A professional negligence claim against trustees in bankruptcy alleging that they had unnecessarily prolonged the bankruptcies and caused the bankrupts’ loss failed. The Trustees had agreed not to take steps in the bankruptcies while Dr Oraki and her husband made repeated applications to set aside the judgment upon which their bankruptcy orders were made and annul their bankruptcies under s 282(1)(a) of the Insolvency Act 1986, which they eventually succeeded in doing. Nonetheless, the Orakis alleged that the Trustees had caused them loss (including mental distress) by failing to bring their bankruptcies to an end expeditiously and mismanaging their properties. The allegations arose because the estates were solvent, so the Orakis rather than creditors were at risk of being harmed by mismanagement.

Held

The court held that, contrary to the Orakis’ claims, it had not been open to the Trustees to use ISA funds to pay off the bankruptcy debts and costs at any time, because the Orakis had failed to provide authority that the funds were beneficially owned by Dr Oraki.

The Trustees were not able to end the bankruptcies by use of cash resources without access to the ISA funds and the Orakis had opposed the realisation of their assets to end their bankruptcies. The Trustees had also properly agreed not to take steps in the bankruptcies at various stages at the Orakis’ request.

The appeal failed on the facts of the case, so it was not necessary for the court to reach conclusions on the legal arguments put forward. Proudman J in the first instance had rejected the argument that the Trustees had any common law duty to the bankrupts, their duty being statutory only. She had also held that personal loss to the Orakis, as opposed to the loss to their estates recoverable under s 304, was discharged by the Trustees’ release from office under s 299(5). The Court of Appeal did not confirm those points. However, it indicated that if a bankrupt could bring a personal claim against his trustee, it was inclined to think that damages for mental distress were irrecoverable.