Southwark London Borough Council v Tanner (Southwark London Borough Council v Mills)

This judgment holds that a contractual right of pre-emption over land can be "property" within the meaning of Insolvency Act 1986 s.436 and thus vests in the trustee in bankruptcy on appointment. The court rejected the submission that such rights are mere hopes incapable of forming part of the bankrupt's estate. The court treated the right as a thing in action and as a future, contingent interest incidental to property subject to statutory exclusions.

The central issue was whether a right of pre-emption in a deed over a house constituted "property" for the purposes of the Insolvency Act 1986 so as to vest in a trustee in bankruptcy. The right had been granted to the bankrupt, who was later adjudicated bankrupt. Lower court proceedings concerned the validity of alleged offer notices and an order for sale. The Court of Appeal was asked to decide the legal character of the pre-emption right and whether it formed part of the bankrupt's estate. The trustee did not appear at the hearing but filed written submissions asserting vesting. The court determined the legal question without additional factual evidence.

1. Disposition. The Court of Appeal (Mummery LJ, May LJ agreeing) held that the right of pre-emption created by the deed was "property" within the meaning of Insolvency Act 1986 s.436 and therefore vested in the trustee in bankruptcy on appointment. The order of the county court was varied to add the trustee as a party.
2. Constructional approach. The court adopted a purposive approach to s.436. If words permit, they should be read so as to give effect to the statutory purpose of enabling the trustee to realise the bankrupt's estate for creditors rather than to frustrate that purpose. [2001] EWCA Civ 277 (per Mummery LJ).
3. Nature of the right. A pre-emption right of the kind in issue is a transferable right and therefore may amount to property. It creates a negative obligation on the grantor and a cause of action enforceable by the grantee or his assignee. It can give rise to injunctive relief or damages if breached. These features characterise it as a "thing in action" and a contingent future interest "incidental to property" within s.436.
4. Distinguishing authorities. The court distinguished Pritchard v Briggs [1980] Ch 338 on its statutory and factual matrix. Pritchard was decided under the Land Charges Act with a different statutory purpose and narrower drafting. The Court of Appeal did not consider it necessary to overrule Pritchard, but it held Pritchard inapposite for construing s.436 of the 1986 Act. The decision in Re Campbell [1997] Ch 14 (criminal injuries compensation hope) was also distinguished as involving no property in existence at bankruptcy.
5. Practical consequence and guidance. It is not necessary that the right have present market value to be "property." The relevant inquiry is legal character. If the right is property it falls into the trustee's estate unless an express statutory exclusion applies. Evidence of litigation about the right is a pragmatic indicator of value but not essential to the legal conclusion.
6. Order. The county court order was varied to declare that the right of pre-emption vested in the trustee in bankruptcy and to add the trustee as a party. Counsel were directed to prepare the draft order.

• Southampton County Court: HHJ Rudd heard related proceedings and refused a declaration sought by the appellant and ordered sale of the property. Questions arose whether the trustee in bankruptcy should have been joined.
• Court of Appeal: Clarke LJ granted permission for an inter partes hearing limited to whether the pre-emption right vested in the bankrupt or the trustee. Mummery LJ (with May LJ concurring) decided the legal point in favour of the trustee and varied the county court order to add the trustee.