Mulkerrins (formerly Woodward) (FC) (Appellant) v. Pricewaterhouse Coopers (a firm) (formerly trading as Copers & Lybrand (a firm) (Respondents)

A final judicial determination binds the parties and those claiming through them, even if it is wrong. It must be challenged by appeal rather than by relitigating the decided issue.

A stranger to the earlier proceedings cannot be prejudiced by the order. However, the stranger cannot challenge its practical effect without a legitimate interest in the issue. Accordingly, where a bankruptcy order conclusively determines that the trustee has no interest in a cause of action, a proposed defendant cannot insist that the trustee owns or must prosecute it merely because the defendant lacked notice of the bankruptcy application.

A defendant’s concern about legal aid or an unrecoverable costs order does not confer standing to intervene in the court’s supervisory jurisdiction over the bankruptcy process.

The appellant alleged that her insolvency practitioners negligently failed to secure an individual voluntary arrangement, causing her bankruptcy and the closure of her nursing home. She sought damages for personal and financial loss. Her trustee disputed her entitlement to pursue the claim, but the bankruptcy court declared that he had no interest in it.

PricewaterhouseCoopers later sought to strike out the action on the ground that the hybrid cause of action had vested in the trustee. The High Court dismissed that application, subject to joinder of the Official Receiver: [2000] BPIR 506. The Court of Appeal allowed the practitioners’ appeal and dismissed the action: [2001] BPIR 106.

The central issue was whether the practitioners, who were not parties to the bankruptcy proceedings, could challenge the practical effect of the unappealed declaration determining ownership of the claim between the bankrupt and her trustee.

1. Appeal allowed unanimously. Lord Walker delivered the principal speech. Lord Millett gave concurring reasons. Lord Bingham and Lord Scott agreed with both speeches, while Lord Nicholls agreed with Lord Walker.

2. Per Lord Walker and Lord Millett, the bankruptcy court’s unappealed order conclusively determined, as between the appellant and her trustee, that the trustee had no legal or beneficial interest in the cause of action. A judicial decision binds the parties even if it is wrong. An erroneous decision must be challenged by appeal and cannot be reopened between the same parties.

3. PricewaterhouseCoopers was not bound by an estoppel per rem judicatam, because it had received no notice and was not a party to the bankruptcy application. Nevertheless, it had no legitimate interest in disputing the ownership question. The order could not prejudice the firm, and the only possible rival claimant to the cause of action—the trustee—was conclusively bound by it.

4. Per Lord Walker, the firm’s concern that the appellant had legal aid and might be unable to satisfy an adverse costs order did not give it standing to intervene under section 303 of the Insolvency Act 1986. The application concerned the court’s supervisory jurisdiction over the bankruptcy process. The firm was a stranger to that process and its interests were opposed to those of both the bankrupt and the creditors.

5. Per Lord Millett, contractual rights are generally assignable without the debtor’s consent unless assignment is contractually prohibited. An assignment remains subject to existing equities. A proposed defendant likewise has no general right to object when a trustee assigns a bankrupt’s cause of action back to the bankrupt.

6. The House declined to decide the wider question whether this unusual claim for damages caused by the bankruptcy itself would otherwise have vested in the trustee. Lord Millett considered it surprising that creditors could obtain damages representing value which could never have been available to them in the bankruptcy, but expressly left the issue open.

7. The High Court order was restored, except for its direction that the Official Receiver be joined as a defendant. The appellant was entitled to pursue the claim in her own name and for her own benefit.

1. House of Lords: The appeal was allowed unanimously. The High Court order was restored, except for the direction joining the Official Receiver.

2. Court of Appeal: The appeal by PricewaterhouseCoopers was allowed, the preliminary issue was determined against the appellant, and her action was dismissed: [2001] BPIR 106.

3. High Court: The strike-out application was dismissed and the preliminary issue was determined in the appellant’s favour, subject to joinder of the Official Receiver: [2000] BPIR 506.

4. Reading County Court in Bankruptcy: The court declared under section 303 of the Insolvency Act 1986 that the trustee had no interest in the appellant’s cause of action. The order was not appealed.