Secretary of State for Business and Trade v Mustafa Hassanali Abdulali & Anor

By her application dated 16 October 2023 (“the Application”), the Applicant, the Secretary of State for Business and Trade, seeks directions from the Court with regard to how compensation payable to postmasters (Footnote: ¹) under the Group Litigation Order (GLO) Compensation Scheme (“the GLO Scheme”), available to postmasters who were parties to group litigation (“the GLO Litigation”) against Post Office Limited (“POL”) ultimately compromised by a Settlement Deed dated 10 December 2019 (“the Settlement Deed”), ought to be paid and applied.

The Application specifically concerns those postmasters who had been made bankrupt (albeit subsequently discharged from bankruptcy), and who participated in the GLO Litigation having taken assignments of the relevant causes of action from their respective trustees in bankruptcy.

Issues have arisen as to whether, in such cases, the trustees in bankruptcy of the postmasters are entitled to all or some of the compensation payments payable under the GLO Scheme for the purposes of the bankruptcies on the basis either that the relevant bankrupt’s right to apply for or receive such compensation represents “property” forming part of the bankrupt’s estate, or because the trustees in bankruptcy are contractually entitled to recover a proportion thereof under the terms of the relevant assignments of the causes of action to the bankrupts.

The Respondents are the trustees in bankruptcy of Ms SuzanneLesleyPalmer (“Ms Palmer”) and eight others of the relevant postmasters now discharged from bankruptcy. On the basis of legal advice, the Respondents have adopted the position that the entitlement to apply for or receive compensation does constitute “property” falling within the bankruptcy estate, alternatively that the effect of the assignments is that the bankruptcy estate is entitled to 49% of any sums received by way of compensation.

The Applicant disputes each of these propositions. In short it is the Applicant’s case that:

It has been agreed between the Applicant and the Respondents that the appropriate way to resolve these issues is for the Applicant, as an interested party, to apply to the Court pursuant to s.303(1) and s.363 IA 1986 for directions/declarations in relation thereto, with the bankruptcy of Ms Palmer being taken as the lead or test case. The directions/declarations sought, if granted, would enable the Applicant to make the proposed payments free from any claim by the Respondents or other trustees in bankruptcy.

The application is supported by:

The Respondents rely on the Witness Statement of the First Respondent, Mustafa Hassanali Abdulali (“Mr Abdulali”).

In the light of the troubling, controversial and sensitive circumstances in which the GLO Scheme has been established, the Respondents were, at the hearing before me, at pains to make clear through Mr Thomas Grant KC, who appears on their behalf, amongst other things, that:

Notice of the Application has been given to the relevant postmasters, and they have been given the opportunity to intervene should they wish to do so. None has done so.

Mr Gareth Tilley appeared on behalf of the Applicant, and Mr Thomas Grant KC appeared on behalf of the Respondents. I am grateful to them both for their extremely helpful written and oral submissions.

POL is a limited company owned by the Applicant.

In the early 2000s, POL began to introduce various iterations of a software system called “Horizon”.

Thereafter, the Horizon system identified multiple instances of apparent shortfalls/losses on post office branch accounts for which postmasters were held contractually liable. POL pursued both civil claims and prosecutions in relation to such shortfalls.

Many affected postmasters were made bankrupt over this period, and indeed for many years afterwards. In respect of the postmasters in respect of which the Respondents were appointed trustees in bankruptcy, the dates on which they were made bankrupt fall between 2007 and 2015. In many cases insolvency practitioners such as the Respondents were appointed as trustees in bankruptcy in place of the Official Receiver, although often not until several years after the making of the relevant bankruptcy orders.

So far as the shortfalls in branch accounts were concerned, many postmasters attributed the same to “bugs” in the Horizon System. In or around 2009, a number of postmasters formed the Justice for Subpostmasters Alliance (“JFSA”). The efforts of the latter led, in 2012, to the setting up of an independent forensic investigation into the Horizon system by forensic accountants, Second Sight.

In the light of reports from Second Sight, in 2013 POL announced an independent mediation scheme for postmasters, known as “the Complaint Review and Mediation Scheme” (“the CRMS”). An “Overview” of the CRMS has been produced in evidence that shows that the CRMS provided for a process somewhat similar to what one might expect from a pre-action mediation process in an adversarial dispute between postmasters on the one hand and POL on the other hand. In principle, thereunder, postmasters could submit individual applications to the CRMS and there was a set procedure with a view to reaching a binding compromise of each dispute.

The Respondents first became involved in postmaster bankruptcies in 2014, having been approached by an advisor to the JFSA. In the context of the CRMS, an issue had been identified that postmasters who had been made bankrupt and had claims against POL required assignments of those claims back to them if they were to apply to the CRMS because their causes of action had vested in the bankruptcy estate. Insolvency practitioners such as the Respondents were thus sought who would be willing to be appointed as trustees in bankruptcy in order that they could enter into suitable assignments with the bankrupt postmasters so that the latter could participate in the CRMS.

In the circumstances, the Respondents agreed to be and were appointed as trustees in 34 postmaster bankruptcies between 2014 and 2017. In each case, having been appointed as trustees in bankruptcy, the Respondents entered into a deed of assignment with the relevant postmaster.

The effect of these deeds of assignment was to assign the trustees’ interest in “the Action” back to the postmaster by way of a deed of assignment in consideration for £1 plus a 49% share of the (net) proceeds of “the Action”, capped at the amount required to satisfy the claims of creditors, interest and the costs and expenses of the bankruptcy.

The deeds of assignment, or at least those executed prior to the termination of the CRMS and the subsequent GLO Litigation are in similar terms. They defined “the Action” in a Schedule thereto in the following terms:

By early 2015, if not earlier, serious concerns had arisen as to whether the CRMS was operating as anticipated so as to provide a meaningful remedy for postmasters. These concerns were highlighted by written evidence submitted by the Rt. Hon. James Arbuthnot MP (now Lord Arbuthnot), an MP who had taken up the cause of the postmasters, on 20 January 2015. Further, in 2015 a forensic accountant’s report by Second Sight described the Horizon system as being, at least in some circumstances, “not fit for purpose and ‘systematically flawed from a users’ perspective’”.

In February 2015, POL unilaterally terminated the CRMS.

Ms Palmer was made bankrupt by a bankruptcy order dated 11 May 2015.

On 11 March 2016, a significant number of postmasters (“the GLO Claimants”) commenced the GLO Litigation against POL. By October 2017 there were over 500 claimants and ultimately some 555. Not all of the postmasters who had been made bankrupt and over whose estates the Respondents were appointed were joined as GLO Claimants. Ms Palmer did participate as a GLO Claimant.

The GLO Claimants were funded in respect of the GLO Litigation by Therium Litigation Funding (“Therium”). In light of the funding arrangements with Therium, it was necessary for those postmasters who had already entered into an assignment with their trustees in bankruptcy assigning the relevant causes of action against POL to them to enter into a deed of variation. These deeds of variation varied the assignments to provide for the bankrupt postmasters to pay £11,000 “from their Proportionate Share” and, in addition, “49% of the Proportionate Share” to the Respondents, subject to the same cap as in the original assignment. The deeds of variation did not, in terms, define the expression “Proportionate Share”, but they did contain a recital referring to the fact that the assignee proposed to enter into a “Litigation Funding Agreement” and “Priorities Agreement” with Therium which were described as together governing: “the apportionment and distribution of any net proceeds from the Action. Pursuant to the Funding Agreements, the Assignee’s share of any net proceeds of the Action is defined as their ‘Proportionate Share’ of the net proceeds.”

Further deeds of assignment assigning the relevant causes of action to postmasters who had been made bankrupt were entered into after the GLO Litigation commenced. These were in similar terms to the prior deeds of assignment, but reflected the variations provided for by the deeds of variation.

Having been made bankrupt on 11 May 2015, Ms Palmer was automatically discharged from her bankruptcy on 11 May 2016.

A Group Ligation Order (“the GLO”) was made in respect of the GLO Litigation on 21 March 2017 by Senior Master Fontaine. Fraser J (as he then was) was nominated as the managing judge shortly thereafter.

On 31 October 2017, the Respondents were appointed joint trustees in bankruptcy of Ms Palmer. On 15 November 2017 they entered into a deed of assignment with her in the form described in paragraph 27 above (“the Assignment”). This enabled Ms Palmer’s continued participation as a claimant in in the GLO Litigation.

Following a trial in the GLO Litigation in 2018, on 15 March 2019, Fraser J gave judgment (favourable to the postmasters) on the “GLO Common Issues”: Bates v Post Office Limited (No 3) (Common Issues) [2019] EWHC 606 (QB). There was a further trial to determine factual questions about the operation and functionality of Horizon, which took place in mid-2019. A draft judgment was circulated to the parties on 28 November 2019, and judgment was handed down by Fraser J on 16 December 2019: Bates v Post Office Ltd (No.6: Horizon Issues) [2019] EWHC 3408 (QB).

In the meantime, on 10 December 2019, the parties to the GLO Litigation entered into a Settlement Deed settling the latter. The Settlement Deed provided, so far as is relevant, for cash payments (totalling £42m) to be made to the GLO Claimants (clause 2), contained a carveout for malicious prosecution claims (clause 4.2.2), required POL to establish a scheme to pay compensation to postmasters who were not members of the GLO (known as the Historic Shortfall Scheme (“the HSS”)): (clause 9 and Schedule 6), and required POL to withdraw its proofs of debt in relation to bankrupt postmasters (clause 11).

The Respondents received payments from the settlement proceeds in respect of those of the GLO Claimants whose bankruptcy estates they were administering in accordance with the terms of the assignments (i.e. £11,000 plus 49%). As a result of the receipt of payments from the settlement with the POL, 9 of the 34 bankruptcies in respect of which the Respondents were appointed were annulled, but not that of Ms Palmer.

In total, of the £42m damages payable pursuant to clause 2 of the Settlement Deed, a consequence of the operation of the terms of the relevant funding arrangements was that approximately £31m thereof required to be paid to Therium, thus leaving only about £11m for the GLO Claimants and meaning that they were not fully compensated. On the other hand, those postmasters who had not been parties to the GLO Litigation and who were able, as provided by clause 9 of and Schedule 6 to the Settlement Deed, to claim compensation under the HSS set up pursuant thereto, had no obligation to meet the funding costs of the GLO Litigation. This gave rise to the unfair result that those being compensated under the HSS would end up significantly better off than those who had pursued the GLO Litigation and who had secured for their non-participating peers, through the Settlement Deed, the establishment of the HSS.

In light of this perceived unfairness, on 22 March 2022, the Government announced the decision to make funding available to GLO Claimants to enable them to receive “fair compensation”, similar to that being received by those who had not participated in the GLO Litigation and could claim as against the HSS set up and operated by POL.

The GLO Scheme and the funding for it was originally authorised by the Supply and Appropriation (Main Estimates) Act 2023 (s.3(2) and Schedule), and subsequently by the Post Office (Horizon System) Compensation Act 2024.

It was announced in Parliament on 30 June 2022 that it was intended to make interim payments under the GLO Scheme in the sum of £19.5m notwithstanding that the detail of how the GLO Scheme would operate and be administered had yet to be finalised. In making the announcement, the Minister, Mr Paul Scully MP, said: “Together with the share of the December 2019 settlement that we understand was distributed to the GLO postmasters, this brings the total of compensation to approximately £30m.” He also stated that under the final GLO Scheme, which was in the course of being developed, the sums to be paid were to be distributed in accordance with the same methodology used to distribute the settlement proceeds of the December 2019 Settlement.

Freeths, who had acted as solicitors for GLO Claimants in the GLO Litigation, were appointed by the Applicant to assist with the administration of the GLO Scheme.

The Respondents refer in evidence to a video call between Freeths and the Respondents on 4 July 2022 during which the Respondents were requested to provide payment in full calculations for each of the bankruptcy estates they were appointed on. They say that it was their understanding, at that stage, that Freeths at least accepted that funds paid under the GLO Scheme would fall within the terms of the assignments. It was on this basis that the Respondents, on 3 August 2022, wrote to the relevant postmasters saying that: “the interim payment will fall under the terms of the original assignment; which allows for a percentage of the ‘proportionate share’ to be payable to your bankruptcy estate.”

The Respondents say that it was only later in August 2022 that they become aware that the Applicant differed in understanding as to the proper analysis regarding the distribution or allocation of payments under GLO Scheme.

Interim payments were made under the GLO Scheme commencing in late 2022. Of the 16 bankruptcy estates being administered by the Respondents, the payments received enabled a further 7 bankruptcies to be annulled. For the purposes of the interim payments, following negotiation and discussion in the context of the payments being required to be made as soon as possible, the interim payments were made on the basis of the Respondents’ understanding as to the proper analysis as to the allocation of payments under GLO Scheme, i.e., that they would, as trustees in bankruptcy, be entitled to a 49% share of those payments.

As regards the remaining 9 bankruptcy estates being administered by the Respondents as trustees in bankruptcy, including that of Ms Palmer, although the bankruptcies have now been discharged, there remain amounts outstanding in respect of creditor claims and bankruptcy fees and expenses.

On 23 March 2023 the full details of the GLO Scheme were published, as set out in the GLO Compensation Scheme Guidance and Principles (“the GLO Scheme Guidance”). The parties have identified the following provisions thereof as being of particular relevance:

The Applicant’s position is and has always been that in relation to discharged bankrupts such as Ms Palmer payments made under the GLO Scheme would be property acquired by, or devolving upon, the bankrupt after discharge, and therefore not falling within the bankruptcy estate pursuant to s.283(1) IA 1986, and being beyond the reach of any trustee in bankruptcy under s.307(2) IA 1986. This is a view that is, for what it is worth, said to be shared both by the Official Receiver and other insolvency practitioners other than the Respondents.

The Applicant seeks to draw a distinction with the HSS, under which POL itself deals with claims by those postmasters who were not GLO Claimants. Under the HSS those postmasters who still have causes of action against POL, because they were not compromised by the Settlement Deed, can make a claim for compensation to POL itself. It is common ground that in respect of those postmasters, if they had been made bankrupt, then the relevant causes of action and thus their ability to make a claim under the HSS will have vested in their trustees in bankruptcy, and thus the entitlement to make a claim and compensation payable pursuant thereto does fall within the relevant bankruptcy estate.

As already identified, the Respondents’ position is that payments under the GLO Scheme, or the ability to claim the same, constitute “property” belonging to or vested in Ms Palmer and the other bankrupts at the commencement of their bankruptcy, alternatively that any payments made under the GLO Scheme fall within the scope of the Assignment and the other assignments as a matter of the proper construction thereof.

It is necessary to set out in rather more details the terms of the Assignment (dated 15 November 2017) whereby the Respondents assigned the relevant causes of action to Ms Palmer:

Although recital 5 of Assignment referred to the “Proportionate Share”, the Assignment contained no definition of this expression. However, it is the same expression as used in the deeds of variation executed so as to vary the original deeds of assignment following the termination of the CRMS, and the obtaining of litigation funding for the GLO Litigation. The deeds of variation refer to the expression deriving from the relevant funding agreements.

The Application is strictly concerned with the proper construction of the Assignment. However, I do not understand it to be suggested that a different result would apply in relation to the original deeds of assignment bearing in mind that they require to be construed by reference to, and so as to give effect to the deeds of variation relating thereto.

It is common ground that the following provisions of the IA 1986 are of particular relevance for present purposes:

As to the question as to what constitutes “property” falling within the definition thereof in s.436(1) IA 1986 that vests in a trustee pursuant to s.283(1) IA 1986, it will be necessary to go into the relevant case law in more detail in due course. However, it is common ground that a helpful analysis as to the relevant principles is provided in the judgment of Newey LJ in Gwinnutt v George [2019] Ch 471, a case concerned with whether non-contractual barristers’ fees constitute “property” for the purposes of s.436(1). At [10], Newey LJ said as follows:

Mr Tilley submits that, for the purposes of s.283(1)(a) IA 1986 and in considering the scope of what falls within the bankrupt’s estate, it is clear from the wording thereof that there are two criteria, each of which requires to be established in respect of the entitlement to seek compensation under the GLO Scheme, namely: (a) that it is “property”; and (b) that it belonged to or was vested in the bankrupt at the commencement of the bankruptcy. It is submitted that neither of such criteria is established in relation to entitlement to GLO Scheme compensation.

As to “property”, and the definition thereof in s.436(1), it is submitted that this comprises two distinct limbs, namely:

Albeit that the Respondents’ case (see paragraph 25 of Mr Grant KC’s Skeleton Argument) relies upon any entitlement to GLO Scheme compensation falling within the second limb of the definition in s.436(1) and not the first limb, Mr Tilley submits that it is instructive to consider whether it might fall within the first limb of s.436(1), if only to see why it does not do so.

As to whether any such entitlement might fall within the first limb of the definition in s.436(1):

Turning to the second limb of s.436(1) IA 1986, Mr Tilley submits that this limb of the definition imposes two gateways, namely:

Dealing with the first of these gateways, Mr Tilley submits that it cannot properly be said that the entitlement to compensation under the GLO Scheme arose out of, or is incidental to any property falling within the first limb, i.e. in the present case, the cause or causes of action as against POL vested in the bankrupt as at the commencement of bankruptcy. Mr Tilley submits that there are, essentially, four reasons as to why this is the case:

Turning to the second gateway in respect of the second limb of the definition in s.436(1), Mr Tilley submits that even if, contrary to the above, the entitlement to claim compensation under the GLO Scheme could properly be said to “arise out of”, or to be “incidental” to the causes of action behind the GLO Litigation, this second gateway cannot be established because the relevant interest did not exist at the commencement bankruptcy, or indeed at any time prior to discharge from bankruptcy, but only thereafter upon the setting up of the GLO Scheme by the Government on an ex gratia basis.

As to the inability to establish this second gateway:

For the above reasons, Mr Tilley submits that the entitlement to seek compensation under the GLO Scheme is not “property” that vested in the Respondents on the bankruptcy of Ms Palmer or the other relevant postmasters who became bankrupt.

The issue is as to whether, as a matter of true construction thereof, the effect of the Assignment is that even if the entitlement to compensation under the GLO Scheme did not vest in the Respondents as trustees in bankruptcy, any compensation received pursuant thereto requires to be applied in accordance with the terms of recital 5 to, and clause 3 of the Assignment under which the Respondents are entitled to receive 49% of the amount received by Ms Palmer (and the other relevant postmasters), subject to the cap of the amount required to satisfy creditors in full, and pay the costs and expenses of bankruptcy.

I do not understand there to be any dispute between the parties as to the relevant principles to apply, including that:

Mr Tilley submits that there are four key reasons as to why the relevant provisions of the Assignment should not be construed as providing for any part of any compensation paid pursuant to the GLO Scheme to be applied in favour of the Respondents as trustees in bankruptcy:

It is therefore submitted that, as a matter of true construction thereof, the relevant provisions of the Assignment, or indeed other assignments, cannot extend to compensation payable under the GLO Scheme.

Over and above his remarks that I have referred to in paragraph 9 above, Mr Grant KC placed particular emphasis upon the circumstances behind the setting up of the GLO Scheme, which he contended was fundamental to a proper understanding of the issues that arise in respect of the present application.

Mr Grant KC referred, in particular, to the following, namely that:

Mr Grant KC submitted that the root cause of the GLO Scheme was that the GLO Claimant “trailblazers” had suffered what he described as a “double whammy”, and that the purpose of the GLO Scheme was to relieve them of the consequences thereof. It is not in dispute that, for the purposes of the HSS, the relevant causes of action of the postmasters in question will, in those cases where they had become bankrupt, have vested in their trustees in bankruptcy, such that any compensation payable pursuant to the HSS will be payable to their trustees in bankruptcy. Given that the purpose of the GLO Scheme, is to achieve equal treatment, it is submitted that there would be an oddity and an inconsistency if the entitlement to compensation thereunder did not vest in the trustees in bankruptcy of the GLO Claimants who had been made bankrupt in the same way as compensation payable to those claiming under the HSS is accepted to vest.

Mr Grant KC referred to various provisions of the GLO Scheme Guidance as demonstrating that the purpose of the GLO Scheme was to make good the deficiencies of the legal process concerning the GLO Litigation, and to do so by a carefully structured scheme that applied principles and an approach akin to that which would be taken by a court in assessing the proper amount of compensation. He placed particular emphasis on the fact that the GLO Scheme Guidance provided for the application not only of established legal principles, but findings from the Common Issues Judgment and the Horizon Issues Judgment and that the GLO Scheme aimed to restore postmasters back into the position they would have been in had it not been for the breach of POL’s contractual obligations.

So far as paragraph 5.7 of the GLO Scheme Guidance is concerned, and the position in the case of bankruptcy/insolvency provided for thereby, Mr Grant KC made the point that whilst provision was made thereunder for those claiming under the GLO Scheme who had been made bankrupt to provide details such as of all creditors at the time of bankruptcy/insolvency, if compensation were to be paid to the individual GLO Claimants who had been made bankrupt, they could not be made to pay the same to their trustees in bankruptcy in order to obtain an annulment.

Thus, Mr Grant KC submitted that the above considerations informed the approach that the court should take to the issues as to whether entitlement to compensation under the GLO Scheme was vested in the Respondents, as trustees in bankruptcy, and as to the proper construction of the Assignment and other assignments, and pointed to a requirement to treat those claiming under the GLO Scheme and the HSS on the same basis so far as bankruptcy considerations were concerned.

As to whether obligations or interests “arising out of, or incidental to, property” were required to exist as at the commencement of bankruptcy, Mr Grant KC submits that the approach taken by the Applicant impermissibly reads down the wide wording of the definition in s.436 IA 1986.

Mr Grant KC submits that the authorities demonstrate that the definition is to be given the widest of meanings, and construed by reference to the statutory objective, and principles of public policy behind the relevant provisions of the IA 1986. As to these considerations, he refers, in particular, to the authorities identified by Newey LJ in Gwinnutt v George (supra) at [10](i) to (vii) (set out in paragraph 51 above), including Bristol Airport v Powdrill (supra) at 758-759, where, at 759, Sir Nicholas Browne-Wilkinson V-C had observed that: “It is hard to think of a wider definition of property”.

Further, Mr Grant KC referred to Re Rae (supra) at p.110C-D, where Warner J had, as referred to in paragraph 55(i) above, spoken in terms of this second limb of the definition in s. 436(1) as going “wider” than the first limb, a matter that Warner J further developed at p.113. Mr Grant submits that this case shows that an entitlement to be considered for a benefit provided by a government department (even on a discretionary basis) does not have to be a legal right to qualify as such an “interest” as is contemplated by s.436(1).

So far as cases such as In re Huggins (supra) are concerned, Mr Grant KC submitted that these were concerned with the issue as to whether there was an entitlement sufficient to amount to “property” for the purposes of the then legislation given that the enjoyment of the entitlement did not arise until after discharge, and not with whether the relevant entitlement was required to exist at the time of bankruptcy if it arose out of or was consequential upon “property” that did. Consequently, it is submitted that this line of authorities is of no assistance to the Applicant on this point.

Mr Grant KC relied upon the cases that I have already referred to where compensation awards which were not based upon causes of action were held to fall within the bankruptcy estates. Specifically, Mr Grant KC relies upon:

As to the Applicant’s reliance upon the older cases such Johnson v Smiley (supra) and Re Inkson’s Trusts (supra) and the dicta of Romilly MR therein, Mr Grant KC submits that the court should exercise care in attaching undue weight thereto, in particular in the light of the observations of Morritt LJ in Re Celtic Extraction Ltd [2001] Ch 475 that in successive statutes dealing with bankruptcy and insolvency the definition of “property” has been progressively extended.

Mr Grant KC’s key submission is that, on proper analysis, any entitlement to compensation under the GLO Scheme is, as he put it, “umbilically linked” to the GLO Litigation and the claims or cause of action behind it, and that, for the purposes of definition of “property” in s.436(1), and the application of s.283(1) IA 1986, there was no need for such entitlement to “exist” at the time of bankruptcy so long as it “flows out of” the GLO Litigation and the claim or cause of action behind it, which, so it is submitted, it does. On this basis, so it is submitted, the entitlement to compensation under the GLO Scheme is and was a future interest that falls within the second limb of s.436 IA 1986.

As to Mr Tilley’s contention that there is no case where a future right that did not exist at the time of the bankruptcy was held to be “property” simply because facts existed at the time of the bankruptcy that subsequently entitled the bankrupt to claim the right when, in the future, it came into existence, Mr Grant KC submits that:

Mr Grant KC submits that the Respondents should succeed in respect of this issue for, essentially, the following reasons:

Mr Grant KC submits that it is necessary to step back and consider the reality of the position, and the fact that it would make no sense if whether the entitlement to compensation fell within the bankruptcy estate should depend upon the happenstance of whether or not the relevant postmaster who had been made bankrupt had participated in the GLO Litigation.

On this basis, it is submitted that any entitlement of Ms Palmer and other relevant bankrupt postmasters to compensation under the GLO Scheme vests in the Respondents as their trustees in bankruptcy.

Mr Grant KC submits that even if the Respondents are unsuccessful in showing that the entitlement of GLO Claimants to seek compensation under the GLO Scheme falls within the bankruptcy estate, they are, as party to the Assignment and other assignments, entitled to participate in any award in respect thereof on the basis that any compensation payable would fall to be applied in accordance with the terms thereof thus entitling the relevant bankruptcy estates to 49% of any payments made under the GLO Scheme.

As I have said, there is no issue between the parties as to the appropriate principles to apply in construing the Assignment and other assignments. The essence of the Respondents’ case thereon is as follows:

On this basis, it is submitted that if the court is against the Respondents in respect of the issue as to whether the entitlement to compensation under the GLO Scheme vested in the Respondents, then the Respondents are entitled to rely upon the terms of the Assignment to require that 49% of any sums received by way of compensation to accounted for to them.

There can be no doubt but that the intention behind the GLO Scheme is to make good the deficiencies of outcome consequential upon the Settlement Deed and, in particular, the requirement to pay Therium some 75% of the award thereunder pursuant to the relevant funding arrangements, and to provide compensation to the GLO Claimants that would, when taken together with what they had actually received pursuant to the Settlement Deed, mean that they received compensation similar to that available to those postmasters who were not involved in the GLO Litigation and are entitled to claim under the HSS.

However, there remain important differences between the GLO Scheme and the HSS, and there are features of the GLO Scheme that are, I consider, of particular significance. I consider the following to be of particular note:

Consequently, whilst the approach suggested by the Applicant does lead to an inconsistency of approach between the GLO Scheme and the HSS so far as the treatment of postmasters who had been made bankrupt is concerned, and this is, at least at first blush, incongruous, this may be a consequence of the different bases upon which the two schemes have been established, and the different circumstances behind the same.

The cases referred to by Newey LJ in Gwinnutt v George (supra) at [10(i)-(vii)] (as set out in paragraph 51 above) demonstrate that the definition of “property” in s.436(1) is very wide in its scope, and probably could not be any wider. Particular considerations relating thereto identified by Newey LJ were:

However, as Newey LJ made clear at in Gwinnutt v George at [10(viii)], there are limits to the definition. One such limitation relates to a mere possibility of benefit, e.g. that of the beneficiary under a discretionary trust, or the possibility of receiving a legacy. Whilst these mere possibilities may be capable of realisation, the mere fact that they might be capable of realisation in some way will not, of itself, mean that the possibility is to be regarded as “property” for the purposes of s.436(1). At [10(viii)]. Newey LJ specifically referred to the case of Ex p. Dever, In re Suse and Sibbeth (1887) 18 QBD 660, and to Fry LJ at p.670 having queried how it could be said that any “property” was vested in the husband in that case when his “interest” could only accrue on the exercise of the wife’s option on a double contingency. Until then, it was a mere hope that something might come to the husband by surviving for 10 years, and to his wife then exercising her option.

The fundamental issue is as to whether the entitlement to compensation under the GLO Scheme is comprised within Ms Palmer’s bankruptcy estate, and thus vested in the Respondents pursuant to s.306(1) IA 1986, because it was “property” that belonged to or was vested in her at the commencement of her bankruptcy so as to satisfy the requirements of s.283(1) IA 1986. If it was not “property” that belonged to or vested in Ms Palmer at the commencement of her bankruptcy, then the provisions of s.307(1) IA 1986 regarding after acquired property can be of no assistance to the Respondents because Ms Palmer was discharged from bankruptcy pursuant to s.279 IA 1986 as long ago as May 2016.

I agree with Mr Tilley that this key issue raises two questions, namely: (a) whether the entitlement to compensation under the GLO Scheme is “property”, and (b) if it is, whether it belonged to, or was vested in Ms Palmer as at the commencement of her bankruptcy.

Dealing with the first question, I also agree with Mr Tilley that the definition of “property” in s.436(1) IA 1986, albeit a non-exclusive definition, does postulate two limbs, namely: (a) “money, goods, things in action, land and every description of property wherever situated”; and (b) “also obligations and every description of interest whether present or future or vested contingent, arising out of or incidental to, property”. The existence of the two limbs of the definition is recognised by the authorities, including Re Rae (supra) at 110C-D, per Warner J.

As well as not being exhaustive, the definition in s.436(1) is, to an extent, circular as recognised by Morritt LJ in Re Celtic Extraction (supra) at [28]. Nevertheless, in a context such as the present where the case is put, as it is by the Respondents, in terms of the entitlement to compensation under the GLO Scheme being an interest that “arises out of” or that is “incidental” to “property”, I do not understand there to be any issue that the reference to “property” in the second limb of the s.436(1) definition is a reference to “property” falling within the first limb of the definition which, in the present case, is said to be the claims and causes of action against POL that belonged to Ms Palmer as at the commencement of her bankruptcy, cf. the wording of s.167 of the Bankruptcy Act 1914.

I consider that the Respondents were plainly right not to seek to argue that the entitlement to compensation under the GLO Scheme itself falls within the first limb of the s.436(1) definition, essentially for the reasons advanced by Mr Tilley as set out in paragraph 55 above, and in particular because the same does not have the characteristics as to transferability and enforceability required, as explained by Warner J in Re Rae (supra) at p.110C-D, and by Mummery LJ in Dear v Reeves (supra) at [40].

The issue is therefore as to whether the entitlement to compensation under the GLO Scheme can properly be said to “arise out of”, or to be “incidental” to “property”, i.e., in the present case, the claims and causes of action against POL originally vested in Ms Palmer, that vested in the Respondents upon Ms Palmer’s bankruptcy, and which were assigned back to her pursuant to the Assignment.

Notwithstanding the powerful arguments advanced by Mr Grant KC, I do not consider that, on proper analysis, the entitlement to compensation under the GLO Scheme can properly be said to “arise out of”, or to be “incidental” to the claims and causes of action against POL notwithstanding that the GLO Scheme was established in order to alleviate the deficiencies in outcome occasioned by the circumstances in which the relevant claims and causes of action against POL had been pursued up to the Settlement Agreement.

Although the GLO Scheme might have been established in consequence of such deficiencies in outcome, I do not accept Mr Grant KC’s characterisation of the GLO Scheme being, as he put it, “umbilically linked” to the relevant claims and causes of action, at least so that it can properly be said that the GLO Scheme and the entitlement to compensation thereunder, “arises out of”, or is “incidental” thereto in that I consider that there is insufficient connection between the pursuit of the relevant claims and causes of action, and the entitlement to compensation under the GLO Scheme to conclude that this is the case.

In this respect, I consider it to be of crucial significance that:

I consider that there is a clear distinction between the facts of the present case, and cases such as Re Rae (supra), Ward v Official Receiver (supra) and Shop Direct v Official Receiver (supra), where interests incidental to, or arising out of “property” were held to exist, vested in the trustee in bankruptcy.

As to Re Rae, in that case it can be seen that incidental to the ownership of the fishing vessels, which did vest in the trustee in bankruptcy, were the fishing licences, and the entitlement of the bankrupt to apply for new licences once the existing licences had become ineffective. The fishing licences, and the entitlement of the bankrupt to apply for new licences, could clearly be seen to go with the ownership of the vessels as vested in the trustee in bankruptcy. If the entitlement of the bankrupt to apply for new licences had simply been a question of ministerial discretion, then Warner J would have found the argument “compelling” that the ability to apply for the licences was not “property” that vested in the trustee in bankruptcy – see p.114B-C. Similarly, in the present case, the entitlement to apply for compensation under the GLO Scheme arises on an ex gratia basis solely as a matter of governmental decision and discretion, rather than as being something “arising from”, or “incidental” to ownership of “property”, namely claims and causes of action against POL which were exhausted prior to the GLO Scheme being established. In this respect, I consider it important to distinguish between something simply being consequential upon the past ownership of “property”, and something arising from, or being incidental to it.

In Ward v Official Receiver (supra) and Shop Direct v Official Receiver, the entitlement to complain and seek compensation in respect of mis-sold PPI policies could properly be said to have arisen from the policies, which were “property”, albeit that they may have terminated by the time of bankruptcy, and to be “incidental” thereto, not only because the entitlement to complain/seek compensation was against the original counterparty, but because it involved an existing complaints procedure and mechanism already in place at the time of the commencement of the bankruptcy in contrast to an ex gratia scheme funded by the Government set up following discharge from bankruptcy.

As I have indicated, I regard it as being a significant factor that the ex gratia GLO Scheme was announced and set up after the GLO Claimants had exhausted their remedies and causes of action as against POL by their participation in the GLO Litigation and the Settlement Deed. This consideration is, in my judgment, sufficient in itself to so distance the entitlement to compensation under the GLO Scheme from the causes of action in question to make it unrealistic to suggest that such entitlement arose from, or is incidental to those causes of action, i.e. the relevant “property” referred to in the second limb of the definition in s.436(1) IA 1996.

I am satisfied that, on this point, Barclays Bank v Marsden (supra), referred to in paragraphs 57(iv) and 75(ii) above, is to be distinguished from the facts of the present case. In that case, although there had been a previous compromise between the parties, the compromise was to all intents and purposes reopened by the FCA review, thus enabling a claim for compensation to be pursued against the original obligor, Barclays Bank. This is very different from the present case where, after all claims against POL had been exhausted and extinguished, the Government has stepped in with an ex gratia scheme.

Mr Grant KC has made the point that the Applicant wholly owns POL. That may be correct, but it does not seem to me that it can realistically be suggested that the Applicant established the GLO Scheme in her capacity as sole shareholder as such in POL, but, rather, pursuant to her wider governmental role and function.

However, even if I am wrong as to the above, and ought to find that the entitlement to compensation under the GLO Scheme was properly to be regarded as having “arisen from”, or to be “incidental” to “property” in the form of the underlying causes of action in the GLO Litigation, I would have found that the relevant interest falling within the second limb of the definition of “property” in s.436(1) IA 1986 would have required to, but did not, exist at the date on which Ms Palmer became bankrupt.

I agree with Mr Tilley that it is necessary to go back to the wording of s.283(1) IA 1986, and to the fact that it provides that the bankrupt’s estate comprises not simply “all property”, but “all property belonging to or vested in the bankrupt at the commencement of the bankruptcy.” Consequently, it will only be “property” that so belonged or vested in the bankrupt at the commencement of bankruptcy that will have vested in the trustee in bankruptcy pursuant to s.306(1). On the basis that the definition of “property” comprises two limbs, then I consider that whichever limb the “property” or “interest” is said to fall into, the “property” or “interest” must exist at the commencement of bankruptcy as only then can it be said to have belonged to or been vested in the bankrupt at that time. I agree with Mr Tilley that one must construe the word “property” at the beginning of s.283(1) as encompassing the whole of the wording of the definition in s.436(1), i.e. as including the two limbs thereof.

Mr Grant KC submits that there is no need for the entitlement to compensation under the GLO Scheme to have existed at the commencement of bankruptcy so long as it can be said that it flowed out of the GLO Litigation and the causes of action behind it. However, I consider there to be a number of difficulties with this analysis.

The argument is based upon the premise that, as Mr Grant KC put it, “the whole concept of a future right means that it does not exist”. However, I am concerned that the position is not as simple as this. The second limb of the definition in s.436(1) talks in terms of interests and obligations rather than rights, and future interests can presently “exist”, e.g. contingent interests or defeasible vested interests – see e.g. Lewin on Trusts, 20^th Edn, at 21-008. I note that the language of the second limb of the definition in s.436(1) talks in terms of obligations or interests “present or future or vested or contingent”, suggesting, as I read it, an interest that does exist, either because it is vested or because it exists subject to a contingency.

On this basis, and apart from authority, I am satisfied that, on a proper reading of s.283(1) taken together with the definition of “property” in s.436(1), even “property” otherwise falling within the second limb of this definition has to exist, in the sense of being capable of belonging to, or being vested in the bankrupt, at the time of the commencement of his or her bankruptcy, before it can properly be regarded as forming part of the bankruptcy estate vesting in the trustee in bankruptcy.

I consider that such conclusion is amply supported by the authorities.

I agree with Mr Grant KC that cases such as Patel v Jones (supra) and In re Huggins (supra) do not really assist on this point because the court was, in those cases, concerned with the different issue as to whether a non-enforceable entitlement to a pension was sufficient to amount to “property” rather than whether the interest existed as such. However, I consider that other authorities do support the proposition that the relevant interest should exist at the date of bankruptcy, including the following:

I am mindful of the need for caution with regard to relying upon older authorities decided in respect of earlier legislation, and in particular those that pre-date the radical overhaul of personal insolvency law effected by the IA 1986. However, I am satisfied that the reasoning of the earlier cases that I have referred to follows through to the more recent authorities decided under the IA 1986, including Gwinnutt v George.

In the circumstances, notwithstanding the wide and non-exhaustive definition of “property” in s.436(1) IA 1986, and the policy considerations behind the need for such a wide definition of “property”, I am satisfied as a matter of principle and authority that any entitlement to compensation under the GLO Scheme, even if otherwise falling within the definition of “property”, cannot have vested in the Respondents as Ms Palmer’s trustees in bankruptcy, because such entitlement did not exist at the time that Ms Palmer was made bankrupt, and only came into existence when the GLO Scheme was established from and after March 2022. Prior thereto, and at the time of the commencement of her bankruptcy, Ms Palmer had, at the very most, as I see it, a hope or expectation that if, for whatever reason, mediation or litigation involving POL then under contemplation did not provide a fair and just solution for postmasters, then the government might step in and offer ex gratia compensation along the lines of that provided for by the GLO Scheme. This is, as I see it, very different from a contingent interest that exists on bankruptcy.

In the circumstances, I am satisfied and find that the entitlement of Ms Palmer to compensation under the GLO Scheme, and any compensation payable pursuant thereto, does not vest in the Respondents as her trustees in bankruptcy.

The key question that arises for determination in respect of the Assignment is as to the scope and meaning of the expression “the Action”, as described in the Schedule thereto, given that Ms Palmer is liable to account to the Respondents pursuant to the terms of the Assignment for £11,000 and a further 49% of sums received by her “from the Action” as specified in recital 5 to and clause 3 of the Assignment.

In respect of this key question, two important considerations do, I consider, arise:

On this basis, if the entitlement to claim compensation under the GLO did not, as I have found, vest in the Respondents so as to have been capable of being included in the claims and causes of action assigned to Ms Palmer pursuant to the Assignment, it would, as I see it, have taken very clear language for the Assignment to have provided for Ms Palmer to have to account for something that did not represent the fruits of that which has been assigned.

I take Mr Grant KC’s point that the fact that the Schedule to the Assignment (providing “Details of the Action”) refers to “proceedings”, but does so by reference not to formal legal proceedings as such, but to the CRMS and “connected proceedings going forward”, and that this can be said to support a construction of “Action” and “proceedings” in the Assignment that extends beyond strict legal proceedings to other proceeding or procedures, and thus, potentially, to the making of a claim under the GLO Scheme.

As against this, it is to be borne in mind that, despite the language used in the Schedule, by the time that the Assignment came to be entered into, and indeed by the time that the deeds of variation were entered into varying the assignments entered into between the Respondents and other bankrupt postmasters, the CRMS had been unilaterally terminated by POL, and the “Action” or “proceedings” being contemplated or underway in order to pursue the relevant claims and causes of action against POL was or were the GLO Litigation for which funding from Therium had been obtained.

Further, the Schedule to the Assignment does refer to proceedings “between” POL and Ms Palmer (either in her sole name or in conjunction with other parties). To my mind, this points to an adversarial process, or at least some process involving POL as one party, and Ms Palmer as another party, and not some other form of process or procedure involving ex gratia payments, or compensation being paid by a party other than POL. I take into account that recital 3 does not specifically identify POL as the opposing party to “the Action”, but the Schedule clearly does.

Further, there is the reference in recital 5 to the Assignment to Ms Palmer accounting to the Respondents from her “Proportionate Share”. I accept that the deeds of variation entered into between the Respondents and other bankrupt postmasters cannot be admissible as an aid to construction of the Assignment, not having been available to Ms Palmer. However, one can ascertain therefrom that part of the admissible background against which the Assignment is to be construed is the fact that litigation funding had been obtained from Therium on terms that provided for Therium to share in any recovery, before a balance could be made available to the individual GLO Claimants. The funding in question was for the GLO Litigation, and therefore one would, I consider, expect the reference to “Proportionate Share” to relate to the fruits thereof and the pursuit of the relevant claims or causes of action against POL, rather than ex gratia payments on the part of the Government made ex post facto to make up for deficiencies in the result of the GLO Litigation.

On this latter point, I take Mr Grant KC’s point with regard to what might have been expected to happen if there had been an individual settlement between Ms Palmer and POL. However, in this situation, one would have expected a proportion of any award agreed by the relevant settlement to be caught by an obligation to Therium to account under the relevant funding arrangements, in which case it would not be inapt to describe what remained actually payable to Ms Palmer as her proportionate share, in which case, the Applicant’s argument as to “Proportionate Share” seems to me to remain good.

In all the circumstances, and having due regard to the admissible background circumstances, I consider that it unduly strains the language of the Assignment to construe it in the way contended for by the Respondents. I consider that the reasonable objective observer having all the background knowledge which would have been available to the parties at the time that the Assignment was entered into would have understood the language of the Assignment, and in particular the use of the expressions “Action” and “proceedings” in the relevant provisions thereof, as being limited to the pursuit of claims and causes of action against POL, whether by the GLO Litigation or otherwise, and not a claim for compensation made against an ex gratia compensation scheme such as the GLO Scheme set up by the Government to compensate postmasters in the event that the pursuit of the claims against POL failed to produce a fair result. I consider that very much clearer wording would have been required for the Assignment to be construed as contended for by the Respondents.

For the reasons set out above, I have come to the firm view that:

No attendance will be required on the hand down of this judgment. I understand that it is agreed between the parties that the Court should make no order as to costs in relation to the Application. I would invite the parties to seek to agree a minute of order reflecting this judgment, and the declarations that the parties consider that it is appropriate for the Court to make. In the event that there is any dispute in relation thereto, I will determine the same on paper, together with any application that might be made for permission to appeal.