New Judgment: Re Kaupthing Singer and Friedlander Ltd (in administration) & In Re the Insolvency Act 1986  UKSC 48
19 Wednesday Oct 2011
On appeal from:  EWHC 3377 (Ch)
Whether the rule in Cherry v Boultbee (1839) 4 My & Cr 442 is compatible with the principle against double proof in insolvency, and whether the rule in Cherry is limited to seeking an indemnity in respect of sums actually paid. The rule, as subsequently interpreted by the Court of Appeal, is that a person who is entitled to a distribution from a fund but who is also in debt to the fund or has given the fund a right of indemnity, must contribute to the fund before he can receive money from it even if, in the case of an indemnity, the third party liability has not yet been satisfied out of the fund and is only contingent. The fund is treated as being increased by the person’s contribution and the person’s share of the fund is calculated by reference to the notionally increased fund. The rule is not disapplied by the person or fund’s insolvency. The High Court held that the contractual agreement between the parties did not prevent the application of the rule which meant that Singer & Friedlander Funding plc (a subsidiary of KSF) could not claim against KSF for the intercompany debt without first paying the amount it owed under the indemnity. The High Court also held that it was not necessary to expressly refer to the rule but that the intention to exclude the rule must be clear; evident from its proper construction and not from some a priori purpose; and its application did not depend on KSF paying out under the guarantee.
The Supreme Court unanimously allowed the appeal against the High Court decision. The rule in Cherry is excluded in this case by the rule against double proof.