UK: England and Wales: insolvency - the rule against double proof and a novel situation

The Court of Appeal gave judgment today in Lehman Brothers Holdings Scottish LP 3 v Lehman Brothers Holdings Plc & Ors [2021] EWCA Civ 1523. The decision is noteworthy because of the way in which the court, in the novel situation before it, developed the rule against double proof - sometimes known as the rule against double dividend: see Lord Walker in Re Kaupthing Singer and Friedlander Ltd [2011] UKSC 48. 

As Lord Justice Lewison explained (para. [172]): "Where (a) the surety has paid part of the debt owed by the principal debtor to the creditor and (b) the surety has given up any right to indemnity from the principal debtor, with the consequence that he has no entitlement to prove for anything, then the creditor must give credit for the payment in the insolvency of the principal debtor. It is the second condition that makes all the difference. There is nothing in the Insolvency Rules which deals with the rule against double proof. Consequently I do not consider that a modest development of the rule intrudes upon legislative competence".

And, as Lady Justice Asplin added (para. [178]): "I too consider, instinctively, that if a surety pays part of a guaranteed debt, and releases his right of indemnity from the principal debtor, the amount which the creditor is entitled to recover in the principal debtor’s insolvency must be reduced as a result of the payment and as a result, the creditor can only prove in the principal debtor’s estate for the lesser sum".