England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Anthony Mann QC)

		Royal Courts of Justice Strand London WC2 15th March 2001

15th March 2001

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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."

16. 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.
17. 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?

18. 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.
19. 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."

20. 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."

21. 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."

22. 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.
23. 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."

24. 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.
25. 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.
26. 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 Act 1986. 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.
27. 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.
28. 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.
29. 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.