Bankrupt’s right of action

Mulkerrins v Price Waterhouse Coopers (a firm) [2003] 4 All ER 1(HL)

After a bankruptcy petition was presented against the claimant, the defendant advised her that she had a good chance of obtaining an individual voluntary arrangement which would allow her to carry on the business and pay her creditors out of the profits. However, she was made bankrupt and her business was closed down. Before her discharge from bankruptcy, she brought proceedings for negligence against the defendant, complaining of its failure to prevent the making of the bankruptcy order. Her trustee in bankruptcy considered that her right in action was vested in him for the benefit of her creditors. The district judge held that the trustee had no interest in the claimant’s right of action. When the statement of claim was served, the defendant, which had no notice of the hearing before the district judge, applied to strike out part of the claim, contending that it should be sued by the trustee. The High Court judge dismissed the application, but his decision was reversed by the Court of Appeal. On the claimant’s appeal to the House of Lords, the House held that it was not open to the defendant to challenge the practical effect of the district judge’s order. Right or wrong, that order had clearly and decisively determined the issue between the only two possible contenders to the right of action against the defendant. The district judge’s decision was binding on the trustee in bankruptcy, who had not appealed against it. Accordingly, the claimant’s right of action had to be taken to form no part of the bankrupt’s estate available to her creditors, and she was at liberty to pursue it in her own name and for her own benefit.