HIS HONOUR JUDGE HODGE QC :
- This is my extemporary judgment on a renewed application for permission to appeal by Mr. Lawrence John Sykes against a bankruptcy order that was made in relation to him by District Judge Khan sitting in the County Court at Manchester on 3rd August 2017. The petitioning creditor was Mr. Wayne Shillito, who is the respondent to this intended appeal. The appeal reference is M17C153. Mr. Sykes appears before me today as a litigant in person. The respondent, Mr. Shillito, is represented by a solicitor, Mr. Kennedy.
- The bankruptcy order was made by District Judge Khan on 3rd August 2017. An agreed note of his judgment is before the court at pages 171 to 174 of the appeal bundle. The district judge began his judgment by stating that his role that day was to decide whether or not to make a bankruptcy order against Mr. Sykes and another individual, a Mr. Michael Stones, arising from the petitions presented by Mr. Shillito, or to dismiss or to adjourn the petition in the circumstances.
- The district judge began by acknowledging that under section 271 of the Insolvency Act the court had a general discretion to stay, or to grant, or to dismiss, a petition. There was said to be a degree of flexibility. The district judge then said that having regard to a previous unsuccessful application by Mr. Sykes to set aside his statutory demand, absent a change of circumstances a debtor could not re-argue earlier arguments. The district judge said that in relation to Mr. Sykes, he had considered his first witness statement of 13th April 2017, the witness statement of Michael Kennedy for Mr. Shillito dated 18th April 2017, and Mr. Sykes's supplemental witness statement of 7th June 2017. He recorded that although Mr. Sykes and Mr. Stones had represented themselves, they had been well prepared. They had both referred to the skeleton argument and had agreed the formulation of issues for the district judge to determine.
- There was said to seem to be an acknowledgement and a concession in the skeleton that Mr. Shillito was entitled to a bankruptcy order, subject to those issues, as the conditions in section 271(1) had been met. The issues which had been identified were:
(1) Ex turpi causa and illegality;
(2) A counterclaim against Mr. Shillito;
(3) Third party claims against Pepin Aslett (of counsel), Aticus Law and RBS;
(4) The motive and purpose of the petition; and
(5) The interests of other creditors.
- The district judge then said that as a matter of law, Mr. Sykes could not raise the arguments which had failed before the district judge in 2016. Those were said to be issues (1) to (3). Moreover, he said that it could not be said that there had been a change of circumstances, or that there was a good reason to permit Mr. Sykes to re-argue those points. Before the district judge there had been the claim against Pepin Aslett and not Aticus Law; but on the basis of the material sent to Pepin Aslett, it had been obvious that a claim was to be commenced against Aticus Law. There was said to be no explanation as to why that had not been relied upon back in September 2016.
- The claim against RBS was said to be contained within a letter of claim dated 1st August 2017. The district judge said that, in effect, it was "window-dressing" and that there was no substance to the allegations. There was said to be no causal link to show why Martin Franks's conduct had given rise to the claim of £19 million. There was said to be no evidence that, but for the proof of funds, Lawrence Sykes and Co. would have had funds of their own to advance the transactions. That problem was said to go to the root of the counterclaim. Although the letter to RBS had been drafted in March 2017, it had only been sent in August 2017 and there had been no explanation given for the delay. As counsel had said, "something is always about to happen or has happened" with Mr. Sykes and Mr. Stones.
- The letter to Mr. Shillito had been dated 29th February 2017 and had promised particulars of claim, in respect of which leading counsel had been instructed, and that was the date on which the first instalment had been due to be paid. The preliminary notice to Mr. Aslett had been sent only a few days before the hearing of the application to set aside the statutory demand. In April 2017, a preliminary notice had been sent to Aticus Law shortly before the bankruptcy hearing. There was said to be unevidenced proceedings for contempt which were unparticularised.
- Having dealt with issues (1) to (3), the district judge then turned to the motive of Mr. Shillito in issuing the petition and the claims of the other creditors. I can pass over those observations because they are not really engaged on the present application for permission to appeal; but in the course of those observations, the district judge stated that it was the task of the trustee in bankruptcy to investigate, consider, collect, and realise assets to pay creditors. That might include pursuing a claim against Pepin Aslett, Aticus Law and RBS. There was said to be no weight to be attached to the assertion of Mr. Stones that the trustee in bankruptcy would not pursue those claims. I do not consider that there is anything else in the terms of the judgment to which I need make express reference.
- The appellant's notice was filed by Mr. Sykes on 29th August 2017. There were three grounds of appeal:
(1) The district judge had erred in not staying or adjourning the petition pending progress on the solicitors' negligence claim, the barrister's negligence claim, and the claim against the Royal Bank of Scotland;
(2) The district judge had erred by not placing sufficient weight on the strength of the respective claims against the solicitors and the barrister as a reason for dismissing the petition; and
(3) The district judge had erred in dismissing the defendant's concerns that a trustee in bankruptcy would be averse to taking on responsibility for the claims outlined above.
Those grounds of appeal were elaborated upon in a seven page skeleton argument from Mr. Sykes. In it, he set out the procedural background and the grounds of the applicant's application for permission to appeal from the bankruptcy order.
- Mr. Sykes then addressed the third party claims, their real prospects of success, and any claims by the trustee in bankruptcy. As to the latter, Mr. Sykes made it clear that the trustee in bankruptcy would have the power to bring any claims against third parties; but Mr. Sykes made the point that his second witness statement had confirmed that his level of indebtedness stood at about £4 million and that his assets were insufficient to repay the body of creditors. There were therefore said to be insufficient funds in the appellant's bankruptcy estate with which to pay the trustee in bankruptcy's fees or to repay the creditors. As such, there were no funds in the bankruptcy estate which the trustee in bankruptcy could utilise to instruct solicitors or counsel to pursue the third party claims. It was said that they would simply fall by the wayside and become time-barred in due course.
- Mr. Sykes submitted that the district judge had erred in dismissing Mr. Stones's concerns that a trustee in bankruptcy would be averse to taking on responsibility for pursuing the third party claims as property of the appellant. The learned judge was said to have failed to take into consideration:
a) The level of the appellant's creditors;
b) The evident lack of funds within the appellant's bankruptcy estate; and
c) The complexity and value of the third party claims and thus the likely level of fees which would be charged by solicitors to pursue these.
It was said that had the district judge realised that these third party claims would not have been pursued by a trustee in bankruptcy, then a bankruptcy order would not have been made, and Mr. Sykes would have been entitled to have pursued these third party claims himself and to recover damages, which would have been sufficient to have paid the petitioning creditor's debt in full.
- The appeal bundle and the appeal file were placed before me and on 25th October 2017 I refused permission to appeal. My reasons were as follows:
(1) The appeal would have no real prospect of success and there was no other reason, still less any compelling reason, for the appeal to be heard;
(2) It was not suggested that the district judge had misdirected himself as to the applicable legal principles. The ground of appeal asserted that he had erred in:
(i) not staying or adjourning the petition pending progress on the claims against the solicitors, the barrister and the Royal Bank of Scotland;
(ii) not placing sufficient weight on the strength of the respective claims against the solicitors and the barrister as a reason for dismissing the petition; and
(iii) dismissing the appellant's concerns that a trustee in bankruptcy would be averse to taking on responsibility for the claims;
(3) The district judge's decision not to stay, adjourn, or dismiss the petition, but to make an immediate bankruptcy order, had involved an exercise of discretion. In making an immediate bankruptcy order, the district judge had not exceeded the generous ambit of his discretion. There was no real prospect of persuading the appeal court that the district judge had erred in principle, or in such a way as to vitiate the exercise of his discretion;
(4) The district judge had been entitled to take the view that the change in circumstances asserted in paragraph 8 of the appellant's skeleton argument was not sufficiently material to cause him to re-visit the views he had expressed when refusing to set aside the original statutory demand, which had been affirmed by the appeal court when refusing permission to appeal that earlier decision.
By way of explanation, the matters said to give rise to a change of circumstance in paragraph 8 of the skeleton argument were:
a) That Mr. Sykes had received confirmation from the Bar Mutual Fund that they were the professional indemnity insurer for Pepin Aslett;
b) That a preliminary notice had been served upon Aticus Law;
c) That a letter of claim had been sent to RBS claiming damages of about £19 million; and
d) That the letter of claim had been acknowledged by RBS's legal department and the claim was being investigated.
Mr. Sykes told me that RBS had, in fact, asked solicitors (Dentons) to represent them in relation to that claim. Returning to my reasons for refusing permission to appeal:
(5) The district judge had taken the view that there was no explanation, still less any satisfactory explanation, for the delay on the part of the appellant in pursuing the third party claims. That was a view he was entitled to reach on the evidence and to take into account when exercising his discretion; and
(6) Whatever view the district judge may have arrived at concerning the prospects of success of the third party claims, it was his view that a trustee in bankruptcy would be able to pursue the third party claims to the same extent as the appellant. Given the appellant's admitted insolvency, the district judge was entitled to take the view that there was no reason to suppose that the appellant would be in any better position to pursue those claims than a trustee in bankruptcy. There was no evidence to the contrary.
- My order refusing permission to appeal contained the usual notice pursuant to CPR 52.4(2) and (6) that, within seven days after service of the order, the appellant might request that the decision be reconsidered at an oral hearing. This was duly done by Mr. Sykes by way of a letter dated 1st November 2017 and, as a result, the matter was listed (on 7th November 2017) for an oral reconsideration today, with a time estimate of one hour. The notice of listing indicated that the respondent might attend the hearing of the application, but unless he was able to show good reason, he was unlikely to be awarded the costs of his attendance. Alternatively, Mr. Shillito might make representations by letter for consideration at the hearing of the application. Mr. Kennedy has attended today on behalf of Mr. Shillito and he has briefly addressed the court.
- Mr. Sykes addressed me in support of his renewed application for a little over 20 minutes. He reiterated the arguments in his written skeleton argument, emphasising four matters: First, that since the earlier unsuccessful application to set aside the statutory demand, there had been a significant change of circumstances and the district judge had erred in law in holding that there had not. They were that the Bar Mutual had acknowledged the letter to Mr. Aslett, that a preliminary notice had been served on Aticus Law on 13th April 2017, that a letter of claim had been despatched to RBS on 1st August 2017 claiming some £19 million, and that that letter of claim had been acknowledged by the legal department of RBS, which had appointed Dentons to represent them.
- Secondly, it was said that the district judge had erred in refusing Mr. Sykes's request for an adjournment of three to six months. There were said to be insufficient assets in Mr. Sykes's bankruptcy estate to pay Mr. Shillito. The only way he could be repaid was by way of progressing the third party claims. The district judge was said to have erred in not placing sufficient weight on those claims. All the district judge should have considered was whether Mr. Sykes had raised genuine, triable issues in relation to the third party claims, in the sense that they were more than merely arguable.
- Thirdly, there were said to be 51 allegations of negligence in all against the three proposed defendants. There was said to have been a conspiracy between an employee of RBS, Martin Franks, who had provided fraudulent proof of funding on RBS letterheads. Mr. Sykes said there was insufficient money in the bankruptcy estate to fund those third party claims. Apart from those third party claims, there was no prospect of any creditor ever recovering any monies from him. The trustee in bankruptcy was unlikely to be able to pursue those third party claims because there were no monies in the bankruptcy estate.
- Finally, the district judge had failed properly to consider the level of creditors of some £4 million, the lack of funds in the bankruptcy estate, and the complexity of the third party claims, and the level of funding that would be required to advance them. The district judge was said to have erred in law in not adjourning the matter for three to six months to enable Mr. Sykes to see if he would pursue the claims; he had incorrectly applied the test as to the viability of those third party claims and their prospects of success, and he had not properly considered the effect of making Mr. Sykes bankrupt, and of the trustee in bankruptcy's inability to pursue the claims.
- In the course of his submissions, Mr. Sykes produced to me a letter from his MP indicating that she had referred the matter to Greater Manchester Police. Mr. Sykes also produced email exchanges between his representatives and persons acting for the trustee in bankruptcy over the period 13th to 29th November 2017 from which it was apparent that the trustee in bankruptcy was looking to find a solicitor to proceed against RBS on a no win, no fee basis. Mr. Sykes expressed the view, however, that it was unlikely that the trustee in bankruptcy would succeed in doing this because of the complexity of the claims against RBS. He also made the point that it would be wrong in principle for Mr. Shillito to be entitled to benefit from any claim against RBS because of his involvement in what he said was the underlying wrongdoing.
- At the end of his address, I enquired of Mr. Sykes how an adjournment of the petition would have helped given Mr. Sykes's acknowledged lack of funding and inability to pursue the claims himself. Mr. Sykes's response was that the removal of the stigma of a bankruptcy order might have enabled him to raise litigation funding. In his reply to Mr. Kennedy, Mr. Sykes indicated that an individual at Keystone Law was currently reviewing all of the evidence, he potentially had access to litigation funding, and Mr. Sykes was hoping to receive a response from him in the next four to six weeks. He submitted that there was every chance of a successful claim against RBS in this way.
- Those were the submissions. I have borne them in mind, and have also borne in mind the full contents of Mr. Sykes's written skeleton argument.
- A preliminary issue arises as to my jurisdiction to entertain this renewed application for permission to appeal. That is because of the re-casting of Practice Direction 52A since I considered the application for permission to appeal on paper and subsequently directed a renewed oral hearing before me. As re-cast, paragraph 4.4 of Practice Direction 52A deals with appeals from the County Court to the High Court. It provides that where the lower court is the County Court, then (subject to an exception relating to appeals in proceedings brought pursuant to the Companies Acts, which has no present application) applications for permission to appeal must be heard by a Group A Judge (as defined in the Practice Direction). I am a Group B Judge, and also a Group C, Judge, and not a Group A Judge. On the face of Practice Direction 52A, therefore, I would have no jurisdiction to hear this application for permission to appeal.
- However, this is an appeal in personal insolvency proceedings. As such, it is governed by section 375(2) of the Insolvency Act 1986. That provides that an appeal from a decision made in the exercise of jurisdiction for the purposes of the Second Group of Parts, relating to individual insolvency and bankruptcy, by the County Court lies to a single judge of the High Court. I am authorised to sit as a Judge of the High Court by section 9(1) of the Senior Courts Act 1981.
- Practice Direction 52A applies to all appeals to which Part 52 applies: see paragraph 2.1. However, rule 12.58 of the Insolvency Rules 2016 provides that CPR 52 applies to insolvency appeals as varied by any applicable Practice Direction. Paragraph 20.7(1) of the Insolvency Practice Direction, dating from 2014, gives any person authorised, as I am, under section 9 of the 1981 Act, the power to hear an appeal, or an application for permission to appeal, from a district judge in the County Court. Paragraph 20.9.2 expressly excludes paragraphs 4.3 to 4.5 of Practice Direction 52A.
- I am therefore satisfied that I have the necessary jurisdiction to hear an appeal in individual insolvency proceedings by virtue of section 375(2) of the Insolvency Act 1986, and that, because of the provisions of the Insolvency Practice Direction, I am not precluded from entertaining an application for permission to appeal by the re-cast paragraph 4.4 of the new re-cast Practice Direction 52A. So I proceed to consider the merits of the renewed application for permission to appeal.
- I have listened carefully to all that Mr. Sykes has to say, but nothing that he has said leads me to take a different view from that which I expressed in my original reasons for refusing permission to appeal. The matters relied upon by Mr. Sykes as constituting a change of circumstances from the date of his original unsuccessful application to set aside the statutory demand that had been served upon him do not, in my judgment, amount to any material change of circumstances; and there was no error on the part of the district judge in taking the view that no such change of circumstances had been shown.
- Essentially, all that has happened is that there have been responses to claims that had previously been made, or claims that had previously been indicated have now been made and responded to. In my judgment, the district judge was right in taking the view that the fact that Mr. Sykes had received confirmation from Bar Mutual that they were Mr. Aslett's professional indemnity insurers, that a preliminary notice had been served upon Aticus Law, and that a letter of claim had been sent to RBS, which had been acknowledged by its legal department and solicitors had been instructed, did not amount to any material change of circumstances from the time of the previous unsuccessful application to set aside the statutory demand.
- Whatever the weight to be attached to Mr. Sykes's prospects of success on any of those claims, it had been the district judge's view that those claims could be pursued by a trustee in bankruptcy to the same extent as they could be pursued by Mr. Sykes himself. Given Mr. Sykes's admitted, and substantial, insolvency, that, it seems to me, was a view that the district judge was entitled to come to. There was no reason to suppose that Mr. Sykes would be in any better position to pursue the claims than a trustee in bankruptcy. Although the material was not before the district judge, Mr. Sykes has indicated that the trustee in bankruptcy has expressed some interest in seeking to consider pursuing RBS on a no win, no fee basis. Mr. Sykes has said that there is no real prospect of that; but there is no reason to think that the trustee in bankruptcy would be in any worse position in that regard than Mr. Sykes himself.
- Essentially, the district judge had before him a situation where there were substantial debts owing from Mr. Sykes which he was unable to discharge. There was no reason to think that adjourning the bankruptcy petition for three or six months would enable Mr. Sykes to pursue his claims to any greater or better extent than a trustee in bankruptcy would be able to do. The fact was that Mr. Sykes is unfortunately lacking in the necessary funding to pursue those claims himself. In those circumstances, the district judge was entitled, in the exercise of his discretion, to take the view that it would not be appropriate to adjourn the hearing of the bankruptcy petition in the face of Mr. Sykes's admitted, and substantial, insolvency. In those circumstances, therefore, I cannot discern any real prospects of an appeal succeeding; and I would therefore refuse permission to appeal.
- Mr. Sykes: Normally the refusal of permission to appeal is the end of the road. I have, however, indicated why I take the view that I had jurisdiction to hear this application. I have set out my reasons in some detail. You may wish to consider whether you wish to seek permission from the Court of Appeal to challenge my view as to whether I did actually have jurisdiction to determine this application; but it seems to me that that is the only potential way forward you might have because there is no appeal from a refusal of permission to appeal. But, as I say, you might wish to consider seeking permission from the Court of Appeal to challenge my view as to whether I had jurisdiction to make that decision or not, and that is the reason why I have set that out in some detail.
- You will, of course, be entitled to obtain a transcript of my decision. If you wish to do so, it seems to me that it would be appropriate for me to indicate that I would be prepared to order a transcript at public expense because clearly, in view of your financial situation, you do not have the means to pay for such a transcript yourself. So, my order will be that on your renewed application for permission to appeal, permission to appeal is refused; but I will give permission, if you so request, for a transcript at public expense because it does seem to me that the jurisdictional point, if no other, may be something the Court of Appeal might wish to look at if you decide to seek to take the matter further. As I say, normally you would not be able to do so.
(Judgment ends)
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