Hieber v Duckworth: The rule in ex parte James

Hieber v Duckworth (in his capacity as liquidator of Hieber Limited) (unreported, 20 June 2017)

Judgment on Lawtel: https://www.lawtel.com/UK/Searches/2531/AC0155020

Hieber v Duckworth involved an application by Mrs Hieber (“H”) to set aside a Tomlin order on the grounds of duress and undue influence and pursuant to the so-called rule in ex parte James.. The parties to the Tomlin order were H, Mr Duckworth, the liquidator of Hieber Limited (“the Liquidator” and “the Company”) and the Company itself.

H was a shareholder in the Company, a vehicle used by H’s husband to provide certain advisory services to financial institutions. It went into liquidation. Prior to its liquidation, the Company had made payments of almost £86,000 into a joint account in the names of H and her husband. The Liquidator sought a declaration that the payments were unlawful dividend payments, which H and her husband should repay.

The Liquidator’s solicitor was contacted by an individual called Basil Mungford, who claimed to act on behalf of both H and her husband. He proposed a settlement whereby H’s husband would pay £30,000 in £400/month instalments and H would grant the Liquidator or the Company (it is unclear which) a charge over a property she owned, but limited to £11,800 of the £30,000 settlement sum. This proposal was (in broad terms) distilled into the Tomlin order and signed by H, her husband and the Liquidator.

Subsequently, it transpired that H’s husband was a “violent and abusive alcoholic”. Her evidence, which Deputy Registrar Garwood accepted, was that she had never had any contact with Mr Mungford and had only signed the Tomlin order because of the undue influence or duress of her husband.

H’s case was that, by analogy to RBS v Etridge, the Liquidator had been put on notice as to the possibility of such duress (i.e. he had constructive notice), had failed to take reasonable steps to ensure she understood what she was agreeing to and therefore the Tomlin order ought to be set aside.

The Liquidator said that the analogy to Etridge did not work: the principle that constructive notice was sufficient only applied in surety cases (and apparently not in any other category of case). Further, it was said that even if the Etridge analogy did apply and the Liquidator was put on notice, he did sufficient to ensure H knew what she was agreeing to.

Deputy Registrar Garwood agreed with H. He said that the principle in Etridge applied and the Liquidator had been put on notice but failed to take reasonable steps to ensure H knew what she was agreeing to.

More interestingly, from an insolvency perspective, was the consideration of the so-called “rule in ex parte James”, which the Deputy Registrar raised as an issue during the course of the hearing. This was the second time in short succession that the High Court considered the rule, following Registrar Baister’s recent and detailed discussion of it in Re Young (a bankrupt) (unreported, 2 March 2017: https://www.lawtel.com/UK/Searches/3945/AC0154328).

The rule has its roots in the late 19th Century. As explained by David Richards J (as he then was) in Lomas v Burlington Loan Management [2015] EWHC 2270 (Ch) at [174]: “(t)he case to which the principle owes its name, like a number of cases immediately following it, concerned the retention by a liquidator or trustee in bankruptcy of money paid under a mistake of law. At that time, money paid under a mistake of law was not recoverable, but the court directed that its officer should not stand on his strict legal rights but should return the funds…[otherwise] it would amount to an unjust enrichment of the estate”.

In short, because trustees in bankruptcy and liquidators (in compulsory liquidations) are officers of the court “a principle has been developed and applied to the effect that ‘where it would be unfair’ for a trustee in bankruptcy ‘to take full advantage of his legal rights as such, the court will order him not to do so’”: Lord Neuberger in Re Nortel GmbH [2013] UKSC 52 at [122] (and in Lomas at [182]). Another formulation of the phrase “where it would be unfair” is where it would be “obviously unjust [to] all right-minded men”: Re Wigzell [1921] 2 KB 835 (and in Lomas at [176]).

The rule in ex parte James has often been applied on a standalone basis, though it seems to me that it really is (or, if not, really ought to be) part of the law of unjust enrichment.

In Hieber, the Deputy Registrar found that there had been unjust enrichment (being the benefit to the Company of the Tomlin order) and that it would be unconscionable for the Company or the Liquidator to retain the benefit because of the husband’s history of violence and abuse. Accordingly, he found at para 45 that “even if not for the reasons given by me in relation to the duress and undue influence, the Tomlin Order falls to be set aside by the application of the rule in ex parte James”.

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1 Response to Hieber v Duckworth: The rule in ex parte James

  1. Pingback: Evans v Carter [2017] EWHC 2163 (Ch): unjust enrichment, bankruptcy and the rule in ex parte James | The Law of Insolvency

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