Barclays Bank Plc v Marsden

A bankruptcy set-off under Insolvency Act 1986, s 323 is mandatory where pre-bankruptcy mutual dealings give rise to a contingent claim which later matures into a quantified money claim. The court may use hindsight to identify and value that claim. The absence of a contractual or tortious right to redress under a regulatory review does not prevent the redress from being property of the bankrupt estate if it is exclusively referable to the pre-bankruptcy dealings. A challenge to statutory insolvency set-off is justiciable by the court. However, a claim which could and should have been raised in earlier proceedings may be a Henderson v Henderson abuse of process.

The bank applied to strike out a counterclaim under CPR 3.4(2)(a) and (b). The original action concerned possession of mortgaged property, but the mortgage had been redeemed and only the counterclaim remained.

The defendant alleged that a redress offer arising from the bank’s FCA review of interest-rate swaps should not have been set off against the indebtedness of his bankrupt estate. He sought to amend the counterclaim to raise that issue. The court considered whether the issue was justiciable, whether s 323 of the Insolvency Act 1986 applied, and whether the proposed claim was an abuse because it could have been advanced in earlier litigation between the parties.

1. The application to amend was refused. The original counterclaim was struck out because it could not succeed in light of the earlier judgment. The proposed amended counterclaim was also struck out as a Henderson v Henderson abuse of process.
2. The challenge to the bank’s use of statutory insolvency set-off was justiciable. The defendant challenged the legal operation of s 323, not the conduct of the FCA review. The issue was therefore for the court.
3. Section 323 embodies mandatory set-off. Where pre-bankruptcy mutual dealings produce cross-claims, only the balance is provable or payable. The account is taken at the bankruptcy date, but subsequent events may be considered under the hindsight principle. A contingent claim may be included if it arises from the pre-bankruptcy mutual dealings and later becomes a quantified money claim.
4. The swap transactions were mutual dealings between the same parties acting in the same capacity. The later redress offer was exclusively referable to those transactions. It was therefore a contingent claim existing at the bankruptcy date, despite the absence of a contractual entitlement to an offer and despite the FCA review agreement having been made later.
5. The 2011 settlement did not extinguish the defendant’s interest in the review. The remoteness or unforeseeability of the contingency was immaterial.
6. The court applied the broad merits-based approach in Johnson v Gore Wood & Co. The proposed claim concerned the same factual matters and the effect of the same settlement as the earlier proceedings. Finality, avoidance of repeated vexation, costs and efficient use of court resources outweighed the defendant’s interest in a further adjudication.

Accordingly, the counterclaim was struck out and the application to amend was refused.