England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE TECHNOLOGY
AND CONSTRUCTION COURT
(HIS HONOUR JUDGE KIRKHAM)

		Royal Courts of Justice Strand London WC2 Monday, 17th December 2001

Monday, 17th December 2001

1. LORD JUSTICE CLARKE: I will ask Lady Justice Arden to give the first judgment.
2. LADY JUSTICE ARDEN: This is a renewed application for permission to appeal against the order of Her Honour Judge Kirkham, dated 11th July 2001, in so far as that order provided that the administrator of the estate of the late James Honeyman-Scott should make no further payments to the defendant, Peggy Sue Honeyman-Scott, in respect of her half share of the residuary estate until the sum of £372,184 and the order for costs made against her were paid in full.
3. The facts may be summarised as follows. The late Mr James Honeyman-Scott was the member of a pop group called The Pretenders. On 10th April 1981, he married the applicant, a defendant in the action. On 16th June 1982 Mr Honeyman-Scott died prematurely and intestate, aged 25 years old. We do not have the precise age of the applicant but I understand she is between 40 and 45 years old now herself. Accordingly, the applicant became entitled to the sum of £85,000 and one half of his residuary estate. The other beneficiaries were his parents, though his father has now died and his father's interest is represented by the second wife of his father. The remaining assets of the estate consists of rights to royalties on songs written by Mr James Honeyman-Scott.
4. On 11th July 2001 the applicant was the sole administrator of the estate. She has now been replaced by John Allan Jones. It is common ground that the applicant paid herself an excessive share of the royalties, to the extent that the other beneficiaries are now entitled to receive the sum of £372,184 from her. This overpayment occurred over a period of some 17 years, and counsel informs us that it was equivalent to approximately £37,000 per annum. The applicant was not in July 2001 and is not now in a position to discharge that sum. Accordingly, the judge made the order which I have mentioned.
5. I now turn to the judge's judgment. The judge rejected an application out of time under the Inheritance Family Provision Act. There is no appeal from that matter and I am not concerned with it. However, in the course of dealing with that application the judge said she had no doubt that the widow knew throughout the period of administration that she had obligations to the parents of Mr James Honeyman-Scott, and that she chose not to honour those obligations. The judge referred to an incident in May 1998 when the applicant persuaded Mr Honeyman-Scott's mother, Mrs Betty Scott, to execute a document assigning her interest in royalties to her, the applicant, for £10,000. Mrs Scott is elderly and the applicant accepted at trial that she could not rely on the assignment. In addition, the judge found the applicant had not conducted the administration properly in that she had paid herself in advance of the other beneficiaries and had not kept proper accounts. The judge found that the applicant claimed to have an income after expenditure of only some $5,000 to $6,000 per annum, and that she had a daughter of 13-and-a-half years to support.
6. The judge accepted that the applicant needed the income stream from the royalties.
7. Miss Allardice, for the applicant, submitted to the judge that the widow should continue to receive something and suggested a figure 25 per cent of the net income stream.
8. The judge rejected that submission. The judge applied the principle summarised in Snell's Equity 30th Edition at page 327, paragraph 13-17:

"If a trustee who has been guilty of a breach of trust has any beneficial interest under the trust instrument, he will not be allowed to receive any part of the trust fund in which he is equitably interested until he has made good the breach of trust. The principle is to the extent to which he is in default he is regarded as having already received his share."

9. In addition to that citation I would quote from the judgment of Lord Cozens-Hardy, MR, in Re Dacre (1916) 1 Ch 344 at 347. Lord Cozens-Hardy MR said this:

"... the true principle, I think, is that which is laid down by Sir George Jessel and Jacubs v Rylance (1), and which is again affirmed by Stirling J in the case of Doering v Doering (2), and lastly emphatically affirmed by Parker J in In Re Towndrow (3), where during the course of the argument he said this: 'The real principle is that where there is an aggregate fund in which the trustee is beneficially interested and to which he owes something, he must be taken to have paid himself that amount on account of his share.' That principle he lays down again in the same judgment, where, quoting the words of Stirling J, he says: 'The theory on which that rule is based is that the Court treats the trustee as having received his share by anticipation, and the answer to any claim made by the trustee is this: 'You have already received your share; you have it in your hands.'"

10. The other members of the court were Phillimore and Warrington LJJ, who delivered separate judgments but who agreed with the judgment of the Master of the Rolls. Miss Allardice accepts that the true principle is to be found in those passages.
11. The judge said that the only and very sad consideration was that the applicant had brought about this state of affairs on herself. She proceeded to remove the applicant as administratrix, and appointed Mr Jones in her place.
12. On this application Miss Allardice submits that the principle of impounding a default in trustee's beneficial interest should be treated as a mode of executing a judgment. In relation to other methods of enforcing debt the court has regard to the individual circumstances of the debtor. Miss Allardice gave as examples the Insolvency Act 1986, section 310; the Attachment Of Earnings Act 1971, section 6; and the Access to Justice Act 1999, section 11. However, none of these provisions in my judgment assists because they deal with a very different situation, namely where the creditor has no proprietary interest in sums being received. Moreover, the jurisdiction under the Insolvency Act, as with the other statutes, has not arisen and may never arise.
13. The position here is that the other beneficiaries of the estate of the late Mr Honeyman-Scott have a proprietary right to the royalties which is independent of the court's order. This is because by application of the principle which I have described, the applicant has already received her share. The principle does not, as I read it, admit of a discretion on the part of the court to direct that only part of the sums be treated as paid in anticipation. Miss Allardice seeks to distinguish Re Dacre and earlier cases on the grounds that they are dealing with reimbursement of a trust fund of a capital sum, not a situation like this one where there is an income stream and continuing to produce some income for the benefit of the estate. But as I see it that is not a difference in principle. The situation is that this beneficiary has received her share in anticipation and it does not seem to me to make any difference that that share is a share of an income stream which is ongoing, rather than a share of the capital sum constituting the residuary estate.
14. Moreover, if the principle were a discretionary one Miss Allardice would have to point to some grounds on which the judge's exercise of discretion could be set aside, it would have to be shown that the judge was plainly wrong or took into account some consideration which should not be taken into account or failed to take into account some matter to which she should have had regard. But Miss Allardice has not pointed us to any grounds on which the exercise of discretion could be reviewed.
15. Miss Allardice also relies on Article 1 of the First Protocol to the Convention for the Protection of Human Rights. This provides as follows:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The proceeding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

16. The way Miss Allardice develops this argument is as follows. She submits that the applicant received moneys over and above her entitlement; but that does not mean that she has no entitlement. Her possession, on Miss Allardice's submission for the purposes of Article 1, is her vested interest in the income stream from the royalties. Miss Allardice submits that the strict equitable principle ought to be revisited and only applied where the criteria in Article 1 are met. In particular that the wholesale suspension of this right is disproportionate because it takes no account of the individual circumstances of the applicant. That, as I understand it, is the argument which Miss Allardice would seek to put forward on appeal.
17. Miss Allardice, however, has not on this application produced any Strasbourg jurisprudence to assist us. Nor has she produced any domestic jurisprudence which would assist us on this point. She relies upon an article written by Marion Simmons QC and Tom Smith, entitled "The Human Rights Act 1998 The Practical Impact on Insolvency" published in Insolvency Law and Practice, Volume 16, No.5 2000, page 167. The learned author of this article says at page 168-169:

"However, a question does arise as to the proper scope of a bankruptcy order. For example, is it in the 'public interest' for a bankrupt to have to surrender his pension or possession of the matrimonial home? Section 283 of IA 1986 excludes from the estate in bankruptcy all clothing, bedding, furniture, household equipment and provisions which are necessary for satisfying the basic domestic needs of the bankrupt and his family. But it is arguable that the right to property protected by Article 1 of the First Protocol goes further than this and gives a bankrupt an absolute right to retain property beyond that needed to satisfy the 'basic domestic needs' of himself and his family. In particular, it can be argued that the right to property includes an absolute right to those possessions which are necessary in order to lead a fulfilling life in the community. It follows that it is arguable that either 'basic domestic needs' should be given a broader interpretation than it has been given hitherto or that a court should make a declaration under section 4 of the HRA 1998 that section 283 is incompatible with the Convention."

18. That then is a discussion of the possible effect of Article 1 of the first protocol on section 283 of the Insolvency Act. I should say that the relevant part of the article does not cite any authority. The short answer to the submission is, as it seems to me, we are not concerned with the Insolvency Act. Miss Allardice skilfully seeks to meet that by contending that the equitable principle should be no more draconian than the Insolvency Act. But it is necessary to identify correctly the possession for the purposes of Article 1 and should not be drawn into trying to assimilate the equitable principle which may have a wholly different analysis from the position which would or might prevail in insolvency. We have to bear in mind that the applicant is not in bankruptcy and indeed would have the power to declare herself bankrupt if her financial position was such that she was unable to pay her debts. But we are not dealing with insolvency and we must look at the position on the basis that there is no insolvency.
19. The vested interest which the applicant has is her interest under the estate, and that interest is not in itself affected by the order which the judge has made. What the judge has found is that she has been overpaid and therefore, as a matter of accounting, sums must be paid out to the other beneficiaries before they are again paid to this beneficiary. As I see it there has been no deprivation of a possession for the purposes of Article 1 of the first protocol, and there will be no real prospect of success in arguing to the contrary on a full appeal.
20. The position here is that as a defaulting trustee the applicant is immediately bound to pay the sum of £372,184 but has no means of paying this sum, and accordingly the administrator of the estate is entitled to proceed on the basis that she has been overpaid and that the other beneficiaries should be paid an equal amount before any amount becomes payable to the applicant.
21. Miss Allardice points out that the applicant's financial circumstances are far worse than those of the respondents. The two respondents are elderly ladies in secure accommodation. On their death the royalty payments will pass to whomever is entitled to their estate. The applicant on the other hand, as I have said, has a 13 year-old daughter without financial support. We are told her home is heavily mortgaged and that her Ealing practice only produces a small income, which I have mentioned. However, Miss Allardice has not been able to produce any authority which would justify appropriating the royalties to which the other beneficiaries are now entitled in order to provide an income for the applicant.
22. Miss Allardice makes the point that it may be many years before the applicant receives any share in the royalties. This brings to mind that there must be a possibility that the royalties will indeed be exhausted before sum of £372,184 is repaid. The fact that it will be some years until the debt can be paid, and indeed some uncertainty about whether it will be paid, are reasons reinforcing the order which the judge made.
23. Accordingly, there is no real prospect of success on appeal and therefore I would dismiss the application. It is always open to the applicant to seek the consent of the other beneficiaries or their representatives if they are no longer in charge of their own affairs, or alternatively to seek to dispose her interest remaining in the royalties.
24. In the circumstances I would dismiss the application.
25. LORD JUSTICE CLARKE: I agree. I have given independent consideration to the issues raised by this application. I agree that an appeal would have no realistic prospects of success for the reasons given by Arden LJ. The principle adopted by the judge and stated by Arden LJ has been part of English law for many years. When that principle is applied to the facts of this case, as found by the judge, the position is that the applicant has already received what would otherwise be her future share of the royalties to the extent of £372,184.
26. In these circumstances when the royalties become due to the estate they cannot possibly be regarded as the applicant's possessions within the meaning of Article 1 of the first protocol quoted by my Lady, unless and until the applicant has made good her breach of trust. In these circumstances an appeal would have no realistic prospects of success insofar as it is based on Article 1 of the protocol.
27. I have not found the suggested analogy with bankruptcy or insolvency of any assistance. The applicant has taken no steps to become a bankrupt, although of course she could have done so. In these circumstances I do not think that it would be right to speculate as to what the position would be in the event of a bankruptcy.
28. In the result, I agree with Arden LJ that this application must be refused, although I naturally hope that the royalties will be such that the shortfall will be met in the comparatively near future.
(Application dismissed; no order for costs).