Bankrupt Claimant’s Costs

When signing up Claimants to a retainer a bankruptcy check should be undertaken as a bankrupt cannot enter into a retainer and pursue a claim for damages for injury to his body and mind and also for property, (‘hybrid’ claim), when s/he is an un-discharged bankrupt.

What is a Hybrid Claim?

A hybrid claim is a claim for damages for injury to his body and mind and also for property. The definition of the term hybrid is found in the case of Ord v Upton (2000):

‘…It is a claim for damages for injury to his body and mind and also his capacity to earn and can therefore be considered as a “hybrid” claim, in part personal and in part relating to property.’

When a person becomes bankrupt, all matters relating to property must be handled by the trustee of the estate, (normally an official receiver). The definition of property is provided by s.436 of the Insolvency Act 1986:

‘“property” includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property’

Scenario 1 – Claims involving Personal Injury only

Causes of action have commercial value in that they may be successfully pursued, settled or assigned.

A personal injury claim, which deals solely with pain felt by the bankrupt in respect of his body, mind, or character and not his capacity to earn or any other claim for property, can be pursued by the Bankrupt

The authority allowing the claimant to pursue a claim for injury only is Ord v Upton (2000):

“Section 436 is in truth not a definition of “property”. It only sets out what is included. As will appear later from cases that have been decided over many years, actions which relate to the bankrupt’s personal reputation or body have not been considered to be property and therefore do not vest in anybody other than the bankrupt”

Scenario 2 – The event that gives rise to the hybrid claim occurs pre bankruptcy and the Claimant is an un-discharged bankrupt at the time of entering into the retainer

A bankrupt cannot enter into a retainer and pursue a ‘hybrid’ claim when s/he is an un-discharged bankrupt. Once the claimant becomes bankrupt, the matter is automatically deemed assigned to the trustee.

Reference is made to section s.311(4) of the Insolvency Act 1986:

‘Where any part of the estate consists of things in action, they are deemed to have been assigned to the trustee; but notice of the deemed assignment need not be given except in so far as it is necessary, in a case where the deemed assignment is from the bankrupt himself, for protecting the priority of the trustee’

Further reference is made to 306(2) of the Insolvency Act 1986:

‘Where any property which is, or is to be, comprised in the bankrupt’s estate vests in the trustee (whether under this section or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer’

Due to the assignment of the claim to the trustee, the bankrupt no longer has any locus standi to pursue the claim

Reference is made to the case of Heath v Tang [1993] 1WLR 1421 which provides:

‘…all other causes of action which were vested in the bankrupt at the commencement of the bankruptcy, whether for liquidated sums or unliquidated damages, vest in his trustee. The bankrupt cannot commence any proceedings based upon such a cause of action and if the proceedings have already been commenced, he ceases to have sufficient interest to continue them.’

Where the claim is a ‘hybrid’ claim, a claim for personal injury and loss of earnings, the possibility of apportionment between the bankrupt and the estate is possible, however the cause of action is still vested in the trustee. Reference is made to the comments of Lord Justice Aldous in Ord v Upton (2000):

‘…I believe that when there is but one cause of action which includes a head of damage relating to property, then the cause of action vests in the trustee as it does not fall within an exception to the general rule. If so, the right to recover the damages which are personal and any damages recovered are held on a constructive trust for the bankrupt by the trustee…’

Scenario 3 – The event that gives rise to the hybrid claim occurs pre bankruptcy and the Claimant is a discharged bankrupt at the time of entering into the retainer

The hybrid claim is the property of the trustee. The same principles as discussed in scenario 2 apply

Scenario 4 – The Claimant is declared bankrupt whilst pursuing his claim under a retainer

It is unclear whether the Claimant’s retainer would be determined by law. In the old Solicitors code of conduct, 2(10) of the Solicitors Code of Conduct 2007, (rule 12.12 of the old professional conduct rules in place before 2007) indicates that a retainer may be determined by law once a Claimant becomes bankrupt. The new code of conduct however omits this declaration.

The other indication a retainer ends the day a person is made bankrupt is also confirmed in the case of Moss, In re (1866) L.R. 2 Eq. 345:

‘…that if the client becomes bankrupt, and the assignees do not employ the firm of solicitors, that is a discharge by the client of the solicitors’

Regardless of the confusion above, once the claimant becomes bankrupt whilst pursuing a ‘hybrid’ claim, the matter is automatically deemed assigned to the trustee. Reference is made to s.311(4) of the Insolvency Act 1986:

‘Where any part of the estate consists of things in action, they are deemed to have been assigned to the trustee; but notice of the deemed assignment need not be given except in so far as it is necessary, in a case where the deemed assignment is from the bankrupt himself, for protecting the priority of the trustee’

Scenario 5 – The event that gives rise to the hybrid claim was post bankruptcy Order but pre-discharge

If the event that gives rise to the hybrid claim was post bankruptcy Order but pre- discharge then the claim is NOT vested in the trustee but in the bankrupt.

However, the trustee will need to be advised of the hybrid claim and has a period of 42 days, (beginning with the day on which it first came to the knowledge of the trustee that the property in question had been acquired by, or had devolved upon, the bankrupt), to provide the bankrupt with notice that the hybrid claim will be vested in the trustee

What if the Trustee has not been appointed yet?

The bankrupt’s solicitors may argue that a trustee has not yet been appointed and hence this is the reason for the claimant pursuing the action.

The argument is misconceived as the case of Dadourian Group International & Others v Simms & Others [2008] EWHC 723 covers such a scenario and is a reminder of the effect on the bankrupt’s estate of a bankruptcy order notwithstanding that a trustee in whom the estate would vest had not yet been appointed to office.

If firms ignore continue to act on behalf of the bankrupt in a litigated hybrid claim then the opposition can make an application that the claim be struck out due to an abuse of process. An authority for the above is the case of Pickthall v Hill Dickinson LLP and Richard Martindale [2009] EWCA Civ 543. (in particular paragraphs 24 and 25)

For further information or to speak to one of our costs specialists request a call back or call us on 03300 947 220.


Nothing on this site constitutes legal advice or gives rise to a solicitor/client relationship. Specialist legal advice should be taken in relation to specific circumstances.

The contents of this site are for general information purposes only. No warranty, express or implied, is given as to the accuracy of the information on this site and we do not accept any liability for error or omission.

We shall not be liable for any damage (including, without limitation, damage for loss of business or loss of profits) arising in contract, tort or otherwise from the use of, or inability to use, this site or any material contained in it, or from any action or decision taken as a result of using this site or any such material.