TAKING APPROPRIATE STEPS WHEN A DEFENDANT DOES NOT HAVE CAPACITY: AN IMPORTANT WARNING

A real and profound warning about the dangers of issuing against someone without capacity is given in the judgment of  HHJ Hodge QC sitting as a judge of the High Court in Kumar v Hellard [2021] EWHC 181 (Ch).

 

“I am entirely satisfied on the evidence that is before the appeal court that, on the evidence that was before him, the district judge should expressly have addressed the issue of the appellant’s litigation capacity. Had he done so, he would have formed the view that there was a need for a litigation friend and that no steps should be taken in the bankruptcy proceedings without the court’s permission until a litigation friend had been appointed”

THE CASE

The petitioning creditor had issued bankruptcy proceedings against Mr Kumar.  When the matter came before the district judge there was a letter stating that Mr Kumar suffered from Alzheimer’s disease and stating that a further medical consultation was pending.  The letter asked for the court to adjourn the hearing to give the medical consultant time to advise.  There was also a letter stating that Mr Kumar suffered from dementia.

THE APPEAL

Mr Kumar appealed.  On appeal he provided a further letter which showed that Mr Kumar lacked litigation capacity.

THE APPEAL WAS ALLOWED

Permission to appeal was given, on a ground that was not raised, because the court was concerned that Mr Kumar did not have capacity. It also proved to be an expensive exercise for the petitioning creditor as he was ordered to pay the Official Receiver’s costs of the hearing.

    1. That evidence was, of course, not before the district judge because it did not exist at the time of the hearing before the district judge; it only came into existence as a result of the later consultation. It therefore could not have been put before the district judge, although the appellant had sought an adjournment to enable it to be put before the court following his forthcoming consultation. It is confirmative of the evidence of lack of litigation capacity that was before the district judge on 19 December.
    2. The bankruptcy order having been made on 19 December 2019, an appellant’s notice was filed on 9 January 2020. It was referred to Marcus Smith J on 3 March 2020. Marcus Smith J gave permission to appeal. His reasons are as follows:
“(1) The intended appellant is a litigant in person who wrote to the court prior to the hearing seeking an adjournment on the grounds of ill health. That adjournment was refused by the district judge, who then proceeded to hear the bankruptcy application and to adjudge the intended appellant bankrupt.
(2) That is a case management decision with which this court would not ordinarily interfere. However, it is clear from the documents in the court file, and from the transcript of the hearing before the district judge, that the intended appellant’s ill health went to his capacity. Whilst it is not clear from the transcript precisely what material was before the district judge, it is evident that the intended appellant suffers from a form of dementia involving Alzheimer’s disease and is, or potentially is, a protected party within the meaning of CPR 21.
(3) In these circumstances, the district judge should have made a determination as to the intended appellant’s capacity and status. The district judge did not do so but rather permitted the application to proceed because the hearing was not a formal trial involving cross-examination and there was no formal need for the intended appellant to be present.
(4) CPR 21.3(3), which applies in insolvency proceedings by virtue of r. 12.1 of the Insolvency Rules 2016, prevents any party from taking any step in the proceedings without the permission of the court until the protected party has a litigation friend. I do not consider that the district judge gave permission to proceed under CPR 21.3(3) or, if he did, he gave permission without properly considering the question of capacity.
(5) In these circumstances, there is a real prospect that the order will be set aside on appeal and permission to appeal must be given.
(6) CPR 21.3(4) provides that any step taken before a protected party has a litigation friend has no effect unless the court orders otherwise. In all the circumstances, given this provision, it is appropriate that any steps to be taken after service of this order on the Official Receiver pursuant to the order be stayed.
(7) I appreciate that capacity is not one of the grounds for appeal put forward by the intended appellant. Given the provisions of CPR 21, this is a matter where it is appropriate that the court acts of its own motion.”
  1. Mr Becker, who now appears for the appellant, seeks permission – which I give – to amend the grounds of appeal to raise the issue of the appellant’s litigation capacity. I am entirely satisfied on the evidence that is before the appeal court that, on the evidence that was before him, the district judge should expressly have addressed the issue of the appellant’s litigation capacity. Had he done so, he would have formed the view that there was a need for a litigation friend and that no steps should be taken in the bankruptcy proceedings without the court’s permission until a litigation friend had been appointed.
  1. I am satisfied that the bankruptcy order was wrongly made for that reason; and that it was also unjust because of a serious procedural error in the proceedings in failing to appoint a litigation friend. I am satisfied that the bankruptcy order must be set aside and the appeal allowed.
  2. The question then is: What further steps should be taken? It seems to me, on the material before the court, appropriate for the court to appoint a litigation friend so that the present petition can proceed. The court has power to do so under CPR 21.6(1). Since the appellant’s daughter, Kusum Kumari, has a Lasting Power of Attorney for her father, she is the appropriate person to appoint. I therefore appoint her to act on this petition as the appellant’s litigation friend.
  3. I have looked at the CE-file for the earlier, extant, bankruptcy petition which is now proceeding in the name of the Lord Chancellor (as the successor to the Legal Services Commission). That petition is proceeding under case number BR-2018-001194. It presently stands adjourned to 22 February 2021 at 10 a.m. for a non-attended pre-trial review. It seems to me the appropriate course is for the court to transfer this present bankruptcy petition from the County Court at Romford to the Business and Property Courts of England and Wales, Insolvency and Companies List (Ch), to come on for hearing on that day with the Lord Chancellor’s bankruptcy petition. It would appear that the appellant wishes to contest both petitions and it is therefore sensible for them to be case-managed, if not heard, together. I have already discussed the terms of an order with Mr Becker to give effect to all of this.
  4. So far as costs are concerned, it seems to me the appropriate order for costs in the lower court, where the appellant did not of course attend, is simply that they be costs in the petition. So far as the Official Receiver’s costs, if any, are concerned, since the bankruptcy order is being set aside, they must be borne by the petitioning creditor. The petitioning creditor was aware of the issue of litigation capacity, yet he (through his counsel) simply brushed over it at the hearing before the district judge. In those circumstances, it is appropriate that the petitioning creditor should bear any costs of the Official Receiver.