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England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Bagnall, R (On The Application Of) v Secretary Of State For Trade & Industry [2000] EWHC Admin 297 (22 February 2000)
URL: http://www.bailii.org/ew/cases/EWHC/Admin/2000/297.html
Cite as: [2000] EWHC Admin 297

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST


CO/4198/99


Royal Courts of Justice
Strand
London WC2A 2LL
Tuesday 22nd February 2000

B e f o r e
MR JUSTICE LIGHTMAN
In the matter of an application for Judicial Review
and in the matter of the appointment of Mrs Shirley Angela Jackson as the trustee in bankruptcy of Kenneth Reginald Bagnall
BETWEEN:
THE QUEEN
and
THE SECRETARY OF STATE FOR TRADE AND INDUSTRY

Respondent

Ex parte
KENNETH REGINALD BAGNALL QC

Applicant
_____________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
____________

Mr Bagnall QC appeared in person.
Mr Richard Ritchie (Instructed by the Treasury Solicitor) appeared on behalf of the Respondents.

Judgment
As Approved by the Court
Crown Copyright ©

INTRODUCTION
1. This is an application by Mr Kenneth Bagnall QC ("Mr Bagnall") for permission to apply for an order quashing on public law grounds a decision b y the Secretary of State notified to Mr Bagnall on the 1st October 1999 to exercise the power conferred by Section 296 of the Insolvency Act 1986 to appoint Mrs Jackson as his trustee in bankruptcy.
FACTS
2. On the 30th December 1998 Messrs DJ Freeman (a creditor for £22,000) served a statutory demand on Mr Bagnall and on the 10th February 1999 presented a petition for his bankruptcy. The first hearing date of the petition was the 23rd March 1999 on which date another firm of solicitors, Metson Cross, also a creditor for £22,000 was given carriage of the petition. Mr Bagnall instructed solicitors Messrs Hyde Mahon & Bridges to seek an Individual Voluntary Arrangement (an "IVA"). He informed them that he had a claim in negligence against Messrs DJ Freeman. The solicitors thereupon instructed Mrs Jackson of BN Jackson Norton, Insolvency Practitioners, to apply for leave to set up an IVA. On the 30th April 1999 leave was given and the petition adjourned until the 26th May 1999 to await the outcome.
3. On the 10th May 1999 Mr Bagnall met Mrs Jackson for the first time. They discussed briefly the fact that Messrs DJ Freeman had made the statutory demand and that he had a claim against Messrs DJ Freeman. They also discussed the relationship between Mrs Jackson and Messrs DJ Freeman, and in particular that she knew most of the partners personally and was on a panel of insolvency practitioners maintained by the firm. Mrs Jackson said that she would have a meeting with Messrs DJ Freeman and she later held such a meeting. Mrs Jackson and Mr Bagnall had a further meeting on the 25th May 1999 to finalise Mr Bagnall's proposal for an IVA. This was to be for a period of three years; the supervisor was to be Mrs Jackson. The original offer to creditors was three annual payments of £40,000 but in a letter dated the 28th July 1999 Mr Bagnall reduced the figure to a single sum of £10,000 to be provided by his wife on the liquidation of TSAF plc, a company in which he and his wife had shares, out of monies received by his wife in the liquidation.
4. By letter dated 6th July 1999 Mr Bagnall raised with Mrs Jackson the possibility of a conflict of interest on her part in view of her relationship with Messrs DJ Freeman and his claim in damages against Messrs DJ Freeman. Mrs Jackson responded by telephone on the 14th July 1999. Mr Bagnall appeared satisfied with this response, for he wrote to her again on the 16th July 1999 on the basis that the IVA was going ahead with Mrs Jackson as supervisor. The meeting of creditors took place on the 30th July 1999. Real Kredit Denmark and the two creditor firms of solicitors attended, as did Mr Bagnall's daughter on his behalf since ill-health prevented his attending. The creditors unanimously rejected the proposals, and the bankruptcy order was made on the 6th August 1999. The official receiver thereupon became receiver and manager of Mr Bagnall's estate under Section 287 of the Insolvency Act 1986 pending the appointment of a trustee.
5. On the 14th September 1999 Mr Cook of the Official Receiver's Office in Brighton applied to Miss Dennis of the Insolvency Service for the urgent appointment by the Secretary of State under section 296 of the Insolvency Act 1986 of Mrs Jackson as Mr Bagnall's Trustee because of the imminent liquidation of TSAF plc. Mr Bagnall was interested in that company as a shareholder and creditor. His liabilities exceeded £1.2 million, and she was nominated for appointment by the majority creditor Real Kredit Danmark (which was owed £1.2 million). and the two firms of solicitors who were the petitioning and supporting creditors (owed £44,000) and so far as is known the only other creditors supported the appointment. Miss Cook, who was at this time in possession of the letter dated the 6th July 1999 raising the question of a conflict of interest, did not draw Miss Dennis's attention to this letter. The Secretary of State (without requiring any meeting of creditors) appointed Mrs Jackson with effect from the 15th September 1999. Mr Bagnall was notified of this appointment on the 1st October 1999 and he complained about it on the 7th October. His letter read as follows:
"I refer to you [sic] letter dated the 1st October to which have given careful consideration. In my opinion the appointment of Mrs Jackson is reviewable by way of Judicial Review as being both irrational and in breach of my legitimate expectation that the Official Receiver would act fairly in the appointment of a Trustee in Bankruptcy.
My reasons for objecting to the appointment are as follows-
1. Mrs Jackson's conduct in relation to my proposed IVA.
2. Mrs Jackson's failure to report to me as to the outcome of the creditors meeting and reasons why the proposed IVA was rejected.
3. Mrs Jackson's failure to reply to my letter copy with the OR.
4. Mrs Jackson's conflict of interest in that I have a claim in negligence against DJ Freeman and she is on the DJ Freeman's panel of Insolvency Practitioners and DJ Freeman specifically required as a condition of their consent to my proposed IVA that Mrs Jackson alone should decide whether to proceed with that action.
5. Mrs Jackson's failure to report to the creditors the progress of the bill removing pensions from assets vesting (sic) in the Trustee even although she is on the committee of advisers.
Your letter does not set out the reasons why Mrs Jackson was chosen. I am entitled to know those reasons before giving instructions to proceed by way of Judicial Review to set aside your decision. I should be obliged to receive them.
I am sending a copy of this letter to Mrs Jackson."
This letter was not brought to the attention of the Secretary of State. The Official Receiver however replied to this letter on the 11th October 1999 as follows:
"Thank you for your letter dated 7 October 1999, the contents of which I have noted.
S A Jackson of DJ Freeman & Sons was appointed as trustee for your bankruptcy on 15 September 1999. The Secretary of State appointment was made on the nomination of the majority of your creditors under Section 296 of the Insolvency Act 1986."
The Secretary of State accepts that this letter was unfortunately worded. The Secretary of State reconsidered the appointment in the light of the two letters not previously disclosed to him and the objections to the appointment taken by Mr Bagnall, and decided to confirm the appointment of Mrs Jackson.
6. The application for judicial review was lodged on the 21st October 1999, and on the 24th November 1999 Richards J directed that the application for permission be adjourned to be heard in open court on notice to the three respondents, namely the Official Receiver, the Secretary of State and Mrs Jackson.
GROUNDS OF CHALLENGE
7. The application originally raised a whole series of grounds of challenge to the decision to appoint Mrs Jackson. It was initially said that an appointment of a trustee could only be made without calling a meeting of creditors where there was a need for an urgent appointment. The requirement of urgency was said to rest in the provisions of the publication of the Secretary of State entitled "Dear Insolvency Practitioner" (June 1999) which provides details of the criteria which the Secretary of State will take into account when considering whether to appoint an insolvency practitioner a trustee under Section 296. If urgency were a condition for making such an appointment, it was satisfied, for Mr Bagnall's daughter at the creditors' meeting clearly stated that TSAF would be placed in liquidation in 4-6 weeks. Indeed the risk to the interest of the creditors in the assets of TSAF in default of such an appointment to protect their interests was greater than this, for though he had earlier withheld this information from the Court (most particularly in his latest affidavit), Mr Bagnall told me in the course of his address that in pursuance of some long laid plan TSAF was struck off the register of companies some four weeks ago. But in any event whether or not there was urgency, on an examination of the publication it is plain that there is no need for urgency or any prior meeting of creditors when (as in a case such as this) the creditors clearly want their choice of trustee to be appointed.
8. In the course of his address Mr Bagnall agreed that his application turned on one question, and one question only, namely whether the decision of the Secretary of State to appoint Mrs Jackson was unlawful because of the risk of bias on her part arising from her relationship with Messrs DJ Freeman. Mr Bagnall cited to me the decision of the Court of Appeal in Locabell which illuminates the attitude to be taken by courts in deciding whether a judge or any other person performing judicial functions is disqualified by bias. But this decision appears to me to be of limited assistance in this case, for there is here no question of bias by a judge or person exercising judicial functions. The issue is whether the decision of the Secretary of State to confirm the appointment is unreasonable having regard to the perception of bias of the appointee Mrs Jackson on the part of Mr Bagnall. For this purpose I am content to adopt the test suggested by Mr Bagnall: I should stand back and ask myself whether it is right, fair and proper for the appointment by the Secretary of State to stand when there are so many other fully qualified and willing candidates for the job of trustee to whom no such objection can be taken.
9. In the ordinary case, the appointment might be expected, and would no doubt be preferable, of a trustee to whom no objection is taken by the bankrupt: there is no point unnecessarily occasioning concern to the bankrupt by the appointment of a person to whom he takes objection.
10. But there are two special factors in this case: (1) the creditors unanimously sought the appointment and seek her continuation in office; and (2) Mr Bagnall is hopelessly insolvent and there is no prospect of any surplus after payment of the creditors and the costs of the bankruptcy. Accordingly the only persons interested in the choice of the trustee are the three creditors, and not Mr Bagnall, and they see advantages for themselves in her continued role and no risk of any bias or any prejudice by reason of bias. In those circumstances the perception of bias on the part of Mr Bagnall is a factor of no importance and there can be no criticism of the Secretary of State taking the view that the representations of Mr Bagnall should be overridden in favour of giving full effect to the wishes of the creditors.
11. I should add that there is a further compelling factor in favour of rejecting Mr Bagnall's challenge, though it is unnecessary for the Secretary of State to rely on it. Mr Bagnall knew all the relevant facts regarding Mrs Jackson's relationship with Messrs DJ Freeman on the 25th May 1999, if not at his first meeting with Mrs Jackson. The perception of the possibility of a conflict of interest did not in any way impair his decision to retain her as his insolvency practitioner and proposed supervisor of his IVA. His first real manifestation of concern was after the rejection of his proposed IVA by the creditors' meeting. Mr Bagnall in his address attributed this attitude over the interim period to his ill-health at the time. I do not accept that his ill-health affected his judgment in this regard. If Mr Bagnall had no fear of bias sufficient to disqualify Mrs Jackson from acting for him over this critical period, it is totally unconvincing for him now to contend that his perception of bias should disqualify Mrs Jackson acting as trustee (in effect) for the three creditors.
12. The Secretary of State in the final minutes of his address without any prior notice raised the argument that judicial review is not available to challenge an exercise by the Secretary of State of his power to appoint a trustee. I do not agree. It may be very rare indeed that such a challenge is appropriate. There is statutory power for the trustee so appointed to be removed on application by an interested party in the course of the insolvency, but that does not mean that circumstances may not exist when such an application as the present may be the necessary and proper method of achieving justice.
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URL: http://www.bailii.org/ew/cases/EWHC/Admin/2000/297.html