England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BANKRUPTCY COURT
(Mr Justice Patten)

		Royal Courts of Justice Strand London WC2 Friday, 23rd November 2001

1. LORD JUSTICE ROBERT WALKER: This is an application for permission to appeal by Mr. Edward Northote, who has appeared in person. Mr. Northcote wishes to appeal from an order of Patten J made on 10th October 2001 when he was sitting in the Chancery Division in Bankruptcy. Patten J dismissed Mr Northcote's appeal from an order of Mr. Registrar James made on 21st May 2001 adjudicating Mr. Northcote bankrupt. On that occasion the Registrar decided that the facts of the case did not give him discretion under section 271(3) of the Insolvency Act 1986 to dismiss the petition. I shall come back to the terms of section 271(3) in due course.
2. The background to this matter is that Mr. Northcote has, since the late 1980s, organized duplicate bridge games in South London. He brought two sets of proceedings, both I think in the Wandsworth County Court, against the Wimbledon Bridge Club. One at least of those alleged malicious prosecution. Mr. Northcote was unsuccessful in the proceedings. I know very little about the course of the proceedings, except that Mr Northcote has deposed that his task was made more difficult as a result of the death of an important witness whom he proposed to call. The outcome was that he was unsuccessful. He became liable for costs to a total of about £7,800. These were the subject of three certificates which became final and no longer open to appeal, in November 1997 as regards the first action, and February 1998 as regards the second action.
3. On 22nd November 1999 the Bridge Club served a statutory demand. Mr. Northcote sought to have it set aside but he was unsuccessful, both in his application to the Croydon County Court on 22nd May 2000, on appeal to the Chancery Division on 24th November 2000, and in an application for permission for a further appeal to this court on 26th January 2001. Mr. Northcote sought to challenge the statutory demand, primarily on the ground that the creditor was acting -- this is how Chadwick LJ put his submission when this matter was last in this court:

"In a capricious way motivated by some concern other than a proper desire to recover as much money as it could."

4. I would add that it seems that the Wimbledon Bridge Club and Mr. Northcote were competitors in the profession or business of running bridge clubs, but that fact by itself cannot be a sufficient basis for assuming some malevolent motivation in an attempt to recover costs through bankruptcy proceedings.
5. On the occasion when he refused permission to appeal, Chadwick LJ drew attention to section 271(3) of the Insolvency Act. It is that provision which Mr. Northcote has relied on in opposing the bankruptcy petition which the club presented on 1st March 2001. Section 271 deals with proceedings on a creditor's petition and subsection (3) is in the following terms:

"The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied -

(a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented;

(b) that the acceptance of that offer would have required the dismissal of the petition, and

(c) that the offer has been unreasonably refused."

6. The subsection then ends with a reference to contingent and prospective liabilities, which I need not read. That provision goes back in a slightly different form at least to the Bankruptcy Act 1914. It probably goes back further than that, since Mr Northcote, who has made quite a profound study of this branch of the law, referred in passing to a Victorian case on this area of bankruptcy law.
7. There is little modern authority as to the purpose and scope of 271(3), but such authority as there is does not give much assistance to Mr. Northcote (see Re A Debtor [1994] 1 WLR 899, a first instance decision of Mr Timothy Lloyd QC, as he then was, sitting as a deputy judge). I followed that decision at first instance in Inland Revenue Commissioners v A Debtor [1995] BCC 971. The most important point to emerge from those decisions is that it is not enough for a debtor, faced with a bankruptcy petition, to make a reasonable offer to compound for a debt or to provide security for it. It must be positively unreasonable for the creditor to refuse it. That is a different test and a high one. It must be, as Mr Lloyd put it in the earlier case that I mentioned, "beyond the range of possible reasonable actions" on the part of the petitioning creditor.
8. I return to the facts of the matter. What Mr Northcote did and offered to the petitioning creditor appears from an affidavit which he made on 8th May and put before the Registrar. The first offer was made in the summer of 1999 after he had received notice of an oral examination as to his means in the Wandsworth County Court. The oral examination seems to have proved contentious. I cannot usefully go into that aspect of the matter. Mr. Northcote's second offer, which was, as Chadwick LJ noted, an offer to negotiate, was made in a letter dated 6th December 1999, written soon after service of the statutory demand. Mr Northcote accepts that that letter did not put forward a precise offer capable of being accepted. He points out that at that time he had less experience of the intricacies of this area of the law. He has since consulted two different licensed insolvency practitioners who have advised him in this matter. The third offer was put forward by a licensed insolvency practitioner, Mr Ladislav Hornan of Hacker Young whom Mr Northcote had consulted. It stated Mr. Northcote's assets at £11,147, apart from furniture and household effects of uncertain value, and his liabilities at £19,718, including no less than £14,218 due to the club, the original debt for costs having been inflated by interest and further costs. The letter referred to Mr. Northcote's very limited income. I would add that he was then 66 years of age and his only earned income was a modest income from his bridge club. The letter offered the sum of £4,000 in full satisfaction. There was an offer of a sworn affidavit of means. Mr Northcote has since made such an affidavit. On 20th February 2001 the club's solicitors replied as follows:

"Whilst our clients note Mr Northcote's offer to provide an affidavit of means, he has had an opportunity to provide sworn statements before in the context of oral examination proceedings and failed to do so. He has not provided any further documentary evidence of any of his statements. It would have been a simple matter to include copy documents with your own letter but we note that this was not done.

The size of the indebtedness has been inflated because of Mr Northcote's own actions and he now seeks to avoid the consequences. Bearing in mind the size of the debt and the availability of assets, the offer made in your letter is not acceptable."

9. Later the offer was increased to £4,500 in a letter dated 27th May 2001 from another insolvency practitioner, Mr. Grier. The Registrar's note of the hearing before him concludes as follows:

"Mr. Northcote's argument relates to what is or is not a reasonable offer. That is not the test. The test is [there is a reference to the case before Mr. Lloyd] whether the creditor's refusal is outside the range of reactions of a reasonable hypothetical creditor. In my judgment, in this case it was not. There is no prospect of payment in full."

10. The Registrar made a bankruptcy order.
11. On appeal Patten J reconsidered the matter in what appears to me a full and careful judgment. He said near the end of his judgment:

"The case might arise in which the petitioning creditor, faced with an offer to compound a debt, has given reasons for its refusal, which, on examination, appear to be irrelevant or unreasonable. In cases such as that it seems to me that the court might well be required to have regard to the actual reasons given and to decide whether, in the light of all the known circumstances, they could be properly regarded as a reasonable response.

This is not a case of that kind. The material that was before the Registrar and is before me discloses matters of the kind to which I have referred, which could, in the mind of a reasonable creditor, raise doubts as to whether the offer that was being made properly took into account the debtor's ability to pay more than was currently on offer. In those circumstances a decision to press ahead with the petition to a bankruptcy order is not one that could be said to lie outside the range of reasonable responses. I therefore have come to the conclusion that the Registrar was entitled on the material before him to reject the challenge to the petition made under section 271, and for that reason the appeal fails."

12. In his written and oral submissions to me Mr. Northcote, who has argued his case with the utmost courtesy, moderation and skill, has emphasised the importance of insolvency practitioners being able to give clear advice to clients who consult them at times of financial distress. He has emphasised that the facts of his case are simple. He has suggested that the judge missed a golden opportunity to say what offer would have been reasonable.
13. I have to say that this last submission seems to me to indicate that there is still a misunderstanding as to the general effect of section 271(3). It is not a wide ranging power for a debtor in effect to establish his own individual voluntary arrangement as an alternative to the regime in Part VIII of the Insolvency Act 1986. It is a limited residual discretion exercisable so as to dismiss a petition which is presented unreasonably. The court's experience suggests that it is a power which is likely to be exercised only in a limited number of cases.
14. As to the other ground relied on in the notice of appeal, I cannot accept that Patten J failed to act even-handedly or that he failed to give reasons. On the contrary, he did give quite a lengthy and fully reasoned judgment. The fact is that Mr. Northcote has understandably very strong views about this matter. I cannot but sympathize with his personal position, which illustrates that even since the introduction of the Civil Procedure Rules, engaging in litigation which is unsuccessful can have potentially disastrous consequences. However, this would be a second tier appeal. For the reasons that I have mentioned, I have come to the conclusion that even a first tier appeal would be hopeless. I must therefore dismiss the application.
Order: Application refused.