In fulfilling its primary function of getting in, realising and distributing the bankrupt’s estate, a trustee in bankruptcy is entitled to use its own discretion under section 305(2) of the Insolvency Act 1986.
The Court of Appeal has unanimously allowed an appeal against an order requiring trustees to apply to be joined to possession proceedings in Patley Wood Farm LLP and others v Kicks and another [2023] EWCA Civ 901.
The case concerned the long-running litigation around West Axnoller Farm in Dorset and, in particular, West Axnoller Cottage, of which the bankrupts Nihal Brake and Andrew Brake (and the second respondent) were registered proprietors and entitled to possession. The appellants were the Brakes’ trustees in bankruptcy, in whom vested any beneficial entitlement to the cottage.
The third respondent, Chedington Court Estate Ltd, took possession of the cottage in January 2019 when the Brakes were not resident, having contracted with the Brakes’ then trustee in bankruptcy, Duncan Swift, to purchase it and holding a licence from him to occupy it.
In October 2022, the Court of Appeal allowed the Brakes’ appeal against Chedington’s recovery of possession of the cottage, deciding they had better title to it (Brake and another v Chedington Court Estate Ltd [2022] EWCA Civ 1302; [2023] EGLR 1). The remaining appeal concerns the Brakes’ entitlement to damages and a possession order of the cottage. The Court of Appeal directed the trustees, if so advised, to apply to join the proceedings.
The respondents urged the appellants to join the proceedings and sought an order compelling them to do so. The trustees took a neutral view of Chedington’s claim under the contract for sale pending the outcome of a reference to the Supreme Court. They argued that the cottage had no value to the bankruptcy estates, which were in deficit to the tune of more than £3.5m. Consequently, it was inappropriate for them to be joined to the proceedings or incur costs in doing so. They rejected Chedington’s offers to pay their costs of being joined to the proceedings, to indemnify them in respect of adverse costs, and a monthly licence fee as compromising their independence. The judge ordered them to be joined to the proceedings, deciding that their refusal to intervene was motivated by an unwillingness to be involved and perverse.
The judge’s reasoning was flawed. The trustees had a discretion as to what steps they should take. He had ignored the fact that the action was unlikely to result in any benefit to the bankruptcy estates and dismissed legitimate concerns over their independence. The resulting complex and hostile litigation with the Brakes over their application confirmed the downside to them in joining the action.
Louise Clark is a property law consultant and mediator
