B e f o r e :
LORD JUSTICE BALCOMBE
LORD JUSTICE EVANS
and
LORD JUSTICE ROCH
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TRUSTEE OF THE ESTATE OF PALMER |
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PALMER |
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(Computer Aided Transcription of the Stenograph Notes of
John Larking, Chancery House, Chancery Lane, London WC2.
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Lord Justice Balcombe.
This is an appeal by Mrs. Avril Palmer, the widow of Mr. Gavin Hilary Palmer, from an Order made by Vinelott, J. on 25 March 1993 whereby he declared that Mr. Palmer's estate included an undivided moiety of the proceeds of sale and of the net rents and profits until sale of the freehold property 147 Wigton Lane, Alwoodley, Leeds. (The judgment below is reported at [1993] 3 W.L.R. 877). 147 Wigton Lane had been conveyed in 1989 to Mr. and Mrs. Palmer as joint tenants at law and in equity and the effect of the judge's order was to deprive Mrs. Palmer of that part of her interest in the property to which she would otherwise have been entitled as a surviving beneficial joint tenant. The matter is of some general importance.
Mr. Palmer died on 22 November 1990. He was a solicitor and had at one time practised in partnership with a Mr. Ian Brill. The partnership was terminated on 5 October 1990 and Mr. Palmer then became a partner in another firm. In November 1990 Mr. Brill claimed that Mr. Palmer had been guilty of serious defalcations. He reported them to the Law Society. Mr. Palmer died very shortly thereafter while inquiries by the Law Society were being pursued. By his will he had appointed Mr. Brill and another solicitor, a Mr. Myers, to be his executors. Mr. Brill renounced probate and the will was proved by Mr. Myers alone. On 1 August 1991 Mr. Myers presented a petition for an insolvency administration order and the order was made in the Leeds County Court on 17 August 1991. The respondent to this appeal was appointed the trustee of the estate on 25 October 1991. It is common ground that there are very large claims against the estate by clients of Mr. Palmer's former firm for which Mr. Brill is also liable as his partner, and that there are also outstanding claims for tax in respect of the partnership income for which again Mr. Brill is liable and for which he has a claim for contribution from the estate.
The question before the judge was whether the effect of the insolvency administration order was to sever the joint tenancy with retrospective effect so that an undivided moiety of the beneficial interest in the house devolved as part of Mr. Palmer's estate. The judge held that this was indeed the effect of the administration order. Put shortly his conclusion was based on a provision of the current insolvency legislation that certain specified provisions of that legislation "shall have effect as if ..... the insolvency administration order had been made on the date of death of the deceased debtor", combined with the common law rule that a judicial act (the administration order) is presumed to have been made on the first moment of the day when it was done and takes precedence over other non-judicial acts on the same day. He found support for this conclusion by a consideration of the operation of the doctrine of relation back under the pre-1986 bankruptcy law.
Before I turn to consider the current insolvency legislation I should mention briefly the manner in which a beneficial joint tenancy can be severed:-
1) by an act of one of the joint tenants operating on his own interest so as to sever it. This might be voluntary or involuntary alienation.
2) by mutual agreement.
3) by a course of dealing sufficient to intimate that the interests were to be treated as tenants in common.
See generally Williams v. Hensman (1861) 1 John and Ham 546, 557; Burgess v. Rawnsley [1975] Ch. 429.
To which can be added and again (at p. 69)
"..... we should not be bound by any technical rule to find a fictional answer where the actual facts are known"
Russell, L.J. said (at p. 73):
"We have been referred to a number of authorities on the matter of this fiction of the law that a judicial act is performed at a particular time, when everyone knows that it was not then performed. None of these authorities decides that the fiction is applicable to a judicial act purported to be performed at a time when the court was entirely without jurisdiction to perform it, and which was, therefore, necessarily an absolute nullity. Without authority binding me to do so I should decline to import into the law of England the equation Nullity plus Fiction equals Reality.
At 10 a.m. on July 6, 1965, when the judicial act was purported to be performed of filing the lodged application so as to determine the plaintiff's marriage to the deceased by decree absolute, the marriage had ceased to exist" [because of the husband's death earlier that day] "and the ability of the court to determine it was equally non-existent, whether the court knew or was ignorant of that situation. Whom God had put asunder no man could join together, even for the purpose of putting them asunder again."
If it were necessary for the purposes of this case I would be prepared to hold that it is now time that this ancient rule should be given its quietus in so far as it operates to require the court to assume something that is known to be untrue.
However for present purposes it is sufficient to say that in my judgment the rule cannot be allowed to operate so that, by piling one fiction upon another, a statutory instrument modifying primary legislation is to be construed in such a manner as to render it prima facie ultra vires.
Before us the respondent advanced another argument, which had not been advanced before the judge, to justify his suggested construction of the 1986 Order. This argument depended upon a comparison between the modification of section 341 by paragraph 27 of Part II of Schedule 1 to the 1986 Order and the modification of section 284 by paragraph 12. Sections 339 and 340 deal with the setting aside of transactions at an undervalue, or preferences given, provided that such transactions or preferences were made "at a relevant time". Section 341(1) defines the relevant time, in the case of a living bankrupt, by reference to a period of years "ending with the day of the presentation of the bankruptcy petition at which the individual is adjudged bankrupt". Paragraph 27 modifies section 341 in the case of the administration in bankruptcy of an insolvent estate by providing that the specified period shall end with "the date of death of the deceased debtor". Section 284, in the case of a living bankrupt, restricts dispositions of property made by the bankrupt in the period "beginning with the day of the presentation of the petition for the bankruptcy order and ending with the vesting... of the bankrupt's estate in a trustee". This is modified by paragraph 12 so that the section has effect as if the petition had been presented on the date of the death of the deceased debtor. Thus, so it is argued, section 284 relates to dispositions made by the deceased debtor or his personal representatives in the period beginning with the day of the date of the death of the deceased debtor. Thus the modification relates not so much to the moment of death, but to the whole of the day, starting at its earliest moment, on which death occurred. A similar construction must also be applied to the operation of paragraph 12 on section 283.
While this argument obviates the necessity for calling in aid two fictions, it is still open to the primary objection to which I have referred above, viz. that it requires a statutory instrument modifying primary legislation to be construed in such a manner as to render it prima facie ultra vires. It also runs contrary to the whole tenor of the Act and the 1986 Order, which is to draw a line at the moment of death. The bulk of the Act covers what happens down to the moment of the death of the debtor; sections 421 and the 1986 Order cover the position after that death. It is the death which is the significant event, not the day on which it happens.
Accordingly I am satisfied, simply by construing the 1986 Act and the 1986 Order, that it does not have the effect as found by the judge, and I do not find it necessary to consider the doctrine of relation back under the pre-1986 bankruptcy law, which the judge prayed in aid to elucidate the principles of the 1986 Act because "some of the fundamental concepts governing the operation of the old bankruptcy code are reflected in the Act of 1986".
I mention two final points.
1. The judge accepted ([1993] 3 W.L.R. at p. 890) that the conclusion to which he came led to at least one anomaly. If a petition is presented and the debtor dies before a bankruptcy order is made then property of which he is a joint tenant accrues to the survivor; it is not caught by the provisions of section 284. Mr. Kaye pointed out to us further anomalies to which the judge's preferred construction could lead: I need not enumerate them here. Suffice it to say that the construction for which Mr. Kaye contended, which I accept, produces no such anomalies.
2. Mr. Serota, Q.C., counsel for the respondent trustee, submitted that we should not lose sight of the basic purpose of the law of insolvency, which is to ensure that as much of the debtor's property as possible should be available for rateable distribution among his creditors. We should not construe the 1986 Order in such a way that would result in the estate of a deceased debtor being treated more favourably , vis-à-vis his creditors, than the estate of a living bankrupt. I have considerable sympathy with this approach. However, if Parliament had intended that the interest of a deceased debtor in property held jointly should be treated as forming part of his estate for the purposes of its administration in bankruptcy, it could have expressly so provided: section 9 of the Inheritance (Provision for Family and Dependents) Act 1975 is an example of how this can be done and, more particularly, of the appreciation by Parliament of the problems to which the existence of a beneficial joint tenancy can give rise in circumstances similar to those of the present case.
I am conscious of the fact that, in a judgment which is already over-long, I may not have done full justice to the detailed and careful submissions made to us by both Mr. Kaye and Mr. Serota. However, for the reasons which I have given, I would allow this appeal.
Lord Justice Evans.
I agree entirely with the judgment of Balcombe L.J. and that this appeal should be allowed.
I would add the following with reference to the judicial fiction upon which the respondent relies, and in doing so I should like to express my gratitude to Mr Roger Kaye Q.C. and Miss Hilliard for their skeleton argument upon which much of it is based.
The fiction that a judicial act is effective from the first moment of the day on which the act takes place is a rule of common law, now derived from regulation 3 of the so-called Hilary Rules made by the Judges in the exercise of their rule-making powers in 1834: see Re Seaford dec'd [1968] P.53 per Willmer L.J. at 65A. The rule was that "all judgments .... shall be entered of record of the day of the month and year, whether in term or vacation, when signed,, and shall not have relation to any other day". The original common law rule was that the judgment related back to the first day of the term during which it was given, or of the previous term if given during the vacation. This gave rise to hardship, because " a man might have sold his estate, and yet a judgment subsequently signed would have bound the lands in the hands of an innocent purchaser for value". To meet this difficultly, the Statute of Frauds (1677) 29 Car.2 c.3 enacted that the judge or officer signing any judgment should set down the day of the month and year of his doing so and that they should "in consideration of law be judgments only from the time they are so entered" (sections 13 and 15: see Wright v. Mills (1859) 4 H.N. 488 at 492 per Pollock C.B. and at 494 per Watson B.). It was held in Shelley's case (1581) 1 Co. Rep.93: Moore 136 that a judgment and the process known as recovery were effective even though the defendant had died in the early morning of the day on which, after his death, the court orders were made. The reason given was that "the record is to be understood of the whole day, and relates without division to the first instant of the day" (per Sir Thomas Bromley, Lord Chancellor). This same rule was applied, after the Hilary rules took effect, by the Court of Exchequer Chamber in Edwards v. Reginam (1854) 9 Ex.628. There, the process of execution in respect of a Crown debt prevailed over the transfer of the personal estate of a bankrupt to an official assignee which took place earlier on the same day. Significantly, the Court's judgment added that even if the transfer to the assignee, by virtue of his appointment, was also a judicial act, and should therefore be taken, equally with the execution, to date from the beginning of the day so that the two acts were concurrent, nevertheless "it has never been disputed ... but that the Crown in such case has priority over the subject" (per Coleridge J. at 632). This part of the judgment indicates, therefore, that the basis for the rule is the precedence given to Crown acts, including judicial acts, over private acts done on the same day, and that the fiction with regard to timing is no more than a means of implementing this.
In Wright v. Mills (1859) 4 H. & N. 488 a judgment was signed when the Court's offices opened at 11 a.m. but the defendant had died at 9.30 the same morning. The Court held that the judgment was regular, applying the rule of priority and following the decision in Edwards v. Reginam. Pollock C.B. held that the right of the Crown should prevail in all contracts between the Crown and a subject where the question was, which was to have priority (p.491) and he recognised the superior common sense of the view which had been adopted by Patteson, J. in Chick v. Smith (1840) 8 Dowl.337 and by Williams, J., the judge appealed from in Wright v. Mills itself. Nevertheless, the rule was applied. The distinction between priority and the fiction as to time was clearly drawn by Baron Bramwell :-
"[Edwards v. Reginam] can only be supported on the principle that judicial acts shall have precedence of others. To give a priority to such acts you must suppose them to have been before the others. It is not that you do not inquire into fractions of a day, but that you give precedence to the judicial proceeding"(p.493).
The defendant in Clarke v. Bradlaugh (1881) 8 QBD 63 relied upon the rule in a bold attempt to strike out the statement of claim on the ground that the writ was issued on the same day as the alleged cause of action arose and that it should therefore be deemed to have been issued at the earliest moment of the day, before the cause of action accrued. (It was alleged that the defendant sat and voted in the House of Commons without taking the statutory oath.) The objection was dismissed on the ground that issuing the writ was not a judicial act and therefore the rule could not apply. Each member of the Court of Appeal expressed doubts about the scope and even the validity of the rule. "I do not therefore recognise the universality of the rule even as to judicial acts" (per Lord Coleridge C.J. at 66); "I do not desire to be considered as holding this to be an inflexible rule" (Baggallay L.J. at 67); and "As for the rule that judicial acts relate back to the earliest moment of the day, I know of no principle on which it can be founded. It is an artificial rule, declared for a long number of years to be a part of common law procedure, and therefore it is assumed to be as old as the common law itself. But it is to be applied in the same way as it was applied when first promulgated" (Brett L.J. at 69).
The rule was held to apply in Re Warren [1938] Cl.725 by the Divisional Court in Bankruptcy, so as to give precedence to a receiving order, a judicial act, over a payment made earlier in the day. Then in Re Seaford Dec'd [1968] P.53 the Court of Appeal considered the history and scope of the rule in a case where a decree of divorce was made absolute by the court on the same day as, but some hours later than, the husband respondent had died. The grounds of decision were that the rule had no application in matrimonial proceedings (per Willmer L.J. at 67G) and, more generally, that the rule could not be relied upon so as to confer upon the Court a jurisdiction which it did not have at the time when the order was made. The marriage having been determined by the husband's death, the Court had no power to dissolve it when the order was made (pp. 71B,72D and 73G). The submission that the order should be deemed to have been made at the earliest moment of the day, before the death occurred, was rejected. The fiction had no relevance when there was evidence as to the real facts: per Davies L.J. at 73C.
The rule that judicial acts, being acts of the Crown, have precedence over private transactions which take place on the same day does not necessarily involve any fiction as to the time when the act and the transaction respectively occurred. It is unnecessary to decide in the present case whether the rule can be relied upon to support a judgment entered against a defendant who has died earlier in the same day, as was held in Wright v. Mills. The fiction is not essential in such a case, unless the cause of action ceases at the moment of death, which in Wright v. Mills it did not. To hold that the rule requires the courts to assume that a person was alive when he was dead would not only offend commonsense - the objection which was tolerated in Wright v. Mills. It would also involve using the fiction to create a jurisdiction which did not exist at the relevant time, and that would be contrary to In re Seaford dec'd. In my judgment, in agreement with Balcombe L.J., the time has come to say the fiction should have no place when the true facts are known, at least in cases where the court's jurisdiction is concerned.
Moreover, the remarks obiter in the speeches in Tabernacle Permanent Building Society v. Knight [1892] AC 298 were concerned with the court's lack of jurisdiction to make an order directing arbitrators to state their award in the form of a special case, at a time when the award had already been published earlier on the same day and the arbitrators therefore had discharged their obligations in relation to it.
The respondent's submission in the present case is that the insolvency administration order which was made on the 17th August 1991 is deemed by paragraph 12 of the 1986 Order (Sch.1 Part II) to take effect for the purposes of the vesting of property in the trustee as if it had been made on 22 November 1990, the date of Mr Palmer's death. To this statutory fiction, it is submitted, must be added the common law fiction that the Order was made at the earliest moment of that day, and therefore whilst Mr Palmer was alive.
At this point, in my judgment, the operation of the fiction comes into conflict, not only with common sense, but with the true effect of the statutory provisions themselves. Section 421 of the 1986 Act alone gives power to regulate the administration of the insolvent estates of deceased persons. The Act itself provides for the affairs of living persons who become bankrupt. Mr Palmer did not die a bankrupt, nor is a deceased person whose estate becomes insolvent necessarily insolvent when he dies. (Many examples are possible of contingent liabilities which may accrue even years after death.) Nothing in the Act or in the Order, in my judgment, empowers the court to make an insolvency administration order in respect of the estate of a person who is not deceased, nor can any rule of law be relied upon to produce the fictional result that a person was dead at a time when in fact he was still alive. On a true analysis, in my view, this would be inconsistent with the lack of jurisdiction finding in In re Seaford dec'd. In any event, it would produce an unrealistic result which, in my judgment, it should not be permitted to do.
The respondent cannot claim more, in my judgment, than that the insolvency administration took effect, on a true construction of the statutory provisions, at the moment of Mr Palmer's death. His interest in the joint tenancy of the property could only continue whilst he was alive. The order could only take effect when he died. It follows that the interest was not affected by the order. It never formed part of his estate.
Lord Justice Roch.
I agree.
Lord Justice Balcombe.
For the reasons which are given in the judgment which has been handed down, this appeal will be allowed.
ORDER: Appeal allowed with costs here and below; legal aid taxation of the appellant's costs; order and decision made below set aside; leave to appeal to the House of Lords refused.
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