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8-02-2021

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On allowing an appeal against a bankruptcy order, the High Court emphasised that if there is evidence of incapacity on the part of a litigant the procedure under CPR 21 is engaged so that a litigation friend must be appointed. The failure by the first instance court in dealing with that issue meant that the bankruptcy order had to be set aside.

There were two issues that the appeal court had to deal with in this case. The first was that, at the time of the hearing of the petition, there was a previous issued petition that was waiting to be heard. However, neither the District Judge nor the Petitioner could have known about that petition as it was issued against the same person but with a slightly different spelling of his surname. It would not have been revealed in any search. The court considered that this was not an issue that need concern it because the proper process to deal with that was either an application to annul under section 282(1) Insolvency Act 1986 or an application for review under section 375 of the Act. Neither of those applications were relevant to the issue on appeal.

What did matter was the fact that, prior to the hearing, possibly the debtor’s daughter had sent an unsigned letter to the  court stating that her father was suffering from Alzheimer’s disease, had a further consultant’s appointment after the hearing date and could not attend court because of his poor state of health. The court was asked to adjourn the hearing. Attached to that letter was some medical evidence supporting the diagnosis of Alzheimer’s disease and the consultant’s appointment.

The debtor’s GP had also written a letter stating that the debtor had been diagnosed with dementia a few years earlier, lacked capacity to attend court and lacked the ability to retain information.

The response from the petitioner’s lawyers was that there was no clear evidence before the court that the debtor could not attend court, the letter was unsigned and it was not a formal application for an adjournment. At the hearing, counsel for the petitioner also stated that it was not completely clear from the evidence that the debtor was incapable of attending court or standing in opposition to the petition. Further, this was not a formal trial in which there would be any need for evidence to be given or for cross-examination. The debtor’s illness was said not to be strictly relevant to the formal application and there was no need for him to be present.

The District Judge made the bankruptcy order because the debt was outstanding and this was sufficient to warrant the making of the bankruptcy order.

At the appeal hearing, there was further evidence available as to the debtor’s lack of capacity. The point was made by the Judge that this could not have been known by the District Judge of course. It did, however, confirm the lack of litigation capacity.

The error that the District Judge had made was in not dealing with the evidence that had been presented as to capacity. If there is any issue as to capacity, CPR 21 is engaged. If a party lacks capacity, the litigation cannot proceed until a litigation friend has been appointed to represent that party. The obvious person in this was the debtor’s daughter who was an attorney for the debtor under a Lasting Power of Attorney.

The District Judge should not have made an order until a decision had been made on capacity in order to consider whether or not CPR 21 was engaged. The High Court considered that, had he done so, he would have formed the view that there was a need for a litigation friend and that no steps could be taken on the petition without the court’s permission until that appointment had been made. For this reason, the bankruptcy order could not stand.

On the issue of costs, the court considered that the petitioner should pay the debtor’s costs and those of the Official Receiver. The petitioner was aware of the issue of capacity but “simply brushed over it at the hearing before the District Judge”.

Commentary

The result of the case is, arguably, unsurprising. CPR 21 is quite clear on what needs to be done when there are issues of capacity. This was not a case in which those assertions were made unsupported by any medical evidence. There was sufficient evidence provided which should have alerted the petitioner to the fact that this was an issue that needed to be dealt with in accordance with CPR 21. Such assertions can be difficult to deal with in terms of producing any contrary evidence as to capacity. However, if the claim against any party is valid, and the District Judge in this case had concluded that there was a debt owed, the appointment of a litigation friend may be only a delaying factor for a petitioner but also give the certainty that any judgment obtained is valid and cannot be challenged subsequently.

It must also be borne in mind that CPR 21 not only applies to principal claims, such as petitions but will also apply in any applications made in the court of administering the bankruptcy estate such as possession and sale or IPO proceedings.

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