McKinnon v Graham

Under section 426 of the Insolvency Act 1986, an English court has a discretion to apply the insolvency law of another United Kingdom jurisdiction to property situated in England. The discretion must be exercised having regard to private international law and the principle of modified universalism.

Foreign insolvency law should generally be applied unless doing so would be manifestly unfair, offend public policy, conflict with insolvency proceedings already underway, or offend a fundamental principle of English insolvency law. The principle applies to personal as well as commercial insolvencies. An appellate court should interfere with the first-instance exercise of this discretion only on established discretionary grounds.

The applicant, a trustee in the Scottish sequestration of Richard Graham, sought permission to appeal and appealed against a decision of District Judge Pescod concerning property in England inherited by Mr Graham.

The property was not Mr Graham’s family home under Scottish law and was not his sole residence under English law. The central issue was whether Scottish or English law governed the possible revesting of the property after more than three years, under section 426 of the Insolvency Act 1986. District Judge Pescod applied Scottish law, held that the property had not revested, and made possession directions in favour of the trustee.

1. Permission and outcome. Permission to appeal was granted, but the appeal was dismissed. The stay was removed.
2. Section 426(5) of the Insolvency Act 1986 gave the court a discretion to apply English or Scottish insolvency law. Section 426(6) required the Scottish trustee’s claim to property in England to be treated in the same way as a request under section 426(4).
3. The discretion had to be exercised having regard to private international law. The principle of modified universalism required the English court, in general, to apply Scottish law to the Scottish bankruptcy unless an exception applied.
4. The relevant exceptions were where applying Scottish law would be manifestly unfair, offend public policy, conflict with insolvency proceedings already taking place in England, or offend a fundamental principle of English insolvency law. Those exceptions were not confined to commercial insolvencies and could apply in personal insolvency cases.
5. The difference between the Scottish family-home provision and the English provision concerning a sole or principal residence was limited. Both legal systems protected homes occupied by a spouse, civil partner or children. The difference concerning a property occupied solely by the bankrupt was not fundamental to English insolvency law, contrary to public policy, or manifestly unfair.
6. Delay by the trustee did not alter the analysis. The three-year period was the circumstance that engaged the revesting issue. The Human Rights Act did not assist Mr Graham.
7. An appellate court should interfere with the exercise of the section 426 discretion only on established grounds, such as an error of law or a decision that no reasonable tribunal could have reached. District Judge Pescod had adopted the correct approach.

1. High Court (Chancery Division) — Permission to appeal granted; appeal dismissed; stay removed.
2. District Judge Pescod — Declared the trustee solely beneficially entitled to the property and its net sale proceeds, applied Scottish law to revesting, held that the property had not revested in Mr Graham, and ordered possession.