Can A Trustee In Bankruptcy Be Liable For Costs Following Assignment Of A Cause Of Action To A Third Party?

TiBs frequently assign the right to recover debts due to the bankrupt's estate. The advantage to the TiB is that he receives a lump sum or a share of the proceeds of a successful claim for the benefit of the bankrupt's creditors without having to fund and pursue litigation himself. In most cases, once a TiB has assigned the right to recover the debt that will be the end of the matter; he just has to wait for the litigation to be concluded when payment of the agreed share will be made. A recent Court of Appeal decision means that this will not always be the case. In Hunt v Harb and another [2011] EWCA Civ 1239 (27 October 2011), the Court of Appeal has confirmed that if a TiB assigns a cause of action to a third party in return for a share of the proceeds of any future litigation the TiB can be found liable for the costs of the parties to the litigation.

The court has a wide discretion regarding costs orders and may, if it considers it appropriate, order that someone who is not a party to the litigation should pay some of the costs incurred by one or more of the parties in the course of the proceedings.

Under the Insolvency Act 1986, on the appointment of a TiB, the assets of a bankrupt generally vest in the TiB. These assets are known as the bankrupt's estate. Included within that estate are...