GENERAL POINTS REGARDING RIGHTS OF ACTIONS
This Part of the chapter gives an overview of some of the basic principles of rights of action, including explaining what a right of action is and how and why it may be of interest to the official receiver when dealing with an insolvent’s affairs.
In simple terms, a right of action (also called a ‘cause of action’ or a ‘thing in action’) is a right to claim something from somebody where, for example, that other party has been negligent or has breached a contract. It is a claim.
The Act provides that the official receiver, as liquidator, shall take into his/her custody all the property and things in action (which would include rights of action [note 1]) to which the company is entitled [note 2]).
Unlike in bankruptcy (see paragraph 31.9.6) there can be no doubt whether a right of action belonging to a company in liquidation is one that the official receiver, as liquidator, can deal with. The official receiver should, in these circumstances, satisfy him/herself that the right is one that belongs to the company and not, for example, to the directors of the company.
The Act provides that all property belonging to or vested in the bankrupt at the commencement of the bankruptcy forms the bankrupt’s estate [note 3]. Property is defined in the Act as including ‘things in action’ (which would include rights of action) [note 4] and the bankrupt’s estate vests in the official receiver on his/her appointment as trustee [note 5].
Not all rights of action constitute property and of those that do, not all would form part of a bankrupt’s estate (see paragraph 31.9.7).
Case law has developed principles that certain rights of action do not constitute property that would form part of the bankrupt’s estate. This concept is explored fully in Part 3 of this chapter but, in short, rights of action where damages are solely to be estimated by immediate reference to pain felt by the bankrupt in respect of his/her body, mind or character, and without immediate reference to his/her rights of property, would not form part of the bankruptcy estate [note 6] [note 7].
The vast majority of rights of actions encountered by official receivers will be matters that will ultimately be decided in court (see Part 7) or at an employment tribunal (see Part 8), if they are not settled outside of legal proceedings (see Part 5).
Arbitration is a process similar to that found in a court trial in that both sides present their case, the matter is considered and a binding judgment is handed down. The difference is that the person deciding the case is not a judge, rather he/she is an adjudicator appointed by the sides in dispute. He/she may be a specialist in the area of industry (or similar) in which the dispute arose. The arbitral process may be held anywhere and at a time to suit the parties and is not a public process.
In bankruptcy, the official receiver, as trustee, may be committed to follow an arbitration process if this is provided for in the contract in relation to which the right of action has arisen [note 11].
The terms of an arbitration agreement may make provision for costs to be awarded against the ‘loser’ of the arbitration and, for this reason, it is unlikely that it will be appropriate for the official receiver to continue with an arbitration. Instead settlement (see Part 5) or assignment (see Part 6) of the action should be considered.
More information about arbitration can be found on the website of the Chartered Institute of Arbitrators http://www.ciarb.org/.
Many public and private sector organisations have an appointed ombudsman to decide complaints against themselves (within that sector).
A list of the different ombudsmen is available at the website of the British and Irish Ombudsman Association www.bioa.org.uk/.../FONT>.
Where a bankrupt is carrying on a complaint in this way, the official receiver may choose to continue the complaint if he/she believes that it has merit. In ombudsman’s cases, adverse costs are not awarded for an unsuccessful complaint and the procedure ought to be relatively straightforward to follow.
The official receiver would not continue a complaint which is personal to the bankrupt as such complaints remain vested in the bankrupt personally and do not become part of the bankruptcy estate (see paragraph 31.9.37). Most complaints will be based on a contract for services and will, therefore, vest in the official receiver, as trustee.
Recently, the most common type of ombudsman complaint has been one to the Financial Services Ombudsman for mis-selling of Payment Protection Insurance (PPI) www.financial-ombudsman.org.uk/.../FONT> (see Chapter 31.9A).
Where a matter has been litigated to judgment there can be no right of action. When the final judgment is given by the court, the right of action merges with the judgment and ceases to exist.
This principle does not include appeals (see paragraph 31.9.57).
There can be no such thing as a joint claim. Where more than one party is involved in an incident leading to a claim (a road traffic accident, for example), each party will have a separate claim for their own loss(es) as a result of the incident. In practice such actions will be brought together, as in jointly, but strictly speaking there will be two (or more) separate claims. This point is of importance if one of the two claimants becomes bankrupt and the other wishes to continue with the/their claim.
A class action is one where a, usually, large number of people have claims that are substantially the same and against the same person. The claim is usually brought by a representative group for the ease of deciding the matter – rather than having separate hearings (or settlement) for each claim.
An example of a class action might be where a multi national oil company has caused damage to the livelihood of a large number of individuals (perhaps, following an oil leak). Each claim, on its own, might be too small to be worth litigating but, taken together, the sum total of claims is worth pursuing.
Other examples might be damage caused by food contamination on a large scale or health problems caused by a faulty prescription drug.
Where an insolvent has a claim that is being brought as part of a class action the official receiver, as liquidator or trustee, should consider assigning (see Part 6) the action back to the bankrupt, or to the representative group.
Where the company or bankrupt is not part of the representative group, the official receiver should ensure that his/her interest in the claim is noted by the solicitors dealing with the matter in order that he/she can receive a share of any settlement or award.