oraki insists that these are properties in which she does not have an interest (although this contradicts her statement that she inherited a share in 22 Simpson Road from her mother) and they were only put in her name because she spoke English and her parents did not.

By letter dated 28 October 2007, Dr Oraki again asked for a figure for the debts and expenses of the bankruptcies. The letter went on,

“We are being kept in bankruptcy unreasonably and we want to apply for annulment under section 282(1)(b) IA.”

At first it was not clear to me on what basis the figure was sought. Dr Oraki and her son appeared almost to burst, nodding away for all they were worth when I said that the letters (and also DJ Schaffer’s judgment dated 10 January 2006 [3]and a letter from Dr Oraki to the Bankruptcy Court dated 23 January 2006) seemed to be written on the basis that the Orakis simply wanted to pay off the alleged debts in order to be shot of the matter. At my request Mr French took instructions. He insisted that the figure was to be given on the basis that the Orakis did not owe the debts provisionally allocated as liabilities of the bankruptcy estate and that his case is that the Trustee should have determined that the debts were not owed. Mr Hines has said, in commenting on my judgment in draft, that this is factually incorrect as Dr Oraki’s evidence was that she was willing to pay all debts in full if the Trustee had produced a final figure. That may well be the case, but that was not my understanding of Mr French’s submission.

S. 282(1) IA provides as follows:

“The court may annul a bankruptcy order if it at any time appears to the court-

(a)

that, on the grounds existing at the time the order was made, the order ought not to have been made, or

(b)

that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, either been paid or secured for to the satisfaction of the court.”

It was explained to Dr Oraki (at the meeting in January 2008 and doubtless by her many advisers) that in an application under s. 282 (1)(b) IA the procedure with a disputed debt was to secure it pending resolution of the matter. If it were so secured the bankruptcies would be annulled and the Trustee discharged, leaving the bankrupt to argue whether the debts were proper or not.

The first defendant says at [57]-[58] of his witness statement,

“[57] I knew from the interview that Dr Oraki disputed the [firm’s] debt and some of the other creditors. I did not think it was in the Orakis’ interests for me to incur significant time and costs in investigating those matters. I could see that the dispute [with the firm] was very heated, and I considered that resolving it would be a lengthy and expensive issue. I explained to Dr Oraki that she could pay funds into court to secure the creditors, and then to resolve the dispute afterwards. I must emphasise that this would have allowed Dr Oraki to obtain annulment of the bankruptcies and then resolve the disputes. It is, in my view, to her detriment that she chose not to pursue that course of action.

[58] If Dr Oraki succeeded in her dispute with these creditors, the funds would have been returned to her. Essentially, going down the annulment route would allow her to “stop the clock” on the very expensive process that is bankruptcy. This reflected my overall approach in a surplus bankruptcy situation, having regard to the interests of the bankrupts. It was not for me to advise the Orakis on this process. I was aware that Dr Oraki had instructed insolvency practitioners, Haines Watts [Mr Harfitt’s firm], in 2007…”

However, as Mr French pointed out, it is not the Orakis’ actions (in particular their decision to pursue annulment under s. 282(1)(a) (rather than (b)) IA that are under scrutiny in this action, but the actions of the Trustee and whether he did his job properly.

The Trustee believed that he was not in a position to provide a final figure (as opposed to an Estimated Outcome Statement) to Dr Oraki because (a) the Orakis had not been examined and (b) Dr Oraki’s interest in 22 Simpson Road had not been disclosed to the Official Receiver, nor had any proof been submitted by the Orakis that the property was trust property. He conducted a case review shortly after his appointment and made various other searches, which resulted in the findings, relating to properties vested during the bankruptcies, summarised in the following table:

On 11 December 2007, at the request of the Trustee, Barclays transferred the sum of £150,530 from Dr Oraki’s account to the Insolvency Services account of which the sum of £25,458 was deducted as a statutory ad valorem tax on realisations (although if a trust were established the tax would be adjusted accordingly) leaving £125,071 in the account. Dr Oraki says that she was not told this but at all times believed, encouraged by the Trustee, that the funds remained frozen in her account. She says that, unknown to her, the funds were available to the Trustee to pay her debts, either on the basis that the Trustee always took the line that the funds belonged to her alone, or on the basis that it was evident that her brothers and sister would have given their consent to use of the funds to discharge the bankruptcies.

The whole business of a trust is foggy, to say the least. In her oral evidence to me, Dr Oraki said that there were no trust documents and the ownership of the properties was “cultural”. However, this is different from what she said in her interview on 4 January 2008 where she said that there were trust documents (such as a formal contract: see p.27-30 of the transcript) but that these were in Persian. I include the following extract from that interview,

“TB…You said you’re a trustee on behalf of your family. Is there a formal trust? Is there a trust deed?

SO: It’s in Persian. Yes, we have got a contract between [inaudible] bound to obey because I’m managing the estate for my family…

TB: …You’ve said that there’s an Iranian Trust…

SO: Yes.

TB: …which those three properties [68 Gladstone Avenue, 13 Estridge Close and 22 Simpson Avenue] are part of, but you’ve separately informed the Official Receiver that [Bury New Road] was 50/50 between yourself and your brother.

SO: Yes, 50% belonged to my brother and 50% belonged to me, which I’ve also got because I was a partner in [it].

TB: Okay, I don’t understand so we’re going to try and ask. Who are the beneficiaries of the Trust?

SO: …one brother have got half of it and the other half it belong to three brother and one sister and me.

TB:……so it’s five people.

SO: Yes. And my brother has got a wife and children. His share is with his wife, with her family, with his family.

TB: The others Estridge and Gladstone- who are the beneficiaries of those properties?

SO: Estridge is completely my father’s actually. And Gladstone is for me and my family, and my father is paying, with my help, the mortgage of that house.”

Dr Oraki seems to be unable to distinguish, on the one hand, the cultural ownership of property (which she speaks of as being Iranian, but it is common to many cultures) namely that one does what one’s parent says and that siblings all have an interest in the loose sense of the word, from, on the other hand, the ownership of the property in a legal sense, that is to say, at law and beneficially. When Floyd LJ said (at [48]),

“It appears that the Orakis were maintaining at some stages that the money in the Insolvency Services account was subject to a trust and was not available for the payment of their creditors. Whether or not this is so is a matter that can be investigated in the proceedings authorised by the judge”,

he was speaking of a trust in the legal sense, not the fluid arrangement advocated by Dr Oraki.

Again, Dr Oraki said that she gave money from the proceeds of sale of property to those who needed it (such as Iranian relatives and friends who were subject to torture) without seemingly understanding the nature of bankruptcy. It is not sufficient for the ownership of property to be so fluid in a bankruptcy situation. Dr Oraki has never produced her mother’s will (if there was one) and told me that it was never admitted to probate. If there was no will, or no will in which the children were mentioned as beneficiaries of the properties, then any properties vested in Mrs Parast will devolve on intestacy. If there is no helpful documentation, it could well be that equity follows the law and the properties belonged beneficially to Dr Oraki. In any case it is likely that Dr Oraki has an interest in them, but it is still not at all clear what that is.

Dr Oraki’s evidence was generally contradictory and unsatisfactory. For example, she asserted that the Official Receiver had told her that as she had filled in a questionnaire for him she need not fill in a similar questionnaire for the Trustee. That seems unlikely, bearing in mind for example the terms of the letter to her from the Official Receiver of 23 April 2007 enclosing the Guide to Bankruptcy. In any event the questionnaires she filled in for the Official Receiver contained many omissions which the Trustee tried unsuccessfully to rectify and it is evident that Dr Oraki has always refused to accept the fact of her bankruptcy.

Again, Dr Oraki insists that her family would have released their interest in the money in the Insolvency Services account to enable the Orakis’ bankruptcies to be discharged. On more than one occasion she told the court that there were letters to this effect, and only when pressed as to the details changed her evidence to telephone calls instead of letters. She refers in her witness statement at [42] to a letter dated 12 August 2008 from her insolvency practitioner, Mr Gaultier, which said at [4]

“The £152,530… are actually funds belonging to a Trust previously held in a bank account which was unfortunately only in her name. However I understand that she has already provided to you proof of this [she had not] and that as such some or all of those funds do not constitute an asset to be realised in her bankruptcy estate.

That said, because the funds belong to members of her family those members are prepared to allow you to retain the monies to apply them against Dr Oraki’s liabilities and costs. Confirmation of this fact has already been provided to you. [It had not.]”

Dr Oraki went on in her witness statement at [43],

“I obtained affidavits [note: in the plural] from my siblings [again plural] which gave Mr Bramston authority to use the moneys held in the ISA account to settle both invalid bankruptcies. However knowing there was more money to be made he ignored both Mr Gaultier’s letter and my offer and pressed on with possession proceedings supposedly on the advice of his Solicitors, Mr Varley of Salans.”

It is said that the authority was provided at the hearing before Mr Registrar Nicholls on 19 August 2008 in the form of a copy of an affidavit of her brother Farhad Yeganeh in which he says (I have an unsworn copy),

“2.

I have been given authority by my brothers, Iraj, Toraj, Farzad and Shahla Yeganeh, that the funds from our mother’s estate £150,530.17 can be used to pay off Dr Sheida and Mr Ardeshir Oraki’s bankruptcies.

3.

I had understood that Dr Sheida Oraki had already informed the trustee that the money could be used for this purpose and was surprised to hear there was a delay in settling the issue.”

Mr Yeganeh gave evidence and also said orally that he produced a signed copy to the Trustee. However, no signed witness statement is available, Mr Yeganeh’s statement alone would be insufficient to dispose of the interests of his siblings, and importantly there is the internal evidence of the hearing from which it is clear that there was no final waiver between the parties. Mr Varley said at that hearing (my emphasis),

“There is money held in [the Insolvency] Services account, approximately £150,000. When the trustee met with Dr Oraki in January he was told that those monies were trust monies. We are now told today that those monies, the beneficiaries of that trust, and the trustees, have no knowledge as [to] the trust or the terms of it, but apparently the beneficiaries are willing to agree that that money can go towards the bankruptcy debt and expenses, obviously thereby substantially reducing the amount needed?: That is only oral at the moment. There is no proof of the actual trust and no proof from any of the beneficiaries that they do indeed waive their rights. We have had a discussion, Mr Boardman [who was acting for Dr Oraki] and myself, outside the court and I believe that, subject to the court’s assistance, we might be able to make some progress on that.”

Mr Boardman said,

“…The funds in Barclays Bank amount to some £150,000. These are funds in which my client, Dr Oraki, has a beneficial entitlement to one-sixth. However, my instructions are that the trustees and the beneficiaries of that fund would be prepared to provide proper written authority…to use those funds to discharge all or substantially all, if it was not sufficient, of the sum owed.”

Mr Registrar Nicholls granted an adjournment for the purpose of “sort[ing] out the issue regarding this Barclays Bank… money…, this trust money.”

Accordingly I do not accept that a signed witness statement was produced at that hearing. Despite the discussion outside court between Mr Varley and Mr Boardman no written authority has ever been produced, and indeed no details of the alleged trust either.

At the adjourned hearing on 20 October 2008, Mr Deputy Registrar Briggs gave a reasoned judgment and made suspended orders for possession of 68 Gladstone Avenue and 375 Bury New Road. The applications for possession in relation to 51 The Downs and 26 Denehurst Road were adjourned to 2 February and then to 5 March, 15 April, 31 July 2009 and then adjourned generally. On 30 April 2009 David Richards J dismissed the Orakis’ application for permission to appeal Registrar Briggs’s suspended possession orders.

Were the Orakis obviously solvent so that cash assets could have been used to defray the bankruptcy debts without recourse to any of the real properties?

I do not accept Mr French’s contention that the money in the Insolvency Services account could have been used to defray the bankruptcy debts. Dr Oraki insisted that she only owned one-fifth of those moneys; she did not explain how the alleged trust came about; she did not prove the ownership of the moneys and she did not produce any proof that the true beneficial owners were willing to use the moneys to pay the Orakis’ bankruptcy debts. I do not therefore consider that the Trustee could or should simply have assumed without more that 22 Simpson Road belonged beneficially to Dr Oraki, particularly as this is at odds with her oral evidence that it did not and that was why she did not disclose it to the Official Receiver. Nor do I consider that Dr Oraki can rely on a waiver from her siblings as there was none.

However, Mr French’s submissions go further than that. They are to the effect that if the Trustee had “done his job properly” he would have realised that the firm was not a proper creditor, that BBDA’s debt was properly disputed, that there was no debt outstanding to Her Majesty’s Revenue and Customs (“HMRC”) and that there were two judgments outstanding in Dr Oraki’s favour. He relies on the fact that, although Dr Oraki had told the Official Receiver about judgments she had obtained, the first defendant did not properly read the Official Receiver’s Reports or the report given to him by his colleague at Kingston Smith LLP Mrs Christine Wilson, and the second defendant had no proper regard to them.

It is said that the Trustee failed to collect assets in the form of the two judgments and in the form of negligence claims and those assets became statute-barred and irrecoverable. It is said that instead the Trustee insisted on realising the Orakis’ properties.

I would however observe as a preliminary matter that constant objection to the debts is tantamount to interference in the administration of the bankruptcy. If a debt is accepted by a trustee, the bankrupt has the right under the Insolvency Rules r .6.105(2) to expunge the proof. That is therefore the proper procedure to be followed. The matter is compounded by the fact that Dr Oraki, despite being represented by solicitors and counsel, has frequently attempted to contact me directly and frequently has written to judges, leapt up to address the court and made excuses for one of her sons shouting in court, thus completely short-circuiting the representation process. I do understand Dr Oraki’s frustration and rage at what she sees as lies and conspiracies all around her in the extraordinary situation in which she found herself. However it does not help that she has reported everyone in sight to everyone she can think of, accused the Trustee of dishonesty and collusion with the firm, accused the Trustee of taking the money in the Insolvency Services account illegally and alleged forgery of the Block Transfer Order.

I propose to deal with the five alleged creditors in turn.

First, the firm. I note that the negligence claim against the firm seems to have been dismissed pre-bankruptcy: see the letter from Hines & Co dated 1 November 2011. It was disregarded by the Registrar on the petition hearing. Importantly, Peter Smith J described it as “extremely nebulous” and not properly formulated: see [12] and [13] of his judgment of 17 June 2011. In any event the counterclaim against the firm would have been statute-barred by January 2008 although a new negligence claim was brought by Dr Oraki on 10 January 2006.

However, I have already said that the outstanding judgment in favour of the firm was such that Dr Oraki could not prior to those findings rely on the eventual findings of the Solicitors’ Regulatory Tribunal.

Dr Oraki’s allegation is that she had two judgments against Mr Singh and Birson and that BBDA were negligent in that they did not obtain charging orders against Mr Singh’s property to secure them. However it appears from a letter sent by Dr Oraki to Amanda Airey on 6 February 2005 that the reason why a charge was not obtained was because Dr Oraki had not paid the court fee. Dr Oraki said “surely the best approach would have been for you to paythe £50 and then add it to my bill”, which BBDA had no obligation to do. By the time Mrs Airey wrote to Dr Oraki on 27 April 2005 it appears that counsel’s fees had accrued. On 15 June 2005 Mr Downie of BBDA wrote to Dr Oraki, saying,

“I have discussed this matter [Dr Oraki’s claims against the firm] with you previously and explained the difficulties you face, so far as evidence is concerned. A significant amount of work would be required and no guarantee of success could be given. I would require a minimum payment on account of £5,000.

In addition I am aware of the extent of your indebtedness to this firm in relation to two other matters, namely your claim against Mr Rupinder Singh and your claim against Birson Contractors Limited.”

Dr Oraki’s letter of 4 August 2005 shows the extent of the dispute between her and BBDA. A letter setting out the position in full was written by Mrs Airey on 25 November 2005. Dr Oraki instructed solicitors, Ronald Fletcher & Co to look into her claim in negligence against BBDA and they said to her on 9 January 2006,

“It is absolutely clear that you were asked to provide funds of £500 before they would issue the charging order….We therefore need your instructions on your response to this letter and why you failed to pay the funds.”

Dr Oraki’s bankruptcy intervened (see the letter from Ronald Fletcher & Co dated 12 January 2006) and there are no such instructions in the bundle. No explanation that I could understand was given to me either.

At all events BBDA had obtained a default judgment (Dr Oraki says she was out of the country at the time of service) on 3 January 2006. As I have said, her bankruptcy intervened, but BBDA’s letter to Ronald Fletcher & Co of 10 January 2006 in which they refuse to have the judgment set aside, is instructive as to BBDA’s claims as to what Dr Oraki had said.

However I understand that Dr Oraki is going to challenge the matter in separate proceedings and nothing I say is intended to bind the judge hearing them. My only point is that it is not, as Mr French maintains, a simple case where the Trustee should have pursued the negligence claim against BBDA.

The defendants and the solicitor at Salans, Mr Varley, on hearing Dr Oraki give evidence at this trial, said that the evidence shows that there is a large debt outstanding to HMRC. She is adamant that at the relevant time she and her husband were not earning any money, but this is contrary to what she said about her own “salary” in January 2008 and the evidence about whether or not her husband was working during his bankruptcy is confusing in the extreme. She is also adamant that her father paid the family’s tax (including her tax) but that situation was never clarified and again the Trustee and Mr Varley simply do not believe it. The fluid arrangement about ownership of the properties, combined with the fact that Dr Oraki was earning a salary from her family, suggest to them, and more importantly suggested to them at the time, that the tax authorities were being given the run-around. It is not part of my remit to determine this matter. All I can say is that the tax situation is murky and obscure, was not clarified in interview and was still not clarified in cross-examination before me. It was plain that Dr Oraki did not consider tax to be any of my, or the Trustee’s, business. As far as the Trustee is concerned she has always adopted this line.

HMRC put in a proof of debt and in the circumstances I do not accept that the Trustee ought to have, or indeed could have, resolved the matter of tax at an early stage without a clearer explanation from Dr Oraki.

Dr Oraki has a Costs Certificate apparently in her favour against Gill and Gill. She says that the judgment obtained by Gill and Gill against her was set aside (presumably with costs) in 2002 and she has produced a letter dated 8 February 2007 from the court service at Brentford County Court saying,

“According to our records at this court we can confirm that there is no judgment registered on this matter against you.”

However the force of this letter is somewhat watered down by a further letter from Brentford County Court of 30 April 2009 saying that court files are destroyed three years after the last action on them. The last action was in January 2003.

The Trustee says that Gill and Gill on the other hand insist that the costs order contains a serious error being simply the wrong way round and that Dr Oraki has sought to take adventitious advantage of this fact. Indeed the Official Receiver’s Report dated 26 February 2007 refers to the sum of £24,690.10 being a liability of the estate “in respect of costs awarded in litigation”. There is nothing in writing to show that Gill and Gill owed her money instead other than the terms of the order itself and the matter is hotly disputed: see the letter from Bruce MacGregor and Co Solicitors dated 13 May 2009.

In a letter dated 10 June 2005 from Dr Oraki to the Brentford County Court (on another matter, relating to the firm) she apparently (I have not seen this letter) said that she had applied to set aside the judgment but was told that she was out of time: see the letter from Mrs Hall to Dr Oraki dated 26 November 2014.

Again, it is not for me to make any decision about the matter. Mr French’s submissions are (a) that the Trustee should long since have sorted the matter out and the fact that he did not is another instance of his not doing his job properly and (b) that the Gill and Gill debt was assigned on 7 May 2001 to PAM.COM Limited, a company which has been struck off.

As to (a), BBDA have a judgment against the Orakis and the Trustee was entitled to rely on this. As to (b), PAM.COM Limited was dissolved in 2004 but restored to the register in June 2008. It was again dissolved on 22 October 2013 but this means that the claim is Bona Vacantia payable to the Treasury. It does not mean that the Orakis are free of the debt: see the letter from Mrs Hall to Dr Oraki dated 26 November 2014.

There is a judgment dated 11 October 2004 for £23,175.80 against Mr Singh of which Mr Singh paid £3,000 by 12 December 2004 when Dr Oraki wrote to BBDA about it.

The first defendant says in his witness statement (at [59]),

“I am aware that in these proceedings the Orakis allege that I should have sought to enforce a judgment from 2004 against Rupinder Singh in Dr Oraki’s favour. I was not advised of this judgment at my meeting with Dr Oraki in January 2008. The detailed questionnaire which Dr Oraki provided to the Official Receiver did not make any reference to the judgment…I do not recall having been provided with a copy of the judgment. As such it was not something of which I was aware or could have been aware.”

There was nothing clear (see below) about it, as the Trustee says, in the Questionnaire (that I have seen) provided to the Official Receiver or at the interview in January 2008. Dr Oraki had written to Feltham Magistrates Court on 26 August 2005, complaining that the instalment order of £750 per month was too small. When Mr Briggs cross-examined Dr Oraki about it she said that the instalment moneys were paid to the firm. Again, that was not something told to the Trustee and it is wholly unclear how much of the judgment was paid. The first defendant accepted however that the judgment is mentioned in the Official Receiver’s handover Report so that he could and should have been aware of it. He goes on,

“If I had been provided with a copy of the judgment, I would have sent a letter to Mr Singh requesting payment. However, given the length of time for which the judgment remained outstanding, in my experience, it is unlikely that I would have received a response let alone recovered funds. At that stage I expect that given the illiquid nature of the estate I would have been extremely reluctant to exercise my discretion to formally enforce the judgment. By the time of the meeting almost four years had passed since the judgment had been obtained and the Orakis themselves had failed in their attempts to enforce the judgment prior to their bankruptcies.”

And in [61],

“Choosing to commit funds to pursuing litigation is not a step which a trustee in bankruptcy should ever take lightly, and he will need to satisfy himself that there are reasonable chances of making a recovery, and that the risks of not making a recovery and incurring an adverse costs order warrant making the investment. This is particularly the case when the estate is not liquid.”

A judgment against Birson Contractors Limited (“Birson”) was struck out of the Particulars of Claim by Mr Strauss QC as irrecoverable since Birson had been dissolved before the appointment of the Trustee. No claim can therefore lie in respect of this judgment although Mr French says that the fact that the Trustee ignored it is part and parcel of his general attitude. Mr Ham QC attempted to improve relations between the parties with [11] of his Order, but to no avail.

Again, when on 2 March 2009 the Orakis asked for an assignment of the causes of action against BBDA and Birson, they said nothing about the Singh judgment.

Mr Hines says that Dr Oraki alluded to Singh/Birson in her 2008 interview and it is true that she did. She said,

“SO: There is a judgment in my favour…The bill for renovating another house, he took the money and he ran away, he’d been convicted. And I got a Judgement in my favour for £100,000, but I couldn’t enforce this Judgement because I’m bankrupt. And you didn’t help me to recover that money, or Official Receiver didn’t do anything to recover that money. And all this could have been recovered because I put application for Negligence against Dean & Dean and once I get all my rights back by annulling this bankruptcy, I will recover all my losses from the Dean & Dean, there’s no doubt.

TB: Okay. So what I’m going to do next is go through the list of creditors…Bathurst Brown Downie.

SO: He [inaudible] from the solicitors. This is the one who has…was dealing for me in the builder’s case. I won the case against the builder, she was in fact, [inaudible] to recover her money from the builders. She didn’t put a charge on the builder’s [inaudible], made the Application for professional negligence against this solicitor. This is a Default Judgement. When Dean & Dean was pressing me for bankruptcy, they were working for me as a solicitor against that builder. And I was seeking help from them to build the bankruptcy petition and this crook solicitor also, as soon as she came to know that I am in trouble, she joined the Dean & Dean and while she was [an income] from me, was taking money from me, she wrote to Dean & Dean and put her [inaudible]…

TB: Your judgment was against Burson [sic] Contractors Limited?

SO: That’s right, yes.

TB: And tell me about them, that company, what happened to them?

SO: They are, this I mean he was a builder who was supposed to renovate our house. We paid him money and he didn’t do his job. He tried to steal the [inaudible]. He’s been arrested, he’d been convicted by the police. And in the civil proceeding it was brought down it was representing me, which as a result of her negligence she’s been put in charge on builder’s properties and the builders sold the property and I didn’t get my money. I have got £100 over £150,000 Judgement in my favour, which I cannot enforce it because I’m bankrupt. [She then goes on to discuss BBDA and the firm].”

Thus what she said was unclear, to say the least, and she did seem to be saying that the judgment was against Birson rather than Mr Singh personally.

It does seem to me that the Trustee should, over the many years in which the bankruptcies affected the Orakis, have at least considered the negligence claim against BBDA. It is plain that he overlooked the fact that the Singh judgment was mentioned in the Official Receiver’s handover notes. It is a hindsight judgment that if the Trustee had treated the negligence claims seriously and that if he had known about the judgment against Rupinder Singh he would not have pursued them. However it does not appear that Mr Singh was good for the judgment debt (assuming it to be some £20,000) particularly since his company Birson was dissolved in 2006 before the appointment of the Trustee, and the amount currently outstanding is not apparent, even after cross-examination.

There is a lot of evidence indicating that none of the Orakis’ creditors should be taken at the value placed upon them by Dr Oraki. Moreover these judgments would not have been enough to cover the provisional liabilities of the bankrupts’ estates as known at the time.

Notice of the Trustee’s intention to distribute is required to be advertised. Creditors can come out of the woodwork even at that late stage. Because the Orakis had failed to cooperate with the Trustee on the issue of disclosure, the Trustee was unable to say that they had no liabilities.

I find that it was not unreasonable for the Trustee not to chase the debtors since,

The Trustee cannot be criticised unless it can be shown that he took or failed to take some action that a reasonably competent office holder would have taken or not taken in carrying out his functions in the exercise of his discretion. In the circumstances I do not believe that, since the Trustee has a discretion in the management of the bankrupt’s estate pursuant to s. 305(2) IA, he can be made liable because his perception of the circumstances is wrong, unless it is an error which an ordinary skilled insolvency practitioner would not have made. In other words, the duty of skill and care in exercising his managerial discretion had to be judged against the standard of the reasonably skilled and careful insolvency practitioner: see Re Charnley Davies Limited (No 2) [1990] BCLC 760; Chapper v. Jackson [2012] EWHC 3897 (Ch); [2012] BPIR 257. Where as here there is no expert evidence, this is a value judgment for me to make: see [12] of Chapper.

In my judgment the Trustee did not act unreasonably in that (a) he had no funds to chase debts, (b) he had insufficient information that the claims were good, (c) the Orakis were adamant that they wanted to annul under s. 282(1)(a) so that (d) in the circumstances no reasonably skilled and careful insolvency practitioner would have chased the claims.

Accordingly, I agree with the Trustee that, notwithstanding my findings at [109] above, the Trustee has no liability for the debts alleged to have been owed to the Orakis in all the circumstances.

There was a standstill between the Orakis on the one hand and the Trustee on the other. The former refused to acknowledge the bankruptcies, unwilling to understand the situation they were in, and the latter refused to investigate the Orakis’ claims until they had answered his questions.

It is said that the defendants failed to bring the bankruptcies to an end expeditiously (in order to charge exorbitant fees: see [11] of Mr Strauss QC’s judgment) and obstructed the Orakis’ attempts to do so, resulting in the claim. It is pleaded (see [45] of the Re-Amended Particulars of Claim) that the Trustee wrongfully kept the Orakis bankrupt and held more assets than necessary. Deputy Master Julia Clark was not satisfied that the Orakis had no real prospect of showing that the Trustee was under a duty expeditiously to bring the bankruptcies to an end, or at least not unreasonably to delay in doing so: see [32] (or [33]) of her judgment. Indeed, this is the other side of the coin from the Trustee’s duty, implied by s. 330(1) IA, to proceed expeditiously to make a final distribution. Mr Briggs accepts that there is this latter duty.

These bankruptcies have undoubtedly lasted a very long time indeed. The Orakis were made bankrupt in September 2005 and January 2006 respectively but the estates remained unadministered at the date of Mr Ham QC’s judgment in January 2013 and still remain unadministered. That fact in itself is quite remarkable.

However the problem for the Trustee is that while he was being constantly pressed by the creditors for payment, pressure was being applied by the Orakis to stall realisation of assets pending their constant applications to annul the bankruptcies under s. 282(1)(a) IA. For example,

Added to all this were the innumerable applications and appeals of dismissal of those applications made by the Orakis, and the need to correspond with Ms Watson and to bodies to which Dr Oraki complained.

In my judgment it was the Orakis, not the Trustee, who, in the circumstances understandably, did not want to deal with the bankruptcies expeditiously, except on their terms. It does not therefore lie in their mouths to criticise the Trustee for lack of expedition. I cannot help but observe that if they had taken Peter Smith J’s advice and applied under s. 282(1)(b) IA the need for this present action would have fallen away. Suggestions by the Trustee to the same effect, which I find as a fact were made for the purpose of not running up costs, similarly fell on deaf ears.

It is said in [9] of the Re-Amended Particulars of Claim that,

“the Defendants failed to cooperate with three insolvency practitioners appointed by the [Orakis] to liaise with them. This had the effect of precluding the possibility of the bankruptcies is [sic] being resolved under section 282(1)(b) of the [IA] at an early stage.”

However such evidence as I saw indicates that the Orakis failed to take advice from the insolvency practitioners to annul by paying in full, and failed to provide any documentary proof that moneys were available to do so.

I have been supplied (presumably by Dr Oraki in person, although as my clerk was away from her desk I do not know for certain) with a copy order showing that on 25 June 2015 Mr Registrar Jones dismissed an oral application made by the Orakis to rescind the bankruptcy orders and adjourned their application for the removal of creditors to 10 am on 27 August 2015. He required Mrs Hall to determine the proofs of debt of creditors by 4 pm on 6 August 2015. I should say that the Orakis first made the application requiring removal of all remaining creditors in January 2015 to Roth J as judge of the interim applications court. Roth J adjourned the application to be heard by the Registrar, directing the creditors to be given notice. I note the recital to Registrar Jones’s order numbered (ii), namely,

“…it appearing from the submissions of the First Respondent [there was only one Respondent, namely Mrs Hall. I am told by Mr Briggs that this is a mistake for the First Applicant, Dr Oraki] that (a) the debts owed by each Applicant to [HMRC] claimed in their bankruptcies were paid by a third party today (b) [BBDA] who have submitted a proof in the bankruptcies as an unsecured creditor now claim as secured creditors which security the Applicants accept subject to their dispute as to the existence of the debt so secured and (c) the debt of [Gill and Gill] assigned to “PAM.com” as proved concerns a judgment debt for which there is evidence that an application to set aside that judgment may have been granted and that any surviving extant claim (if any) has passed to the Crown as bona vacantia”.

It was only when new evidence was admitted by Mr Ham QC (see [2(1)], [7], [12] and [17] of his judgment) that Dr Oraki’s appeal succeeded. Again, therefore, the alleged delay in assigning the right of action is irrelevant.

In any event I bear in mind the words of Browne-Wilkinson J in Re Papaloizou [1999] BPIR 102 at 112,

“…trustees should exercise their power to take such a step with great circumspection. It must not be forgotten that by doing so they are enabling the bankrupt to conduct possibly vexatious litigation against third parties who will have no effective remedy in costs against him…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 what 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 the litigation…”

There is no evidence that the alleged delay prolonged the bankruptcy. The terms of the letter dated 20 August 2009 from Mr James Dowers on behalf of the second defendant saying wrongly that no rights had been assigned did not, pace Dr Oraki, lead to the adjournment of the Brentford County Court hearing on that day. It is clear from the transcript of that hearing that the adjournment was due solely to lack of court time.

The Trustee believed that he should realise readily realisable assets, such as the properties, first, and then decide what were the liabilities of the estate. He said that it was expensive to make separate applications in respect of separate properties so that it was his invariable practice to try to realise everything together.

However I agree with Mr French that this rigid view of a trustee’s duties does not apply where an estate is likely to be solvent. Although Dr Oraki did not demonstrate that the estate was cash-rich, the Trustee could and should have sought to realise the bankrupts’ properties one at a time rather than all at once. The strategy was faulty.

I observe that on 19 August 2008 Registrar Nicholls asked what the Trustee was doing, applying for possession of properties “way in excess” of the value needed to pay off the bankruptcy debts. Mr Boardman replied,

“My point, and I think you have already picked up on it, sir, is that this is a bit of a sledgehammer to crack a nut, this application, because it is going after far more property than the trustee appears to require….”

Attempts were made to realise four properties through orders for possession and sale. In fact the judges who dealt with the applications did not make orders for possession of all the properties so that loss was not suffered. Although orders were obtained for the possession and sale of 68 Gladstone Road and 375 Bury New Road, the Trustee did not obtain enforcement orders in respect of either property. In the event the Trustee’s applications were adjourned generally.

However, it is said that the Trustee’s actions caused the tenants to vacate in two instances, so that (i) income was lost, (ii) liability for Council tax arose, (iii) one of the properties was vacant for so long that is was vandalised, had to be repaired and had to be boarded up by the local authority.

The fact that the Trustee should not have adopted such a rigid strategy does not however mean that the loss pleaded is proved. The evidence about tenants is again vague in the extreme. The tenants are not named so that the allegation about loss cannot be tested, nor is there any clear allegation about when they were in possession, nor is there any evidence at all (such as rent books) about the tenancies. I find that the Orakis have not proved any of the loss alleged to have been suffered under [42(b)], [43] and [44(c)] of the Re-Amended Particulars of Claim and their claim in this regard is extravagant.

It is said that the Trustee refused the Orakis’ reasonable requests to refinance existing mortgages of the properties in order to take advantage of lower interest rates, thus affecting the surplus available to them. It is not however said what power it is alleged the Trustee had in law to permit the Orakis to remortgage. (The Trustee would not have been willing to enter into mortgages in his own name taking on secured liabilities.) Again, it is not said what power the Trustee had to permit the Orakis to obtain equity release on properties vested in him. Instead, he proposed a sale of his interest, which was permissible under s.314 IA, but the Orakis did not accede to this. It would not have been appropriate to lift the bankruptcy restriction on the properties. This is yet another instance of the Orakis believing that the properties remained theirs to dispose of.

As to the higher interest rate ([44(b)] of the Re-Amended Particulars of Claim), this is dependent on the lifting of the bankruptcy restrictions on the properties which I have held were properly registered and the claim to remortgage which I have held would fail.

Then there is the issue of the instructions that were given to counsel for the hearing of 9 April 2010. Mr French’s skeleton argument says (at [54]),

“Even after he and Mr Bramston had expressed the view that they would be neutral on any annulment application, Mr Defty proceeded to be completely non-neutral and opposing the Orakis’ annulment applications.

Mr Defty continued with this view in April 2010 suggesting that he would not be a party to the annulment application, it being purely a matter between the Orakis, Dean & Dean and the Court in respect of which he could have no involvement.

Yet, on the hearing of the Orakis’ annulment application on 9 April 2010, Mr Defty appeared by Counsel, who (having filed a skeleton argument setting out the grounds upon which the Court would be invited to dismiss the application, thereby enabling Mr Defty to proceed with his administration of the bankrupts’ estates for the benefit of the creditors who had been kept out of their money for over 4 years) proceeded to act effectively for Dean & Dean (in the guise of Mr Tehrani).”

Again, it was not until Dr Oraki tendered fresh evidence to Mr Ham QC in 2012 that she persuaded the court that the bankruptcies should be annulled. Thus opposition to her annulment application in 2010 is irrelevant.

However I find that the Trustee’s duty to hold the ring between the Orakis and the creditors meant that he was entitled to point to the apparent hopelessness of the Orakis’ application. The submissions made by (the same) Counsel can be compared to those made before Mr Ham QC, which the Judge described at [1] and [8] of his judgment as “helpful neutrality”.

Mr Nicholls’s skeleton argument dated 8 April 2010 lists the applications made by the Orakis, saying that there were seven attempts to challenge the Judgment. At [3] he says,

“The court is invited to dismiss the application, thereby enabling T to proceed with his administration of the bankrupts’ estates for the benefit of the creditors who have been kept out of their money for over 4 years.”

and then, in conclusion says (at [20]),

“T is anxious to progress matters because until the annulment application has been determined, T is prevented from obtaining permission to enforce possession orders…made in this court on 20 October 2008. T is thereby prevented from administering the estates further for the benefit of the creditors.”

Dr Oraki’s real grievance is that (see for example her letter dated 19 July 2008) she believes the Trustee’s duty was to make the court aware that the Orakis had been wrongly made bankrupt. However, his role on the facts of this case is not to assist the bankrupts to undo the bankruptcies. In a s. 282(1)(b) IA case the Trustee must file a report pursuant to IR r.6.207 and in any s. 282 case the Trustee must attend the hearing and assist the court with the interests of creditors, a statement of his own fees and expenses and generally in relation to the exercise of the court’s discretion.

Turning to the “excessive fees” pleaded in [12] of the Re-Amended Particulars of Claim, it is accepted that separate proceedings have already been brought in the bankruptcy by application dated 11 February 2013. I therefore agree with Mr Strauss QC (at [11] of his judgment) that the Orakis cannot recover twice. They have elected to pursue that claim in another application.

There is the claim in [45] of the Re-Amended Particulars of Claim that,

“The Second Claimant’s health issues as a result of wrongfully being kept bankrupt by the Trustee led to him leaving his post as a Post Office Area Manager in 2010 where he was earning roughly £35,000 per annum.”

This is prima facie at odds with the Bankruptcy Preliminary Information Questionnaire and Supplement of 14 February 2006 (the date of Dr Oraki’s interview with the Official Receiver with regard to her husband) which said that Mr Oraki did not have any income, that he was unemployed and on incapacity benefit, that his employment at the Post Office was as an employee of Dr Oraki and that his employment had come to an end. Dr Oraki appeared to maintain that Mr Oraki was not working because of his illness and that his Post Office work long pre-dated 2010. However Dr Oraki’s evidence was unclear in this regard, as she appeared to be saying that he worked intermittently, including work in 2010, but I was unable to understand what she said and the claim is insufficiently particularised in this regard.

The Orakis were under a statutory duty to cooperate with the Trustee, a duty which they did not satisfy. They are not entitled to recover their costs of opposing him in the exercise of his statutory duties. At none of the hearings was a costs order made in their favour against the Trustee. In any event, it is for them to pay their costs of withdrawal from the bankruptcy, not for the Trustee.

I do not therefore consider that the Trustee is liable for the Orakis’ costs.

It is said by Mr French that creditors who were not creditors were wrongly included on the estimated outcome statements, so that it looked as if the amount needed to end the bankruptcies was greater than it actually was, thus serving to prolong the bankruptcies.

The estimated outcome statements were just that, estimates, and the Trustee did not have the opportunity to make any final determination of the assets and liabilities of the estate.The firm, BBDA and PAM.com Limited all had apparently valid judgments and all had submitted proofs of debt. HMRC had submitted two proofs of debt also, one for each of the Orakis, which were never withdrawn and it appears have now been paid. Inclusion of a creditor’s claim in an estimated outcome statement did not constitute a final acceptance by the Trustee of the validity of the claim. There is a clear statement at the foot of the estimated outcome statements to the following effect,

“…the above is an estimate of the funds required to clear the bankruptcy debts and liabilities in full and is based on information in the Trustee’s possession and is subject to change.”

Mr Briggs says that the matter is in any event res judicata, because of the Court of Appeal having dismissed the Orakis’ appeal from [10b] of Mr Ham QC’s Order. However that order is merely that the Trustee was entitled to retain and realise assets sufficient for the purposes of distributing dividends with interest to creditors (other than the firm) who had submitted proofs of debt.

The claim is for £690,000 which is too much in any event for non-pecuniary loss; such an award should be “modest”: Demarco v. Perkins and Bulley Davey [2006] EWCA Civ 188; [2006] BPIR 645 at [76].

As to mental distress generally, a point of principle arises, even assuming that there is such liability against the Trustee rather than, for example, the firm. In the bankruptcy context mental distress and damage to credit and reputation is usually recoverable only in the case of malicious prosecution of a bankruptcy petition, that is to say, against the petitioner, not against the Trustee. The problem in this case is that the firm is not good for the money.

However, Mr Nicholas Strauss QC said at [16] of his judgment,

“I also disagree with the deputy master’s view that there is no realistic prospect of success for the claim for damages for mental distress. There is no authority, either way, on whether such a claim can be based on the negligent conduct of a bankruptcy leading to the bankrupt being left in that unfortunate condition for longer than necessary, and the point seems to me to be arguable. The discussion of the subject in McGregor on Damages (Sweet & Maxwell, 18^th edn, 2009) at 5-013, 5-5023 et seq suggests that, in cases of tort causing economic loss, the court will apply a contractual analogy. The question may therefore be, would contractual liability for negligently looking after the claimant’s personal financial affairs be one of the exceptional cases in which liability for mental distress would be allowable?”

Mr Briggs says that the general rule in breach of contract cases is that damages for breach of contract do not as a matter of policy (not because of lack of foreseeability) include damages for mental distress: see Addis v. Gramophone Co Ltd [1909] AC 488, save in the limited class of case summarised in Watts v. Morrow [1991] 1 WLR 1421 at 1445: see Johnson v. Gore Wood [2002] 1 AC1 at 37c-38d per Lord Bingham of Cornhill. The same is true for tortious claims: see Verderame v. Commercial Union Assurance Co plc [1992] BCLC 793.

Mr French however relies on GJ v. Luxembourg [2000] BPIR 1021. In that case the claimant was a shareholder of a company that went into liquidation in 1987 and the liquidation was not completed until 1993. It was held that there was a breach of Article 6 (1) of the European Convention for the Protection of Human Rights and Fundamental Freedoms entitling the claimant to compensation for anxiety, distress and feelings of injustice. It was held that the reasonableness of the length of the liquidation had to be assessed in the light of the particular circumstances of the case, having regard in particular to the complexity of the liquidation, the conduct of the claimant and delays caused by matters outside the liquidator’s control. On the facts of that case, the delay had not been explained adequately by reference to these facts.

On the facts of this case it is plain that the Orakis’ conduct disentitles them from claiming against the Trustee that there was unreasonable delay in bringing their bankruptcies to an end. I do not think that the estates were “cash-rich” or that they were mishandled by the Trustee in such a manner as to give rise to liability.

However there is no claim put forward for breach of human rights in this case and on that ground alone I would dismiss the claim for damages for mental distress. I make no finding about whether on different facts an award for mental distress can be made in circumstances where a bankruptcy has been unnecessarily prolonged.

Accordingly the Orakis are not entitled as against the Trustee to damages for mental distress or damage to their reputation. This is apart from the issues of release and permission to bring the claim dealt with below.

The defendants plead (in [25] of the Re-Amended Defence) that the first defendant was released under s.299 IA with effect from 15 December 2008 (in accordance with the Secretary of State’s certificate of 9 January 2009) and the second defendant was released with effect from 17 October 2014 in accordance with certificates of the same date. The effect of this is to discharge the Trustee from all liability both in respect of acts or omissions of his in the administration of the Orakis’ estates and otherwise in his conduct as a trustee, save in relation to claims under s.304 IA.

S. 299(5) IA provides,

“Where the official receiver or the trustee has his release under this section, he shall, with effect from the time specified…be discharged from all liability both in respect of acts or omissions of his in the administration of the estate and otherwise in relation to his conduct as trustee.

But nothing in this section prevents the exercise, in relation to a person who has had his release under this section, of the court’s powers under section 304.”

S. 304(1) IA provides,

“Where under an application under this section the court is satisfied-

(a)

that the trustee of a bankrupt’s estate has misapplied or retained, or become accountable for, any money or other property comprised in the bankrupt’s estate, or

(b)

that a bankrupt’s estate has suffered any loss in consequence of any misfeasance or breach of fiduciary or other duty by a trustee of the estate in the carrying out of his functions,

the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property (together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.

This is without prejudice to any liability arising apart from this section.”

Mr Briggs points out that this represents an inroad into the blanket discharge from all liability under s.93 (1) of the Bankruptcy Act 1914. He also points out that the first defendant’s release was obtained on 15 December 2008, over four years before these chancery proceedings were commenced.

The releases speak for themselves. The issue is as to the effect of s.304 IA. In the Re-Amended Defence, the defendants accept that the release did not discharge them from claims against them for failure to pursue the estate’s debtors, namely Rupinder Singh, BBDA, the firm and Gill and Gill, but allege that it discharged them from all other liability to the Orakis, such as mental distress, loss of income, loss of legal costs, payment out in repairs. Thus if a duty of care was owed to the Orakis, it would be subject to the release.

Mr French, on the other hand, while accepting that s. 299 and s. 304 IA are specifically directed to loss to the bankrupt’s estate, relies on the closing words of s. 304 (1), namely, “This is without prejudice to any liability arising apart from this section.” As he relies on a common law duty in negligence the defendants are not, he says, protected by s. 299.

However, s. 299 releases the trustee save to the extent of “the court’s powers under section 304”, while the closing words of s. 304 refer to liability arising “apart from this section”. As a matter of statutory construction and logic, therefore, the trustee must be released from everything except the matters specifically provided for in s. 304. Thus anything arising “apart from” s. 304 must be excluded. It follows that only matters for the benefit of the bankrupt’s estate can properly be the subject of any action so that mental distress, loss of income, loss of legal costs, payment out in repairs are in any event excluded.

In any event, no permission has been given other than for the benefit of the estate (see [56] (or [57]) of Deputy Master Julia Clark’s judgment- I have not seen Mr Strauss QC’s order either and do not know what if anything was said about permission in it) and certainly not for the loss of rent and repairs claims.

Incidentally under s. 304(2) it appears to be the bankruptcy court which is the court to give permission for an application under s. 304(1), and not the court in which the proceedings are being pursued: see the definitions in s. 385 and s. 373(3) IA and see generally also McGuire v. Rose [2013] EWCA Civ 429. However, no point has been taken on the alleged fact that the wrong court gave permission in this case.

I should say that Mr French did not pursue in his closing argument or in cross-examination the allegation that the first defendant left his firm owing to this present dispute. I therefore ignore it for present purposes.

I reject the claim based on two matters (the lack of a cause number and the inability of the trustee to furnish an application) that the second defendant was not properly appointed as Trustee. I have seen a Block Transfer Order made by Mann J on 8 December 2008 and I am satisfied with Mrs Hall’s emailed letter dated 10 July 2014. At all events Chief Registrar Baister must have scrutinised the earlier order and was satisfied that the second defendant was the current office-holder under it when he made a Block Transfer Order appointing Mrs Hall in place of the second defendant. Further, the Secretary of State accepted the appointment when he released the second defendant on 17 October 2014.

I therefore find against the Orakis’ claims and in favour of the defendants.