Key Points 

  • S 304 of the Insolvency Act 1986 is concerned with acts or omissions by a trustee in bankruptcy that have caused loss or damage to the estate
  • However, the wording of that Section does not go so far as to state that in no circumstances can a trustee owe an enforceable duty in respect of loss or damage caused to the bankrupt personally.

The Facts

The history of the bankruptcy orders of Dr and Mr Oraki, made within five months of each other in 2005/2006 were, in themselves, steeped in troubling and complex circumstances. The bankrupts had eventually successfully obtained annulments and orders setting aside the judgment upon which the petitions were originally based, the latter on the grounds that the solicitor fees on which the judgment debt was founded were fraudulently charged.

The nature of the claims in the present action were essentially for professional negligence on the part of the trustees who, it was claimed, through their acts or omissions, failed to carry out their duties to the standard required of insolvency practitioners. The claimants argued that the trustees ought to have known that the bankruptcy orders shouldn’t have been made and should have taken steps to end the bankruptcies. Instead, their actions had prolonged the bankruptcies and caused loss and mental distress to the bankrupts.

The wider question was whether the obligations and duties of the trustees extended beyond loss caused to the estate as contemplated in s 304.

Decision

On the facts, no breach of duty on the trustees’ part, nor loss caused as a result of their actions, was established. Consequently the Court of Appeal did not have to investigate the question of scope and limit of a trustee’s duty of care.

However, the Court of Appeal observed that whilst s 304 related solely to losses to the estate, ss (1) states that the section is “without prejudice to any liability arising apart from this section“, meaning that the duties of the trustee may extend beyond the scope of that section.

Despite not being addressed in this particular instance, the path is now set for future litigation to tackle this interesting question of the liabilities of trustees in bankruptcy.

Oraki and another v Bramston and another [2017] EWCA Civ 403