Bankruptcy’s not so clean slate

In the matter of Oraki v Hall [2019] EWHC 1515 (Ch) the continuing litigation in this rather unfortunate bankruptcy appears to continue. It was now the turn of HHJ Simon Barker QC to add yet another judgment to the catalogue that has already gone before the Courts over the years.

The lesson appears to be – use the Court for the right purposes focusing on your good points; bring applications on bad points at your peril even if you feel you have suffered injustices. Satellite litigation is another piece of litigation at the end of the day and can be expensive as appears conspicuous in this case. The other lesson appears to be take care with your credibility before the Court ie. be reasonably consistent otherwise it will be noted if you provide conflicting accounts as to for instance your assets.

Further do not expect the Court to necessarily be impressed by the speculation of third parties who may seek to make leaps via linkage of one set of issues to fit those of another.

The following extracts from the Judgment were notable:

7. The reality is that to an ever increasing extent theOs are the authors of their own misfortune. They have embarked upon, and persist in embarking upon, challenges to the appointment, conduct and dealing of their successive trustees in bankruptcy which have failed at first instance and on appeal. Over time they have given their successive trustees and the court different and conflicting accounts of the extent to which, if at all, they have beneficial interests in 68GA and other properties in their names comprised in their bankruptcy estates (they first claimed full beneficial interests and asserted that they were solvent, they now claim to have no beneficial interests). On the applications before me they have sought to influence the court by enlisting misguided support from third parties (Anthony Stansfield, the Police and Crime Commissioner for Thames Valley, who sent the court an inappropriate email about misuse of the courts by white collar criminal activity ~ apparently a reference to “recklessly negligent / crooked solicitors, barristers, accountants and many unethical judicial office holders” and connected all of that to the situation of DrO; and, Paul Millinder, who describes himself as director of Litigio LLP and is subject to a CRO, who sent an email to the court and MsH’s solicitors asserting that theOs’ trustees have been and are “using the court as a cash cow”, that there is a malicious collusion to keep theOs in bankruptcy, and that DrO’s medical certificate obliges the court to adjourn the hearing on medical grounds until after 14.6.19). Save when and to the extent that the court finds in their favour theOs, or at least DrO, refuse to recognise the court’s decisions and orders. They persist, including before me, in raising matters already finally determined against them on appeal or which could and should have been brought within the scope of earlier litigation now definitively determined. By repeatedly making unsuccessful applications and by their other conduct theOs have caused and continue to cause MsH and her representatives to spend time reading and addressing bad points. Someone has to pay the costs arising from this. Costs orders against theOs have now been assessed in very material sums but are entirely unpaid.

8. At the root of what has befallen theOs, in particular since 2013 if not before, is a failure or refusal on their part to understand and accept that neither discharge nor annulment of bankruptcy automatically or necessarily “wipe the slate clean”. This has been explained by first instance judges and twice by the Court of Appeal : first, in proceedings by the Os against D&D and MrID, neutral citation [2013] EWCA Civ 1629, see the judgment of Floyd LJ at [29], with which Davis LJ agreed at [56], and the judgment of Arden LJ at [63] with which Floyd LJ agreed at [55] and Davis LJ indirectly agreed at [56]; secondly, in proceedings by theOs against MrTB and MrID, neutral citation [2017] EWCA Civ 403, see the judgment of David Richards LJ at [26] with which McCombe LJ agreed at [224] and Sir Terence Etherton MR agreed at [225]. For present purposes it suffices to recite [26] of David Rchards LJ’s judgment :

9. The relevant background starts with the judgment debt, which gave rise to theOs’ first bankruptcies, obtained by D&D in 2004. TheOs had instructed ShaM as a partner in D&D, were dissatisfied with the service provided and were sued, successfully at the time, for unpaid fees. The consequential judgment debt formed the basis for theOs’ first bankrupcties on 1.9.05 and 10.1.06 respectively. In 2008 ShaM was publicly exposed as not having any qualification entitling him to be a solicitor and also having a conviction for fraud in the USA, in respect of which he had served a term of imprisonment. TheOs’ evidence is that they had sought to expose ShaM since 2004 and provided information which led to the 2008 newspaper exposé. In 2012 ShaM was struck off as a solicitor and was the subject of many findings of dishonesty in relation to client funds. It follows that, because ShaM was not ever a solicitor, D&D’s judgment debt was not a debt at all but was a fraudulently obtained judgment.

10. Before the exposure of ShaM, theOs had, with considerable fortitude, persisted in challenging their bankruptcies – including by maintaining that they owned several properties, including 68GA, beneficially and were solvent. Eventually, by an order dated 21.1.13, Mr Robert Ham QC, sitting as a Deputy High Court Judge, ordered that theOs’ bankruptcies be conditionally annulled. The terms upon which the annulment was conditional included that theOs should pay the costs and expenses of the bankruptcies and that any challenge to the conduct of the insolvency practitioners who had been their trustees in bankruptcy, i.e. MrTB and MrID, should be made within a specified time. Such a challenge was made. TheOs challenged Mr Ham QC’s decision in the Court of Appeal.

11. The Court of Appeal (Arden, Davis and Floyd LJJ, [2013] EWCA Civ 1629) agreed with Mr Ham QC. That court expressly held that the bankruptcy proceedings were an abuse of the court’s process and that, as between theOs and D&D, theOs were “wholly innocent”. However, as between theOs and their trustee in bankruptcy (MrTB and then MrID) there were untested allegations by each side that the conduct of the other “ha[d] been other than reasonable”. Floyd LJ explained, and expressly rejected, the unqualified proposition that theOs were “wholly innocent” and were entitled to full exoneration and exculpation from the consequences of their bankruptcy, see [2013] EWCA Civ 1629 at [35]-[42], with which Davis LJ agreed at [56], and Arden LJ reached a concurring conclusion [62]-[70].

12. The Court of Appeal acknowledged that bankruptcy carries with it a stigma which annulment wipes away. The Court of Appeal upheld the imposition of preconditions upon theOs’ bankruptcies’ annulment for the following reasons : (1) Mr Ham QC could not determine any disputes over the trustee’s expenses on the evidence before him; (2) there were no grounds for holding that the trustee should not have any right to recover his property; (3) there was no evidence of any special prejudice to theOs caused by deferment (they had been automatically discharged after one year); (4) notwithstanding that the bankruptcy estates were said to be solvent, there was insufficient cash available to meet outstanding debts and the trustee’s expenses (which had apparently increased considerably in meeting claims by theOs); and, (5) the trustee was likely to incur considerable further expense to complete payment of debts and expenses (Floyd LJ [52], Davis LJ [56], and Arden LJ [60]). At [63] Arden LJ drew express attention to the “guiding principle” that “the proper expenses of the trustee should normally be paid or provided for before the assets are removed from him by an annulment order”. Floyd LJ made a similar observation at [38] and at [55] expressly agreed with Arden LJ, and Davis LJ effectively agreed with Arden LJ (by agreeing with Floyd LJ) at [56]. The Court of Appeal gave a unanimous judgment with detailed reasoning rejecting theOs appeal but, to this day, DrO remains of the view that the Court of Appeal decision was unjust and erroneous because it did not wipe their slate clean.

13. TheOs then turned their attention to MrTB and MrID. TheOs challenged the conduct of MrTB and MrID and alleged that they had been negligent as insolvency practitioners causing theOs to suffer loss personally. This allegation was made in litigation which progressed to an eight day trial before Proudman J. TheOs were unsuccessful. Their appeal to the Court of Appeal was also unsuccessful. Both Proudman J and the Court of Appeal drew attention to conduct on theOs’ part which inevitably increased the costs of their trustee and which were bound to fall on theOs^[4]. On 6.11.17, theOs were refused permission to appeal to the Supreme Court.

14. Over the course of the satellite litigation against their trustee, numerous costs orders have been made against theOs (e.g. on 31.7.15 by Proudman J in the sum of £50k, to be paid within 14 days, as a payment on account, and on 20.2.18 by Mr Ham QC in the sum of £36,158.40 as summarily assessed costs to be recoverable as an expense of the bankruptcy estate if unpaid), including for costs to be assessed on the indemnity basis. Non-payment of the costs ordered by Proudman J led to theOs’ second bankruptcies on 9.3.18 from which they were automatically discharged on 9.3.19. The costs of MsH’s predecessors in theOs’ unsuccessful proceedings tried by Proudman J have now been assessed, including interest to October 2017, in a sum exceeding £800,000. A default assessment of theOs’ unsuccessful appeal of Proudman J’s decision to the Court of Appeal has taken theOs’ costs liability of that litigation to in excess of £1million.