Real Property

Cases

Lehane (the official assignee in the estate of Burke)-v- Burke & anor

[2017] IEHC 426 (

Ms. Justice Costello delivered on the 30th day of June, 2017

1. Michael Burke, the first named respondent, was adjudicated bankrupt on the 31st March, 2014 whereupon, pursuant to s. 44 of the Bankruptcy Act 1988 (as amended) all of his property was vested in the applicant in his capacity as the Official Assignee. On the 29th July, 2016, the first named respondent (“the bankrupt”) was discharged from bankruptcy.

2. The bankrupt and the second named respondent are husband and wife (collectively, “the respondents”). The estate of the bankrupt included inter alia a dwelling-house and property known as Slievecorragh, Hollywood, County Wicklow comprised in Folios 30201F and 3077 of the Register of Ownership of Freehold Land in the County of Wicklow (“the property”). The property is the family home of the respondents and the second named respondent is a co-owner of the property. Upon his adjudication, the interest of the bankrupt in the property was transferred to the Official Assignee pursuant to the provisions of s.44 of the Act and the joint tenancy of the respondents was severed.

3. By virtue of the operation of amendments to s.85 of the Bankruptcy Act, 1988 effected by s.10 of the Bankruptcy (Amendment) Act, 2015, the interest of the former bankrupt, which was transferred to the Official Assignee, would, as a matter of law, re-vest in the former bankrupt as of the 31st March, 2017 unless the Official Assignee applied to the High Court for an order permitting him to sell the family home pursuant to the provisions of s. 61 (4) of the Act as amended prior to the third anniversary of the date of adjudication, in this case 31st March, 2017.

4. On the 27th March, 2017 the Official Assignee issued a motion returnable for the 3rd April, 2017 seeking an order pursuant to s. 61 (4) of the Act sanctioning the sale of the property and further ancillary relief. The notice of motion was grounded upon an affidavit sworn by the Official Assignee on the 27th March, 2017.

5. Niall Hayes, bankruptcy inspector, swore an affidavit stating that at 3.55 pm on the 28th March, 2017 he called to the property but neither of the respondents were at home. He left two envelopes addressed to the bankrupt and the second named respondent at the front door of the property containing the notice of motion dated 27th March, 2017 and the grounding affidavit of Christopher D. Lehane sworn on the 27th March, 2017 together with the exhibits. He subsequently texted the bankrupt at 6.57 pm the same day confirming that he had left the envelopes at the front door of the property.

6. The 31st March, 2017 was the third anniversary of the adjudication of the first named respondent as a bankrupt.

7. On the 3rd April, 2017 the motion was adjourned to the 22nd May, 2017 and the return date on the notice of motion was amended by the substitution of the 22nd May for the 3rd April, 2017.

8. On the 4th April, 2017 Mr. Hayes attempted to effect personal service of the notice of motion upon both the respondents. He telephoned the first named respondent with a view to arranging a meeting with the respondents but without success. He called to the property at 7 pm on the 4th April, 2017 but neither of them were at home. He again left two envelopes at the front door of the property, one addressed to each respondent, containing a copy of the notice of motion dated 27th March, 2017 together with the grounding affidavits and exhibits. As he was leaving the driveway, the second named respondent arrived home in her car. Mr. Hayes spoke with her and directed her to the envelope containing the documents and she acknowledged receipt of them and confirmed that she would review them. Fifteen minutes later the bankrupt returned Mr. Hayes’s telephone call and Mr. Hayes explained that he had left papers in relation to the matter and the bankrupt confirmed that he would review the matter.

9. The issue for consideration by the court is whether the application before the court is out of time. This turns on the provisions of s. 85(3A) of the Act of 1988. Section 85 (3A) provides:

“Subject to subsections (3B) to (3F), where on the 3rd anniversary of the date of the making of the adjudication order in respect of a bankruptcy —…

(b) in the case of the family home … the Official Assignee has not applied to the Court for an order for sale of that home,

that estate or interest shall, on that 3rd anniversary, stand re-vested in the bankrupt without the need for any conveyance, assignment or transfer.”

10. Mr. Lynch, solicitor for the respondents, argued that the Official Assignee’s application was out of time because on the third anniversary of the date of the making of the adjudication order in respect of the bankruptcy of the bankrupt, the Official Assignee had not applied to court for an order for sale of the family home. On that basis he submitted that the estate or interest of the bankrupt in the family home stands re-vested in the bankrupt as of 31st March, 2017.

11. Central to his argument was the question of whether the notice of motion was an originating notice of motion. If it is an originating notice of motion, then personal service of the notice of motion is required by the provisions of O. 52 r. 2 and O. 9 r.2 and 16.

12. On the other hand, if the notice of motion is not an originating notice of motion, then personal service of the notice of motion is not required. Order 121, rule 1 says that a document includes a pleading, notice, affidavit or order and r. 2 states that the service of any document under the rules for which personal service is not required shall be effected by leaving the document or a copy thereof (as may be appropriate) at…the residence in the state of the person to be served. It is common case that the motion papers were left at the residence of the respondents on the 28th March, 2017.

13. In Reilly v. Director of Public Prosecutions & anor [2016] IESC 59 the Supreme Court construed the words “application made” in s. 39 (1) of the Criminal Justice Act, 1994 (as amended). Dunne J. giving the judgment of the court concluded that an application was made pursuant to that section once the originating notice of motion was issued and served within the two-year time limit provided by that section. She stated that:

“I am satisfied that the application is made pursuant to s. 39(1) once the motion has been issued and served on the parties requiring to be notified within the relevant time period. I do not accept the contention that in order for the application to be made it is necessary that an application be made in open court as suggested [by the applicant]”

14. It is therefore clear that if a motion is issued and served before a time limited for making an application, even if it has not yet been moved in court, nonetheless this constitutes an application made to court or other tribunal (as the case may be).

15. There is no doubting the fact that the motion was issued prior to the third anniversary of the date of adjudication. The issue for resolution therefore in this case is whether the motion was properly served upon the respondents on or before the 30th March, 2017. On the facts of this case, this can only have been so if service in accordance with O. 121, r. 2 was sufficient and personal service was not required. This in turn depends upon whether the notice of motion is an originating notice of motion.

16. The Official Assignee submitted that the motion was not an originating notice of motion but was a motion brought within the bankruptcy proceedings and bearing the record number of the bankrupt’s bankruptcy proceedings. Originating notices of motion are used to initiate proceedings. This indicated that this motion was not an originating notice of motion within the meaning of the rules. It was submitted that an originating notice of motion is only permissible when it is provided for by the rules and an application under s. 61 (4) of the Bankruptcy Act1988 as amended is not one of those applications which may be brought by way of originating notice of motion. The respondents submitted that these were new proceedings seeking the sale of their family home and it could only be regarded as an originating notice of motion.

17. I believe the answer to the question may be found in a true construction of the Bankruptcy Act 1988 (as amended). Part III of the Act deals with the administration of the property of a bankrupt. It starts with s. 44 where the property of a bankrupt vests in the Official Assignee. This part of the Act is replete with references to “an application made to court” (s. 44B (1), 45 (3), 56, 57 (2) (c)). Section 61 is included in Part III of the Act. It applies to every bankruptcy matter and deals with the functions of the Official Assignee. The relevant parts of s. 61 provide as follows: –

(3) In the performance of his functions the Official Assignee shall, in particular, have power—

(a) to sell the property by public auction or private contract…

(d) to institute, continue or defend any proceedings…

(4) Notwithstanding any provision to the contrary contained in subsection (3), no disposition of property of a bankrupt …which comprises a family home (within the meaning of the Family Home Protection Act, 1976) shall be made without the prior sanction of the Court, and any disposition made without such sanction shall be void.

(5) On an application by the Official Assignee under this section for an order for the sale of a family home, the Court, notwithstanding anything contained in this or any other enactment, shall have power to order postponement of the sale of the family home … having regard to the interests of the creditors and of the spouse and dependants of the bankrupt as well as to all the circumstances of the case.

(6) The Official Assignee may in case of doubt or difficulty seek the directions of the Court in connection with the affairs of any bankrupt…”

18. It seems to me that it is very clear therefore that an application brought pursuant to s.61 (4) is an application brought in the bankruptcy proceedings themselves. It is one of a number of applications which may be brought in the bankruptcy. It was specifically inserted to cover issues which might arise in the context of the sale of the family home. It follows that it is not an originating notice of motion in respect of which personal service is required in accordance with the provisions of O. 52, r. 2 and O. 9 r. 2 and 16. It further follows that the service of the motion papers effected by Mr. Niall Hayes on the 28th March, 2017 was good and valid service and accordingly the proceedings had been issued and served on all respondents to the motion as of that date. That being so, applying the decision of the Supreme Court in Reilly v. DPP, the Official Assignee had applied to court for an order for the sale of the family home prior to the third anniversary of the date of the making of the adjudication order in respect of the bankrupt, notwithstanding the fact that the return date for the notice of motion was the 3rd April, 2017 i.e. after the 3rd anniversary. As it does not arise on the facts of this case, I am not deciding whether the Official Assignee was correct in submitting that the requirements of s. 85 (3A) are met simply by the issuing of a notice of motion seeking the sale of the family home of the bankrupt. That is best decided in a case where the issue actually arises.

19. On the basis of this conclusion many of the other arguments advanced on behalf of the respondents by Mr. Lynch fall away and do not arise for consideration. Some were issues which require to be determined at the hearing of the motion in the event that it was not out of time and therefore by agreement of the parties they each reserved their positions with respect to those points. One other point was argued before me. It concerned the jurisdiction of the court in relation to the second named respondent.

20. Secondly, and entirely separately from his first point, Mr. Lynch argued that as the second named respondent was not merely a spouse of the former bankrupt but was also a co-owner the court had no jurisdiction to make an order for sale under s.61 (4) of the Bankruptcy Act 1988 in respect of her interest in the property. Rather, the Official Assignee must obtain an order pursuant to s.31 of the Land and Conveyancing Law Reform Act 2009 for the sale of the property which is jointly owned by the second named respondent. It follows that she is not a party to this application and no order for sale can be made in respect of her interest.

21. The answer to this submission also is to be found in the true construction of s.61. Section 61 applies to every bankruptcy matter and subs. 2 provides that the functions of the Official Assignee are to get in and realise the property and to ascertain the debts and liabilities and to distribute the assets in accordance with the provisions of the Act. Subsection 3 confers powers on the Official Assignee for the performance of those functions. As quoted above, the first such power is the power to sell any property. This includes the power to sell the family home of a bankrupt, as is clear from the provisions of subs. 4. It expressly requires the Official Assignee to apply to court for an order for the sale of the family home of the bankrupt or the bankrupt’s spouse. If he fails to obtain the prior sanction of the court the purported disposition is void.

22. There is nothing in either ss.61 (4) or (5) or s.85 (3A) to indicate that the sale of the family home referred to in those provisions does not include a family home co-owned with a spouse of the bankrupt. Section 61 (4) refers to a family home within the meaning of the Family Home Protection Act, 1976. A family home is defined in s.2 (1) of the Family Home Protection Act, 1976 as “… primarily, a dwelling in which a married couple ordinarily reside.” It also comprises a dwelling in which a spouse whose protection is in issue ordinarily resides or, if that spouse has left the other spouse, ordinarily resided in before leaving. The definition does not on its face exclude a property jointly owned by the spouses. It is true that in Nestor v. Murphy [1979] I.R. 326 the Supreme Court held that the provisions of s.3 of the Act did not apply where the co-owning spouses each signed the contracts for the sale of the family home. This affects the application of the Act in practice but it does not limit the definition of a family home.

23. Family homes are frequently, if not usually, held in the joint names of spouses. It is to be presumed that the Oireachtas was aware of this fact when enacting both the Bankruptcy Act 1988 and the various amendments to that Act including those effected in 2009 (s.8 (1) and schedule 1 of the Land and Conveyancing Law Reform Act 2009), 2011 (Part 3 of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010), 2012 (the Personal Insolvency Act 2012) and 2015 (the Bankruptcy (Amendment) Act 2015). This means that the Oireachtas on several occasions had the opportunity to amend the Act of 1988, including the enactment of the 2009 Act, to exclude from the provisions of ss.61 and 85(3A) family homes where the spouse of the bankrupt was not bankrupt but was a co-owner of the family home, but chose not to do so.

24. The provisions of the Act of 1988 are to be read harmoniously and s.85 (6)(b) states that in s.85 (which includes s.85 (3A)) “family home” is to have the same meaning as it has in s. 61 of the Act. Section 61 (4) clearly states that the family home is a family home within the meaning of the Family Home Protection Act, 1976. I am satisfied therefore that the references to family home in respect of each of these sections includes a family home where the bankrupt and his or her spouse were co- owners of the property prior to the date of adjudication.

25. It was argued on behalf of the second named respondent that the jurisdiction of the court to order the sale was confined to the sale of the interest of the bankrupt in the family home. It did not extend to an order for sale of the interest of the non bankrupt spouse in the family home. If the Official Assignee wishes to sell the family home in circumstances where he is only a co-owner, he is obliged to obtain an order pursuant to s.31 of the Land and Conveyancing Law Reform Act 2009.

26. It seems to me that this construction is not correct. Subsection 5 relates to an application by the Official Assignee under subsection 4 for an order for the disposition of a family home. Subsection 4 relates to a disposition of property of a bankrupt which comprises a family home of the bankrupt. The interpretation advanced by the second named respondent would require construing this provision to relate solely to the share of the bankrupt in the family home. If that were indeed the intention of the Oireachtas, it would in effect mean that this provision would largely be unworkable. It could only apply to family homes where both spouses were bankrupt or in the sole ownership of the bankrupt. In either situation the alleged issue with the court’s jurisdiction would not arise. It would mean that for the Official assignee to realise his interest in property jointly owned by a bankrupt and his or her spouse, he would have to make an application under legislation other than the Bankruptcy Act. This of course is not problematic in and of itself, but it is inconsistent in my opinion with the intention of the Oireachtas as expressed in the statute. Section 61 (5) provides that “… notwithstanding anything contained in this or any other enactment…”, the court would have power to order postponement of the disposition of the family home having regard to inter alia the interests of the spouse and any dependants of the bankrupt. Thus, notwithstanding any other enactment, the bankruptcy court is to have power pursuant to an application to sell the family home of a bankrupt brought under s.61 (4) to postpone that sale in the interests of the spouse of the bankrupt. If the jurisdiction of the court does not extend to the sale of the family home (as opposed simply to the interest of the bankrupt in the family home), then the power in subsection 5 to protect the interests of spouses by postponing the sale likewise does not apply. This could result in co-owning spouses enjoying a lesser level of protection than non-co-owning or bankrupt spouses. No reason for this distinction in treatment of spouses of bankrupts was suggested.

27. I am satisfied that the Oireachtas intended to establish a special supplemental jurisdiction in relation to the sale of the family home or the interest of a bankrupt in a family home by enacting ss. 61 and 85(3A) of the Act. These provisions apply “notwithstanding … any other enactment”. There is nothing in either the wording of the sections or the legislative purpose in enacting the sections which leads to the construction advocated by the second named respondent. It is in ease of spouses of bankrupts that their interests in the family home should be protected by the requirements and provisions of ss. 61 (4) and (5).

28. I am not persuaded by the argument that the second named respondent is not a proper party to the application or that, on a hearing of the motion no order for sale in respect of her interest in the property may be made.

29. Accordingly, I refuse to dismiss the application as against the bankrupt or as against the second named respondent for the reasons set out in and I direct that the motion should proceed to trial in the normal way.

Lehane -v- Yesreb Holding Ltd

[2017] IEHC 512

JUDGMENT of Ms. Justice Costello delivered on the 24th day of July, 2017

Introduction

1. The plaintiff is the Official Assignee in the estate of Sean Dunne who was adjudicated a bankrupt on the 29th July, 2013. Prior to that, he was adjudicated bankrupt on his own petition in the United States on the 23rd March, 2013. In these proceedings, the plaintiff claims that Walford, Shrewsbury Road, Dublin 4 (“Walford”) was beneficially owned by the bankrupt on the date of his adjudication and therefore that it vested in the Official Assignee for the benefit of the creditors of the estate pursuant to s. 44 of the Bankruptcy Act 1988.

2. The bankrupt contracted to purchase Walford on the 1st July, 2005, and paid the purchase price of €57,950,000 to the vendors but the bankrupt did not take a deed of conveyance of Walford from the vendors, Caroline Crowley and Aiden Walsh, in whom the legal title remained. By a memorandum of agreement dated the 22nd March, 2013, between the bankrupt (as trustee for his wife, Gail Dunne) and the defendant, the bankrupt agreed to sell Walford to the defendant for the sum of €14 million. By deed of conveyance dated 29th March, 2013, the vendors of Walford in 2005, conveyed Walford to the defendant. The defendant is a limited liability company registered in Limassol in Cyprus and is ultimately beneficially owned by the bankrupt’s son, John Dunne.

3. The plaintiff’s case is that the bankrupt was the beneficial owner of Walford as of the 1st July, 2005, and that he remained the beneficial owner as of March, 2013, and that the transactions whereby the property was purportedly transferred to the defendant was a series of sham transactions. He pleads that the transfer on the 29th March, 2013, to the defendant was entered into with a view to delaying, defeating or defrauding the creditors of the bankrupt who at the time of the purported transfer was the lawful and beneficial owner of Walford. It is pleaded that the defendant was not a bona fide purchaser for value without notice and the plaintiff seeks declarations that Walford forms part of the estate in bankruptcy of Sean Dunne pursuant to s. 44 of the Bankruptcy Act 1988 and a declaration that the defendant was not a bona fide purchaser for value in good faith within the meaning of the Bankruptcy Act, 1988 in respect of any interest it claims in respect of Walford. He also seeks a declaration that the conveyance of the 29th March, 2013, is void and of no effect by reason of the provisions of ss. 57 to 59 of the Bankruptcy Act 1988 as amended and, in the alternative, that it is void and of no effect by reason of the provisions of s. 74 of the Land and Conveyancing Law Reform Act 2009.

4. The proceedings were commenced by way of plenary summons on the 9th December, 2016. However, on the 6th December, 2016, the defendant contracted to sell Walford to Celtic Trustees Ltd. On the 6th December, 2016, Celtic Trustees Ltd transferred to the defendant’s solicitor the sum of €12,112,500, being the entirety of the purchase price less capital gains withholding tax. On the 15th December, 2016, the defendant conveyed its title to Walford to Celtic Trustees Ltd and on the 23rd December, 2016 the deed was lodged in the Registry of Deeds for registration. On or about the 25th January, 2017 the Deed of Conveyance and Assurance was registered in the Registry of Deeds.

5. In view of the fact that the plaintiff had commenced these proceedings the defendant and Celtic Trustees Ltd entered into an escrow agreement whereby the purchase monies would be held in an escrow account pending the determination of the plaintiff’s claim against the defendant.

6. On the 23rd February, 2017, the plaintiff obtained a Mareva injunction restraining the defendant and any party having notice of the making of the order from dealing with reducing or transferring the funds the subject matter of the escrow agreement dated 20th December, 2016, between the defendant, Celtic Trustees Ltd and Lenz Staehelin, the escrow agent in Geneva, Switzerland.

7. Celtic Trustees Ltd applied and was joined as a notice party to these proceedings. The parties reached an agreement that the defendant would give an undertaking in terms of the Mareva injunction granted on the 3rd February, 2017, while reserving its right to apply to be discharged from its undertaking. The plaintiff confirmed the terms of his undertaking as to damages and confirmed that it was supported by the principal creditor of the bankrupt, Ulster Bank. The defendant disclosed its ultimate beneficial owner and so this issue also was resolved.

The Issue

8. The only issue to be determined at the hearing of the motion was the application by the defendant for the partial release of funds to enable it to finance its defence of the proceedings.

Submissions Of The Defendant

9. The defendant says that it has no other assets or funds other than the monies held in the escrow account. It says it is incapable of raising debt financing as it has sold Walford and its only asset is the money in the escrow account. The account is frozen and therefore it has no prospect of raising debt finance.

10. Mr. Charalampos Charalampous, a director of the sole corporate director of the defendant, swore an affidavit on behalf of the defendant confirming these facts and exhibiting the defendant’s abridge financial statements for the year ended 31st December, 2016. These show that as at 31st December, 2016, the shareholder’s deficit was €12,724,879. I am satisfied that the defendant has demonstrated that it has no other assets with which to discharge its legal expenses and thus would not be able to fund its defence if the order sought is refused.

11. The defendant emphasises the fact that the plaintiff claims that the beneficial interest in Walford has vested in him. Specifically, in these proceedings the plaintiff makes no claim to the monies held in escrow. Therefore there is no proprietary claim insofar as the monies in escrow are concerned.

12. The defendant relies upon three English authorities, two of the Court of Appeal and one of the High Court, to support the proposition that it should be entitled to access the funds to pay its reasonable legal and other fees in defending the proceedings.

13. In Halifax Plc v. Chandler [2001] EWCA Civ 1750 Clarke L.J. stated that a freezing injunction is not granted in order to provide the claimant with security for its claim and that ordinarily the order permits the defendant to spend money on legal expenses. He quoted with approval the decision of Sir Thomas Bingham MR in Sundt Wrigley Co. Ltd. v. Wrigley (unreported, 23rd June 1993) where he stated that: –

“…since the money is the defendant’s, subject to his demonstrating that he has no other assets with which to fund the litigation, the ordinary rule is that he should have resort to the frozen funds in order to finance his defence….”

Lord Justice Clarke approved the statement of Gee in the fourth edition of Mareva Injunctions and Anton Piller Relief at p. 318 where the author stated: –

“The court will always be concerned to ensure that a Mareva injunction does not operate oppressively and that a defendant will not be hampered in his ordinary business dealings any more than is absolutely necessary to protect the plaintiff from the risk of improper dissipation of assets. Since the plaintiff is not in the position of a secured creditor, and has no proprietor claim to the assets subject to the injunction, there can be no objection in principle to the defendant’s dealing in the ordinary way with his business and with other creditors, even if the effect of such dealings is to render the injunction of no practical value.”

14. In the case of Furylong Ltd v. Masterpiece Technology Ltd [2004] EWHC 3103 (Ch) Mr. Justice Park considered an application by the defendant to authorise the expenditure of money in connection with its defence to the claim brought against it by the plaintiff where the order provided that: –

“This order does not prohibit the respondents from spending a reasonable sum for legal advice and representation.”

The defendant wished to instruct a VAT expert who was not a lawyer as part of its defence. It was therefore argued that amounts expended upon obtaining advice from this expert were not amounts for “legal advice”. Mr. Justice Park held at paras. 11 and 12 of his judgment as follows: –

“11. …the court ought to be very slow to second guess the judgment of the defendant about how it wishes to equip itself and how it wishes to put together a professional team to resist a large claim which has been brought against it.

12. I would accept that the form of the order referring to a ‘reasonable sum’

for legal advice and representation, does leave scope for the court which, in appropriate cases, it must implement to say that a sum being sought to be expended for legal advice and representation is not reasonable. Nevertheless, I accept Mr. Graham’s submission that the underlying purpose of a freezing order is to prevent a dissipation of assets and not to prevent the payment of money on legal costs. Broadly a defendant should be given a considerable latitude to decide for itself how it wishes its defence to be prepared and presented. That is what Masterpeice wishes to do here. I am not prepared to substitute a different view of my own, where I to hold one (which I do not) for the view of Masterpiece’s directors and solicitors about how it wishes to resist this very large claim against it.”

He acceded to the application to authorise the sum of Â£40,000 as a reasonable sum for the defendant to spend on legal advice and representation in the context of a claim brought against it for an amount in excess of Â£7 million pounds.

15. The third case referred to by the defendant was FrÃ©dÃ©ric Marino v. FM Capital Partners Ltd [2016] EWCA civ. 1301. In this case, the Court of Appeal emphasised that the position is that a defendant who has resources of his own which are not effected by a good arguable claim by the claimant that they are his (the claimant’s) property should be required to use those unaffected resources to finance his legal defence and to meet his living expenses. The court held that the onus was on the defendant to persuade the court that he, the defendant, has no, or inadequate, assets of his own, unaffected by proprietary claims, so that he potentially has good grounds to argue to be allowed to have recourse to the proprietary assets the subject matter of the claim.

Submissions of The Plaintiff

16. The plaintiff accepted that his claim in these proceedings was to Walford and not to the proceeds of sale. In separate proceedings which I discuss below, Celtic Trustees Ltd pleads that if and insofar as the plaintiff had an interest in Walford, it was overreached and attaches to the proceeds of sale, the monies now held in escrow. The plaintiff contests this, but insofar as this argument may be successful and if the fund is depleted by paying the defendant’s legal costs, then he will be prejudiced if the defendant is permitted to access the monies to pay for the defence of the proceedings. He also criticises the fact that there was no attempt to estimate the costs and no mechanism to ensure that exorbitant costs were not charged. Ultimately it is a matter for the court as to whether and on what terms the court permits the defendant to access the funds.

Discussion

17. I accept the submissions of the defendant that the plaintiff’s claim in these proceedings is not a proprietary claim to the monies. I also accept that ordinarily it would therefore be entitled to access the funds to pay its reasonable legal expenses in defending the claim for the reasons enunciated in the decisions cited by the defendant.

18. The concern in this case arises from a second set of proceedings instituted by Celtic Trustees Ltd against the Official Assignee where Celtic Trustees Ltd seeks a declaration that it has acquired good title to Walford. In these proceedings entitled “The High Court Record No. 2017/2146P Between Celtic Trustees Ltd, plaintiff and Christopher Lehane as Official Assignee in Bankruptcy in the Estate of Sean Dunne, defendant” at para. 13 and 14 of the statement of claim it is pleaded: –

“Contrary to the position adopted by the Official Assignee CTL has acquired good title to the property, and neither Sean Dunne nor the Official Assignee have any interest in the Property.

To the extent that Sean Dunne, the Official Assignee or any other person had any beneficial or other equitable interest in the property prior to the conveyance to CTL, which is denied, under Section 21 of the Land and Conveyancing Law Reform Act, 2009, the conveyance to CTL dated 15th December, 2016 overreached any such equitable interest. As a result, any such equitable interest ceased to affect CTL’s legal estate in the Property, irrespective of whether CTL had notice of any such equitable interest, and any such equitable interest now attaches only to the proceeds arising from the said conveyance.”

19. Thus, in these proceedings, Celtic Trustees Ltd raises the argument that the interest of the Official Assignee in Walford, assuming the property vested in him for the purposes of the argument, was over reached and therefore his interest attaches to the proceeds arising from the conveyance, i.e. the monies held in the escrow account. The Official Assignee does not make this case. In fact, in his defence to the claim of Celtic Trustees Ltd he pleads at para. 13: –

“It is denied that the plaintiff is entitled to rely on Section 21 of the Land and Conveyancing Law Reform Act, 2009 as pleaded at para. 14 or at all. The Property was vested in the Defendant by reason of the Bankruptcy Act, 1988 and insofar as any purported transactions in relation to the Property are set aside, it remains vested by operation of statute and not by way of an equitable interest.”

It is clear that the plaintiff maintains that by virtue of the provisions of s. 44 of the Bankruptcy Act, 1988 he is entitled to the property and he is not making a claim to the proceeds of the sale by the defendant to Celtic Trustees Ltd in 2016.

Nonetheless, one possible outcome of the multiple litigation surrounding Walford (and there are other cases which have not been referred to in this judgment) is that the plaintiff may be entitled to the monies in the escrow account rather than Walford itself. Another possible outcome is that the plaintiff may be successful in his applications and may obtain a declaration that Walford is vested in him, in which case Celtic Trustees Ltd will be entitled to recover the monies held in the escrow account. Thus, if the fund is reduced it may be at the ultimate expense of the plaintiff or Celtic Trustees Ltd.

20. Under the terms of the escrow agreement, the monies may not be released to fund the defence of the defendant to these proceedings without the consent of Celtic Trustees Ltd. They have indicated that they will grant their consent, subject to the submission of invoices to their solicitors for their consideration. So, Celtic Trustees Ltd, one of two parties who may be prejudiced by the relief sought by the defendant, is agreeing to the release of funds to pay the defendant’s reasonable expenses.

21. In the circumstances, I do not believe that the potential prejudice to the plaintiff outweighs the prejudice to the defendant if the relief were refused. Even if it did, the English authorities underscore the fact that the purpose of a freezing order is to prevent dissipation of assets. The order does not confer any security on the plaintiff.

22. Once the defendant satisfies the court that it has no or insufficient assets from which to fund its defence of the proceedings, then the defendant is entitled to access the funds which would otherwise be frozen in order to fund its defence where the claim in the proceedings is not a proprietary claim to the frozen funds. In this regard the defendant must act reasonably and the funds may not be improperly dissipated under the guise of paying excessive legal expenses. I am conscious of the caution of Mr. Justice Park in Furylong that the court should be slow to impose its views on the manner in which the defendant approaches the defence of the proceedings. For this reason, I propose in principle to permit the defendant to draw from the fund to meet its reasonable legal expenses in defence of the proceedings.

23. I am aware that the defendant and Celtic Trustees Ltd are to agree procedures whereby the two parties can agree on the amounts to be withdrawn from the fund in accordance with the escrow agreement. Given that it is intended to put in place such an arrangement, I believe that it would be appropriate to take advantage of this fact in circumstances where it may ultimately be the plaintiff rather than Celtic Trustees Ltd who may be at a loss of the monies from the fund. I therefore propose to take the defendant up on its offer to place estimates before the court of the legal costs to assist me in finalising the order.

24. I shall adjourn the application for further submissions from all parties on the means, if any, to be ordered by the court to assess the reasonable legal expenses of the defendant in its defence of these proceedings.

Lehane (the official assignee in the estate of Burke)-v- Burke & anor

[2017] IEHC 426

JUDGMENT of Ms. Justice Costello delivered on the 30th day of June, 2017

6. The 31st March, 2017 was the third anniversary of the adjudication of the first named respondent as a bankrupt.

7. On the 3rd April, 2017 the motion was adjourned to the 22nd May, 2017 and the return date on the notice of motion was amended by the substitution of the 22nd May for the 3rd April, 2017.

9. The issue for consideration by the court is whether the application before the court is out of time. This turns on the provisions of s. 85(3A) of the Act of 1988. Section 85 (3A) provides:

“Subject to subsections (3B) to (3F), where on the 3rd anniversary of the date of the making of the adjudication order in respect of a bankruptcy —…

(b) in the case of the family home … the Official Assignee has not applied to the Court for an order for sale of that home,

that estate or interest shall, on that 3rd anniversary, stand re-vested in the bankrupt without the need for any conveyance, assignment or transfer.”

16. The Official Assignee submitted that the motion was not an originating notice of motion but was a motion brought within the bankruptcy proceedings and bearing the record number of the bankrupt’s bankruptcy proceedings. Originating notices of motion are used to initiate proceedings. This indicated that this motion was not an originating notice of motion within the meaning of the rules. It was submitted that an originating notice of motion is only permissible when it is provided for by the rules and an application under s. 61 (4) of the Bankruptcy Act 1988 as amended is not one of those applications which may be brought by way of originating notice of motion. The respondents submitted that these were new proceedings seeking the sale of their family home and it could only be regarded as an originating notice of motion.

(3) In the performance of his functions the Official Assignee shall, in particular, have power—

(a) to sell the property by public auction or private contract…

(d) to institute, continue or defend any proceedings…

(6) The Official Assignee may in case of doubt or difficulty seek the directions of the Court in connection with the affairs of any bankrupt…”

In re Dr Developments (Youghal) Limited

[2011] IEHC 307

THE HIGH COURT

2010 185 COS

IN THE MATTER OF DR DEVELOPMENTS (YOUGHAL) LIMITED

(IN LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009

Ex-Parte Application

Gerard Murphy Official Liquidator

JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 25th day of July, 2011

1. On 17th May, 2010, an order was made for the winding up of DR Developments (Youghal) Ltd. (“the Company”) and the appointment of Mr. Gerard Murphy as Official Liquidator thereof.

2. In this application, brought by motion ex parte, the Official Liquidator sought the sanction of the court for approval to act as “agent for AIB Bank plc.” in respect of the sale of certain charged assets of the Company. The application changed in the course of the hearing for which the Official Liquidator was present in person. I understand that the proposal now is that the charged assets be sold by the Official Liquidator and that he obtain the sanction of the court for certain arrangements (which have not been finalised) with AIB in relation to such sales.

3. The factual background to the application is that the Company was a development and construction company. Whilst the Official Liquidator does not appear to have obtained a statement of affairs from the directors of the Company, nor any cooperation from them, he is of the view that all the assets of the Company are subject to a fixed and floating charge in favour of AIB plc. The Official Liquidator, in his grounding affidavit and earlier reports to the court, has not made clear whether he has been advised by his solicitor on the validity of the charges in favour of AIB to which he refers. The remainder of this judgment is upon an assumption that the Official Liquidator, upon advice, is satisfied that there exist valid charges in favour of AIB.

4. The assets of the Company principally comprise a semi-completed development known as Radharc Na Mara, Ballyvergan East, Imokilly, Youghal, County Cork, and a small site at Porter’s Lane, Youghal, County Cork. The realisation of the partly completed development site presents particular difficulties. There is a bond given by AIB in favour of Cork County Council. There appear to be certain planning conditions which require to be fulfilled, including an obligation to construct a number of units on the site to be provided to the Council as social and affordable housing. The transfer of the common areas also appears to remain outstanding.

5. AIB has not appointed a receiver and has not gone into possession of the charged property. Accordingly, it would appear that pursuant to s. 229 of the Companies Act 1963, the property is now in the custody of the Official Liquidator.

6. The Official Liquidator has informed the court that on the indebtedness figures provided to him by AIB and his understanding of the current value of the properties, that the amounts due to AIB far exceed the potential realisations from the properties. Accordingly, in the Official Liquidator’s view, there are no potential assets available to discharge his costs and expenses as Official Liquidator in the winding up or for unsecured creditors. It is also assumed that the Official Liquidator has satisfied himself that the sums claimed by AIB are owed by the Company.

7. Notwithstanding the apparent absence of any potential discharge of his remuneration and expenses, the Official Liquidator and his solicitor have properly taken steps to investigate the precise position in relation to the partly completed development, which includes a contract for sale in respect of one unit. He has also engaged an engineer to correct mapping errors and a valuer to value the assets of the Company. He also has engaged in negotiations with Cork County Council. He and his solicitor have thus acquired a significant knowledge and understanding of the development site in question.

8. The Official Liquidator also states that he has met with an official of AIB branch in Fermoy, County Cork, who has suggested that he would act “as an agent for the Bank in respect of the sale of the development site” by reason of the knowledge he has gained of the site. Whilst it may make good sense for the liquidator to attempt to sell the charged assets he is now correctly of the view that it would not be appropriate for him, as Official Liquidator, to do so by acting as an agent for AIB. It appears that this was simply loose terminology by non-lawyers. As part of the proposed arrangements, AIB had also indicated that they would provide the Official Liquidator with an indemnity in relation to his actions in respect of the sale of the development site. There are also tentative, though not fully formulated or agreed arrangements in relation to the discharge of his legal costs in connection with the sales and certain other expenses, and possibly (depending on realisations) some remuneration to be paid the Official Liquidator.

9. Insofar as the charged property is to be sold by the Official Liquidator then as the property is an asset of the Company albeit subject to a charge he can do so pursuant to the powers conferred on him by s. 231(2)(a) of the Companies Act 1963 provided of course he has reached agreement with AIB that it will release the charges on completion of the sale.

10. As the Official Liquidator has not yet reached agreement with AIB, there is no arrangement in being which is capable of now being sanctioned by the court. However, I propose setting out for the assistance of the Official Liquidator the applicable principles which need be taken into account in finalising the proposed arrangements with AIB and which should apply in any future application to the court for sanction of the terms agreed.

11. The Official Liquidator is an agent of the company with fiduciary obligations arising from his office and with statutory obligations imposed on him by the Companies Acts 1963 to 2009 (see, inter alia, Keane ‘Company Law’ 4th Ed. par. 36.107 and Re Belfast Empire Theatre of Varieties [1963] I.R. 41 and 49).

12. The primary duty of a liquidator is to take possession of the company’s assets and protect them; realise those assets and apply those proceeds in distribution to those entitled in accordance with the statutory schemes. He also has additional duties imposed on him by statute, including regulatory obligations of reporting to the Director of Corporate Enforcement and the Registrar of Companies, and unless relieved, brining applications pursuant to s. 150 of the Act of 1990.

13. An official liquidator may sell property of the company pursuant to s. 231(2)(a) of the Act of 1963, without sanction of the court. However, in practice, by reason of the fact that the exercise of such powers are made expressly subject “to the control of the court” and the right of application given to creditors and contributories in s. 231(3) and the general obligations in relation to achieving the best price court approval is often sought for significant sales.

14. Where an official liquidator sells property of the company, then, in accordance with O. 74, rules 44 and 117, the gross proceeds of sale must be paid into the liquidation account and it will follow that court duty will be payable on the gross proceeds of sale. Nevertheless, as these are obligations pursuant to the Superior Court Rules, the court may pursuant to its inherent jurisdiction make orders modifying the requirements or such rules.

15. In particular, it appears that the court may authorise an official liquidator who is selling property of the company subject to charges to enter into agreements with the charge holder which include the payment directly to the charge holder of the proceeds of sale (subject to deduction if agreed of costs and expenses) in consideration of the release of charges, thereby avoiding the necessity of paying the money into the liquidation account and the charging of any duty thereon. See Re McCairns (PMPA) plc (In Liquidation) [1992] ILRM 19 at 22. Such arrangements however require to be sanctioned by the court in advance of the completion of sale. Whether the precise arrangements are appropriate for sanction will depend upon the facts of each liquidation.

16. The Bankruptcy rules apply to the rights of a secured creditor in a winding-up (s.284 of the Act of 1963). This includes the right of a secured creditor, such as AIB in this liquidation, to rely on its security and not prove in the liquidation (Bankruptcy Act 1988, the First Schedule, rule 24). It appears to be exercising this right insofar as it enters into an agreement with the Official Liquidator as to the terms upon which it will release its charge to enable a sale by the Official Liquidator be completed.

17. Section 285(7) of the Companies Act 1963 (priority to preferential creditors over holders of floating charges) requires the Official Liquidator to distinguish in any arrangements reached with the charge holder between proceeds from assets subject to fixed charges and those only subject to floating charges. It is not clear whether this issue arises on the facts in this liquidation.

18. Upon an assumption that the Official Liquidator will by agreement with AIB, be seeking to sell assets subject to a fixed charge with a realisable value significantly less that the Company’s debt to AIB, he will be doing so for the exclusive financial benefit of AIB and not for the financial benefit of the company in liquidation. There may be a general benefit to the orderly winding up in enabling the liquidation to be completed.

19. In such circumstances where an official liquidator is doing significant work for the exclusive financial benefit of a charge holder such as AIB, it would not appear appropriate that he be remunerated for such work out of any assets coming into the liquidation which might otherwise be available for distribution to the preferential and general unsecured creditors. Hence, it would appear to follow that where an official liquidator agrees to do work exclusively for the benefit of a secured creditor (including selling for the benefit of the holder of a fixed charge) that he should not include the work done as work for which he would claim remuneration in the winding-up. Insofar as he reaches agreement with the secured creditor for the discharge of remuneration to him, this requires sanction of the court for the reasons next set out. The position becomes more complex where an official liquidator does work which is in part for the benefit of a secured creditor and in part for the winding-up but similar principles apply. This is unlikely to arise on the facts herein.

20. An Official Liquidator is entitled to receive such remuneration “as the court may direct” (s. 228(d) of the Act of 1963 and O. 74 of the Superior Court Rules). Prima facie it is payable only out of assets realised in the course of the winding up in accordance with the specified priority (O. 74, r. 47 and r. 128). Further O. 74, r. 38 expressly prohibits an official liquidator from, inter alia, accepting remuneration from any solicitor, auctioneer or any other person connected with the company. This prohibition is consistent with official liquidator’s fiduciary obligations to the company. The court may, modify the prohibition of O. 74, r. 38 and it has been the practice of the court to sanction arrangements whereby an official liquidator may be remunerated by a petitioning creditor or other person either in general or for a specific purpose. It is often foreseeable at the time of presentation of a petition, that there is no likelihood of realisation of any assets in the winding up which may be available to discharge the costs, expenses and remuneration of the official liquidator. Unless the court is prepared to sanction such arrangements, it would not in practice be possible to get persons to act as official liquidators in such windings-up. However regard must be had to the potential conflict of interest for an official liquidator who is to be remunerated by a particular creditor.

21. The fiduciary obligations of the liquidator and the general rules applicable to his remuneration must be borne in mind in making any such arrangements. It appears to follow that insofar as a petitioning creditor or any other person connected with the company, including a creditor, secured or unsecured, proposes entering into arrangements which would include the payment of remuneration either on an absolute or contingent basis to the official liquidator that having regard to s. 228(d) of the Act of 1963 and O. 74, r. 38 and the obvious potential conflict of interest for the official liquidator that disclosure to and the sanction of the court is required for such arrangements. The Revenue Commissioners frequently underwrite liquidation costs and remuneration and disclosure is made to the court. A practice has developed whereby sanction is not expressly obtained. This may not be correct having regard in particular to s. 228(d) of the Act of 1963 and O. 74, r. 38. There are also other windings up by the court in which sanction has been obtained for a particular creditor or specified creditors to enter into indemnity or payment arrangements, either in relation to the general costs and remuneration of the official liquidator in the winding-up, or for a particular purpose such as the pursuit of litigation. In principle, there appears no objection to the court sanctioning such arrangements provided care is taken to identify and manage any potential conflict of interest situation. In practice such arrangements are necessary to obtain agreement of persons to act as liquidators where there is little likelihood of realisations or where the interests of the winding up requires certain work including litigation to be pursued and there are no assets available to fund same. Whether or not sanction should be given will depend upon the facts of each situation.

22. If and when the Official Liquidator herein reaches agreement with AIB as to the terms upon which it will agree to release its charge to enable the Official Liquidator sell the charged property pursuant to s. 231(2)(a) of the Act of 1963, then an application should be brought by the Official Liquidator for sanction by the court of the proposed arrangement. Unless such application is made and a court order obtained in advance of the sales, the Official Liquidator is obliged to lodge to the official liquidation account the gross proceeds of any sale with the consequential obligation of the payment of court duty. Further, he is not entitled to receive remuneration from AIB for work done in the winding up without sanction of the court.

Avis v Turner & Anor

[2007] EWCA Civ 748 [2008] Ch 218, [2007] 4 All ER 1103, [2007] EWCA Civ 748, [2008] 2 WLR 1

Lord Justice Chadwick :

This is an appeal from an order made on 13 December 2006 by His Honour Judge Pelling QC, sitting as a judge of the High Court in the Liverpool District Registry of the Chancery Division, on an appeal from an order made on 4 May 2006 by District Judge Sykes in the Liverpool County Court on an application made in the bankruptcy of Edmund Charles Avis. Permission to appeal to this Court was granted by Sir Martin Nourse on 23 March 2007.

The appeal raises a question as to the powers of the court on an application by a trustee in bankruptcy for an order for the sale of a former matrimonial home in which the bankrupt had an interest in circumstances where there is an existing order, made in matrimonial proceedings between the bankrupt and his former wife, that sale be postponed until the happening of specified events which have not yet occurred.

The underlying facts

Mr Avis and his former wife, Mrs Vivienne Avis, are registered at HM Land Registry as proprietors with title absolute to property known as 23 Malvern Close, Kirkby, Merseyside. In the course of matrimonial proceedings between them in 1985 it was ordered, by consent, that the trusts upon which they had formerly held the property be varied so as to provide that the proceeds of sale be held as to two thirds for Mrs Avis and as to one third for Mr Avis. On the bankruptcy of Mr Avis on 14 February 1989 – or, more accurately on the appointment of a trustee in bankruptcy to administer his estate – his one third interest in the proceeds of sale of the property vested in the trustee under section 306 of the Insolvency Act 1986. Mr and Mrs Avis remained the registered owners and the trustees of the trust for sale upon which the property is held.

The present trustee in bankruptcy, Mr Charles Turner, was appointed with effect from 14 October 2003. By application notice dated 18 November 2005, the trustee sought (amongst other relief) an order for sale in relation to the property at Malvern Close. Mr and Mrs Avis were named as respondents to that application. The application was expressed to be made under both the Trusts of Land and Appointment of Trustees Act 1996 and the Insolvency Act 1986.

The Trusts of Land and Appointment of Trustees Act 1996

The relevant provisions of the 1996 Act, in the present context, include those in sections 14 and 15. Section 14 of the Act, so far as material, is in these terms:

“14(1) Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.

(2) On an application for an order under this section the court may make any such order –

(a) relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or

(b) declaring the nature or extent of a person’s interest in property subject to the trust,

as the court thinks fit.”

That section must be read with section 1(1)(a) and (2)(a) of the Act: a trust of land includes a trust for sale. The Court has power under section 14(2)(a) of the Act to direct trustees for sale of land to execute the trust and sell the land. The court may also give directions as to the disposal of the proceeds of sale to those interested – section 17(2) and (3).

Section 15 of the 1996 Act sets out matters relevant in determining an application under section 14. Subsection (1) requires the court to have regard to: “(a) the intentions of the person or persons (if any) who created the trust, (b) the purposes for which the property subject to the trust is held, (c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home, and (d) the interests of any secured creditor of any beneficiary.” But that requirement must be read with sub-section (4):

“(4) This section does not apply to an application if section 335A of the Insolvency Act 1986 (which is inserted by Schedule 3 and relates to applications by a trustee of a bankrupt) applies to it.”

The Insolvency Act 1986

Section 335A of the Insolvency Act 1986 – which, as section 15 (4) of the 1996 Act indicates, was inserted into the 1986 Act when the 1996 Act was enacted – is in these terms (following amendment by the Civil Partnership Act 2004) :

“335A(1) Any application by a trustee of a bankrupt’s estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2) On such an application the court shall make such order as it thinks just and reasonable having regard to –

(a) the interests of the bankrupt’s creditors,

(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt’s spouse or civil partner or former spouse or former civil partner-

(i) the conduct of the spouse, civil partner, former spouse or former civil partner, so far as contributing to the bankruptcy,

(ii) the needs and financial resources of the spouse, civil partner, former spouse or former civil partner and

(iii) the needs of any children; and

(c) all the circumstances of the case other than the needs of the bankrupt.

(3) Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

The application for an order for sale

The position when the application of 18 November 2005 was made was, and (so far as I am aware) remains, that Mrs Avis occupied and occupies the property at 23 Malvern Close as her home. Mr Avis has not lived there since the property adjustment order was made in 1985. By his application of 18 November 2005 the trustee in bankruptcy sought a declaration that he was beneficially interested in and entitled to a one third interest in the property. Subject to the qualification that his interest is in the proceeds of sale of the property and that that interest vests in him not beneficially but as trustee upon the statutory trusts applicable to the administration of the bankrupt’s estate, there can be no answer to that claim.

By paragraph 4 of his application notice, the trustee in bankruptcy sought an order that the property be sold. There were claims to further relief for the purpose of giving effect to a sale: paragraph 2 sought an order vesting the property in the trustee in bankruptcy and paragraph 3 an order that the respondents deliver up vacant possession. But the principal issue between the parties arises from the wish of the trustee in bankruptcy to have the property sold so that the proceeds can be applied to discharge the bankruptcy debt; and, no doubt, to pay his proper fees and expenses incurred in connection with his office.

In the present case the bankrupt’s estate – which included the one-third interest of Mr Avis in the proceeds of sale of the property at 23 Malvern Close – had first vested in a trustee in bankruptcy, at the latest, on 14 October 2003 when the present trustee was appointed. The application under the 1996 Act was made some two years after that date. At first sight, therefore – in giving effect to section 335A of the 1986 Act in conjunction with section 14 of the 1996 Act – the court was required to assume (unless the circumstances of the case were exceptional) that the interests of the bankrupt’s creditors outweighed all other considerations.

The 1985 property adjustment order

Mr and Mrs Avis opposed an order for sale. Their opposition was founded on the 1985 property adjustment order. As I have said that order (at paragraph 1) directed that the terms of the trust for sale upon which they held the property be varied so as to provide that the proceeds of sale be held as to two thirds for Mrs Avis and as to one third for Mr Avis. Paragraph 2 of the order is in these terms:

“2. Such trust for sale shall be postponed until the happening of any one of the following events:

(a) the re-marriage of the Petitioner.

(b) the Petitioner’s cohabitation with another man in a stable relationship.

(d) the Petitioner serves notice upon the Respondent in writing that she requires the property to be sold.

(e) the death of the petitioner.”

Paragraph 5 of the order provides that, until the property is sold, the petitioner (Mrs Avis) shall have the exclusive right to occupy the property; but that she will be responsible for the mortgage repayments and for the day-to-day maintenance of the property. Her obligation in respect of the mortgage is reflected in paragraph 3 of the order, which requires that, in the event of the property being sold, the net proceeds of sale shall be divided between the parties in the proportions mentioned in paragraph 1 “save and except that the petitioner shall be given credit for any capital payments made from the date of this Order in respect of the Mortgage Debt.” Paragraph 9 of the order gives the parties liberty to apply.

The proceedings before the district judge

The application made by the notice of 18 November 2005 came before the district judge on 4 May 2006. Her task was not made easier by the contention – which seems to have been adopted both by counsel for the trustee in bankruptcy and by counsel for Mrs Avis in their respective skeleton arguments – that the relevant provision in the Insolvency Act 1986 was not section 335A, but section 336. That contention – wherever it originated – was misconceived. Section 336 of the 1986 Act is concerned with “home rights” under Part IV of the Family Law Act 1996 – that is to say, rights of occupation which do not arise by virtue of a beneficial interest in the property occupied – see section 30 of the Family Law Act1996. But the underlying question under each of sections 335A and 336 of the 1986 Act is not dissimilar: section 336(5) of that Act is in the same terms as section 335A(3).

The district judge’s judgment must be read with the contention that had been advanced before her in mind. Having referred (at paragraph 3) to a dispute between counsel as to the nature and effect of the order made in the matrimonial proceedings, she went on to say this:

“4. I was invited by the applicant’s counsel to find that it was not necessary to construe the nature of that order, because the essential issue could be determined by an analysis of the Family Law Act of 1996 and the Insolvency Act of 1986. I adopted the reasoning of counsel for the applicant, which was as follows: that, irrespective of any beneficial interest which may have arisen by virtue of that order made in November 1985, the essential issue in this case was the second respondent’s right to occupy the former matrimonial home. Her right to occupy, it was submitted, falls within section 30 of the Family Law Act 1996, and I am satisfied, having read that section, that that must be right. Section 33 of that Act regulates the right of a party to occupy. The Insolvency Act 1986, by virtue of section 336, applies insolvency law to those rights of occupation, and by virtue of section 336(2) the trustee is bound by those rights of occupation but can apply to vary them under section 336(4), and I accept that this is the effect of that section. It follows, therefore, that under section 336(5) there is an assumption by the court that after one year from the beginning of the period of first vesting of the bankrupt’s estate in the trustee, the interests of the bankrupt’s creditors outweigh all other considerations.

5. Before I deal with those important words ‘unless the circumstances of the case are exceptional’, I turn to deal with the second respondent’s counsel submissions. The fundamental point made by the second respondent’s counsel is that the court must look at section 283(5) of the Insolvency Act which, of course, defines the bankrupt’s estate. Under section 283(5) it is the position that the trustee acquires rights in a property, subject to third party rights, and it is the submission of the second respondent that the trustee therefore acquires Mr Avis’s beneficial share in the former matrimonial home subject to the rights of Mrs Avis. Those are rights, he submits, under the 1985 order, not to have the property sold. Therefore, the trustee has acquired a fettered interest, fettered because it is subject to the rights of Mrs Avis. That, it is submitted, is inconsistent with and contrary to the provisions of section 336.

6. I rejected that argument because, in my judgment, Mrs Avis’s rights cannot be greater than those provided for under section 30 of the Family Law Act 1996, and I accepted the applicant’s counsel’s submissions in that regard. I also reject the second respondent’s submissions because it seems to me that that would override section 336, and that cannot, in my judgment, have been the intention of the statute.

7. What is, in my judgment, significant, is the provision in section 336(5) that the presumption that the interests of the bankrupt’s creditors outweigh all other considerations, is subject to that important wording ‘unless the circumstances of the case are exceptional’. That, it is seems to me, is the central issue in this case. . . .”

The district judge was persuaded that she should not address that central issue at the hearing on 4 May 2006. She adjourned the application for a further hearing to enable Mrs Avis to file evidence on the question whether there were, in this case, such exceptional circumstances as should displace the assumption which the court would otherwise be required to make (under section 336(5) of the 1986 Act) that the interests of the bankrupt’s creditors outweighed all other considerations. At paragraph 10 of her judgment the district judge said that she was invited by counsel for Mrs Avis to make a declaration that section 336(5) of the 1986 Act applied. In the light of subsequent events it is, perhaps, surprising that the invitation came from Mrs Avis (if it did); but nothing turns on that. A declaration that section 336(5) of the 1986 Act applies is incorporated in the order of 4 May 2006.

The appeal to the High Court

The adjourned hearing of the application before the district judge was fixed for 24 August 2006. That hearing was overtaken by events and was vacated. By an appellant’s notice filed on 18 May 2006 Mrs Avis appealed to the High Court. She sought to discharge the whole of the district judge’s order. In substance the basis of that appeal was that no order for sale could be made on the trustee in bankruptcy’s application because none of the events specified in the 1985 order had occurred. Accordingly, there was no purpose in a further hearing of the adjourned application: the application should have been dismissed in limine.

His Honour Judge Pelling QC rejected that contention. The misconception that the relevant section of the 1986 Act was section 336 – rather than section 353A – had been corrected in the skeleton argument filed on her behalf: see paragraphs 5.7 and 5.8. Accordingly, when the judge held that the appeal should otherwise be dismissed, he varied the order of 4 May 2006 so as to substitute a declaration that it was section 335A – and, in particular, section 335A(3) – of the 1986 Act that was applicable in the present case. He remitted the matter to District Judge Sykes for the remaining issues (outstanding under her order of 4 May 2006) to be determined. He identified those issues as (i) whether there were exceptional circumstances to displace the statutory assumption and (ii) whether Mrs Avis was entitled to credit for capital repayments under the mortgage.

The judge reached his conclusion for the reasons set out at paragraphs 11 – 15 of his judgment. It is, I think, sufficient to summarise those reasons. After setting out the relevant provisions in the Insolvency Act 1986 and the Trusts of Land and Appointment of Trustees Act 1996, he observed that the effect of those provisions was that, whilst it was open to co-owners of land held upon trust for sale to agree that a sale be postponed until the happening of one of a number of specified events – and to agree which of them was to occupy the property pending sale – the terms on which they had agreed to postpone the sale were not necessarily determinative. Where one co-owner desired that the property be sold (notwithstanding the terms as to the postponement of sale which had been agreed) he was entitled to apply to the court under section 14 of the 1996 Act. In a case where there had been no intervening bankruptcy, the court would determine that application by reference to all relevant matters, including those set out in section 15 of the 1996 Act. Those matters included the intentions of the parties creating the trust, as evidenced by the agreement which they had made. But, where one co-owner had been adjudged bankrupt and the application under section 14 of the 1996 Act was made by the trustee in bankruptcy, section 15 of the 1996 Act was displaced by section 335A of the 1986 Act. In those circumstances the matters to which the court was to have regard were those set out in section 335A(2) of the Act. Those matters would include the intentions of the co-owners when they created the trust; as one of the circumstances of the case to which the court must have regard under paragraph (c) of section 335A(2). But, in a case where section 335A(3) applied, the intentions of the co-owners when they created the trust must yield to the interests of the bankrupt’s creditors, save in exceptional circumstances.

At paragraph 13 of his judgment, the judge referred to the submission, made on behalf of Mrs Avis, that section 283(5) of the 1986 Act had the effect that the trustee in bankruptcy took the bankrupt’s interest in the property subject to the right conferred on Mrs Avis by paragraphs 2 and 5 of the 1985 order. Section 283 of the 1986 Act defines the bankrupt’s estate. Sub-section (5) is in these terms – so far as material:

“(5) For the purposes of any . . . provision in this Group of Parts [relating to the property of a bankrupt], property comprised in a bankrupt’s estate is so comprised subject to the rights of any person other than the bankrupt (whether as a secured creditor of the bankrupt or otherwise) in relation thereto, but disregarding –

(a) any rights in relation to which a statement such as is required by section 269(1)(a) was made in the petition on which the bankrupt was adjudged bankrupt, and

(b) any rights which have been otherwise given up in accordance with the rules.”

Neither of the two disregards is in point in the present case. I should add that section 283A of the 1986 Act – introduced by the Enterprise Act 2002 – provides that, at the end of the period of three years beginning with the date of bankruptcy, any interest of the bankrupt in a dwelling house which, at the date of bankruptcy was the sole or principal residence of the bankrupt’s spouse – ceases to be comprised in the bankrupt’s estate. But that provision came into force subject to transitional provisions; and it is common ground that Mrs Avis cannot rely on it in the circumstances of the present case.

The judge rejected the submission founded on section 283(5) of the 1986 Act. At paragraph 15 of his judgment he said this:

“15. In my view the agreement between the parties contained in Paragraphs 2 and/or 5 of the Consent Order does not give rise to any absolute rights (proprietary or personal). In my view, the only ‘rights’ that the Appellant has in relation to the property (other than her right to the share of the proceeds of sale of the property identified in Paragraph 1 of the Consent Order on sale) is a right (contained in Paragraph 5 of the Consent Order) to occupy until sale and a right not to have the Property sold other than either on the occurrence of one of the events identified in Paragraph 2 of the Consent Order or the making of an Order by the Court pursuant to TLATA Section 14 (applying the criteria and assumptions set out in either TLATA Section 15 or IA Section 335A as applicable) directing a sale. Understood in this way, there is no conflict between IA Section 283(5) and Section 335A because the Appellant’s rights concerning sale are qualified rights and no question arises of those qualified rights being violated by an Order for sale made by the Court on the application of the Trustee nor does any question arise of the Trustee purporting to take property comprised in Mr Avis’s estate otherwise than subject to Mrs Avis’s rights so understood.”

This appeal

Mrs Avis appeals to this court from the whole of the order made by Judge Pelling on 13 December 2006. The issue raised by the grounds of appeal attached to her appellant’s notice – albeit under a number of heads – is whether the judge was correct to decide that section 335A – and, in particular, section 335A(3) – of the 1986 Act was applicable in the context of the application made by the notice of 18 November 2005. But, in substance, her appeal to this Court is founded on the contentions which she had advanced before Judge Pelling: that no order for sale could be made on the trustee in bankruptcy’s application because none of the events specified in the 1985 order had occurred; there was no purpose in a further hearing of that application; and it should be dismissed without consideration under section 335A of the 1986 Act (or otherwise) of whatever merits it might have had if the 1985 order had not been made.

Mrs Avis has set out her grounds of appeal under 8 paragraphs. When giving permission for an appeal to this court Sir Martin Nourse observed that it was a possible view of this case that it bristled with important points of principle, but that it was enough to single out paragraph 8 of those grounds. Paragraph 8 relies on the argument based on section 283(5) of the 1986 Act which had been deployed before Judge Pelling.

Section 283(5) of the 1986 Act

For my part, I am satisfied that, unless the 1985 property adjustment order has some special force which goes beyond the agreement of the parties as reflected and recorded in that order, the argument based on section 283(5) of the 1986 Act must be rejected for what are, in substance, the reasons given by the judge. It is said that the section expresses the historic principle of bankruptcy law that the trustee in bankruptcy takes the bankrupt’s property subject to all equities and liabilities which affected it in the hands of the bankrupt; and that, in the circumstances of the present case, the effect of the terms agreed at the time of the 1985 order is that Mr Avis could not have sought an order for possession and sale of the property until one or other of the events for which paragraph 2 of that order provides had occurred. Reference is made to In re Scheibler, ex parte Holthausen (1874) LR 9 Ch App 722, Bendall v McWhirter [1952] 2 QB 466 and Bradley-Hole v Cusen [1953] 1 QB 300.

It is not, I think, necessary to refer to passages in those cases to which we were taken. The principle is not in doubt. The trustee in bankruptcy takes the bankrupt’s property subject to the equities and liabilities to which it was subject in the hands of the bankrupt. The relevant question is whether, absent bankruptcy, the bankrupt could have made an application under section 14 of the 1996 Act. If he could, then the trustee in bankruptcy can make such an application. And, if the trustee in bankruptcy can make application under section 14 of the 1996 Act, then section 335A of the 1986 Act must apply to that application. That is what section 335A(1) – read with section 15(4) of the 1996 Act – requires. It is pertinent to keep in mind, in this context, that section 335A was introduced into the 1986 Act by section 25(1) of, and paragraph 23 of schedule 3 to, the 1996 Act.

Put shortly, it is said that Mr Avis could not have made an application under section 14 of the 1996 Act; and so the trustee in bankruptcy cannot make such an application. But, unless the 1985 property adjustment order has some special force which goes beyond the agreement of the parties as reflected and recorded in that order, that submission cannot be sustained. The statutory scheme now enacted in sections 14 and 15 of the 1996 Act replaces that formerly enacted in section 30 of the Law of Property Act 1925 – see the observations of Sir Andrew Morritt, Chancellor, in Gotham v Doodes [2006] EWCA Civ 1080, [7] & [8]; [2007] 1 WLR 86, 90- 91. And as Lord Justice Nourse observed in In re Citro (a bankrupt) [1991] Ch 142, 150G-H:

“One of the consequences of the 1925 property legislation is that the legal estate in any property which is beneficially owned jointly or in common is necessarily held on trust for sale and is thus subject to the jurisdiction of the court under section 30 [of the 1925 Act].”

It remains the position, under the 1996 Act, that, where property is held upon trust for sale (as in the present case), a person who has an interest in that property (or in the proceeds of sale) may apply for an order for sale: section 14 of the 1996 Act. Unless the 1985 order has some special force which goes beyond the agreement of the parties, the judge was right to hold (as he did at paragraph 15 of his judgment) that the rights conferred on Mrs Avis by the 1985 order were always subject to the possibility that the court might make an order for sale pursuant to section 30 of the 1925 Act (or, since 1996, pursuant to section 14 of the 1996 Act). The agreement recorded in the 1985 order did not, of itself confer on Mrs Avis an absolute right that the property remain unsold unless and until one or other of the events specified in paragraph 2 had occurred. As the judge observed, Mrs Avis’s right to resist a sale was qualified by the right of the other person interested in the property (whether that were Mr Avis or his trustee in bankruptcy) to apply to the court for an order for sale. As he put it, correctly in my view, the present application does not raise any question “. . . of the Trustee purporting to take property comprised in Mr Avis’s estate otherwise than subject to Mrs Avis’s rights so understood.”

It is important to keep in mind that the relevant question, in this context, goes to jurisdiction: could Mr Avis have made an application under section 14 of the 1996 Act? The question is not whether, as a matter of discretion, the court would or would not have made an order for sale on the application of Mr Avis: the question is whether the court would have had jurisdiction to make an order for sale. It is immaterial that, on an application by Mr Avis, the court might well have decided, as a matter of discretion, not to make an order for sale. The factors to which the court must have regard, in exercising its discretion on an application by the trustee in bankruptcy and the weight to be given to those factors are not the same as those to which it would have had regard, or to which it would have given weight, on an application by Mr Avis. A helpful review of the authorities and the practice before the enactment of the 1996 Act is found in the judgment of Mr Justice Goff in In re Solomon, a bankrupt [1967] Ch 573, 586-589 and (in this Court) in the judgment of Lord Justice Nourse in In re Citro (ibid, 150-157). The approach to an application made by a trustee in bankruptcy – in contrast to the approach to an application by the debtor (not in bankruptcy) beneficially interested in the property – which (as those authorities show) the court would have taken before the 1996 Act is now replicated in the provisions of section 335A of the 1986 Act and section 15 of the 1996 Act.

Section 6(6) of the 1996 Act

I turn, therefore, to the question whether the 1985 order has some special force which goes beyond the agreement of the parties as reflected and recorded in that order. Section 6(1) of the 1996 Act provides that, for the purpose of exercising their functions as trustees, the trustees of land have in relation to the land subject to the trust all the powers of an absolute owner. But that section must be read with section 6(6) and (7):

“6(6) The powers conferred by this section shall not be exercised in contravention of, or of any order made in pursuance of, any other enactment or any rule of law or equity.

(7) The reference in subsection (6) to an order includes an order of any court . . .”

The jurisdiction conferred by section 14 of the 1996 Act empowers the court to make any such order as it thinks fit “relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions)”. At first sight those words confer an unrestricted power. But it is said the judge failed to appreciate that the effect of section 6(6) of the 1996 Act was that it was not open to the court to make an order under section 14 of that Act directing Mr and Mrs Avis (as the trustees of the property) to sell the property. To direct them to sell would be to direct them to exercise their powers in contravention of the 1985 order.

With those matters in mind, the narrow issue for decision on this appeal can be identified: whether, having regard to the terms of paragraph 2 of the 1985 property adjustment order and the provisions of section 6(6) of the 1996 Act, it is open to a court as a matter of jurisdiction to make an order for sale of the property, as sought by the trustee in bankruptcy in his application of 18 November 2005, in the exercise of powers conferred by section 14(2)(a) of that Act. It is accepted on behalf of the trustee in bankruptcy – and, if it were not, I would so hold – that, notwithstanding that he is, plainly, a person with an interest in the property subject to a trust of land within section 14(1) of the 1996 Act (and so a person who can apply to the court under that section), the application is not properly made (and so should be dismissed in limine) if the order sought is not an order which the court has power to make. It is, I think, accepted on behalf of the appellant – and, again, if it were not I would so hold – that, if the application is properly made under section 14 of the 1996 Act, then it is an application to which section 335A of the 1986 Act applies; and, in deciding whether to make the order sought, the court must have regard to matters in section 335A(2) and to the mandatory terms of section 335A(3). As I have said, that is what section 335A(1), in terms, requires.

In addressing the issue which I have just identified it is convenient, first, to note three features of the 1985 order. First, paragraph 2 – which directs that the trust for sale to which the property is then subject “shall be postponed” until the happening of one of the specified events – is ineptedly drawn. On a true analysis there was an existing trust for sale (as acknowledged in paragraph 1 of the order). The direction in paragraph 2 has effect as a direction that the trustees exercise their power to postpone execution of that trust until one of the specified events has occurred. Second, although not expressed, the direction in paragraph 2 that the sale of the property be postponed must be subject to any further agreement between Mr and Mrs Avis, as trustees for sale, that the property be sold notwithstanding the fact that none of the specified events had happened. It seems to me necessary to imply a term to that effect: it could not have been intended that Mr and Mrs Avis (if agreed upon a sale) would have to return to the court for a formal variation of the 1985 order. Third, the order itself confers liberty to apply.

The liberty to apply under the 1985 order

I was, at first, attracted to the view that the answer to the jurisdictional issue which I have identified could be found in the liberty to apply conferred by the 1985 order. On further reflection I am persuaded that that would not be a correct view. It is, I think, clear that the 1985 order was made under section 24(1)(c) of the Matrimonial Causes Act 1973. The limited power to vary an order made under that provision, conferred by section 31(1) of that Act could not be exercised in circumstances such as those in the present case – see section 31(2)(e) and (4) and the observations of Lord Justice Oliver in Thompson v Thompson [1986] Fam 38, 46G.

Section 24A of the 1973 Act, introduced by section 7 of the Matrimonial Homes and Property Act 1981, enables the court, where a property adjustment order had been made in respect of property in which either or both the parties to the marriage had a beneficial interest, to make a further order for the sale of such property. The scope and effect of section 24A of the 1973 Act was considered by this Court in Thompson. In that case, the property adjustment order itself had been made in January 1981, at a time when the new section had not come into force. Nevertheless, this Court held (ibid, 53D) that section 24A of the 1973 Act did enable a court, on an application made under a liberty to apply conferred by the original property adjustment order, to make an order for sale of the property. But, in reaching that conclusion, the Court drew a distinction (ibid, 46H, 47A-H), between a sale which had the effect of varying the terms of the original property adjustment order (which was impermissible in the light of section 31 of the 1973 Act) and a sale which could be regarded as implementing, or working out, the original order as a response to changed circumstances. Lord Justice Oliver expressed the view (ibid, 51E) that the liberty to apply in a property adjustment order of this nature “is a liberty to apply to supplement the order as a matter of working it out in unforeseen circumstances. It is not inserted to enable application to be made for a variation prohibited by section 31”.

It is clear that the Court in Thompson would have regarded an application made by the trustee in bankruptcy of the party who was out of possession (that is to say, the party other than the party for whose benefit the postponement of sale was directed) as falling into the former category (ibid, 50B-E). It was not an application which the court having jurisdiction in the matrimonial proceedings could entertain under the power conferred by section 24A of the 1973 Act. On that point Lord Justice Oliver (with whom the other members of this Court agreed) expressly approved the decision of Mr Justice Wood in Norman v Norman [1983] 1 WLR 295: (ibid, 50F-51B). It follows, as it seems to me, that the liberty to apply conferred by the 1985 order provides no assistance in the present case.

Jurisdiction under section 14 of the 1996 Act

It seems to have been common ground in Thompson that (absent jurisdiction in the matrimonial proceedings under the powers conferred by section 24A of the 1973 Act) an application for sale could have been made under the general equitable jurisdiction conferred by section 30 of the Law of Property Act 1925. That view received some encouragement from the Court (ibid, 43G). The problem, in that case, was that the value of the property put it outside the equity jurisdiction of the county court (ibid, 44C-D). That problem does arise in the present case.

I return, therefore, to the issue which I identified earlier in this judgment: having regard to the terms of paragraph 2 of the 1985 property adjustment order and the provisions of section 6(6) of the 1996 Act is it open to a court as a matter of jurisdiction to make an order for sale of the property in the exercise of powers conferred by section 14(2)(a) of that Act. On a true analysis that issue, as it seems to me, raises a short question of construction: to what extent, if at all, is the power of the court to make “any such order relating to the exercise by the trustees of any of their functions . . . as the court thinks fit” cut down by the restriction, in section 6(6), that “the powers conferred by this section shall not be exercised in contravention of . . . any order made in pursuance of any other enactment”.

In my view the answer to that question is that, in the present case, the power conferred by section 14(2)(a) of the 1996 Act is not cut down by the restriction in section 6(6) of that Act. It is, I think, important to keep in mind that the property held by Mr and Mrs Avis is held by them upon an express trust for sale. As I have said, that is acknowledged in paragraph 1 of the 1985 order. The true position is not that they hold the property with a power to sell: the property is held upon trust to sell, but with power to postpone sale: see the observations of Mr Justice Simonds in In re Mayo, Mayo v Mayo [1943] Ch 302, 304, approved in this Court by Lord Justice Devlin in Jones v Challenger [1961] 1 QB 176, 181. Further, it is important to keep in mind that the power to postpone sale is not conferred by section 6(1) of the 1996 Act: in so far as not expressed in the original conveyance, it is conferred by section 4(1) of the 1996 Act. And, further, it is important to keep in mind that the restriction in section 6(6) applies only to the “powers conferred by this section”: that is to say, the restriction applies, in terms, to powers conferred by section 6, not to powers conferred by section 4(1) or by the original disposition.

Section 14(2)(a) of the 1996 Act confers on the court power to make any such order as it thinks fit relating to the exercise by trustees of any of their functions. That enables the court to direct trustees to execute the trust for sale; or (to put the point another way) to direct trustees to concur in a decision that they will no longer exercise their power to postpone sale. But, in neither case, will the court be directing trustees to exercise a power conferred by section 6 of the Act. The restriction in section 6(6) can have no application in such a case. It must follow, as it seems to me, that, notwithstanding paragraph 2 of the 1985 order, an order made under section 14(2)(a) directing Mr and Mrs Avis to sell the property cannot be said to be inconsistent with the restriction in section 6(6) of the Act. It is to be kept in mind that, absent a statutory restriction, section 14(2)(a) enables the court to override the need for the consent of any person.

For those reasons I would hold that, notwithstanding paragraph 2 of the 1985 order, it would have been open to the court, on an application made by Mr Avis (if he had not been adjudged bankrupt) under section 14 of the 1996 Act, to make an order for the sale of the property. It is immaterial, in this context, that on an application by Mr Avis, the court might well have decided, as a matter of discretion, that it would not order a sale. It follows that it is open to the court to make an order for sale on an application made by the trustee in bankruptcy under section 14 of the 1996 Act. It is not, I think, open to doubt that, on an application made by the trustee in bankruptcy under section 14 of the 1996 Act, section 335A of the 1986 Act requires: (i) that that application must be made to the bankruptcy court – section 335A(1); (ii) that the approach of that court to the application is prescribed by section 335A(2), displacing section 15(1) to (3) of the 1996 Act and (iii) that – in circumstances where section 335A(3) applies – the interests of the bankrupt’s creditors outweigh all other considerations unless the circumstances of the case are exceptional.

Conclusion

For those reasons I would hold that the judge was right to make the order that he did. I would dismiss this appeal.

I should add, for completeness, that the effect of dismissing this appeal is that the application made by the trustee in bankruptcy by the notice of 18 November 2005 will now proceed to a hearing on the merits; as both the district judge and Judge Pelling intended. On that hearing the court will need to decide whether the circumstances of this case are exceptional, so as to displace the assumption that the interests of the bankrupt’s creditors outweigh all other considerations. Nothing in this judgment should be taken as an indication that I have formed any view on that point. The procedural history of this application – which, in common with Judge Pelling, I regard as unfortunate – has had the result that that point is not before this Court on this appeal. But the circumstances of this case lead me to think (without intending any criticism of the district judge) that consideration should be given to listing the adjourned application for hearing in the High Court. I would be minded to include an appropriate direction in the order which this Court will make.

Lord Justice May:

I agree that this appeal should be dismissed for the reasons given by Chadwick LJ.

Lord Justice Ward:

I also agree.

Jackson v Bell & Anor

[2001] EWCA Civ 387 [2001] BPIR 612, [2001] Fam Law 879, [2001] EWCA Civ 387

THE VICE CHANCELLOR: This is the application of Mrs Bell seeking permission to appeal from the order of Mr Anthony Mann QC, sitting as a deputy judge of the Chancery Division, made on 14th September 2000. By that order he dismissed the appeal of Mrs Bell from the order of District Judge Fink, made on 16th August 2000, ordering the sale of her home at 205 Coulsdon Road, Old Coulsdon, Surrey, CR3 1EL pursuant to the provisions of 335A of the Insolvency Act 1986.

Mrs Bell married Mr Bell in 1967. There were two children of the marriage, one of whom still lives with Mrs Bell in the former matrimonial home and has herself a young child. Mr and Mrs Bell bought the property to which I have referred in 1980 in their joint names for the sum of £37,000-odd with the assistance of an endowment mortgage for £20,000-odd. The mortgage debt was subsequently increased to £32,000-odd by a further loan for, I think, effecting improvements to the matrimonial home.

Mr Bell left Mrs Bell in December 1992. In July 1995 Mrs Bell consulted solicitors, Dollman and Pritchard, to advise her in respect of Mr Bell’s desertion. She informed them not once but several times of the likely bankruptcy of Mr Bell. They advised her that she had as good a chance of obtaining a settlement with his trustee in bankrupt as with Mr Bell and that she had a reasonable prospect of not losing her home notwithstanding Mr Bell’s likely bankruptcy and the consequential need to realise his property to satisfy his debts.

On 3rd November 1995 Mrs Bell obtained a decree nisi. Since the beginning of 1996 she has out of her own earnings made the periodical payments under the mortgage needed to maintain the loan on foot without incurring any default. She has done so by working a double shift as a care worker. I have little doubt that at her age it has imposed some strain on her.

After the decree nisi had been granted there were negotiations between the parties’ solicitors for some form of settlement of the maintenance claims, or the property claims, that Mrs Bell would have against her husband. Mr Bell, it appears, was without means and his solicitors offered on 19th February 1996 that he would transfer his equity in the matrimonial home and any residual interest he might have in the endowment policies which supported the mortgage. By 15th April 1996 there was a clear agreement on the correspondence between Mr Bell and Mrs Bell’s respective solicitors that that is what he would do in settlement of her claims.

However, before that was implemented, on 3rd May 1996 Customs and Excise presented a petition for a bankruptcy order against Mr Bell which they obtained on 21st June 1996 in the Croydon County Court. Predictably on 11th May 1996 the trustee in bankruptcy claimed all the assets of Mr Bell, including his share in the matrimonial home, subject, of course, to the prior interest of the mortgagee.

Further discussions took place between Mrs Bell and her original solicitors. On 7th April 1997 counsel, instructed on her behalf by them, failed to advise Mrs Bell to bring proceedings forthwith to obtain the money with which to buy out the trustee in bankruptcy’s interest in the matrimonial home.

By July 1998 the property was valued at £125,000, but by September 1999 its value had apparently increased to some £150,000. On 9th March 2000, that is to say more than a year after the commencement of the bankruptcy, the trustee in bankruptcy issued an application for an order for the sale of the property. The evidence in support of it from the trustee in bankruptcy indicated that the unsecured debts and bankruptcy charges arising in Mr Bell’s bankruptcy came to £133,195 and the likely realisations from the sale of the property would be some £131,998.

On 11th August 2000 Mrs Bell instructed new solicitors. On their advice she agreed to an order for sale on the trustee in bankruptcy’s application and such an order was made on 16th August 2000. She sought the postponement of the execution of that order to enable her to sue her former solicitors for damages for negligence in order to obtain sufficient money by way of damages from them with which to purchase the trustee in bankruptcy’s interest in the other half of the matrimonial home.

The application for a postponement was refused by District Judge Fink. She considered that the damages likely to be recovered from the solicitors would not be enough to buy the equity of redemption from the trustee in bankruptcy. In her judgment she considered that as more than one year had elapsed since the bankruptcy of Mr Bell the interest of the creditors must prevail in the absence of exceptional circumstances under section 335A of the Insolvency Act 1986.

She had been referred to a decision of Vinelot J in re Gorman [1990] 1 All ER 717. In comparable circumstances the judge had allowed a postponement. But the district judge considered that that decision was distinguishable. She also thought that the prospect of the ancillary relief order, if there had been the implementation of the compromise with Mr Bell before his bankruptcy, would be likely to have been set aside by the trustee in bankruptcy either as a transaction at an undervalue under section 339, or alternatively as a voidable preference under section 340 of the Insolvency Act 1986. It was for those reasons, amongst others, that she considered that the claim against the solicitors would not be enough to enable Mrs Bell to buy out the trustee in bankrupcy’s interest and that accordingly the circumstances of the case could not be regarded as exceptional for the purposes of section 335A.

Mrs Bell appealed and the matter came before Mr Anthony Mann QC on 14th December 2000. As I have indicated, he dismissed Mrs Bell’s appeal. He considered that he was not entitled to interfere with the exercise of the district judge’s discretion. He thought that re Gorman was distinguishable on its facts as to the prospects of success of the claim against the solicitors. He thought that the solicitors were only arguable negligent and that a consent order actually made could have been attacked by the trustee in bankruptcy under either section 339 or section 40 with some prospect of success. That led him to the belief that that would lead to a significant discount in the damages recoverable from the solicitors and that in those circumstances the district judge was entitled to conclude that there were no exceptional circumstances.

Finally he held that Article 8 of the European Convention on Human Rights and section 335A were compatible, but in any event Article 8 could not exclude from the balance the rights of the creditors generally.

Mrs Bell then filed an appellant’s notice and sought permission to appeal; that was on 29th December 2000. Her claim against the former solicitors was instituted on 12th January 2001.

The application for permission to appeal came before Aldous LJ on the documents. He refused her permission on 6th February 2001 saying:

“There does not appear to be a point of principle justifying a second tier appeal. The decision was one depending on discretion. The human rights submission adds nothing. Doreen Bell is only entitled to a half share. That is what she will get.”

Before us Mr MacPherson, on behalf of Mrs Bell, has submitted that for the purposes of CPR 52 rule 13 there are three important points of principle, or other compelling reasons why the matter should be heard by the Court of Appeal in face of the fact that there has already been one appeal, that is to say to Mr Mann.

He analyses those three points as being the following.

(1) Is a spouse with a property adjustment order in her favour a creditor within the meaning of those words in sections 382 and 383 of the Insolvency Act 1986, so that a transaction in her favour might be a preference within section 340?

(2) Can transactions of a nature normally effected by an order of the Family Division, and made between husband and wife, constitute a transaction at an undervalue and therefore liable to be set aside under section 339 at the instance of a trustee in bankruptcy?

(3) In the light of the terms of section 335A and Article 8 of the Convention on Human Rights, is the construction and application of section 335A given in this case by the district judge and the judge on appeal the appropriate one in view of the competing interests?

For my part, I think there is substance in each of those three points. I take the third one first. Under section 335A, which was introduced into the Insolvency Act 1986 in 1996 apparently to give effect to the judgment of the Court of Appeal in Re Citro [1991] Ch 142: see in particular page 157B and 160E. It provides that on an application by a trustee of a bankrupt’s estate for an order under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 for the sale of land it shall be made to the court having jurisdiction in relation to the bankruptcy.

Then it provides in subsection (2) that:

“On such an application the court shall make such order as it thinks just and reasonable having regard to —

(a) the interests of the bankrupt’s creditor;

(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt’s spouse or former spouse.”

Then subparagraphs (i) to (iii) set out specific considerations the court is to have in mind:

“(c) all the circumstances of the case other than the needs of the bankrupt.”

Then in subsection (3):

“Where such an application is made after the end of a period of one year, beginning with the first vesting under Chapter 4 of this part of the bankrupt’s estate in trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

Thus when the first 12 months has elapsed since the bankruptcy, the interest of the bankrupt’s creditors are to be considered to outweigh the considerations relating to the spouse and children of the bankrupt in any case which cannot be regarded as exceptional.

Under Article 8 it is provided that everyone has the right to respect for his private and family life, his home and his correspondence. Then paragraph 2 provides that:

“There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of … the protection of the rights and freedoms of others.”

The right and freedoms of others plainly encompass the rights of the creditors of the bankrupt, and there is, therefore, a balance to be struck between the rights and interests of the bankrupt’s family, on the one hand, and his creditors on the other. It seems to me that there is an important point here for the consideration of the Court of Appeal as to quite how that balance is struck and how, where the property sought to be sold is a dwelling house and the former matrimonial home, how the words “exceptional circumstances” are to be construed and in any given case applied.

It appears to me that on this first point CPR 52 rule 13 is satisfied and that there is, for the same compelling reason, good reason why under CPR 52.3(6) permission to appeal should be granted.

The other two points also, in my view, raise points of principle which, so far as I know, are undecided and are fit to be considered by the Court of Appeal. The first is the extent to which a spouse in favour of whom a property adjustment order may be made can be said to be a creditor before it is made for the purposes of section 383 and 382 of the Insolvency Act1986. Secondly, when it has been made can the property adjustment order normally granted by the Family Division, be a transaction at an undervalue, even though certain aspects of it may appear to be somewhat gratuitous. It seems to me that the dividing line between the Family Division, on the other hand, and the insolvency regime, on the other, should be considered in this respect as well.

So far as the reasonable prospects of success are concerned, both the district judge and the judge on appeal were doubtful whether Mrs Bell would be successful in obtaining by way of damages from the solicitors enough money to buy the other half of the house which she does not already own. I do not think that is a point on which I need say more than it appears to me that there is a real prospect of sufficient success to justify the granting of permission to appeal.

Therefore I consider that this case does fall within both CPR 52.13 and 52.3(6) and is one for which permission to appeal should be granted.

LORD JUSTICE SEDLEY: I agree.

Order: Application allowed. No order as to costs. Stay of execution granted. Liberty to the Trustee in Bankruptcy to apply in writing on seven days’ notice.

Donohoe v Ingram

[2006] EWHC 282 (Ch)

Mr Stuart Isaacs QC:

Introduction

The Respondent is the trustee in bankruptcy of Iain Charles Kirkup, against whom a bankruptcy order was made on 21 March 2000. The Appellant was appointed as Mr Kirkup’s trustee on 7 May 2004. Between 1982 and 1999, the Appellant was in a relationship with Mr Kirkup. There was a brief reconciliation between them in the period 2000/2001 but they eventually separated in July 2001. On 30 October 1996, the Appellant and Mr Kirkup bought a property at 196 Britannia Road in Ipswich of which they were registered as the joint proprietors. They occupied the property as their home, together with their four children now aged 10, 8, 6 and 4 respectively.

On 7 June 2005, the Respondent applied against the Appellant and Mr Kirkup for an order for the sale of the property under section 335A of the Insolvency Act 1986. The application came before District Judge Bazley White on 18 October 2005. Mr Kirkup took no part in the proceedings and has taken no part in the present proceedings. After considering two witness statements made by the Respondent, the Appellant’s witness statement and oral evidence from her, the District Judge ordered that the property be sold with vacant possession and made other consequential orders.

The Appellant now appeals to this court against that order. She applies for the order for sale made by the District Judge to be set aside and substituted by an order for sale, not to take place until 2017, when her youngest child will attain the age of 16. This hearing is a true appeal and not a rehearing of the case before the District Judge. In order to succeed, she must, so far as is material in the present case, satisfy the court that the District Judge’s decision was wrong: paragraph 17.18(3)(a) of the Practice Direction relating to InsolvencyProceedings.

At the outset of the hearing, in the exercise of my discretion under paragraph 17.18(2) of the Practice Direction, I refused the Respondent’s application to rely on a further witness statement made on his behalf on the day of the hearing, for reasons which I gave at the time.

Section 335A was inserted into the Insolvency Act 1986 by the Trusts of Land and Appointment of Trustees Act 1996. The 1996 Act also repealed amongst other provisions section 30 of the Law of Property Act 1925. Section 335A provides:

” (1) Any application by a trustee of a bankrupt’s estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2) On such an application, the court shall make such order as it thinks just and reasonable having regard to-

(a) the interests of the bankrupt’s creditors;

(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt’s spouse or former spouse-

(i) the conduct of the spouse or former spouse, so far as contributing to the bankruptcy,

(ii) the needs and financial resources of the spouse or former spouse, and

(iii) the needs of any children; and

(c) all the circumstances of the case other than the needs of the bankrupt.

…”

The Appellant conceded that because over one year had elapsed between the Respondent’s appointment and the making of his application, under section 335A(3) the court must assume, unless the circumstances of the case are “exceptional”, that the interests of Mr Kirkup’s creditors outweigh all other considerations. The only issue which arises on this appeal is whether the District Judge was correct in deciding that the circumstances were not “exceptional” within the meaning of section 335A(3).

In Claughton v Charalambous [1998] BPIR 558, at 562G-H, Jonathan Parker J (as he then was) commented that what is required of the court in applying section 335A(3) is, in effect, a value judgment. The court must look at all the circumstances and conclude whether or not they are exceptional. That process, he considered, left “very little scope for the interference by an appellate court”.

In Re Citro

The leading authority on the meaning of “exceptional” in this context is the Court of Appeal’s decision in In Re Citro [1991] Ch 142, a case which arose under the regime governed by section 30 of the Law of Property Act 1925. At 157B-D, Nourse LJ, after a review of the authorities, said:

” What then are exceptional circumstances? As the cases show, it is not uncommon for a wife with young children to be faced with eviction in circumstances where the realization of her beneficial interest will not produce enough to buy a comparable house in the same neighbourhood or indeed elsewhere. And, if she has to move elsewhere, there may be problems over schooling and so forth. Such circumstances, while engendering a natural sympathy in all who hear of them, cannot be described as exceptional. They are the melancholy consequences of debt and improvidence with which every civilised society has been familiar.

Nourse LJ then continued, at 157D-158B, to consider the Court of Appeal’s decision in In Re Holliday [1981] Ch 405 – also a case under the regime of section 30 of the Law of Property Act 1925 – in which, in his words, such circumstances “helped the wife’s voice to prevail, and then only, as I believe, because of one special feature of that case”:

” One of the reasons given for the decision by Sir David Cairns was that it was highly unlikely that postponement of payment of the debts would cause any great hardship to any of the creditors, a matter of which Buckley LJ no doubt took account as well. Although the arithmetic was not fully spelled out in the judgments, the net value of the husband’s half share of the beneficial interest in the matrimonial home was about £13,250, against which had to be set debts of about £6,500 or £7,500 as the sum required to obtain a full discharge. Statutory interest at 4 per cent on £6,500 for five years would have amounted to no more than £1,300 which, when added to the £7,500, would make a total of less than £9,000, well covered by the £13,250. Admittedly, it was detrimental to the creditors to be kept out of a commercial rate of interest and the use of the money during a further period of five years. But if the principal was safe, one can understand that the detriment was not treated as being decisive, even in inflationary times. It must indeed be exceptional for creditors in a bankruptcy to receive 100p in the £ plus statutory interest in full and the passage of years before they do so does not make it less exceptional. On the other hand, without that special feature, I cannot myself see how the circumstances in In Re Holliday could fairly have been treated as exceptional. I am confirmed in that view by the belief that it was shared by Balcombe LJ who in Harman v Glencross [1986] Fam 81, 95, said that the decision in In Re Holliday was very much against the run of recent authorities. I would not myself have regarded it as an exceptional circumstance that the husband had presented his own petition, even ‘as a tactical move’. That was not something of the creditors’ choosing and could not fairly have been held against them. I do not say that in other cases there might not be other exceptional circumstances. They must be identified if and when they arise.”

The Appellant’s circumstances taken into account by the District Judge are summarized in paragraphs 5, 6 and 10 of his judgment. I do not repeat them here. Before me, it was accepted by the Appellant that these were no other circumstances relied upon pertaining to her position which the District Judge had failed to take into account. The Appellant emphasized, however, her inability to be re-housed in the short term and the loss of the family support network upon which she depends.

In Re Holliday

The Appellant advanced two broad submissions. In the first place, it was submitted that the District Judge misconstrued the statement of Nourse LJ at page 157 and failed to have regard to the passage at 157F-G to the effect that if the repayment to the creditors of the principal sum owed was safe “one can understand that the detriment was not treated as being decisive, even in inflationary times”. She went on to submit that although there were certain inevitable factual differences, the present case was materially indistinguishable from In Re Holliday and that the District Judge was wrong not to have decided that the fact that the creditors were likely to be paid in full with interest, even if the order for sale was postponed for a number of years to allow the children to remain in the property until they were older, amounted to exceptional circumstances.

I reject the Appellant’s submission that that the District Judge misconstrued the statement of Nourse LJ at page 157 and failed to have regard to the passage at 157F-G to the effect that if the repayment to the creditors of the principal sum owed was safe “one can understand that the detriment was not treated as being decisive, even in inflationary times”. The District Judge quoted the passage from Nourse LJ’s judgment set out in paragraph 8 above (except for the last sentence) in paragraph 8 of his judgment. There is nothing in his judgment to indicate that he in some way misunderstood that passage or the ratio in In Re Citro. Paragraph 13 of his judgment in particular indicates the contrary. It is correct that the District Judge did not quote the passage at 157F-G which is within the passage quoted in paragraph 9 above. There can, however, be no doubt that he had that passage in mind too. This is apparent from the reference in the latter part of paragraph 8 of his judgment to Nourse’s reference to In Re Holliday and also from paragraphs 9 and 13 of his judgment.

I also reject the Appellant’s submission that the District Judge’s decision that there were no exceptional circumstances was flawed because he wrongly proceeded, in paragraph 4 of his judgment, on the basis that the sum claimed by the Respondent was about £39,000 when in fact it was some £29,000. Mr Nicholls, who appeared on behalf of the Respondent at the hearing before the District Judge as well as in this court, accepted that this was an error and said that he had pointed it out to the District Judge at the conclusion of his judgment but that it had not affected the District Judge’s conclusion. The Appellant accepted that the error was not decisive but submitted that it added to the force of her further submission, to which I shall turn next, based upon In Re Holliday. I agree with the Respondent that this error is immaterial. The District Judge concluded that even with debts amounting to about £39,000, and barring accidents, there appeared to be a good chance that the creditors would be paid in full: paragraphs 4 and 13.

Was the District Judge nonetheless wrong to have decided that the circumstances were not exceptional? According to the Appellant, the decisive consideration why Nourse LJ in In Re Citro regarded the circumstances in In Re Holliday as exceptional was that it was highly unlikely that the postponement of payment of the debts would cause any great hardship to any of the creditors because they would receive payment of the principal in full. Additionally, the creditors were all commercial in nature rather than individuals or small businesses who would or might suffer great hardship by the debts to them remaining outstanding. The Appellant referred to passages in the judgment of Buckley LJ and Sir David Cairns in In Re Holliday at pages 423G-424E and 425D-G respectively. She submitted that the same situation prevailed in the present case.

For his part, the Respondent submitted that the special feature discerned by Nourse LJ in In Re Citro which made the circumstances in In Re Holliday exceptional, namely that the creditors would be repaid in full with statutory interest even with a delay in the sale of the property, was not present on the facts of this case. He submitted that, on the arithmetic in this case, it was impossible for the District Judge to have concluded that the creditors were going to be repaid in full with statutory interest, having regard to a delay in the sale of the property until 2017, statutory interest at 8% per annum and continuing costs in the meantime, and taking into account the fees payable to the DTI. He submitted that taking all those elements together, the total debts would be very close to his half-interest in the property.

The Respondent submitted that the fact that creditors are likely to be paid in full with interest is not of itself an exceptional circumstance and was only regarded to be so in In Re Holliday because of a collection of factors which are absent from the present case, namely that (1) the rate of interest then was 4% compared with 8% now; (2) the postponement was only for five years not 11 years; (3) the total period during which the creditors were deprived of their money was nine years compared with 17 years; (4) the creditors were paid in full with interest after that time, which was not the case here; and (5) the margin by which the original equity exceeded the debts, costs and expenses was substantial compared with the present case, in which the margin would gradually reduce and eventually be wiped out. In short, the Respondent submitted that the present case came nowhere near the situation in In Re Holliday where, at the end of the period of postponement, it was possible for the creditors to be paid in full with interest and for there to remain one-third of the trustee’s equity untouched before any increase in the value of the property was contemplated.

The Respondent further submitted that the test applied under section 30 of the Law of Property Act 1925 was different from the test under section 335A and that In Re Holliday should therefore be approached with a degree of caution. He drew attention to the observations of Mr Nicholas Strauss QC, sitting as a Deputy Judge of this court, in Barca v Mears [2005] BPIR 15, 22, in paragraph 28 of his judgment that while the categories of exceptional case are not circumscribed by the previous case-law, the only cases subsequent to In Re Citro in which orders for possession and sale have been withheld for substantial periods are cases in which either the bankrupt or his or her spouse was terminally or very seriously ill; and that this was unsurprising since the majority judgments in In Re Citro indicated that only circumstances which were inherently unusual qualified as exceptional circumstances.

In my judgment, it cannot properly be said that the District Judge was wrong to have concluded that the circumstances were not exceptional. On the facts of the present case, he took into account the consideration that the creditors were likely to be paid in full but nevertheless decided that, taken together with all the other circumstances, they were not exceptional. In Re Holliday, which I accept needs to be approached with a degree of caution, did not require him to reach the contrary conclusion. I do not accept that, on the arithmetic in this case, it would have been impossible, without the trustee’s half-interest in the property being exceeded, for the District Judge to have concluded that the creditors were going to be repaid in full with statutory interest, having regard to a delay in the sale of the property until 2017, statutory interest at 8% per annum and continuing costs in the meantime, and taking into account the fees payable to the DTI. However, I do regard the position in the present case as less clear-cut than in In Re Holliday, in particular given the considerable length of the delay. It is, however, unnecessary to express a concluded view on that aspect.

Article 8 ECHR

The Appellant’s second broad submission was that the “narrow” construction of section 335A was not consonant with the right to respect for family and private life recognized in Article 8 of the European Convention on Human Rights, which required that section 335A should be interpreted in a manner which afforded greater weight to the needs of the bankrupt’s partner and children. In this regard, she relied upon Barca v Mears. In that case, the court upheld the lower court’s decision that there were no exceptional circumstances but questioned whether the approach in In Re Citro was consistent with Article 8. The court tentatively suggested in particular that a shift of emphasis might be required so that, in the general run of cases, the creditors’ interests would prevail but leaving it open to the court to conclude that exceptional circumstances would not be limited to those cases where the consequences were unusual in the sense of going beyond the usual consequences of bankruptcy. It was, however, unnecessary for the court to determine the point because, even applying that approach, on the facts there were still not exceptional circumstances.

Before it becomes necessary, by reason of Article 8, to give section 335A(3) a different interpretation from that which it otherwise has, it is first necessary to conclude that, without that different interpretation, it would be incompatible with Article 8. Unlike in Barca v Mears, in the present case the Article 8 point was raised before the District Judge, who decided that it did not affect his conclusion.

The Respondent, relying upon Harrow LBC v Qazi [2004] AC 983, submitted that there was no incompatibility with Article 8. Qazi does not appear to have been cited to Mr Strauss QC in Barca v Mears. In Qazi, the majority view of the House of Lords was that Article 8 could not be relied on to defeat proprietary or contractual rights to possession or confer a right to be provided with a home, and see also Leeds City Council v Price [2005] 1 WLR 1825 (C.A.), in which I was told that judgment is currently awaited from the House of Lords. I am inclined to accept the Appellant’s submission that Qazi does not establish that Article 8 is irrelevant in the present case: neither Mr Kirkup had nor does the Respondent have a proprietary or contractual right to possession. Mr Kirkup’s ability to obtain possession, had he not been bankrupt, would have depended upon a successful application by him under section 14 of the Trusts of Land and Appointment of Trustees Act 1996, on which the court would be required to have regard to the matters in section 15 of that Act. The Appellant would also have been able, on any such application, to apply herself under Schedule 1 of the Childrens Act 1989 for a transfer of Mr Kirkup’s interest to her for the benefit of the children. The Respondent’s ability to obtain possession is dependent upon the success of his application under section 335A. On either basis, there is, therefore, no right to possession against the Appellant. If Article 8 were relevant, it would be necessary to consider Article 8(2) also before concluding that the right conferred by Article 8(1) had been violated.

It is, however, unnecessary to determine the point because even if a wider interpretation of exceptional circumstances is required, the District Judge’s conclusion that there were no exceptional circumstances is in my judgment correct. The District Judge appears to have himself reached that conclusion even on a wider interpretation of section 335A(3). The Article 8 point was argued before him and he appears to have taken account of all the circumstances as favourably as he could to the Appellant. Even if he did not himself approach section 335A(3) on that wider basis, adopting that approach myself and having regard to the circumstances referred to in paragraphs 5, 6 and 10 of the District Judge’s judgment, I would uphold his decision.

It will be cold comfort for the Appellant to be told once again that nobody can fail to have sympathy for the position in which, through no fault of theirs, she and her family find themselves. This appeal must be dismissed.

As things stand, the sale of the property may take place within less than two weeks from now. In other words, the District Judge allowed a period of some 3½ months from the time of his order before the sale could take place. It was common ground that it is open to me under paragraph 17.17(2)(a) of the Practice Direction to vary the District Judge’s order. Although this appeal is dismissed, common humanity requires that the Appellant now be given a little further time to try to arrange her affairs and make provision for her children. I therefore propose to vary the District Judge’s order to the extent that I direct that the sale of the property shall not take place before 18 April 2006.

Gotham v Doodes

[2006] EWCA Civ 1080 [2007] 1 All ER 527, [2007] 1 WLR 86, [2006] EWCA Civ 1080, [2007] WLR 87, [2007] 1 WLR 87

The Chancellor :

The issue on this appeal is whether the application of Mr Gotham (“the Trustee”), the Trustee in Bankruptcy of Mr Doodes (“the Bankrupt”), to enforce by orders for possession and sale of 22 Basildon Drive, Laindon, Basildon, Essex (“the Property”) the charge thereon imposed by an order made under s.313 Insolvency Act 1986 on 29th May 1992 is barred by s.20(1) Limitation Act 1980. Chief Registrar Baister thought that it was not. Lindsay J considered that it was.

The relevant facts may be shortly stated. In March 1988 Mr Doodes and Cheryl Barbara Perry bought the Property in their joint names, with the assistance of a mortgage, for £60,000. On 12th October 1988 a bankruptcy order was made in the Chelmsford County Court against the Bankrupt on the petition of a judgment creditor. On 12th May 1989 the Trustee was appointed and remains the trustee in Bankruptcy of the Bankrupt notwithstanding the discharge of the latter on 12th October 1991.

On 18th December 1990 the Trustee applied to the Chelmsford County Court for an order for possession of the Property so that he might sell the same with vacant possession. On 27th February 1992, instead of making the order for which the Trustee had applied, Mr Recorder Storr ordered that:

“a Charge be imposed upon the Bankrupt’s property known as and situate at 22 Basildon Drive, Laindon, Essex in favour of the Trustee and that the said property be removed from the Bankrupt’s Estate pursuant to Section 313(1) and (3) of the Insolvency Act 1986”

By a further order, purporting to be a charging order absolute, made by some unidentified individual in the Chelmsford County Court on 29th May 1992 it was ordered that:

“the interest of the Bankrupt, Kevin Leonard Doodes, in the asset specified in the schedule hereto, stand charged in favour of the Trustee of the Estate of Kevin Leonard Doodes, Peter Gotham.”

The schedule contained the address of the Property and its title number in HM Land Registry, EX 362308.

On 16th June 2004, being apparently unaware of these orders, the Trustee applied to the Chelmsford County Court for orders for possession and sale of the Property pursuant to s. 335A Insolvency Act 1986 and s.14 Trusts of Land and Appointment of Trustees Act 1996. The ground of the application was that it appeared to the Trustee from a valuation of the Property made in February 2003 that after repayment of the mortgage on the Property there was now an equity of at least £50,000 available for the benefit of the creditors of the Bankrupt. The District Judge before whom this application came, having read the file and discovered the orders made in 1992, adjourned the Trustee’s application and transferred it to the High Court.

On 2nd March 2005 the Trustee applied to amend his application. The application was opposed by the Bankrupt on the grounds that s.20(1) Limitation Act applied and barred the claim the Trustee sought to advance. That sub-section provides as follows:

“20. (1) No action shall be brought to recover—

(a) any principal sum of money secured by a mortgage or other charge on property (whether real or personal); or

(b) proceeds of the sale of land;

after the expiration of twelve years from the date on which the right to receive the money accrued.”

The resolution of the issue before us depends on the proper application of that provision to the rights conferred on the Trustee by the two orders to which I have referred.

The Report of the Review Committee on Insolvency Law and Practice (“the Cork Committee”) (Cmnd.8558) recognised (paragraphs 1114-1123) that the residual value of a debtor’s house after repayment of the mortgage debt is frequently the major asset in the estate of a consumer debtor and that its sale to enforce the creditors’ rights should be deferred so as to avoid the considerable personal hardship to the debtor and his family which may otherwise be inflicted. They considered that any new Insolvency Act should confer on the court specific power to postpone a trustee’s rights of possession and sale of the family home and that in exercising that jurisdiction the court should have a wide discretion to do what is just in the great variety of circumstances which may arise. Effect was given to these recommendations by ss. 336 and 337 Insolvency Act 1986, which conferred rights of occupation on a bankrupt and his spouse, and s.313.

At the time the Insolvency Act 1986 was passed sales of jointly held property were ordered under s.30 Law of Property Act 1925. In Re Citro [1991] Ch.142 the Court of Appeal held the interests of a bankrupt spouse’s creditors would, absent exceptional circumstances, usually prevail over those of the other spouse and children. Accordingly it reduced to six months the period of postponement of the order for sale of the property made by the judge below.

The Trusts of Land and Appointment of Trustees Act 1996 repealed, inter alia, ss. 28 to 30 Law of Property Act 1925 and substituted the regime for the sale of property in which more than one person is interested to be found in ss. 14 and 15. At the same time it inserted into the Insolvency Act 1986 a new s.335A to deal with cases where one of the persons interested is a bankrupt. Further amendments were made to relevant provisions of the Insolvency Act 1986 by the Enterprise Act 2002. I will now set out the relevant legislation as amended by the various stages to which I have referred. Where relevant I indicate the nature of the amendment.

S.313 Insolvency Act 1986, as amended by Enterprise Act 2002 and Civil Partnership Act 2004, is in the following terms (the amendments being shown in square brackets):

“(1) Where any property consisting of an interest in a dwelling house which is occupied by the bankrupt or by his spouse or former spouse [or by his civil partner or former civil partner] is comprised in the bankrupt’s estate and the trustee is, for any reason, unable for the time being to realise that property, the trustee may apply to the court for an order imposing a charge on the property for the benefit of the bankrupt’s estate.

(2) If on an application under this section the court imposes a charge on any property, the benefit of that charge shall be comprised in the bankrupt’s estate and is enforceable[, up to the charged value from time to time,] for the payment of any amount which is payable otherwise than to the bankrupt out of the estate and of interest on that amount at the prescribed rate.

[(2A) In subsection (2) the charged value means—

(a) the amount specified in the charging order as the value of the bankrupt’s interest in the property at the date of the order, plus

(b) interest on that amount from the date of the charging order at the prescribed rate.

(2B) In determining the value of an interest for the purposes of this section the court shall disregard any matter which it is required to disregard by the rules.]

(3) An order under this section made in respect of property vested in the trustee shall provide, in accordance with the rules, for the property to cease to be comprised in the bankrupt’s estate and, subject to the charge (and any prior charge), to vest in the bankrupt.

(4) Subsections (1) and (2) and (4) to (6) of section 3 of the Charging Orders Act 1979 (supplemental provisions with respect to charging orders) have effect in relation to orders under this section as in relation to charging orders under that Act.

[(5) But an order under section 3(5) of that Act may not vary a charged value.]

The provisions in the Charging Orders Act 1979 applied by sub-section (4) are, so far as relevant, as follows:

“(1) A charging order may be made either absolutely or subject to conditions as to notifying the debtor or as to the time when the charge is to become enforceable, or as to other matters.

[(2)

(3)]

(4) Subject to the provisions of this Act, a charge imposed by a charging order shall have the like effect and shall be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand.

[(5)-(8)]”

By CPR Rule 73.10 subject to the provisions of any enactment the court may, upon a claim made by a person who has obtained a charging order over an interest in property, order a sale of the property to enforce the charging order.

S.335A Insolvency Act 1986 inserted by Trusts of Land and Appointment of Trustees Act 1996 and as amended by the Civil Partnership Act 2004 provides:

(1) Any application by a trustee of a bankrupt’s estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2) On such an application the court shall make such order as it thinks just and reasonable having regard to—

(a) the interests of the bankrupt’s creditors;

(i) the conduct of the spouse, civil partner, former spouse or former civil partner, so far as contributing to the bankruptcy,

(ii) the needs and financial resources of the spouse, civil partner, former spouse or former civil partner, and

(iii) the needs of any children; and

(c) all the circumstances of the case other than the needs of the bankrupt.

(4) The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this section.

S.14 Trusts of Land and Appointment of Trustees Act 1996 authorises “any person who…has an interest in a property subject to a trust of land” to apply to the court for, inter alia, an order relating to the exercise by the trustees of any of their functions. Such functions include selling the property so that the section allows applications for orders for sale of land subject to a trust of land. In any case to which s.335A Insolvency Act 1986 does not apply s.15 prescribes the matters the court is to consider when determining whether to make the order sought. An application by the Bankrupt or Trustee for an order for sale, whether as a joint owner or an equitable chargee, must be made under s.14, see Lloyds Bank plc v Byrne (1991) 23 HLR 472 and Midland Bank plc v Pike [1988] 2 AER 434.

In this context the Bankrupt has contended that the order under s.313 made in favour of the Trustee in 1992 created a charge on property, that is the interest of the Bankrupt in the Property, to secure payment of “the amount payable otherwise than to the Bankrupt out of his estate and of interest on that amount” and that the right to receive that money accrued to the Trustee more than 12 years before he made the relevant application. He submits that such application is an action for the purposes of s.20(1) and, consequently, is barred by that subsection.

This argument was rejected by Chief Registrar Baister. He accepted that the sum secured, though fluctuating, was always ascertainable and therefore a principal sum within s.20(1)(a). In the alternative he considered that the circumstances came within the terms of s.20(1)(b) as an action to recover the proceeds of sale of land. But he rejected the argument for the Bankrupt on the grounds that (1) there was no time when the right to receive that sum had accrued to the Trustee and (2) the Trustee’s application was not an action for the purposes of the Limitation Act 1980.

Lindsay J took a different view. He accepted that the order under s.313 created a charge for the purpose of s.20(1) and that the amount for which it stood as security was to be treated as a principal sum of money for the purposes of s.20(1)(a). The alternative of s.20(1)(b) was not pursued before him or this court. Lindsay J considered, by analogy with the decision of the Court of Appeal in Hornsey Local Board v Monarch BS (1889) 24 QBD 1, that the right to receive that principal sum of money arose on the making of the order under s.313 in 1992. He rejected the contention that the so-called bankruptcy exception applied to prevent s.20(1) applying to the Trustee’s application. Counsel for the Trustee submits that Lindsay J was wrong. Before considering his argument and the opposing argument of counsel for the Bankrupt it is convenient to consider the decision in Hornsey Local Board v Monarch Investment BS (1889) 24 QBD 1.

In that case the local authority had incurred expense in paving a street. They were entitled to apportion those expenses amongst the owners of the properties fronting onto that street and summarily to recover from the respective owners the amounts so apportioned. In addition statute provided that such expenses should be charged on the premises in respect of which they were incurred with interest thereon at the rate of 5% until payment. S.8 Real Property Limitation Act 1874 provided that

“no action, suit or other proceeding shall be brought to recover any sum of money secured by any mortgage…or otherwise charged upon…any land…but within twelve years next after a present right to receive the same shall have accrued to some person capable of giving a discharge….”

The charge was imposed when the paving works were completed in 1875. The expenses were not apportioned until 1885. In 1887 a demand for payment was made on the defendant and in 1888 the local board sought to enforce the statutory charge against the defendant. The county court judge granted the relief sought, he was reversed on appeal to the Queen’s Bench Division and the Court of Appeal affirmed the decision of the latter.

The argument for the local board was to the effect that the right to receive the sums secured did not accrue until the charge was enforceable and that would depend on an apportionment of the expenses amongst the frontagers. That argument was rejected by all three members of the Court of Appeal. Each of them emphasised that the only reason why the right to receive was not coterminous with the right to enforce the charge was that the local board had failed in its duty to carry out the necessary apportionment, see pp 6, 9 and 12. They were concerned that if the right to receive was coterminous with the right to enforce then, in the circumstances of that case, the commencement of the limitation period would depend on the actions of the party against whose claim it was relied on by way of defence.

Lord Esher MR said (p.6):

“The charge exists, though the exact amount charged may not be ascertained. It is suggested that a person in whose favour a charge is imposed cannot be entitled to receive an amount which is not ascertained. I do not see why this should be so. A sum may be offered to him, which the person offering it thinks to be the right sum, and which he may also think to be the right sum, although the actual calculation of the exact amount has not been made. What is there in law, or reason, or business, to shew that he is not entitled to receive the sum when so offered to him? I cannot see any difficulty in saying that there is a present right to receive the expenses. In the case where a person has only a reversionary right to receive money, or for some other reason the time when he is entitled to receive the money has not yet arrived, it would be different, and there would be no present right to receive the money.”

Lindley LJ was of the same opinion. He said (p.9):

“The section is dealing with charges on land, and it must be borne in mind that such charges are present charges and future charges, reversionary charges, charges in remainder, and such like. One general form of expression is used to include the whole, and that expression is “present right to receive.” It seems to me clear that the meaning is that in each case the moment to be looked to is the moment when the charge comes into present operation; for instance, when reversionary charges are being dealt with, the moment to be looked to is the moment when the reversion falls in and the charge takes effect in possession.”

Similarly Lopes LJ continued (p.11):

“When, then, does the right accrue to the person or persons in whose favour the charge is imposed to receive the amount secured by the charge? It appears to me that it accrues the moment the charge is imposed on the premises by the statute, that is when the expenses have been incurred and the works completed. It may be that certain things have to be done before the right can be enforced, but the right to receive what is secured by the charge arises concurrently with the charge. The words are “present right to receive,” not “present right to recover.” The right to receive may exist though the definite sum to be received has not yet been ascertained. There are cases where the legislature requires a notice to be given before an action can be maintained. The right of action however exists as soon as an actionable wrong has been committed, though it cannot be successfully enforced until the statutory requirements are complied with.”

Lindsay J considered the judgments in Hornsey in some detail. In paragraph 19 he commented:

“But I do not see that notion of fault on the chargee’s part as crucial to the applicability of the decision to a case, such as the one before me, in which there has been no omission by the chargee-trustee “to do that which it is his duty by statute or common law to do”. Rather the decision seems more to rest on what was taken to be the ordinary and natural meaning of a “present right to receive”, coupled, if those words were not in contra-distinction to “a present right to enforce”, with the difficulty that, where the chargor was minded to sit tight, the chargee could postpone limitation even beginning. Nor, whilst I can see that the added word “present” when added to the current phrase “right to receive”, may lead to a different conclusion in some cases – e.g. the case of the reversionary charge referred to by Lord Esher on p. 6 and Lindley LJ on p. 10 – I do not see it as adding anything where, as here, whatever are the Trustee-chargee’s rights, they were from the start vested in his possession and were in relation to property vested in the Bankrupt’s possession.”

Lindsay J noted that Hornsey had been cited without disapproval by the Court of Appeal and the House of Lords in the different circumstances prevailing in West Bromwich BS v Wilkinson [2004] EWCA Civ 1063. He remarked that it had been distinguished in some later cases, notably in Re Loftus [2005] 1 WLR 1890, but did not feel able to do so in this case. He dealt with the submissions for the Trustee concerning the application of the so-called bankruptcy exception from the application of the Limitation Act and rejected them. He concluded in paragraph 28:

“It is unfortunate that Mr Registrar Baister did not have Hornsey cited to him. I have seen no way round Hornsey and I must therefore allow the appeal. I do so with some reluctance and no enthusiasm. I have real doubts about whether the result is just.”

Counsel for the Trustee submits that Lindsay J was indeed wrong to have applied Hornsey to the very different circumstances of an order under s.313. He contends that s.20(1) is inapplicable for a number of reasons. He relies on the bankruptcy context as indicating the relevant elements of the charge imposed by the order under s.313. Thus, the jurisdiction conferred by that section is designed for an indeterminate period to preserve for the benefit of creditors the present and future value of the Bankrupt’s interest in the property by exchanging the charge for the property interest previously forming part of the bankrupt’s estate. This enables the bankrupt to deal with the property, but subject to the charge, and the trustee to convene the final meeting of creditors, see s.332(2) Insolvency Act 1986. As counsel for the Trustee points out, if Lindsay J is right then the Trustee exchanged a right to an order for possession and sale to which no limitation period applied for one which, absent any part payment or written acknowledgement, had to be exercised, if at all, within 12 years of the order under s.313. He relies on the circumstance that there is no-one liable to pay the amount secured pursuant to the order under s.313, it is a fluctuating amount, the interest is rolled-up and there is no prospect of obtaining any money unless and until the Property is sold. He contends that an order of sale is not as of right but dependent on the exercise by the court of the discretion conferred on it by s.335A Insolvency Act.

In the light of those observations he submits that s.20(1) Limitation Act 1980 cannot apply because:

(1) the amount secured by the order under s.313, namely, “the amount which is payable otherwise than to the bankrupt…out of the estate..” is not “a principal sum of money” for the purposes of s.20(1) Limitation Act;

(2) the charge imposed by an order under s.313 is not a charge within the meaning of that word in the context of s.20(1);

(3) the “right to receive” is deferred until an order for the sale of the Property is made because (a) there is no underlying obligation enforceable against a debtor, (b) the interest is rolled-up and (c) receipt of any money is dependent on an exercise of the court’s discretion;

(4) the application of the Trustee for an order for possession and sale is not an action within the meaning of that word in the context of s.20(1);

(5) the application of s.20(1) for which the Bankrupt contends infringes Article 1 to Protocol 1 of the European Convention on Human Rights.

Counsel for the Bankrupt disputes these propositions. He contends that the sum charged on the Property by the order under s.313 is a principal sum for the purposes of s.20(1) Limitation Act on which interest accrues pursuant to s.313(2) Insolvency Act, notwithstanding that the amount thereof may fluctuate, because it is always ascertainable. He submits that it is not necessary for there to be any underlying relationship of debtor/creditor. He contends that the right to receive the sums so secured must be vested in the Trustee because in the event of redemption the bankrupt must pay the amount secured to the Trustee if he is to get a good discharge. He comments in relation to Hornsey that it would be odd if, in this case, the Trustee had a right to enforce the charge but no prior right to receive the money due thereunder. He submits that the application of the Trustee is demonstrably “an action” as it is “a proceeding in a court of law” for the purposes of the definition in s.38(1) Limitation Act 1980. He does not object to counsel for the Trustee relying on Article 1 to Protocol 1 ECHR, notwithstanding that it was not relied on in either of the courts below, but submits that it cannot apply in the manner for which counsel for the Trustee contends.

I will start with the question of whether an order under s.313 Insolvency Act creates a charge to which s.20(1) Limitation Act can apply. The word is not defined in the Limitation Act 1980 and, in context, is contrasted with a mortgage. It is used in conjunction with the word “other” as an all inclusive term. In such circumstances it is to be given its usual meaning. Such meaning was authoritatively described by Buckley LJ in Swiss Bank v Lloyds Bank [1982] AC 584, 594 in the following passage:

“An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage. An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: see Fisher and Lightwood’s Law of Mortgage, 9th ed. (1977), p. 13. An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: see Fisher and Lightwood, p. 14

S.313 states in terms that the order creates a charge, that such charge is enforceable for the payment of a fluctuating but ascertainable amount as if it were an equitable charge in writing under the hand of the debtor and the benefit of it is comprised in the estate of the bankrupt. As the judgment of Buckley LJ quoted in paragraph 26 above shows, it is not necessary for there to be any associated personal liability or source for payment other than the property itself. In my view it is plain that the Property was appropriated by the order under s.313 to the discharge of the amounts referred to in s.313(2) and is realisable by judicial process, namely an application for orders for possession and sale. I conclude that the right created by the orders made under s.313 is proprietary and a charge for the purposes of s.20(1) Limitation Act 1980.

I turn then to the question whether the amount referred to in s.313(2) can be properly regarded as “a principal sum of money”. Our attention was drawn to the predecessors of s.20(1), namely s.40 Real Property Limitation Act 1833 and s.8 Real Property Limitation Act 1874. In neither of them was the word ‘principal’ used in relation to “any sum of money secured”. Counsel for the Trustee contended that there could be no such sum because it was fluctuating in amount, incapable of ascertainment at the time the charge was created and not the subject matter of any underlying obligation of anyone.

I do not accept this submission either. The word ‘principal’ in relation to a sum of money is used to differentiate the original sum or ‘tree’ from the interest or ‘fruit’ which it may yield. See SOED 3rd Ed p.1585. In that sense the sum secured by the charge under s.313(2), namely “the amount payable otherwise than to the bankrupt out of the estate”, is the principal sum and is to be contrasted with “interest on that amount” which is also secured by the charge. Further a principal sum may be secured though its amount may fluctuate. For example a third party charge to secure the bank overdraft of another. The amount secured by the guarantee will fluctuate depending on the debits and credits to the account arising in the course of its operation by the bank and the customer.

In such a case there is no personal obligation on the part of the guarantor to repay the amount of the overdraft to the creditor either. Counsel for the Trustee seeks to distinguish such a case on the ground that there is a personal obligation on the customer/debtor. That is true but is not in my view a sufficient answer. In times past pecuniary legacies were often charged on land. In such cases the charge existed notwithstanding the absence of any personal obligation on the personal representatives to pay the legacies, see Re Owen [1894] 3 Ch. 220, 225.

So I turn to the question of whether there accrued to the Trustee the right to receive that principal sum when the orders were made in 1992. The predecessors of s.20(1), namely s.40 Real Property Limitation Act 1833 and s.8 Real Property Limitation Act 1874, were in substantially the same terms save that the word “present” was included. Thus under those sections the question was whether “the present right to receive the same” had accrued more than the specified number of years before action brought. In that context such a right was understood by Tindal LCJ, in an opinion adopted by the House of Lords, as “an immediate right without waiting for the happening of any future event”, see Farran v Beresford (1843) 10 Cl.& F. 319, 334/5. Similarly in Earle v Bellingham (1857) 24 Beav. 448 the right to receive the legacies charged on a reversionary legacy payable under the will of another was not a present right to receive them until the reversionary legacy fell into possession on the death of the life tenant. And in Re Owen [1894] 3 Ch. 220 legacies were charged on land after the death of the life tenant. The life tenant died in 1880. No one suggested that time ran from the death of the testator in 1854.

The first two cases were cited in argument to the Court of Appeal in Hornsey (p.3). Only the second was referred to in any of the three judgments but the Court of Appeal was not entitled to depart from the ratio of the first. Accordingly the ratio of Hornsey must be that the right of the Local Board to receive specific sums from individual frontagers was a present right because the only future event on which it could depend was within the power of the Local Board to procure. This accounts for the dicta I have quoted in paragraphs 18 to 20 above. Thus Lord Esher in the passage quoted in paragraph 18 accepts that there is no present right to receive if “a person has only a reversionary right to receive money, or for some other reason the time when he is entitled to receive the money has not yet arrived”. Similarly Lindley LJ considered that the moment to be considered was “when the charge comes into present operation”. Lopes LJ considered that “the right to receive what is secured by the charge arises concurrently with the charge”. But that must have been said in relation to the facts of that case, otherwise he could not have commenced his judgment by expressing his “entire agreement” with the other two judgments.

The first question is whether the omission of the word “present” from s.20(1) undermines the authority of these three cases. In my view it does not. In the context of a Limitation Actand the accrual of rights to receive or of causes of action it must be implicit that the right to receive is a present right. Time does not run under s.5 and 6 in respect of future causes of action. It is not suggested in any reported case or academic commentary brought to our attention that the “right to receive” to which s.20(1) directs attention can accrue at any time when it is not a present right, see Halsbury’s Laws of England 4th Ed. Vol. 28 para 805 n.1; Current Law Statutes Annotated 1980 58/20; McGee: Limitation Periods para 12.015. Accordingly I can see no reason why the principles established by the three earlier cases to which I have referred should not be equally applicable to s.20(1).

It is apparent from the specific dicta in Hornsey to which I have referred in paragraph 32 above that the right to receive may not have accrued because either the right to receive is a future right or the charge is a future or reversionary charge. In principle, it is possible to have a present charge securing payment on a future event. In such a case the right to receive the sums secured will accrue, not when the charge is granted, but when the future event occurs. Thus, in the case of a conventional mortgage, the charge is immediately effective but the right to receive the sum secured does not accrue until the legal redemption date has passed. Another example is given by the Editors of Halsbury’s Laws of England 4th Ed. Volume 28 (Limitation) Reissue para 1010. The unpaid vendor’s lien arises on the conclusion of the contract for sale but the right to receive the purchase money does not accrue until acceptance of title or completion, depending on the conditions of sale.

Lindsay J disagreed with the conclusion of the Chief Registrar on the basis of Hornsey. His conclusion, quoted in full in paragraph 21 above, was that “whatever are the Trustee-chargee’s rights, they were from the start vested in his possession and were in relation to property vested in the Bankrupt’s possession”. No doubt the benefit of the charge was vested in the Trustee in possession and not reversion. But was the right to receive the principal sum thereby secured a present right or was it dependent on one or more future events? It is not clear to me that Lindsay J considered this possibility.

If s.20(1) is to apply then the ‘right to receive’ must be a present not a deferred right and it must have accrued when the order for the s.313 charge was made in 1992. It seems to me to be quite inconsistent with the purpose of s.313 that there should be a right to receive any money at that stage. The only source of payment is the proceeds of sale of the property subject to the charge; but the whole object of the section is to defer the realisation of the property until the circumstances justify its sale. No interest is payable in the meantime because it is rolled up until sale. An order for the sale of the property is not as of right because of the terms of s.335A.

It is true that if the bankrupt wishes to redeem he must pay the sums required for that purpose to the trustee in bankruptcy or into court. It is not a necessary consequence that the trustee in bankruptcy should have a present right to receive the same. If the holder of the equity of redemption wishes to clear off all prior incumbrances then he must redeem them whether they are in possession or reversion, immediate or deferred and whether the sums they secure are immediately payable or only in the future. Similarly, there is no inconsistency between having a right to enforce a charge by sale at a time when there is only a deferred right to receive the proceeds. Such a right is sufficient to confer on the creditor the necessary interest enabling him to apply for and obtain an order for sale and such an order, if made, will remove the element of deferral.

If, as I think, it be the true view that a charge imposed by an order made under s.313 secures a future obligation then until the obligation is a present one no right to receive the principal sum secured can accrue. Hornsey decided that a right to receive the sum secured was not the same as a right to enforce the security. That works both ways. A right to enforce the security may precede or follow the right to receive the sums secured. In my view in the case of charges imposed by orders made under s.313 the right to receive cannot predate an order for the sale of the property. It follows that time has not started to run under s.20(1).

It is clear that had he felt able to do so Lindsay J would have upheld the order of Chief Registrar Baister. For the reasons I have given I feel no such constraint. Accordingly I would allow the appeal on the ground that the right to receive “the amount payable otherwise than to the bankrupt out of the estate” in bankruptcy and “interest on that amount at the prescribed rate” has not accrued for the purposes of s.20(1) Limitation Act and will not do so until an order for the sale of the property is made by the court. It follows that the two further grounds on which the Trustee relied which I have summarised in paragraph 24(4) and (5) above do not arise and I say no more about them.

Lord Justice Carnwath:

I agree that the appeal should be allowed, for the reasons given by the Chancellor. As he explains (in paragraphs 36 to 38), section 313 does not confer a right to receive anything until there is an order for a sale of the property. To hold otherwise would be inconsistent with the purpose of the section. By concentrating on the purpose and effect of the statutory provision (rather than the precise limits in other contexts of the principle established by the Hornsey case), it is possible in my view to arrive at the result which Lindsay J would have liked to achieve.

Lord Justice Moses:

I agree.

Grant & Anor v Baker

[2016] EWHC 1782 (Ch) [2017] 2 FLR 646, [2016] BPIR 1409, [2016] EWHC 1782 (Ch), [2016] Fam Law 1215

Mr Justice Henderson:

Introduction

This is an appeal by the joint trustees in bankruptcy (“the Trustees”) of Mr Ronald Charles Henry Baker (“Mr Baker”) from part of an order made on 8 October 2015 (“the Order”) by District Judge Foss sitting in the County Court at Chelmsford. The appeal is brought with permission granted by Newey J on 26 November 2015.

The Order was made in proceedings brought by the Trustees for the sale of Mr Baker’s home at 132 Thaxted Road, Saffron Walden, Essex (“the Property”), which is jointly owned by him and his wife, Deborah Baker (“Mrs Baker”). The Order declared that the Trustees were entitled to one half of the beneficial interest in the Property, and Mrs Baker to the other half. Directions were given for the sale of the Property with vacant possession, and for division of the net proceeds of sale between the Trustees and Mrs Baker. By paragraph 8 of the Order, however, the sale was postponed “until such time as Samantha Baker no longer resides at the Property”.

Samantha, who was born on 28 April 1986 and is now aged 30, is the oldest of the Bakers’ three children. She was born with a condition known as global developmental delay, and also suffers from dyspraxia and obsessive compulsive disorder (“OCD”). According to Mr Baker’s evidence, which the district judge clearly accepted, Samantha has the mental age of an 8 or 9 year old child, and is incapable of living on her own. She has difficulty with mobility, finding it hard to get up and down stairs, and feels unsteady on uneven ground. There is no prospect of her condition ever improving, and she is never going to be able to live alone. She also needs a lot of supervision.

The Bakers have always cared for Samantha at home, and in about 2007 they moved from a three bedroomed flat in Hackney to the Property, which is a bungalow with four bedrooms, because its layout, and the absence of stairs, were well suited to Samantha’s needs. A further advantage of the move was that it provided her with a bigger bedroom.

The Bakers also have two sons, Tom and Joe, who at the date of the hearing last October were aged 26 and 22. Tom works full time as a drainage engineer, earning about £900 per month net. Joe had recently secured a job as a teaching assistant for the disabled, earning about £9.00 per hour and working about seven hours a day, but on a zero hours contract. Tom and Joe both still live at home, but the judge found that “they clearly are independent” and able to live without parental support.

At the hearing before the district judge, the Trustees were represented by counsel, Ms Louise Bowmaker, who has also appeared for them on the appeal. The respondents, Mr and Mrs Baker, appeared in person. On the appeal, Mr Baker has again appeared in person, but Mrs Baker has had the benefit of representation by Mr Edward Rowntree, instructed shortly before the hearing by the Bar Pro Bono Unit. I express my gratitude to Mr Rowntree for his clear, helpful and realistic submissions on his client’s behalf.

The postponement of the sale of the Property in paragraph 8 of the Order is unlimited in point of time. No sale is to take place for so long as Samantha continues to reside at the Property. There is no evidence that her life expectancy is lower than normal, so the effect of the Order is that the sale could be postponed for many years, or even decades. Furthermore, Mr Baker’s share in the Property is the only asset of any value in the bankruptcy, so unless and until the Property is sold the Trustees will have no funds with which to discharge their own costs or make a distribution to the only known creditor, the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”). I was told that, after the judge had delivered her oral judgment, counsel asked her to impose a time limit on the postponement of sale, but she declined to do so and also refused permission to appeal from the Order.

The appeal is confined to paragraph 8 of the Order. In their appellant’s notice, the Trustees ask that paragraph 8 be set aside, or alternatively varied so as to include a “long stop” postponement of no more than 12 months. The grounds of appeal, settled by Ms Bowmaker, say that the judge erred in making certain findings of fact, and in any event erred in the exercise of her discretion, both in making the order which she did and in refusing to include a long stop date after which the Property would have to be sold. These contentions were developed by Ms Bowmaker in her skeleton argument and oral submissions.

The facts

The written evidence before the judge consisted of a short witness statement of one of the Trustees, Mr Stephen Grant, and a statement from Mr Baker dated 31 August 2015. Mr Baker also gave oral evidence at the hearing, which extended to a number of matters not covered in his statement. He was cross-examined by Ms Bowmaker, particularly in relation to alternative housing options (such as purchasing another property, renting in the private sector, or approaching the local authority for housing assistance) about which he had said nothing in his statement. I have not been provided with a transcript of the oral evidence, so for matters not contained in the two witness statements I have to take the facts as they were found by the judge in her careful and sensitive judgment.

Mr Baker has at all material times been a self-employed taxi driver. His wife of 30 years, Mrs Baker, was until recently a carer looking after elderly people, earning between £900 and £1,100 net per month, which the district judge estimated would give her a maximum gross annual income of about £15,000. At the time of the hearing, however, she was unemployed and in receipt of sickness benefit, having recently undergone an operation which meant that she was no longer able to work in her previous job, because she was unable to lift heavy weights. At the age of 48, the judge thought she might well be able to get another job somewhere else, but her only experience since the children were born has been as a carer, so her work experience is limited. Mr Rowntree told me, on instructions from his client, that she has not yet been able to return to work, and in particular is still unable to perform heavy lifting (such as carrying people).

Mr Baker’s bankruptcy came about in circumstances with which the judge evidently had a good deal of sympathy. It appears that he had employed an accountant to deal with his tax returns, but at a meeting with HMRC in 2011 it transpired that the accountant had failed to take into consideration the private use by Mr Baker of his taxi and fuel. HMRC then reopened his accounts for the previous five years, and eventually Mr Baker received a bill for £25,000. It was impossible for the Bakers to raise a sum of this magnitude, and although they tried to remortgage the Property this could not be done because of Mr Baker’s self-employed status. Mrs Baker was offered a personal loan of £10,000 by their bank, and this amount was offered to HMRC, but they refused to accept it. Meanwhile, the accountant died and Mr Baker started using the services of a specialist firm of accountants for the taxi industry. He was advised that his previous accountant had not been doing his books correctly, and further substantial tax liabilities would be incurred. Eventually, Mr Baker was made bankrupt, on the petition of HMRC, on 20 November 2013. Mr Baker emphasised in his written evidence, and there is no reason to doubt, that he and his family have always paid their way, and he had always filed tax returns. In his brief oral submissions to me, he said that apart from the debt owed to HMRC he had never had another debt in his life. It seems that the possibility of suing his former accountant for negligence has never been properly investigated, either by Mr Baker or by the Trustees (in whom the cause of action, if any, would have vested).

In his initial report dated 7 January 2014, the Official Receiver recorded that there was an estimated deficiency in the bankruptcy of £26,279.50, that being the difference between the £52,808 then estimated to be due to HMRC and the estimated realisable value of Mr Baker’s share in the Property of £26,528.50. The report also recorded that Mr Baker had agreed to make monthly payments of £76 under an income payments agreement, beginning on 3 February 2014.

In due course, the Trustees were appointed on 8 January 2014. On 23 January 2014, the Trustees wrote separately to Mr and Mrs Baker, giving them formal notice pursuant to Rule 6.237 of the Insolvency Rules 1986 that the Property fell within section 283A of the Insolvency Act 1986. The letters gave a clear explanation of the legal and factual position in relation to the Property, and the various ways in which its value might be realised.

A little over a year later, the Trustees wrote again to Mr Baker on 26 February and 19 March 2015, saying that steps must now be taken to realise his interest in the Property for the benefit of the bankrupt estate, and enquiring whether he, Mrs Baker or a third party wished to make an offer to purchase that interest. Mr Baker replied by email on 2 April 2015, saying that he would be unable to find any purchaser, and, as Mrs Baker would refuse to sell, “the matter will have to be dealt with by the courts”. This led to the Trustees’ application in the County Court at Chelmsford for an order for possession and sale of the Property, which came before the judge for an effective hearing on 8 October 2015.

Meanwhile, the Trustees prepared an annual progress report for the year ending 7 January 2015. This confirmed that there was only one unsecured creditor in the bankruptcy, namely HMRC, whose claim had been received in the sum of £51,499.39, some £1,300 less than the amount estimated by the Official Receiver. It stated that Mr Baker had co-operated throughout the bankruptcy administration, and had received his automatic discharge on 20 November 2014. The only receipts to date were his monthly repayments of £76, totalling £836. This figure was subsequently increased to £150 per month from April 2015, and some payments were made at the increased rate, but I was informed that they have now ceased through Mr Baker’s inability to keep them up. Like many other taxi drivers, his trade has suffered from competition with Uber.

As to the value of the Property, the Trustees obtained two valuations in December 2013 and February 2014 from local estate agents. Averaged and updated to 12 May 2015, they indicated a value of the Property of £350,000. There was an outstanding mortgage of just under £278,000 as at 31 March 2015, so the Trustees estimated the equity to be in the region of £72,000. In her judgment, the judge pointed out that this estimate made no allowance for costs of sale. Taking them to be 3%, i.e. £10,500, the actual equity would be in the region of £61,500, to be divided equally between Mr and Mrs Baker. Accordingly, if the Property were to be sold, Mrs Baker would be “likely to walk away with about £30,000” (paragraph 4 of the judgment).

Finally, I should say a little more about Samantha’s condition. Mr Baker exhibited to his statement a letter dated 7 August 2015 from Samantha’s general practitioner, Dr Jenni Lindford, which I should quote in full:

“I am writing to confirm that this 29 year old lady has a global developmental delay, and dyspraxia. Her mobility is affected and requires orthotics in her shoes, and care with walking/stairs. She has been seen by physiotherapy for on-going care.

She lives in a bungalow with her parents which enables her easier access to the toilet and bedroom, as well as the rest of the house.

She lives in a commutable distance from her college, which she very much enjoys, and benefits from.

The fear of moving home has been detrimental on her mental well-being and has caused her a lot of distress. Her life requires routine, and her home has been adapted to meet her requirements, therefore moving from her home of 8 years would have a real negative impact on her well-being.”

Although Dr Lindford referred to the Property as having been “adapted” to meet Samantha’s requirements, it is common ground that there is no evidence of actual adaptations of a structural nature having been made to the Property. What Dr Lindford meant to say, I am sure, is that the Property was well suited to meet Samantha’s requirements, and had indeed been chosen for that purpose.

The “college” to which Dr Lindford referred is in fact a day centre run by the Papworth Trust, under the name “Opportunities Without Limits” or “OWL”. A letter from Suzanne Moore, the Project Lead at Papworth Trust, also exhibited to Mr Baker’s statement, said this:

“Samantha continues to need additional support in different areas whilst she is at OWL.

Samantha needs encouragement to achieve tasks and additional emotional support when things appear to get too much for her. Samantha benefits from 1:1 learning support as she can become easily distracted and lose focus on what is being said. This could be a risk if Samantha has not listened to instructions.

Samantha also needs support with mobility at times and can be unsteady on her feet and will often need assistance to travel up and down stairs and on uneven surfaces.

Samantha benefits from the social interaction she gets from coming to OWL and has grown in confidence and with additional learning support continues to develop in confidence and progressing with work-based skills and independent travel skills.”

The judge quoted both these letters in full in paragraph 8 of her judgment, and clearly had their contents well in mind when forming her assessment of Samantha’s needs.

There was no medical evidence before the judge about Samantha’s OCD, but Mr Baker referred to it in his statement as follows:

“Sam also suffers with OCD and finds great comfort in routine. Her bedroom is her sanctuary and it would stress her greatly knowing she would have to leave her home. We would find it very difficult to rent as we feel Sam needs the security of a permanent home and not a place that we could be forced out of with just two months notice.”

The legal framework

Section 283A of the Insolvency Act 1986 provides (so far as material) as follows:

“(1) This section applies where property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of –

(a) the bankrupt,

(b) the bankrupt’s spouse …

(2) At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall –

(a) cease to be comprised in the bankrupt’s estate, and

(b) vest in the bankrupt (without conveyance, assignment or transfer).

(3) Subsection (2) shall not apply if during the period mentioned in that subsection –

(a) the trustee realises the interest mentioned in subsection (1),

(b) the trustee applies for an order for sale in respect of the dwelling-house,

(c) the trustee applies for an order for possession of the dwelling-house,

…”

As a result of these provisions, introduced by section 261 of the Enterprise Act 2002, a trustee in bankruptcy must take action within three years of the date of the bankruptcy if he wishes to realise the bankrupt’s interest in his home. In the absence of such action, the bankrupt’s interest revests in him automatically at the expiry of the period. In general terms, the mischief which this section was designed to remedy was “the practice adopted by certain trustees of not realising family homes immediately but allowing the matter to lie dormant, only acting many years after discharge where the value of the property had increased due to inflation” (Sealy & Milman, Annotated Guide to the Insolvency Legislation, 18th edition, vol. 1, p 357).

By virtue of section 335A of the 1986 Act, inserted into the bankruptcy legislation by section 25(1) of the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA 1996”):

“(1) Any application by a trustee of a bankrupt’s estate under section 14 of [TOLATA 1996] (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2) On such an application the court shall make such order as it thinks just and reasonable having regard to –

(a) the interests of the bankrupt’s creditors;

(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt’s spouse … –

(i) the conduct of the spouse …, so far as contributing to the bankruptcy,

(ii) the needs and financial resources of the spouse …, and

(iii) the needs of any children; and

(c) all the circumstances of the case other than the needs of the bankrupt.

(3)Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

Section 14(1) of TOLATA 1996 states that:

“Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.”

Section 15 then sets out the matters to which the court is to have regard in determining an application for an order under section 14, but by virtue of subsection (4) section 15 “does not apply to an application if section 335A of the Insolvency Act 1986 … applies to it”. In the present case, the application by the Trustees was made after expiry of the one year period mentioned in section 335A(3). Accordingly, in exercising its powers under section 14 of TOLATA 1996 the court:

(a) must have regard to the matters specified in section 335A(2); but

(b) is directed to assume, “unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations”.

To state the obvious, the interests of the bankrupt’s creditors will normally require that the property be sold so that the bankrupt’s share in it can be realised for their benefit. Moreover, by virtue of section 335A(2)(c), the needs of the bankrupt himself are to be disregarded. It follows that any successful defence to an application for sale brought after expiry of the one year period will normally depend on establishing that the circumstances of the case are exceptional, leaving aside the needs of the bankrupt. If this condition is satisfied, the court must then make such order as it thinks just and reasonable having regard to all the matters specified in subsection (2). In making that assessment, the interests of the bankrupt’s creditors must still be taken into account, by virtue of paragraph (a), but the appropriate weight to attach to them will be in the discretion of the court.

The principles which the court should follow when considering whether the circumstances of the case are exceptional were conveniently summarised by Lawrence Collins J (as he then was) in Dean v Stout [2005] EWHC 3315 (Ch), [2005] BPIR 1113, at [6] to [11]:

“6. The principles which can be derived from the authorities may be summarised as follows. First, the presence of exceptional circumstances is a necessary condition to displace the presumption that the interests of the creditors outweigh all other considerations, but the presence of exceptional circumstances does not debar the court from making an order for sale.

7. Secondly, typically the exceptional circumstances in the modern cases relate to the personal circumstances of one of the joint owners, such as a medical or mental condition.

8.Thirdly, the categories of exceptional circumstances are not to be categorised or defined and the court makes a value judgment after looking at all the circumstances.

9. Fourthly, the circumstances must be exceptional and this expression was intended to apply the same test as the pre-Insolvency Act 1986 decisions on bankruptcy (see In re Citro (Domenico) (a bankrupt) [1991] (Ch) 142, [1991] 1 FLR 71 at 159/160 and 84 respectively), that is to say exceptional or special circumstances which are outside the usual “melancholy consequences of debt and improvidence” (in the words of Nourse LJ) or (in the words of Bingham LJ) “compelling reasons not found in the ordinary run of cases”.

10. Fifthly, it is not uncommon for a wife with children to be faced with eviction in circumstances where the realisation of her beneficial interest will not produce enough to buy a comparable home in the same neighbour or, indeed, elsewhere. Such circumstances, while engendering a natural sympathy, cannot be described as exceptional, and it was in that context that Nourse LJ referred to the “melancholy consequences of debt and improvidence” with which every civilised society has been familiar (see 157 and 82 respectively).

11. Sixthly, for the purposes of weighing the interests of the creditors, the creditors have an interest in the order for sale being made, even if the whole of the net proceeds will go towards the expenses of the bankruptcy, and the fact that they will be swallowed up in paying those expenses is not an exceptional circumstance justifying the displacement of the presumption that the interests of the creditors outweigh all other considerations.”

In Claughton v Charalambous [1998] BPIR 558, Jonathan Parker J said at 562H:

“What is required of the court in applying s335A(3) is, in effect, a value judgment. The court must look at all the circumstances and conclude whether or not they are exceptional. That process leaves, it seems to me, very little scope for the interference by an appellate court.

No doubt there may be cases where an appellate court can and should interfere. For example, where there is an error of law appearing on the face of the judgment, or where the conclusion which the court below has reached is so plainly wrong as to raise the inference that in reaching that conclusion the court somehow misdirected itself in law.”

The facts of Claughton v Charalambous show that, in an appropriate case, the exceptional circumstances may be such as to justify a postponement of any order for sale until the bankrupt’s spouse either dies or vacates the property. In that case, however, Mrs Charalambous (the bankrupt’s wife) had a 50% beneficial interest in the property, and the medical evidence established that she was in very poor health, suffering from chronic renal failure and chronic osteoarthritis. She could walk only with great difficulty and with the aid of a Zimmer frame, and she needed a wheelchair. She was about 60 years old, and evidently had a reduced life expectancy, although how reduced does not appear from the judgment: see 562A-D.

Re Bremner [1999] BPIR 185 is another case where an indefinite suspension of an order for sale was directed, but the circumstances were such that the postponement was likely to be measured in months rather than years. The bankrupt, Mr Bremner, was aged 79, and had recently been diagnosed with an inoperable cancer. His life expectancy was probably no more than six months, he was housebound, and his wife (aged 74) was his only carer. She had no beneficial interest in the property, but had a right of occupation while the marriage subsisted. The bankruptcy dated back to 1991, and the evidence was that on an immediate sale of the property there should be enough money to pay all the creditors in full, with some (but not all) of the statutory interest to which they were entitled. Mr Jonathan Sumption QC (as he then was), sitting as a deputy judge of the High Court, held that the circumstances of the case were exceptional, and that the needs of Mrs Bremner (as distinct from those of Mr Bremner, which had to be disregarded) should be recognised by deferring a sale of the property until three months after her husband’s impending death. The judge added, at 188E:

“I should make it clear that I would not necessarily have reached the same decision if Mr Bremner had been younger or less ill, or if his life expectancy had been longer than, in fact, it appears to be.”

There is no definition of the word “needs” in section 335A, but it should clearly be given a broad interpretation, and is certainly not confined to needs of a financial nature: see Everitt v Budhram [2009] EWHC 1219 (Ch), [2010] Ch 170, at [36] per Henderson J. It is also clear, I think, that “the needs of any children” in section 335A(2)(b)(iii) are not confined to their needs while under the age of 18, and can therefore include the needs, broadly defined, of an adult child such as Samantha. The contrary was, in my view rightly, not argued by Ms Bowmaker for the Trustees.

The judgment of the district judge

After setting out the facts and the relevant legislation, the judge directed herself (in paragraph 9 of her judgment) that what she really had to consider was the position of Mrs Baker, and the effect of a sale on Mrs Baker and Samantha. She added that, since the application had been made after expiry of the one year period in section 335A(3):

“In essence the interests of the creditors – in this case HMRC – should outweigh all of the interests of Mrs Baker and the children unless those circumstances are exceptional. Effectively what I have to determine is, are Samantha’s and Mrs Baker’s circumstances exceptional?”

The judge then referred to some of the case law on what amounts to exceptional circumstances, including Dean v Stout and Turner v Avis [2008] BPIR 1143. In paragraph 12 of her judgment, she referred briefly to the facts of Re Bremner and Claughton v Charalambous, although without naming them, as examples of cases where the sale was postponed until after a person’s death.

The judge continued:

“13. The question I have to ask myself is, first of all, is this an exceptional circumstance? Secondly, should the sale be postponed as a result and, if so, for how long? In this case we have a disabled child. Although she is 29 years old and an adult she clearly is incapable of having independent life and has lived all of her life with her parents. It is correct that 8 years ago Mr and Mrs Baker and the family did move from Hackney to their current property in Saffron Walden. They moved from a three bedroomed flat to a four bedroomed bungalow. Mr Baker, in his evidence, confirmed to me that they bought the bungalow because of Samantha’s disabilities. It meant that she could have a bigger bedroom and her bedroom was next to the toilet and bathroom. That would make her mobility much better … This was to give Samantha security, to provide her with a bigger bedroom, more space for herself and although there was some period of adaptation this was a positive move for Samantha.

14. I have to consider whether Mrs Baker, with Mr Baker to a certain extent, is in a position to be able to purchase another property if this property is to be sold. I have heard evidence that at the moment she is not working. Mr and Mrs Baker have previously sought to re-mortgage in order to clear this debt and were refused. Mrs Baker has been able to secure an unsecured loan of £10,000 but no more … Clearly at the moment, whilst she has no employment whatsoever, I cannot see that she would be in a position to obtain a mortgage. I also accept the fact that as Mr Baker is not only self-employed but also a discharged bankrupt it is unlikely that he would be in a position to obtain a mortgage.”

The judge then referred to material provided by the Trustees which indicated that it would be possible to buy a three bedroomed bungalow in a village close to the Papworth Trust for £275,000. She was satisfied that Mrs Baker would be unable to raise a sum of that magnitude by way of mortgage, and it was unrealistic to suggest that Joe and Tom would be able to assist for that purpose. She added:

“In any event, it would be inappropriate in my view for Tom and Joe to be tied to a mortgage for their parents’ property when they have their own lives to lead in the future.”

The judge then turned to what she described as the other option, namely the rental market. As to this, she said in paragraph 16 of her judgment:

“[Ms Bowmaker] has indicated that a three bedroomed bungalow in the area that is appropriate for this family would be about £1,300 per calendar month. Mr Baker confirmed that his current mortgage payment is £1,060 per calendar month. It was suggested that the equity from the sale of the property due to Mrs Baker could be used to make up a shortfall but that is quite short term thinking in my view because any shortfall is easily going to be eaten up and it will be gone. How does Mrs Baker then meet the cost of renting after that? There is a question, therefore, as [to] whether or not that is affordable. Having said that, Mr Baker’s main concern is the temporary nature of rented accommodation in the private sector. It is correct that he could negotiate a 12 month assured shorthold tenancy but once that year is up it is also correct that the landlord need only serve a s.21 notice and he would have to vacate within a period of two months, possibly longer if he makes them apply for a possession order, but that just increases costs and is not the reasonable position to take. His concern with regards to the temporary nature of rented accommodation is the effect on Samantha.”

The judge then considered whether the local authority (Uttlesford District Council) might be able to house the family. Mr Baker’s evidence was that he had approached the local authority a few years ago, and was told that they would make sure that Samantha always had a place to live, but would not be in a position to provide Mr and Mrs Baker with accommodation for themselves. The judge said that in her view this was probably correct, given that Mr Baker was working, and on a sale of the Property Mrs Baker would receive half of the proceeds. Moreover, it would not be satisfactory for Samantha to be rehoused separately from her parents. Accordingly, if the Property were to be sold, Mrs Baker and Samantha would have to resort to the private rented sector for accommodation. The judge continued (at the end of paragraph 17):

“My concern is that that does provide Samantha with accommodation but on a temporary basis and it cannot be considered in any way as permanent because of the possibility of being asked to leave or to give up possession at very short notice. As a result of Samantha’s disabilities and the effect upon her of moving, Dr Lindford clearly indicates that moving home would have a real negative impact on her well-being. I do consider that these are exceptional circumstances.”

Having concluded that the circumstances were exceptional, the judge then turned to the exercise of her discretion. I will quote the final three paragraphs of her judgment in full:

“18. The next question I have to consider is weighing up the creditors’ right of realising the share of the property against the rights of Mrs Baker and Samantha of living in that property. It is clear from the evidence that I have set out in the statement of Mr Grant, one of the trustees, that if the property is to be sold then it is highly likely that the only creditor – HMRC – would receive a dividend, although it is not certain exactly how much would be received. As I say, given the figures before me the equity available to the trustees by way of Mr Baker’s share of this property, is more likely to be in the region of £30,000 than £36,000 on the basis that the costs of sale have not been taken into consideration and they will of course have to be paid. I understand that costs [i.e. of the bankruptcy] certainly do not exceed £30,000 at this stage and therefore there would be some dividend to the creditors. However, even if there were no dividend to the creditors that would not necessarily mean that I should not make an order for sale. If I do not make an order for sale or if that sale is postponed then the creditors will need to wait for their dividend.

19. What I have to do, in my view, is weigh up the interests of the creditors against the interests of Mrs Baker and her daughter. As I have indicated, I do find that these are exceptional circumstances. It is in the interest of the creditors for there to be an order for sale and the trustees have indicated that it would be appropriate only for a few months of time to be given to Mr and Mrs Baker to find alternative accommodation. In my view, given that the only option available to Mr and Mrs Baker is that of the private rented sector and because that would then put Samantha in a situation where she is not guaranteed a home for the rest of her life, that would be too detrimental to Samantha Baker and therefore her mother to make an order for sale without a postponement.

20. Given Samantha’s condition, the order that I will make is that the property should be sold but that sale should be postponed until Samantha Baker is no longer residing in that property or no longer requires that property as a home.”

As I have already said, the judge then rejected a submission by counsel for the Trustees that a longstop date should be specified. Her order also made no provision for the Trustees to return to the court if there were a material change of circumstances while Samantha still resided at the Property.

Are the circumstances of the present case exceptional?

I propose to deal with this part of the appeal briefly, because in my view the judge was clearly entitled to find that the circumstances of the present case are indeed exceptional, thereby displacing the presumption that the interests of Mr Baker’s creditors are to outweigh all other considerations. The judge’s conclusion on this point involved a value judgment, which as Jonathan Parker J said in Claughton v Charalambous leaves very little scope for interference by an appellate court. It seems to me that she considered the evidence carefully and conscientiously, and the value judgment which she formed was an entirely legitimate one.

Ms Bowmaker focused her argument on this part of the case on the medical evidence, submitting that it fell short of what would be needed to demonstrate an adverse impact on Samantha, if she were no longer able to live at the Property, which went beyond the normal melancholy consequences of a forced sale. She submitted that the medical evidence was scanty in both quantity and quality, and that no proper consideration had been given to the likely impact on Samantha of living in private rented accommodation. She pointed out that Samantha and her family had moved from London to Saffron Walden eight years previously, and after a period of adaptation this had been, in the judge’s words, “a positive move for Samantha”. If Samantha had to move house again, the move would doubtless be painful for her in the short term, but in due course she could be expected to settle down into a new routine. In so far as the judge took into account Samantha’s OCD, this was not the subject of any medical evidence at all, and should therefore carry little if any weight.

There is force in some of these points, but they do not persuade me that the judge was wrong to characterise the circumstances as exceptional. Her assessment had to be formed on the evidence as a whole, including the oral evidence of which I do not have a transcript. The medical evidence from Dr Lindford may have been relatively short and informal, but it included clear statements that the fear of moving home had been detrimental to Samantha’s mental well-being, and had caused her a lot of distress. Her life requires routine, and the Property is well suited to her needs. Accordingly, a move from her home of the last eight years “would have a real negative impact on her well-being”. I was informed, in this connection, that Dr Lindford has been Samantha’s general practitioner for a considerable time and has seen her frequently. With the benefit of this evidence, and that from the Papworth Trust, combined with Mr Baker’s own evidence of his daughter’s condition and the problems of caring for her throughout her life, the judge in my view had ample grounds for concluding that the circumstances were exceptional. A medical or mental condition of one of the joint owners is a paradigm example of circumstances which the court may properly recognise as exceptional, and I can see no reason in principle why the same should not apply where the medical or mental condition is that of a child for whom the joint owners care in their home.

The real question, therefore, is whether, having found the circumstances of the case to be exceptional, the judge then correctly exercised her discretion by ordering an indefinite postponement of the sale of the Property while Samantha continued to live there.

Did the District Judge err in the exercise of her discretion?

Both counsel rightly reminded me of the approach which an appellate court should adopt when reviewing the exercise of a discretion by the judge of first instance. In A. E. I. Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, Lord Woolf MR, at 1523, endorsed an earlier description of the conventional approach in the following terms:

“Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”

Also frequently cited in this connection are the observations of Lord Fraser of Tullybelton in G. v G. (Minors: Custody Appeal) [1985] 1 WLR 647 at 652, where he emphasised the point:

“that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the [appellate court] might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.”

The judge directed herself, in paragraphs 18 and 19 of her judgment, that she needed to weigh up the interests of the only creditors, HMRC, against the interests of Mrs Baker and Samantha. This was true as far as it went, but in my view paid insufficient attention to the requirement in section 335A(2)(c) to have regard to “all the circumstances of the case other than the needs of the bankrupt”. The circumstances of the case include the statutory scheme of the bankruptcy legislation, at the heart of which is the vesting of the bankrupt’s property in his trustee, with the object that the trustee should then realise the property and distribute the net proceeds among the unsecured creditors on a pari passu basis. Moreover, the clear effect of section 283A of the 1986 Act is that there is a limited period of three years within which the trustee must either take steps towards realisation of the bankrupt’s interest in his home, or forfeit that interest as part of the bankrupt’s estate. If, as in the present case, the trustee does take action within the requisite period, it seems to me that the court should then exercise its powers under section 335A with the object of enabling the bankrupt’s interest in the property to be realised and made available for distribution among his creditors. Only in that way can the underlying purpose of the bankruptcy legislation be achieved.

Furthermore, since the vesting of the bankrupt’s property in the trustee is central to the operation of the statutory scheme, and since the trustee’s reasonable costs are payable in priority to any distribution to creditors, it must follow that the statutory scheme requires the property to be realised even if the proceeds may be swallowed up in meeting the trustee’s reasonable costs, with nothing left for the unsecured creditors. This must, I think, be the explanation for the well-established principle that an order for sale should normally be made even if the whole of the net proceeds will be exhausted in paying the expenses of the bankruptcy. The judge clearly had this principle in mind when she said, in paragraph 18, that “even if there were no dividend to the creditors that would not necessarily mean that I should not make an order for sale”. I respectfully consider, however, that she may have blunted the force of the principle by expressing it in these qualified and negative terms. More importantly, I think she also failed to give appropriate weight to the fundamental point that an indefinite suspension of the order for sale, for a period that could be measured in decades, is incompatible with the underlying purpose of the bankruptcy code. In all save the most truly exceptional circumstances, that purpose must require realisation within a much shorter time frame, normally to be measured in months rather than years.

In reaching her conclusion, the judge thought it would be unreasonable to order a sale while Samantha continued to live in the Property, because the only available alternative accommodation would be in the private rented sector, and this would not guarantee Samantha a settled home for the rest of her life. In my respectful view, this reasoning is open to criticism on a number of grounds.

In the first place, the judge was in my view unduly influenced by the perceived lack of security for Samantha if she and her parents had to move into private rented accommodation. The judge thought that such accommodation could not “be considered in any way as permanent because of the possibility of being asked to leave or to give up possession at very short notice” (paragraph 17 of the judgment). But millions of people in England live in the private rented sector, and I see no reason to doubt that the Bakers would be model tenants of the kind that most landlords (including, in particular, buy-to-let landlords) would be very happy to retain on a medium to long term basis, even if technically they held under an assured shorthold tenancy terminable on two months’ notice. Furthermore, what matters from Samantha’s perspective is the practical reality of settled residence in a suitable property, rather than the precise legal relationship by which such residence is provided.

Secondly, I think the judge was wrong to dismiss as “quite short term thinking” (in paragraph 16) the suggestion that Mrs Baker’s share of the equity from a sale of the Property could be used to make up a shortfall in paying the rent for a suitable replacement. The evidence adduced by the Trustees indicated that the rent for a suitable three bedroomed bungalow in the area would be about £1,300 per month, or some £240 more than Mr Baker’s current monthly mortgage payments of £1,060. This is a comparatively small gap, particularly bearing in mind that a two bedroomed bungalow should suffice given the independence of the Bakers’ two sons. If Mrs Baker’s share of the equity in the Property were about £30,000, it should be enough to meet a rental shortfall of this approximate size for at least a decade. Furthermore, Mrs Baker is now aged 48, and there must be a reasonable prospect that she will again be able to find paid employment, if not in the same job as before. I therefore agree with counsel for the Trustees that the judge erred in principle in holding, in effect, that it would not be right for Mrs Baker’s share of the net sale proceeds of the Property to be put towards securing alternative accommodation for the family.

Thirdly, Samantha’s ultimately positive experience of moving from London to the Property eight years ago shows that the prospect of a further move, sensitively handled, cannot be dismissed as something which it would be unreasonable to inflict upon her. There is no suggestion that her condition has worsened over the last eight years, and the medical evidence of Dr Lindford says only that a move would “have a real negative impact on her well-being”, without addressing the question how serious that impact would be, or for how long it would last. Far more detailed and cogent medical evidence would have been needed, in my judgment, to justify a postponement of the sale of the Property for more than a relatively short period.

Fourthly, the judge was in my view wrong not to consider any alternative to indefinite postponement of the sale. As I have already explained, such a postponement, on the facts of the present case, cannot be reconciled with the statutory scheme and purpose of the bankruptcy legislation. The need for the Property to be sold within a reasonable period is therefore a nettle which has to be grasped, and since there is no evidence that Samantha’s condition is likely to improve, her interests do not require a postponement for longer than it will take to find suitable alternative rented accommodation, and plan the move in a way which will cause her the least distress.

Taking all these matters into consideration, I can see no escape from the conclusion that the judge erred significantly in the exercise of her discretion. The conclusion which she reached fell well outside the “middle ground” within which views may legitimately differ. It is therefore necessary for this court to exercise the discretion afresh, and form its own view on the appropriate period of suspension. It is material to remember, in this connection, that the hearing before me took place two and a half years after Mr Baker was made bankrupt on 20 November 2013, and nearly a year after the Trustees issued their application for sale of the Property. This is a relatively simple bankruptcy, with only one unsecured creditor. Meanwhile, the Trustees’ own costs continue to grow, and while the Property remains unsold they are unable to complete their task.

In my judgment, the longest further postponement that it could be reasonable to impose is one of approximately 12 months, to the end of July 2017. This would allow ample time for a suitable replacement property to be found on the rental market, and for the move to be prepared with Samantha’s welfare and best interests at heart. It should also allow time for consideration of any claim which Mr Baker might in principle be able to bring against the estate of his former accountant, and for any proposals arising from such a claim to be put to the Trustees. To allow a further year may be thought generous, but in my view it strikes an appropriate balance in the circumstances of the present case between the interests of the unsecured creditor (which, as a government department, will not suffer significantly from the further delay in payment) and the reasonable needs of Samantha and Mrs Baker, which have to be evaluated consistently with the underlying purpose of the bankruptcy. That is therefore the order which I propose to make.

Conclusion

For the reasons which I have given, the Trustees’ appeal will be allowed.

Ford & Anor v Alexander

[2012] EWHC 266 (Ch)

Peter Smith J:

INTRODUCTION

On 15th November 2011 I heard a number of applications. The primary application was a review of a decision I made on 5th July 2011 when I granted the Appellants Mr and Mrs Ford (“the Appellants”) permission to appeal the decision of District Judge Lambert dated 19th May 2011 sitting in the Central London County Court in Bankruptcy. By that decision the learned District Judge granted the Respondent (“the Trustee”) the right to possession and sale of the Coach House, 2A Turrett Grove, Old Clapham Town, SW4 0EU (“the Property”). She provided for the order to be suspended until 1st July 2011 and made other ancillary orders in respect of the proceeds of sale.

When I granted permission to appeal on 5th July 2011 I was not aware of the fact that a Civil Proceedings Order had been made against the Appellants by the Court of Appeal. Equally I was unaware that the day before the Appellants had made an application for a stay before Mann J which he had refused.

When those matters were drawn to my attention I decided it was appropriate to review my decision of 5th July 2011 and I directed the parties to apply to listings to fix a date with an estimate of half a day with a consensually agreed stay of execution remaining in force until the review was determined.

That was the hearing that was before me which has led to this judgment. It also meant that effectively the review of the decision, the application for permission to appeal if granted and appeal would all be heard at the same time.

At the conclusion of the hearing I indicated that I would refuse the Appellants permission to appeal upon review of my decision on the grounds that their appeal had no prospect of success. I indicated that I would give reasons thereafter. This judgment sets out the reasons.

Subsequent to the hearing Mrs Ford wrote to me on 5th December 2011 raising matters which were not canvassed in the hearing. I have taken those into account. The Trustee did not wish to make any observations. I do not believe that anything in that correspondence assists the Appellants in their appeal.

BACKGROUND

The background to this case is substantially set out in the judgment of the learned District Judge below and I need to advert to it only briefly.

On 12th October 2007 Bankruptcy Orders were made against the Appellants. The petitions related to a unpaid costs order made by Ouseley J on 24th September 2004 in proceedings between the London Borough of Lambeth and Mr and Mrs Ford. The Official Receiver became Trustee of Mr Ford’s estate on 20th November 2007 and the Trustee of Mrs Ford’s estate on 26th November 2007.

The Trustee was appointed Trustee of the estates of Mr and Mrs Ford on 26th April 2010. He notified them on 12th May 2010 of his intention to seek an order of possession of the property pursuant to rule 6.237 of the Insolvency Rules 1986 as amended by section 283 A of the Insolvency Act 1986 (“IA 1986”). He invited them to make an offer to him within 14 days for his interest in the property. No offer was received and they have confirmed that they are not in a position to make any offer. The present proceedings were commenced on 16th July 2010 and heard by the District Judge on 15th April 2011. Her judgment as I have said was delivered on 19th May 2011.

The issue relates to the Property and whether or not the Respondent as Trustee ought to have possession in order to sell it to provide a return to the Creditors in the estate of the two bankrupts.

THE PROPERTY

The Property is somewhat unusual. It comprises a garage/outbuilding that was converted without planning permission into a studio flat. The Appellants occupy this building as their only home. It has been in Mr Ford’s ownership since 1981although he was not in continuous occupation until 2003 when the Appellants started to live in the Property together. There are no charges on the Property and the Appellants are the only people in occupation.

On 26th January 2011 the Planning Inspector made a decision allowing an appeal by the Appellants against the refusal to grant planning permission and granted retrospective planning permission for the use of the existing building as a dwelling at the Property subject to conditions. The relevant condition is that the dwelling should be occupied only by the Appellants and when the building ceases to be occupied by at least one of those as their main residence the use as a dwelling shall cease.

IMPACT OF BANKRUPTCY

All property owned beneficially by a bankrupt vests in the Official Receiver and then in any subsequent Trustee when appointed. The duty of the person so appointed is so far as possible to realise the assets for the benefit of the creditors and for paying the costs of the bankruptcy and the Official Receiver. There have been a number of specific provisions addressing the principal dwelling of a bankrupt. The latest is section 283A IA 1986 which was inserted by the Enterprise Act 2002 (section 261 (1)). The relevant section provides as follows:-

“283A Bankrupt’s home ceasing to form part of estate

(1)This section applies where property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of—

(a)the bankrupt,

(b)the bankrupt’s spouse [or civil partner], or

(c)a former spouse [or former civil partner] of the bankrupt.

(2)At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall—

(a)cease to be comprised in the bankrupt’s estate, and

(b)vest in the bankrupt (without conveyance, assignment or transfer).

(3)Subsection (2) shall not apply if during the period mentioned in that subsection—

(a)the trustee realises the interest mentioned in subsection (1),

(b)the trustee applies for an order for sale in respect of the dwelling-house,

(c)the trustee applies for an order for possession of the dwelling-house,

(d)the trustee applies for an order under section 313 in Chapter IV in respect of that interest, or

(e)the trustee and the bankrupt agree that the bankrupt shall incur a specified liability to his estate (with or without the addition of interest from the date of the agreement) in consideration of which the interest mentioned in subsection (1) shall cease to form part of the estate.

(4)Where an application of a kind described in subsection (3)(b) to (d) is made during the period mentioned in subsection (2) and is dismissed, unless the court orders otherwise the interest to which the application relates shall on the dismissal of the application—

(a)cease to be comprised in the bankrupt’s estate, and

(b)vest in the bankrupt (without conveyance, assignment or transfer).

(5)If the bankrupt does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2)—

(a)shall not begin with the date of the bankruptcy, but

(b)shall begin with the date on which the trustee or official receiver becomes aware of the bankrupt’s interest.

(6)The court may substitute for the period of three years mentioned in subsection (2) a longer period—

(a)in prescribed circumstances, and

(b)in such other circumstances as the court thinks appropriate.

(7)The rules may make provision for this section to have effect with the substitution of a shorter period for the period of three years mentioned in subsection (2) in specified circumstances (which may be described by reference to action to be taken by a trustee in bankruptcy).

(8)The rules may also, in particular, make provision—

(a)requiring or enabling the trustee of a bankrupt’s estate to give notice that this section applies or does not apply;

(b)about the effect of a notice under paragraph (a);

(c)requiring the trustee of a bankrupt’s estate to make an application to the Chief Land Registrar.

(9)Rules under subsection (8)(b) may, in particular—

(a)disapply this section;

(b)enable a court to disapply this section;

(c)make provision in consequence of a disapplication of this section;

(d)enable a court to make provision in consequence of a disapplication of this section;

(e)make provision (which may include provision conferring jurisdiction on a court or tribunal) about compensation.]”

The essence of this statutory provision was to give a Trustee 3 years to realise the property in question. If he has not attempted to realise at the end of that period the property revests in the bankrupt without any conveyance, assignment or transfer.

In this case the notification was given on 12th May 2010 which is within the 3 year period.

The Appellants are registered as joint proprietors of the Property with title absolute under title number TGL203329. As they held the Property upon trust for themselves the legal title would not vest in their trustees and they would remain trustees to give effect to the beneficial interest which would have vested in the Trustee. That means that the Trustee would have to make an application (which is in effect what he has done) to realise the beneficial interest under the trusts of the Property. Provision is made for such application to be made in the bankruptcy court (as it always was made) under section 335A IA 1986. That section provides as follows:-

“335A Rights under trusts of land.

(1)Any application by a trustee of a bankrupt’s estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2)On such an application the court shall make such order as it thinks just and reasonable having regard to—

(a)the interests of the bankrupt’s creditors;

(b)where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the [F3bankrupt’s spouse or civil partner or former spouse or former civil partner]—

(i)the conduct of the [F4spouse, civil partner, former spouse or former civil partner], so far as contributing to the bankruptcy,

(ii)the needs and financial resources of the [F4spouse, civil partner, former spouse or former civil partner], and

(iii)the needs of any children; and

(c)all the circumstances of the case other than the needs of the bankrupt.

(3)Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.

(4)The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this section.]”

The hearing before me centred almost exclusively on the impact of that section on the Trustee’s application. As the section shows in effect the bankrupts are permitted if no action is taken by the Trustee to remain in possession of the Property for one year. Thereafter under sub section (3) it is provided that after that year the court shall unless the circumstances of the case are exceptional assume that the interest of the bankrupts’ creditors outweighs all other consideration.

There was an issue as to the value of the property especially in the light of the limited planning permission. On 11th January 2011 Deputy Registrar Jones gave all parties permission to file expert evidence as to the value of the Property both with and without planning permission. The Appellants never filed any expert evidence as to the value. The Trustee had a letter from Hamptons recommending an asking price of £40,000 for this property and a second valuation from a local agent Duck & Hedges for the same amount. He had also received a written offer to purchase the property at that price from Gregory Besterman of Nightingale Square Properties, a neighbouring land owner. It appears that the acquisition of the property might be beneficial to the development of the adjoining property. Finally, shortly before the hearing before the District Judge the Trustee provided a short valuation from Messrs Currell dated 13th April 2010 estimating the value of the property at £40,000. The Appellants challenged that valuation and said that it was an undervalue. They produced no evidence however beyond a letter dated 11th April 2011 from Messrs Foxtons recommending an asking price of £55,000. The Trustee confirmed he would seek to sell the property for that price although he would have to be realistic and accept the best price available.

There was some dispute about the creditors with the total figure according to the Trustee being some £262,171.08. There was an issue about whether or not there were any other assets, in particular a sum of £6,550 which was supposedly paid into Wandsworth County Court but the Trustee investigated with the court and was unable to find any evidence showing such a payment in.

The creditors’ sums are therefore significant and the sale of the Property represents the only likely method of the creditors having some return. The Trustee’s costs were approximately £15,000. If the Property achieved a sale price of £55,000 there will be a net figure of £40,000 for the creditors. If they were in at about £262,000 that would produce a dividend in very approximate terms of 20 pence in the pound.

The counter argument for the Appellants is that the property should never be sold. They should remain there indefinitely and the creditors receive nothing.

OPPOSITION TO SALE

The Appellants relied on matters set out in their witness statements in support of their claim that it would be disproportionate to order a sale of their home in comparison to the benefit of the sale to the creditors. There was reference to the medical conditions that they suffered and the fact that they would lose their only home. It was said to be doubtful that they would be accepted as homeless and would not meet the definition of priority as they are childless and clearly not vulnerable. They would also have difficulty finding private rental accommodation due to their need to house their fish and terrapins, particularly a property in the area in which they currently live. Although the Trustee did not challenge any of this evidence, in my view it was seriously undermined by the fact that the Appellants had made no attempts to find any alternative property to see whether their fears were justified.

DISTRICT JUDGE’S DECISION

First she reviewed the law in this area comprehensively. When it came to applying section 335 IA 1986 she had mind to the impact of section 3 Human Rights Act 1998 (“HRA”) and Article 8 of the Convention for Protection of Human Rights and Fundamental Freedoms 1950 (“Convention”). The former provides that in so far as it is possible to do so primary legislation must be read and given effect in a way which is compatible with the Appellants’ convention rights i.e. the operation in this case of section 335 A. The latter affirms that everyone has a right to respect for his private and family life his home and his correspondence (Article 8 (1)). However there is a limit as sub paragraph (2) which specifies:-

“(2) there should be no interference by a public authority in the exercise of this right, except such as in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic wellbeing of a country, for the prevention of disorder or crime for the protection of health or morals, or for the protection of rights and freedom of others.”

The Deputy Judge rightly expressed the view (paragraph 16) that there has to be a balancing exercise between the individual’s rights where, there is some interference with that right and where the rights and freedoms of others might be affected.

She then reviewed a series of cases involving applications for sale of a bankrupt’s home where Article 8 was considered and it was found in all those cases that the legislation in section 335 A IA 1986 was not incompatible with Article 8 (see for example Foyle v Turner [2007] BPIR 43 and Turner v Avis [2008] BPIR 1143).

In Foyle His Honour Judge Norris QC (as he then was) considered the impact of Article 8 and applying Kay v London Borough of Lambeth [2006] UKHL 10; [2006] 2 AC 465 concluded that, where a statutory regime confers on the court jurisdiction to make an order for possession, if the court thinks it is reasonable then the exercise of that jurisdiction will require the court to undertake the very assessment which Article 8 requires to be undertaken. The learned Judge then (paragraph 17) expressed the view that the same principles apply to section 335 A IA 1986 and that provided the provisions of that section were faithfully followed and applied there was no need to enter into any separate consideration of Article 8 rights. The priority determined by Parliament as between creditors and bankrupts’ family (after the initial period of 1 year) is that save in “exceptional circumstances” the interests of the creditors are to prevail.

In Turner His Honour Judge Pelling QC applied Foyle and also went on to consider “exceptional circumstances”. I will return to that further in this judgment.

EXCEPTIONAL CIRCUMSTANCES

The District Judge then reviewed what were exceptional circumstances and applied Harrington v Bennett [2000] BPIR 630 at 663 and expanded in Dean v Stout [2005] BPIR 113 (paragraph 19). She determined that:-

(1) The presence of exceptional circumstances was a necessary condition to displace the assumption of the interests of the creditors prevailing but that presence did not debar the court from making an order for sale.

(2) Exceptional circumstances related to the personal circumstances of one of the joint holders such as medical or mental condition.

(3) The categories of exceptional circumstances were not to be categorised or defined and the court makes a value judgment after looking at all the circumstances.

(4) The circumstances must be exceptional and were intended to apply the same test as applied in the pre IA 1986 decisions on bankruptcy (Re Citro (a bankrupt) [1991] Ch 142) and exceptional or special circumstances are outside the normal melancholy consequences of debt and improvidence.

(5) It is not uncommon for a wife and children to be faced with eviction in circumstances where the realisation of the beneficial interests would not produce enough to provide a compatible home but that was not exceptional.

(6) For the purpose of weighing the interests of creditors the creditors have an interest in the order for sale being made even if the whole of the net proceeds go towards the expenses of the bankruptcy and the fact they will be swallowed up in paying these expenses is not an exceptional circumstance justifying the displacement of priority for the creditors.

She then followed the observations of Paul Morgan QC (as he then was) in Hosking v Michaelidis [2006] BPIR 1192 and Judge Pelling in Turner above. She also observed that in an application like the present for an order for sale the court is considering the rights of the parties under trusts of land and that the bankruptcy state (by that she meant the beneficial interests) is vested in the Trustee in bankruptcy. The purpose of the sale by the Trustee is in order to realise the beneficial interest vested in the Trustee and he expressed the view that was a legitimate aim which answers a pressing social need as in most cases this would be justified on the basis it is necessary to protect the rights of others, namely creditors.

She rejected the submission that the exercise of the rights under section 335 A was disproportionate and cases cited to her namely Zehentner v Austria [2009] and Manchester City Council v Pinnock [2010] UKSC 45 did not require her to operate a different exercise from the wording of the section. She also concluded that those decisions did not require her to adopt a different approach from that taken by the courts in Re Citro and Harrington v Bennett and Dean v Stout referred to above.

She therefore concluded that she approached the matter in accordance with the section as set out in the previous authorities summarised in this judgment above.

THE EVIDENCE

Having directed herself to the correct application of the law she then reviewed the evidence of value and other assets. She considered the matters put forward by the Appellants as to disproportionality and the difficulties they would have in finding alternative accommodation and considered those in her judgment (paragraph 55 et seq). She balanced the position of the creditors and their desire to obtain something out of the bankruptcy, which they would not unless the Property was sold, against the medical evidence showing that the Appellants were suffering from moderate depression and moderate to severe depression being brought about by the worry associated with the consequences of losing their home. It was submitted on behalf of the Trustee that these were not exceptional circumstances but merely “melancholy consequences of debt and improvidence”. She also observed that whilst there might be difficulties about alternative accommodation there were other possibilities which had not been fully investigated by the Appellants. That remained the position before me and she observed (paragraph 60) that they did not seek a suspension of the order for possession but an indefinite suspension.

She rejected that the evidence of the Appellants showed any exceptional circumstances justifying a rejection of the Trustee’s claim (paragraph 78). She set her reasons out in full in paragraph 79. She rejected the medical condition and the ages of the Appellants as being exceptional circumstances (paragraph 81) and she determined that the interest for the creditors required a sale (paragraph 83). This led her to an overall conclusion that there were no exceptional circumstances and that even if all the circumstances put forward by the Appellants were considered collectively she did not consider they were exceptional and were nothing more than the sad consequences of debt and improvidence. There is no challenge to these findings. Nor could there be in my view.

Finally she dealt with the position if she was wrong on the alternative argument put forward by the Appellants in that section 335 A needs to be modified to apply a proportionality test for the order for sale. If that were the correct test then she concluded that it would not be disproportionate to order a sale on the facts of the case.

She therefore granted the application but suspended its operation for 6 weeks.

GROUNDS OF APPEAL

Ground 1 is that the District Judge failed to read and apply section 335 A in compliance with section 3 and 6 of HRA 1998. Ground 2 is that she failed to find that “unless the circumstances of the case were exceptional” should be read as if for “exceptional” was inserted “such that it would be disproportionate to do so” or otherwise “exceptional” should be read and applied subject to the proportionality principle. Third it is complained that she failed to find their circumstances exceptional in that sense in the Appellants’ case so that the Trustee’s application should be dismissed. Finally it is complained that in so far as she did purport to apply the proportionality principle she failed to do. It is suggested she wrongly took the view that applying that principle would mean the Trustee would never be able to realise the interest in a bankrupt’s home and she failed to balance the serious harm caused by making the order to the Appellants against a slight potential gain to the creditors.

The fundamental difficulty with the Appellants’ case is that in my view the grounds of appeal are based on a misunderstanding of paragraph 90 of the District Judge’s judgment. She plainly reconsidered all the facts of the case as if the law of proportionality as contended for by the Appellants was applicable to the case. Applying that test she came to the same conclusion.

There is no challenge in reality to the factual findings of the District Judge. If the law is as established by the line of authorities that I have referred to above she considered all the facts and applied that law and came to a conclusion that the Trustee on behalf of the creditors ought to prevail. I can see no grounds as the Appellate Court in interfering with that conclusion. None is given. Nor could there be because the District Judge’s review is comprehensive and total in my view.

That then leads to the possibility that she has mis-applied the law by rejecting the primary argument of the Appellants that the proportionality test required by Article 8 should be read in to section 335 A. It is correct as I have said that she has rejected that submission. Nevertheless paragraph 90 of her judgment makes it quite clear that she comes to apply that test on a reconsideration of facts and comes to the same conclusion. I do not accept the criticism of her observation that in a case of this kind if an order for sale cannot be made on the ground of proportionality a Trustee would never be able to realise his interest in the bankrupt’s home for the benefit of the creditors to meet their debts. She seems to be saying in my view nothing more than the logical conclusion of the Appellants’ submissions. She cannot conceive of any circumstances on the facts before her where it would be proportionate in effect to look at the creditors’ prospects (which she did), look at the circumstances of the Appellants (and in particular the unexceptional nature of their circumstances), look at what the Appellants were seeking (namely a permanent suspension) and thus conclude that it was proportionate permanently to deprive the creditors of any prospect of ever having any realisation out of the bankruptcy. Instead the conclusion that the Appellants contend for would be that they should be allowed to stay in the Property that no longer belongs to them forever. I agree with her analysis but it must be appreciated that that analysis and the conclusion is in the context of the facts of the case. There may be a circumstance where it is proportionate permanently to deprive a Trustee but that is not the position in the present case.

I can see no basis for criticising this part of her judgment. That means that even if the law as contended for by the Appellants the District Judge has come to the conclusion which in my view is impeccable and has no basis for challenge whatsoever.

PROPORTIONALITY

Although it is strictly unnecessary for me to do so by reason of my analysis of the judgment below I think it is appropriate to express a view on the submissions made by the Appellants based on the Pinnock case.

All of the bankruptcy cases which considered Article 8 pre date the Pinnock decision. Nor were the Trustee in bankruptcy cases considered in Pinnock.

The case involved public sector lettings and the landlord seeking possession was a local authority. There was therefore clearly a public authority which was purportedly interfering with the tenants’ Article 8 rights. The question is the extent to which Article 8 applies (if at all) where the person seeking possession is not a public authority.

The Appellants’ arguments start unpromisingly in my view when one looks at Lord Neuburger’s judgment in Pinnock. In paragraph 4 he said:-

“on the other hand we should emphasise at the outset that nothing in this judgment is intended to bear on cases where the person seeking the order for possession is a private owner. We briefly explain why at paragraph 50 below.”

Paragraph 50 stated as follows:-

“We emphasise that this conclusion relates to possession proceedings brought by local authorities. As we pointed out at para 4 above, nothing which we say is intended to bear on cases where the person seeking the order for possession is a private landowner. Conflicting views have been expressed both domestically and in Strasbourg on that situation. In Harrow v Qazi [2004] 1 AC 983 the views of Lord Bingham and Lord Steyn, at paras 23 and 26, can be contrasted with the view of Lord Hope, at para 52. In Belchikova v Russia (App no 2408/06, 25 March 2010), the application was held to be inadmissible, but the EurCtHR (First Section seems to have considered that article 8 was relevant, even when the person seeking possession was a private sector landowner. Presumably, this was on the basis that the court making the order was itself a public authority. But it is not clear whether the point was in contention. In the rather older admissibility decision of Di Palma v United Kingdom (App no 11949/86) (1986) 10 EHRR 149, 1550156, the Commission seems to have taken a different view, but the point was only very briefly discussed. No doubt, in such cases article 1 of the First Protocol to the Convention will have a part to play, but it is preferable for this Court to express no view on the issue until it arises and has to be determined.”

Given that it seems to me that the Pinnock case provides no assistance to the Appellants.

Faced with that Mr Watkinson, who appears for the Appellants referred me to the Austrian case of Zehentner v Austria (app no 20082/02 16 July 2009) where the ECHR first section considered the effects of Article 8 in the context of an order evicting the Applicant from her home following a judicial sale after the making of the Austrian equivalent of a charging order. The decision was referred to in Pinnock not on the point under consideration, namely whether the enforcement procedures by courts is sufficient to attract Article 8 and there was no analysis of that decision in this context.

The Zehentner decision said this on the question of Article 8 applying to the proceedings:-

“2. The Court’s assessment

1. The Court has noted on a number of occasions that whether or not a particular habitation constitutes a “home” which attracts the protection of Article 8 § 1 will depend on the factual circumstances (see, for instance, Buckley v. the United Kingdom, judgment of 25 September 1996, Reports 1996-IV, §§ 52-54 and, as a recent authority, McCann v. the United Kingdom, no. 19009/04, § 46, 13 May 2008).

2. The Court observes that the apartment subject to judicial sale was situated at S.-street 17/3 in Vienna. It appears that the courts considered it to be the applicant’s residence, as it was at that address that the decision authorising the judicial sale and the summons informing the applicant of the date of the auction were served in June and October 1999, respectively. Moreover, it is not in dispute that following the judicial sale which took place in November 1999 the applicant was evicted from the apartment, in February 2000. Consequently, the Court sees no reason to doubt that the apartment subject to the judicial sale was at the material time the applicant’s “home” within the meaning of Article 8 of the Convention.

3. The Court considers that the judicial sale of the applicant’s apartment and her eviction interfered with her right to respect for her home. In contrast to the Government’s view, the Court finds that the judicial sale and the applicant’s eviction are to be seen as a whole. The judicial sale deprived her legally of her home, and was a necessary pre-condition for the eviction, which factually deprived her of her home.

4. The interference at issue will be in violation of Article 8 unless it is justified under the second paragraph of that provision. In the present case the interference was in accordance with the law, being based on the relevant provisions of the Enforcement Act, and served the legitimate aim of protecting the rights and freedoms of others: the proceedings as a whole served the interests of the creditors to obtain payment of their claims. In addition, the eviction and the refusal to annul the judicial sale served to protect the purchaser of the apartment.

5. The Court reiterates that an interference will be considered “necessary in a democratic society” for a legitimate aim if it answers a “pressing social need” and, in particular, if it is proportionate to the legitimate aim pursued. While it is for the national authorities to make the initial assessment of necessity, the final evaluation as to whether the reasons cited for the interference are relevant and sufficient remains subject to review by the Court for conformity with the requirements of the Convention (see Connors v. the United Kingdom, no. 66746/01, § 81, 27 May 2004, and Buckley, cited above, § 74).

6. In this regard, a margin of appreciation must, inevitably, be left to the national authorities, who by reason of their direct and continuous contact with the vital forces of their countries are in principle better placed than an international court to evaluate local needs and conditions. This margin will vary according to the nature of the Convention right in issue, its importance for the individual and the nature of the activities restricted, as well as the nature of the aim pursued by the restrictions. The margin will tend to be narrower where the right at stake is crucial to the individual’s effective enjoyment of intimate or key rights. Where general social and economic policy considerations have arisen in the context of Article 8, the scope of the margin of appreciation depends on the context of the case, with particular significance attaching to the extent of the intrusion into the personal sphere of the applicant (see Connors, cited above, § 82 with further references).

7. The procedural safeguards available to the individual will be especially material in determining whether the respondent State has, when fixing the regulatory framework, remained within its margin of appreciation. In particular, the Court must examine whether the decision-making process leading to measures of interference was fair and such as to afford due respect to the interests safeguarded to the individual by Article 8 (see Connors, cited above, §83, and Buckley, cited above, § 76).

8. In this context the Court has already held that the loss of one’s home is a most extreme form of interference with the right to respect for the home. Any person at risk of an interference of this magnitude should in principle be able to have the proportionality of the measure determined by an independent tribunal in the light of the relevant principles under Article 8 of the Convention (see McCann, cited above, § 50, 13 May 2008).

9. The Court recalls that in proceedings originating in an individual application it has to confine itself, as far as possible, to an examination of the concrete case before it (see J.B. v. Switzerland, no. 31827/96, § 63, ECHR 2001-III). It is therefore not called upon to review the legislation at issue in the abstract, namely the relevant provisions of the Enforcement Act on the judicial sale of property, but will examine the specific circumstances of the applicant’s case. Having regard to the crucial nature of the interference with the applicant’s right to respect for her home, the Court attaches particular weight to the procedural safeguards.

10. The Court notes at the outset that the judicial sale of the applicant’s apartment was authorised on the basis of a payment order which had been issued in summary proceedings. While this may be in the interest of efficient enforcement proceedings, the Court has doubts as to whether the debtor’s interests are adequately taken into account where such a payment order, moreover for a comparatively minor sum, can be the basis for the judicial sale of a debtor’s “home” within the meaning of Article 8. While the Court does not have to examine this system in the abstract, it notes that in the circumstances of the present case it was particularly detrimental to the applicant. It appears from the expert opinion provided in the guardianship proceedings that by the time the judicial sale of her apartment took place she had lacked legal capacity for years. As a result she had not been in a position either to object to the payment order underlying the decision authorising the judicial sale or to make use of the remedies available to the debtor under the Enforcement Act (see paragraph 28 above).

11. It is true, as the Government pointed out, that the courts were not and could not have been aware of the applicant’s lack of legal capacity when conducting the proceedings at issue. However, the Court attaches weight to the fact that once the applicant’s lack of legal capacity had been established and a guardian had been appointed for her, she was left without any means of obtaining a review of her case due to the absolute nature of the time-limit for appealing against a judicial sale laid down in section 187 § 1 of the Enforcement Act.

12. The Court notes the Supreme Court’s and the Government’s arguments that the said time-limit served to protect the bona fide purchaser and the general interests of an efficient administration of justice and of preserving legal certainty. Nevertheless, persons who lack legal capacity are particularly vulnerable and States may thus have a positive obligation under Article 8 to provide them with specific protection by the law (see, mutatis mutandis, Connors, cited above § 84). While generally there may be good reasons for having an absolute time-limit for lodging an appeal against a judicial sale of real estate, specific justification would be required where a person lacking legal capacity is concerned. The Court notes that the Supreme Court has not given any such justification and has not carried out any weighing of the conflicting interests at stake, namely the interests of the bona fide purchaser on the one hand and the debtor lacking legal capacity on the other hand.

13. Turning to the Government’s argument that the absolute time-limit served the general interest of preserving legal certainty, the Court reiterates its established case-law in the context of Article 6 § 1. It has repeatedly stated that one of the fundamental aspects of the rule of law is the principle of legal certainty, which requires, among other things, that where the courts have finally determined an issue their ruling should not be called into question (see, among many others, Brumarescu v. Romania, judgment of 28 October 1999, Reports 1999-VII, § 61). Nevertheless, the Court has held that departures from that principle may be justified when made necessary by circumstances of a substantial and compelling character (see Ryabykh v. Russia, no. 52854/99, § 52, ECHR 2003-IX). The Court has not considered Article 6 § 1 to have been violated where the quashing of a final and enforceable decision was aimed at correcting a fundamental defect (see, for instance, Protsenko v. Russia, no. 13151/04, §§ 30-34, 31 July 2008).

14. In the present case, neither the protection of the bona fide purchaser nor the general interest of preserving legal certainty are sufficient to outweigh the consideration that the applicant, who lacked legal capacity, was dispossessed of her home without being able to participate effectively in the proceedings and without having any possibility to have the proportionality of the measure determined by the courts. It follows that, because of the lack of procedural safeguards, there has been a violation of Article 8 of the Convention in the instant case.

It is clear that the circumstances of the case were extremely unusual. However in the context of section 335 A in my view the requirements in sub section (2) and the change of emphasis in sub paragraph (3) do not infringe Article 8 (2). They provide a necessary balance as between the rights of creditors and the respect for privacy and the home of the debtor. That balance serves the legitimate aim of protecting the rights and freedoms of others. I am therefore of the opinion that the requirements of section 335 A satisfy the test of being necessary in a democratic society and are thus proportionate (see McCann v United Kingdom (App no 19009/04) and Connors v United Kingdom (App no 66746/01)). This was the conclusion in the pre Pinnock bankruptcy cases and I see no basis for coming to a different conclusion.

For the same reasons I do not see that the decision of the Supreme Court in Mayor and Burgess of London Borough of Hounslow v Powell & Ors [2011] UKSC 8 offers any assistance. The checks and balances set out in section 335 A in my view suggest a procedure that is proportionate and Article 8 adds nothing.

In my view therefore given the requirements that are set out in section 335 A the court procedure does not infringe Article 8.

I stress however that that is not necessary for the purpose of this appeal because the District Judge in paragraph 90 of her judgment considered and applied that test in the alternative.

SUBSEQUENT CORRESPONDENCE

I referred earlier in my judgment to correspondence received from Mrs Ford after the hearing. I do not consider any of the matters raised by that correspondence has any relevance to the case before me. The issues were fully argued both orally and in writing.

I will therefore conclude that on a further reconsideration in the hearing the Appellants’ appeal has no prospect of success. Accordingly I revoke my decision to grant the Appellants permission to appeal on 5th July 2011. In effect the hearing before me is an oral hearing in any event on the application for permission to appeal. I therefore determine any appeal has no prospect of success.

POSSESSION

At the end of the hearing I adverted to section 89 of Housing Act 1980 which restricts in most possession proceedings the ability of the court to suspend an order for possession. It limits it to 14 days or 6 weeks in the case of exceptional hardship. The debate between counsel and myself was to the effect that that provision applied (to the present possession proceedings). It was accepted further that as the Appellants had had more than 6 weeks without actually establishing exceptional hardship there can be no prospect of invoking that provision. I raised with the Appellants whether or not they would be willing to give undertakings to the Trustee to vacate the property when he had a buyer (a common practice in bankruptcy cases) and other undertakings of a similar nature but they refused to give any such undertakings.

I have now considered the Pinnock case and the Powell case. The section was raised in both of them (Pinnock paragraph 63 and Powell paragraphs 67 et seq). However in both cases the question of whether or not Article 8 could be relied upon to extend the 6 week period was not argued. I am conscious that that matter has not been argued before me and I invite the parties to provide submissions for my consideration when I hand down this judgment as to the applicability of Article 8 to the provision.

Mekarska v Ruiz & Anor

[2011] EWCA Civ 1646

Mr Justice Mann:

This is an application for permission to appeal, with the appeal to follow if permission is granted, in relation to a decision of Peter Jackson J given on 15 April 2011. Two matters were before him. The first was an appeal from a district judge as to the financial provision made for a wife, the appellant, Ms Mekarska, on her divorce, so in relation to that matter this is would be a second appeal. Second, there is a first appeal from his refusal to annul the husband’s bankruptcy. Tucked away in those appeals is a novel point about Section 336 of the Insolvency Act 1986. It was this point that particularly caught the eye of Ward LJ when he ordered as he did, albeit reluctantly, that the permission to appeal application be heard on notice to the respondents with the appeal to follow if permission were granted.

The substantive respondent to this appeal is the husband’s trustee in bankruptcy represented by Mr Stefan Ramel of counsel. The other respondent is the husband; he appeared in person but did not adopt a position. The appellant wife was unrepresented and had the assistance of a Mackenzie Friend, Mr Laurence Bothwell, whom we allowed to address us.

Chronology

I take the following short chronology from the judgment of the judge below whose judgment can be found at [2011] EWHC 913 (Fam). The husband and wife were married in 2001. In 2002 they moved into a house that had been bought by the husband and which remained in his sole name. It was and is unencumbered by a mortgage and represented the only substantial asset in the marriage. In 2006 the marriage broke down and divorce proceedings began in the county court. In October 2006 the wife obtained a freezing order over the husband’s assets and in due course an occupation order. In December 2006 the husband proposed that the house be sold and that most of the equity to be given to the wife to purchase a two-bedroom flat. This offer was rejected. What has followed since demonstrates how unfortunate that that rejection was.

In 2006 and 2007 the husband started to run up large debts and on 21 December 2007 he presented his own bankruptcy petition at the High Court. The bankruptcy order was made on that day in accordance with the normal practice. His declared assets were almost £300,000 and the principal asset was the family home then valued at £279,000. He had a share trading account containing £18,000. Apart from that he had an occupational pension. His debts were just over £66,000. If steps had been taken at that point or shortly thereafter to realise assets to pay that debt, or those debts, the balance could have been saved and applied for the benefit of the parties. Alas, it did not happen.

By virtue of Section 30 of the Family Law Act 1996 the wife had “home rights” and she protected those by registration on 8 April 2004. On 3 November 2006 District Judge Wicks sitting in the Uxbridge County Court made an order under Section 33(5) that her rights should not come to an end after the divorce. Section 336(2) of the Insolvency Act 1986 provides that the charge created by the 1996 Act continues to subsist notwithstanding the bankruptcy. Accordingly her rights survived the divorce in May 2007 and persisted into the bankruptcy in December 2007. Unfortunately the wife was not immediately told of the bankruptcy. She only discovered it in March 2008. At that point her solicitors stated they were instructed to apply to annul the bankruptcy order. However it was not until September 2009 that the wife actually issued such an application. By April 2008 the amount required to discharge the bankruptcy had risen to some £117,000.

A trustee in bankruptcy was appointed in February 2008 and in due course he proposed, and the wife agreed, that the house should be sold. A buyer was found at a price of £270,000, so at that stage the wife was cooperating in the sale. That was the state of affairs when District Judge Wicks made the first of the orders challenged in this proposed appeal on 7 November 2008, namely the order for financial provision. At that stage, because of the bankruptcy, the court only had the net asset of the husband after payment of the bankruptcy debts and expenses to play with. The effect of the district judge’s order was to award the wife the whole of that amount — in essence the house plus the husband’s capital of £18,000 less the bankruptcy debts and expenses — leaving the husband with only his pension rights. That, if implemented, would have left the wife with a sum of just short of £150,000. Unfortunately there was no sale of the property at that stage.

Immediately after the hearing the prospective purchasers dropped their offer from £270,000 to £250,000. At that point the wife, believing the property was worth much more than that, withdrew instructions from her solicitor and stopped cooperating with the sale process. In December 2008 the trustee in bankruptcy asked her to sign a notice relinquishing her home rights so that the sale could go through, and he urged cooperation in order to avoid incurring further costs. He did not get that cooperation. Accordingly he commenced possession proceedings in January 2009 and those proceedings have been adjourned from time to time and are still outstanding.

As the judge below observed in paragraph 25 of his judgment, by this stage it would have been obvious to anyone who had looked that the assets were, as he put it, haemorrhaging. For my part I would more simply say that they were being needlessly wasted.

There had been no attempt to appeal the ancillary provision order within the time limit for appeals, but in May 2009 the wife made an application to appeal out of time and an unnecessary application for permission to appeal. In due course an extension and the unnecessary permission were given. In his judgment below Peter Jackson J implicitly questioned the wisdom of that decision. For my part, I respectfully agree with that stance.

Eventually on 15 September 2009 the wife made her application for an annulment of the bankruptcy. On 4 March 2010 Registrar Nicholls ordered that the annulment application be transferred to the family division to be heard with the appeal against the ancillary provision order. Thus the two matters from which the appellant seeks to appeal arrived before Peter Jackson J.

The decision below

The judge carefully considered the jurisdiction to annul a bankruptcy, and in particular cases where the debtor’s assets exceeded his liabilities and his petition was for an ulterior motive. He also considered the extent to which a trustee would be entitled to his costs and expenses on an annulment. He concluded that the husband was in fact unable to pay his debts and so could establish the degree of insolvency necessary to a petition. He did not find that there was any evidence that the husband’s motivation for petitioning was to frustrate the wife’s legitimate claims in ancillary provision proceedings and found that the husband had accurately declared his assets. He found that the bankruptcy was “unnecessary but it was not tactical” (paragraph 82.2). He then dealt with what was then a new argument under Section 336 of the 1986 Act, which was deployed by the wife in order to establish that it gave her a right which persisted through the bankruptcy and could not be removed. He rejected those arguments. Apparently the arguments were advanced in support of the annulment application although it is not clear from his judgment how the two inter related. He came to the conclusion that the wife had not established the threshold of demonstrating that the bankruptcy order ought not to have been made and he therefore refused the annulment. He then went on to consider that whether he would have granted the application if the threshold (whether the order ought not to have been made) had been crossed and came to the conclusion that if he had had the discretion he would not have exercised it in favour of annulment. He also rejected the idea that if he had ordered an annulment he would disallow the trustee’s fees in full.

So far as the appeal from the financial provision order is concerned, he rejected the argument that the district judge proceeded on a false assumption that no challenge to the bankruptcy was possible. The wife at the time was not challenging the bankruptcy order and the district judge had no application or case to disturb it. An adjournment of the ancillary provision hearing — which no one was asking for anyway — would not have been sensible; nor did the annulment application in due course invalidate the basis on which the district judge’s order was made. There was no basis on which a district judge should have found that the husband had hidden assets and the district judge did not err in applying the checklist and factors set out in section 336(4) of the Insolvency Act 1986. He found that the district judge showed a “sensible and pragmatic balancing” of the information before him. In all the circumstances he rejected that appeal.

This appeal

Through Mr Bothwell, Ms Mekarska challenges both limbs of the judgment below. Section 336 has featured heavily in the arguments, though this time more in relation to the financial provision order than in relation to the annulment aspect.

The appeal from the ancillary provision part of the judgment

This is an attempt at a second appeal. As such permission should only be given if it raises an important point of principle or practice or there is some other compelling reason for the Court of Appeal to hear it. I am quite satisfied that these criteria are not fulfilled. Indeed, I am satisfied that there is no point worthy of an appeal; Mr Bothwell failed to raise any arguable point.

His first point concerned section 336(2)(a) of the Insolvency Act 1986. This section refers to the Family Law Act 1996 without which it cannot be understood, so I first set that out. That Act provides for rights of occupations of homes in favour of spouses and civil partners. Section 30 applies to cases such as the present where one spouse, here Ms Mekarska, the appellant, does not have a beneficial interest in the home. It provides:

“(1) This section applies if

(a) one spouse or civil partner (Person A) is entitled to occupy a dwelling-house by virtue of

(i) a beneficial estate or interest or contract, or

(ii) any enactment giving that spouse the right to remain in occupation, and

(b)the other spouse or civil partner (Person B) is not so entitled.”

In those circumstances, Person B has the following matrimonial home rights under subsection (2):

“(a) if in occupation, a right not to be evicted or excluded from the dwelling-house or any part of it by Person A except with the leave of the court given by an order under section 33;

(b) if not in occupation, a right with the leave of the court so given to enter into and occupy the dwelling-house.”

The rights provided by this Section prima facie subsist only until the end of the marriage, or death, unless extended by the court. This point is dealt with by subsection (8):

“(8) These home rights continue a) only so long as the marriage … subsists except to the extent that an order under Section 33(5) otherwise provides… “

Here the rights were extended as narrated above.

The rights can be enforced by a court order under section 33, which they were in this case. The order lasted until further order.

The rights give rise to a charge on the property as if it were an equitable interest – section 31. This technique means the charge can bind third parties and provides the means for preventing the rights being defeated by a disposition of the property. It lies at the heart of Mr Bothwell’s submissions on the point.

An order made under section 33 can be varied or discharged on the application of the original respondent or of a successor in title. This is provided by Section 49:

“49. (1) An occupation order or non-molestation order may be varied or discharged by the court on an application by-

(a) the respondent, or

(b) the person on whose application the order was made.

(2) In the case of a non-molestation order made by virtue of section 42(2)(b), the order may be varied or discharged by the court even though no such application has been made.

(3) If a spouse’s matrimonial home rights are a charge on the estate or interest of the other spouse or of trustees for the other spouse, an order under section 33 against the other spouse may also be varied or discharged by the court on an application by any person deriving title under the other spouse or under the trustees and affected by the charge.”

Mr Bothwell then points to section 336(2)(a) of the Insolvency Act 1986. I need not read subsection (1); subsection (2) reads as follows:

“(2) Where a spouse’s or civil partner’s home rights under the Act of 1996 are a charge on the estate or interest of the other spouse or civil partner, or of trustees for the other spouse or civil partner, and the other spouse or civil partner is adjudged bankrupt—

(a) the charge continues to subsist notwithstanding the bankruptcy and, subject to the provisions of that Act, binds the trustee of the bankrupt’s estate and persons deriving title under the trustee, and

(b) any application for an order under section 33 of that Act shall be made to the court having jurisdiction in relation to the bankruptcy.”

Mr Bothwell spells out of this addition to the regime an entitlement on the part of the registering spouse or partner to remain in the house for as long as he or she wishes. That, he says, is the effect of section 336(2); it provides for the charge to continue for as long as the spouse wants once there is a bankruptcy. He says that what the district judge did in the ancillary relief proceedings was contrary to these provisions and this entitlement. Section 336 has precedence over the bankruptcy debts. That is what is meant by binding on the trustee in bankruptcy. The judge below and the district judge below him were wrong in failing to give effect to that.

There are several fundamental flaws with this line of reasoning. The first is a simple one of fact. While the appellant had home rights under the statute, she was also apparently not going to insist on them because she had in principle agreed on a sale by the time of the ancillary provision hearing. The judgment of the district judge recalls at paragraph 24 that:

“The applicant wife accepts that she is in no position to be able to continue to reside in the matrimonial home.”

Any entitlement was therefore academic.

The second is that this approach betrays a fundamental misunderstanding of how the sections work. The 1996 Act first gives rights of occupation to the non-owning spouse that operates against the owning spouse. In order to protect the home rights over against third parties, the interest is made a charge and Section 336 ensures that that charge and therefore the occupation rights operate against the trustee in bankruptcy and any person to whom the trustee in bankruptcy might sell it (persons deriving title under the trustee). However, nothing in the overall regime gives entrenched rights of the kind propounded by Mr Bothwell. The trustee in bankruptcy is successor in title to the husband, as indeed a purchaser to him would be, and it is plain that the legislation gives such a person the rights to apply to regulate the occupation rights of the wife: see section 49(3), which gives the husband’s successors locus standi to apply under section 33.

This is reinforced by the remaining provisions of Section 336. Paragraph (b) of subsection (2) presupposes such an application. Subsection (4) provides for what the court takes into account and subsection (5) provides a presumption in favour of the creditors after a year in parallel with other provisions in the Act: see for example Section 335A(3). I will set out those sections:

“(4) On such an application [and I pause that is an application under 336(2)(b)] the court shall make such order as it thinks just and reasonable having regard to:

(a) the interests of the bankrupt’s creditors;

(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the [bankrupt’s spouse or civil partner or former spouse or former civil partner]:

(i) the conduct of the [spouse, civil partner, former spouse or former civil partner], so far as contributing to the bankruptcy,

(ii) the needs and financial resources of the [spouse, civil partner, former spouse or former civil partner], and

(iii) the needs of any children; and

(c) all the circumstances of the case other than the needs of the bankrupt.

(5) Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

The last of those subsections is particularly significant.

All this is quite antithetical to the idea that somehow the wife has rights which cannot in effect be removed without her consent. The legal underpinnings of Mr Bothwell’s arguments simply do not exist. The bankruptcy court clearly has the right to terminate the occupation rights if it thinks fit, and this is apparently part of the present trustee’s possession application which has stood adjourned for so long. When the court determines the possession action it will not be able to find that the appellant has the entrenched rights that Mr Bothwell has relied on. It will by this time bear in mind firmly the statutory presumption in favour of the interests of the creditors under section 336(5).

Next, I am afraid that despite Mr Bothwell’s best endeavours I simply fail to see how this point could have been relevant to the ancillary provision proceedings in this case in any event. Mr Bothwell was unable to explain to my satisfaction how it is that his point might have operated in circumstances in which the wife was apparently consented to a sale which would require her to give up such rights as she had. Mr Bothwell asserted that somehow the effect of section 336 was to give the wife precedence over the bankruptcy creditors. I assumed that he would say that the consequence of this is that the district judge, and therefore the judge below, ought to have made some sort of award which did not provide for the bankruptcy debts. But this is conceptually wrong. Section 336(5) acknowledges the presumed the primacy of bankruptcy debts, not their subordination.

Mr Bothwell’s main argument therefore fails. He then ran a series of subsidiary points.

1) He referred to section 313A of the 1986 Act which restricts the trustee’s rights to get possession and sale of low value homes. He complained that the statutory instrument which sets the relevant low value at £1,000 was ultra vires because that amount is absurdly low; no house is worth that small amount of money. I think he probably misunderstands what the relevant value is for these purposes; it is in fact the value of the interest in the house, not the house itself: see paragraph 5 of the Insolvency Proceedings Monetary Limits Order 1986 SI 1986/1996. But in any event, I do not see how that section has anything to do with this case.

2) He had various complaints about the conduct of the trustee. He criticised what he described as the inefficient conduct of the trustee in bankruptcy, as a result of which fees were run up which ought not to have been run up. Once he knew of Ms Mekarska’s home rights he ought to have realised that there was no valuable asset, and indeed that it was onerous and he ought to have disclaimed it. I assume that this is another reason for saying that the award ought not to have proceeded on the footing that it operated only in relation to the then apparent surplus, which reflected very significant fees and expenses. Quite apart from the problem that this point was not taken before the district judge, this argument depends on the success of his section 336 argument. Since that fails, any argument along these lines fails too. There are other problems with the disclaimer analysis but I do not need to deal with them.

3) It was said that it was wrong to get an order from District Judge Wicks which said that the bankruptcy debts come first. This argument misdescribes the district judge’s order. The district judge’s order operated only in relation to the bankruptcy surplus. Without an annulment it could do no other. It represented the apparent shared approach to the argument. It does not appear that anyone suggested that the order could operate in relation to anything else, judging from the district judge’s judgment.

4) Last Mr Bothwell took a point in relation to the Secretary of State’s fees in the insolvency which he said amounted to taxation, and double taxation insofar as VAT is charged on them. He said that they were ultra vires. I accept that there are many who think that they are, to put it at its lowest, unattractive, but that is no basis for saying they are ultra vires and there is in any event no apparent link between that and the ancillary provision order in this case.

The judge below came to the same conclusion on the ancillary relief appeal. In the light of the above not only does the second appeal from him not raise any factor within section 55; it does not raise any sustainable ground of appeal in any event. I would therefore refuse permission to appeal on that part of the judge’s decision.

The appeal from the decision on annulment.

This is a first appeal, so it is not subject to the same constraints as the appeal in relation to the ancillary provision order. Nonetheless Ms Mekarska must establish a real prospect of success on some point or points.

The jurisdiction to allow an annulment is set out in section 282 of the Insolvency Act 1986, the relevant part of which reads as follows:

“(1) The court may annul a bankruptcy order if it at any time appears to the court—

(a) that, on any grounds existing at the time the order was made, the order ought not to have been made…”

Before us Mr Bothwell did not put Section 336 in the forefront of his argument on annulment, as apparently he did before the court below, but in case it is still live in this context I should say that it has no more merit under this head than it has in relation to the ancillary relief appeal. The main point he has argued before us is that the bankruptcy court ought to have waited and discovered how far the ancillary provision proceedings had got before making the bankruptcy order. The bankruptcy order ought not to have been made until the ancillary relief proceedings were determined. He advanced no authority or other material in support of this proposition and it does not seem to me to be accurate as a matter of law or practice. It is not correct as a matter of law to say that a bankruptcy order ought not to be made until divorce ancillary proceedings are out of the way. Such a principle, if it existed, ought to exist in relation to creditors’ petitions as well as debtors’ petitions, and I can see no merit in the principle. It would be far reaching if it were true. In my view there can be no impeachment of the determination of the judge below on that particular point. He held there was nothing in it, and I agree.

Mr Bothwell sought to say that if the husband had realised what the Trustee’s fees were going to be, he would have taken another course, that other course being not to have made himself bankrupt. That may or may not be true; it is at least plausible. But even if true it does not mean that the order ought not to have been made for the purposes of section 282; it merely means that it was unwise.

Mr Bothwell went on to repeat his submissions about the level of the trustee’s fees and expenses, claiming that they were unnecessary, but this has nothing to do with the statutory test for annulment which depends on facts and grounds existing at the time the order was made.

All in all, Mr Bothwell advanced no reason for saying that the judge was wrong on this point. In so saying I take into account the material in his various skeleton arguments and notices of appeal.

In the circumstances there is nothing in this appeal and I would refuse permission to appeal.

Conclusion

I would also express my hope that the waste of money in this case should come to an end now. A prolongation of the bankruptcy by the steps taken by the wife have caused the dissipation of the £150,000, or £130,000 after the reduction of the house price, which the wife would otherwise have had, had she taken the benefit of the order of District Judge Wicks. If there is any money left at all, which there may well no longer be, in my view it should not be wasted by the further prolongation of this dispute and further unnecessary hearings in and relating to this bankruptcy.

Lord Justice Kitchin:

I agree.

Lord Justice Thorpe:

I also agree.

Order: Application refused

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