Brake & Ors v Swift & Ors

In insolvency proceedings, the standing of a respondent joined by the applicants is ordinarily governed by the joinder test in CPR rule 19.2(2), rather than by the “legitimate interest” test applicable to insolvency applicants seeking to bring proceedings. A third party may properly be joined where it claims through the trustee in bankruptcy and would be directly affected by the outcome, so that it can be bound and further litigation avoided. Joinder does not necessarily require the third party to prove the validity of transactions with the trustee where those transactions are not issues in the insolvency claim. Applicants may also be prevented from repeating allegations previously struck out for lack of standing in order to challenge the joined party’s title. A negative declaration is discretionary and should be granted only where it serves a useful purpose.

The applicants were bankrupt in 2015 and brought proceedings concerning the revesting of a cottage and adjoining land under section 283A of the Insolvency Act 1986. The second respondent, which claimed through the former trustee in bankruptcy, had been joined as a party by consent. After other parts of the applicants’ claims were struck out for lack of standing, the second respondent applied for a declaration that it had standing to oppose the revesting claim, or alternatively for procedural orders concerning the forthcoming trial.

The central issues were whether the second respondent was properly involved in the section 283A claim, whether it had to prove the validity of its transactions with the trustee, and whether the applicants could challenge its title by repeating allegations already struck out.

1. The section 283A issue was a bankruptcy issue between the bankrupts and the trustee. It did not itself determine proprietary rights as between third parties. A third party therefore required a particular reason to participate.

2. There was a material distinction between applicants and respondents. Applicants choose to bring proceedings and must generally show a legitimate interest. Respondents chosen by the applicants need no additional standing test. Where a third party seeks joinder, the applicable test was whether joinder was desirable to resolve all matters in dispute under CPR rule 19.2(2), applied to insolvency proceedings by rule 12.1 of the Insolvency (England and Wales) Rules 2016.

3. The second respondent claimed through the trustee. If the applicants succeeded under section 283A, the trustee would have no rights to pass on and the second respondent would receive nothing. It was therefore directly affected by the litigation and had properly been joined so that it would be bound by the result and multiplicity of proceedings avoided. The court followed the reasoning in Hunt v Conwy County Borough Council [2015] EWHC 3072 (Ch).

4. The second respondent was not required in the section 283A claim to prove the validity or effectiveness of its transactions with the trustee. Those matters would have been separate issues between the trustee, the second respondent and potentially the creditors.

5. The applicants’ proposed challenge to the second respondent’s title relied entirely on allegations of misfeasance which had already been struck out for lack of standing. It was therefore impermissible to repeat those allegations at trial to impugn the second respondent’s title.

6. The application succeeded in substance. A declaration was unnecessary because the trial court would take notice of the decision. The court therefore declined to grant the declaration sought, while inviting submissions on the consequential way forward.

Not stated in the judgment.