Cooke, Young & Keidan LLP v Laurence Howard Davis & Anor

Bankruptcy transfers a bankrupt’s non-personal monetary cause of action to the trustee. The bankrupt cannot continue it merely because a successful recovery might pay creditors in full. An unpleaded or unparticularised partnership-asset theory does not preserve standing, and a possible surplus is not a present beneficial interest while the estate is being administered. For warehousing, delay alone is insufficient: the court must decide whether an intention not to pursue proceedings for a time can be inferred from all the circumstances. Direct evidence is unnecessary. The court then separately decides whether strike out is just. A preliminary issue is inappropriate where it concerns only one quantum question, risks delay and costs, and does not determine the central litigation.

Cooke, Young & Keidan LLP claimed £194,137.72 in solicitors’ fees from Laurence Howard Davis and John Christopher Baker. The defendants counterclaimed for approximately £20 million in professional negligence damages arising from earlier litigation concerning Project Magic. Baker was declared bankrupt on 5 June 2023.

The applications concerned the effect of the bankruptcy on Baker’s counterclaim, whether the counterclaim was a partnership or joint-venture asset, whether the Official Receiver should be joined, whether admissions of Baker’s lack of standing could be withdrawn, whether a preliminary issue on title should be tried, and whether Davis’s counterclaim had been warehoused. The central questions were whether Baker retained a sufficient interest and whether inactivity justified striking out Davis’s counterclaim.

1. Bankruptcy and Baker. The strike-out application succeeded against Baker only. Under sections 283 and 306 of the Insolvency Act 1986, the counterclaim was an asset vested in the trustee in bankruptcy. The counterclaim was not a personal claim. Applying Heath v Tang [1993] 1 WLR 1421 and James v Rutherford-Hodge [2005] EWCA Civ 1580, Baker lacked sufficient interest to continue it, even if recovery might pay his creditors in full. The Official Receiver did not seek substitution.

2. Partnership asset and preliminary issue. The statements of case and evidence described a partnership or joint venture involving AIB or IBRC, not a separate partnership between Davis and Baker. No amendment, particulars, or supporting evidence established the alternative case, which in any event had no real prospect of success. The joint-venture alternative failed for the same reasons. Even if that case had been open, Ram v Ram (No.2) [2004] EWCA Civ 1684 showed that a bankrupt has no present beneficial interest in a possible surplus while the estate remains unadministered. The inconsistent approach in Phillips v Symes [2005] EWHC 2867 (Ch) was not followed. The Preliminary Issue Application was dismissed. Applying the principles in Steele v Steele [2001] CP Rep 106, as summarised in Wentworth v Lomas [2017] EWHC 3158 (Ch), a separate trial would concern only one quantum issue, delay the central issues, increase costs, and risk irrelevance.

3. Joinder and admissions. The Joinder Application and Admissions Application were dismissed. Once Baker’s counterclaim was struck out, no issue involving his estate remained and the Official Receiver was not a necessary party. The admissions that Baker lacked standing were correct.

4. Warehousing. Under Asturian Foundation v Alibrahim [2020] EWCA Civ 32, delay alone does not establish abuse. The court must determine whether an intention not to pursue proceedings for a time can be inferred from all the circumstances; direct evidence is unnecessary. Grenda Investments Ltd v Barton [2017] EWHC 2371 (Comm) was not read as requiring direct evidence, and Alfozan v Quastel Midgen LLP [2022] EWHC 66 (Comm) illustrated the possible use of inference. The two-stage analysis is first to decide whether there was abuse and then whether strike out should be ordered. The broad doctrine described in Hunter v Chief Constable of the West Midlands Police [1982] AC 529, and discussed in Mueen-Uddin v Secretary of State for the Home Department [2024] UKSC 1, did not impose an additional requirement beyond the principles for warehousing. No unilateral decision by Davis not to progress the proceedings was inferred, given CYK’s and the court’s contribution to the delay and the bankruptcy complications. Even if there had been abuse, the late application, limited prejudice, proportionality, and injustice of preserving CYK’s claim while removing Davis’s potentially valuable counterclaim justified refusing strike out. Davis’s counterclaim therefore continues.