Munday & Anor v Hilburn & Anor

A claim issued by a person who lacks title to sue is not necessarily an abuse of process. The Pickthall form of abuse requires actual knowledge, when proceedings are issued or continued, that the cause of action is vested in someone else. It is insufficient that the claimant ought to have known that fact. The burden of proving abuse lies on the party alleging it.

An annulment of bankruptcy revests the bankrupt’s estate in the bankrupt, but does not retrospectively alter the character of acts done during the bankruptcy. It may nevertheless cure a defect in standing before the claim is determined. Modern procedural practice permits defects in title to sue to be cured, where appropriate, by amendment or subsequent events.

The claimants appealed from an order of His Honour Judge Dight in the Central London County Court striking out their claim and ordering costs. The claim concerned alleged fraudulent misrepresentations and alternative claims arising from a sale-and-rent-back transaction involving the claimants’ former home.

Mr Munday had been made bankrupt before the proceedings were issued. The defendants argued that the causes of action had vested in his trustee in bankruptcy and that the proceedings were an abuse. During the proceedings, Mr Munday’s bankruptcy was annulled because the bankruptcy debts and expenses had been paid in full. The central issues were the effect of annulment, the scope of the abuse principle, the burden of proving actual knowledge, and whether the defect in standing could be cured.

1. The appeal was allowed. The order striking out the claim and the associated costs orders were set aside. The defendants were ordered to pay 70 per cent of the claimants’ appeal costs, subject to detailed assessment, with £7,000 payable on account. The costs of the application below were reserved.
2. It was common ground that the causes of action accrued before the bankruptcy and vested in the official receiver as trustee under sections 283(1), 306 and 436 of the Insolvency Act 1986. The claims were therefore initially vested jointly in Mrs Munday and the official receiver. The court declined to determine an unargued issue concerning the effect of joint tenancy.
3. Pickthall v Hill Dickinson LLP was authority only for the proposition that issuing proceedings knowing that the claimant did not have the cause of action was an abuse. Pathania v Adedeji established that the same principle applies to continuing proceedings, but that actual knowledge is required. Knowledge which the claimant ought to have had is insufficient.
4. The burden of proving abuse rested on the defendants. Judge Dight had found only that there was insufficient evidence that the claimants lacked knowledge. He had not found that they actually knew that the causes of action were vested in the trustee. The evidence instead indicated that the claimants’ legal advisers believed, or at least reasonably considered, that the causes of action remained vested in the claimants.
5. The effect of annulment under section 282 was revesting or reassignment of the estate. It placed the former bankrupt, from the date of annulment and subject to section 282(4)(a), as nearly as possible in the position of a person who had never been bankrupt. It did not retrospectively change the character of acts done during the bankruptcy, including an abuse of process or a criminal offence. The first ground of appeal therefore failed.
6. Nevertheless, the annulment cured the defect in standing before the strike-out hearing. Modern practice permits defects in title to sue to be cured. No amendment to the particulars of claim was required, but the reply should be amended to plead the annulment. The claim was not doomed to fail for lack of standing and should proceed.

High Court (Chancery Division): appeal from the Central London County Court order of 10 February 2014, as drawn up on 12 February 2014, allowing the appeal and setting aside the strike-out order.