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Siward Atkins, barrister at Maitland Chambers (and counsel for the defendant) explores whether a trustee in bankruptcy (trustee) might owe duties to the bankrupt. He argues the message could not be clearer when it comes to the existence of a trustee’s contractual duty of care to the bankrupt—with this case suggesting a trustee cannot owe any contractual duties to protect the interests of the bankrupt.
Reynard v Fox  EWHC 443 (Ch),  All ER (D) 105 (Mar)
While in Oraki v Bramston  EWCA Civ 403,  All ER (D) 174 (May) the Court of Appeal left the door open to a suggestion that a trustee in bankruptcy might owe duties to a bankrupt at common law outside the misfeasance claim given to the bankrupt under section 304 of the Insolvency Act 1986 (IA 1986), in this case the bankrupt tried to push the door open a little further but failed spectacularly. Bankrupts will therefore receive little encouragement from Reynard v Fox on the duty of care owed to them by a trustee in bankruptcy. This case is a nail in the coffin on any suggestion that a trustee can owe contractual duties to protect the interests of the bankrupt. The circumstances would have to be exceptional (and very specific) for any such contract to arise.
The bankrupt (the claimant) made a claim against the former trustee in bankruptcy (the defendant) in connection with alleged breaches of duty owed by him.
The bankrupt first alleged that there was a contract between himself and his trustee under which the trustee would have to look out for his interests as well as those of the creditors. The trustee failed in this duty, he said, to protect his interests in various ways. The judge made short work of this allegation, saying that any such contract was inconceivable since it would have left the trustee hopelessly conflicted in having to look out for the interests of two parties in a clearly adversarial relationship (ie the bankrupt and his creditors).
The bankrupt also alleged that the trustee owed him a duty of care under the common law of negligence. Here, he was on firmer ground, as the Court of Appeal clearly recognised the possibility of such a duty in Oraki. However, it is vital to bear in mind the difference between claims for losses to the bankrupt’s estate (estate losses) and claims for losses said to have been suffered by the bankrupt personally (personal losses). Suppose the trustee sells the bankrupt’s family home at an undervalue—this would be an estate loss. Suppose, in so doing, he also libels the bankrupt—this would be a personal loss. The bankrupt can only bring a claim for a personal loss by a common law claim. Any claim for an estate loss has to be by way of IA 1986, s 304. The distinction was drawn in Oraki and applied for the first time in this case.
The court decided to strike out the claim for damages for breach of contract and negligence.
Nearly all of the bankrupt’s claims were for estate losses and they were struck out accordingly. The small rumps of claims for personal losses were struck out also. They were poorly articulated, depended on duties that would again have left the trustee hopelessly conflicted and were an abuse of process (as they could have been brought in the bankrupt’s previous claim against the trustee under IA 1986, s 303).
Interviewed by Stephanie Boyer.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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Roles, powers, functions and duties of a trustee in bankruptcy (Subscriber access only)
Property that vests in the trustee in bankruptcy on bankruptcy and how the trustee in bankruptcy ascertains the extent of their interest in it (Subscriber access only)
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