Frosdick v Fox & Anor

A bankrupt cannot invoke section 316 of the Insolvency Act 1986 in respect of property that has vested in the trustee, because the bankrupt is not a person interested in that property. A cause of action forming part of the bankrupt’s estate may constitute onerous property capable of disclaimer. Where no effective section 316 notice is given, the trustee may disclaim it within the scope of the trustee’s powers. A challenge to the trustee’s exercise of discretion requires permission under section 304(2), for which a substantial hurdle applies. The claim was struck out because it had no reasonable prospect of success.

The claimant, a former bankrupt, alleged that the first defendant, his trustee in bankruptcy, had unlawfully disclaimed a potential professional-negligence claim against his former solicitors. He relied on letters said to be applications under section 316 of the Insolvency Act 1986, arguing that the statutory 28-day period had expired before the disclaimer.

The defendants applied under CPR 3.4 to strike out the claim. The court also considered whether the potential claim could be onerous property, the effect of its vesting in the trustee, and whether any challenge would require permission under section 304(2).

1. The court held that a cause of action forming part of the bankrupt’s estate is property within section 283 of the Insolvency Act 1986 and vests in the trustee under section 306. It may also be onerous property under section 315. The potential claim against the former solicitors could therefore be disclaimed. The contrary suggestion in Frosdick v Official Receiver [2016] EWHC 3008 was erroneous on that point, but did not undermine the outcome of that decision.
2. Section 316 applies only where the application is made by a person interested in the property. That interest must be one recognised in law. Once the bankrupt’s interest has vested automatically in the trustee, the bankrupt is not a person interested in the property for section 316 purposes. The bankrupt’s letters therefore did not trigger the 28-day period.
3. The trustee’s disclaimer was consequently within his powers. Any viable challenge would concern the exercise of the trustee’s discretion and would require permission under section 304(2). The claimant had shown no proper grounds capable of overcoming the substantial hurdle identified in the authorities.
4. The court declined to determine whether the underlying professional-negligence claim had merit, since the material before it was insufficient for that purpose. The claim nevertheless had no reasonable prospect of success and was struck out under CPR 3.4.
5. The court declined to characterise the claim as totally without merit or to make a further civil restraint order. The claim was dismissed, with a warning that renewed proceedings concerning the same issues might justify such an order.

First-instance decision. No appellate history was stated in the judgment.