Compensating Creditors for Injuries to the Bankrupt

Alistair Abbott discussed the implications of Ord v Upton [2000] 1 All ER 193 CA in the New Law Journal of 28 April at page 611. The court held that a cause of action for personal injury arising out of medical negligence was not divisible. Because it was a cause of action that would result in damages being assessed both by reference to the physical injury and by reference to the financial harm suffered by the bankrupt it was a hybrid cause of action. Accordingly, it vested solely in the trustee who was entitled to retain for the benefit of the creditors all damages for loss of earnings (which were seen as damages for harm to a capital asset: the capacity to earn). The trustee would, however, hold the damages for pain and suffering on a constructive trust for the bankrupt. The author considers financial losses other than loss of earnings, which would also vest in the trustee and whether where the injuries caused no, or little, pecuniary loss the trustee should assign the cause of action to the bankrupt. Post-bankruptcy injuries would appear to enable the trustee to claim the cause of action as after acquired property whilst a bankrupt who is able to keep damages referable to pain and suffering may find that the lump sum is regarded as sufficient to meet his needs if the trustee applies for an income payments order. The article also postulates the difficulty of a trustee in negotiating the settlement of a claim in not succumbing to the temptation to negotiate a settlement that involves concessions regarding damages for pain and suffering aimed at maximising the damages attributable to pecuniary loss. Finally the author suggests that negligence resulting in personal injury is not the only cause of action that can be regarded as a hybrid. For example, libel damages may include compensation for distress, hurt and damage to reputation, which the bankrupt should be able to keep.