England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL CIVIL DIVISION
ON APPEAL FROM THE HIGH COURT OF JUSTICE
IN BANKRUPTCY
INSOLVENCY APPEALS DIVISION

		Royal Courts of Justice Strand London WC2 Wednesday, 25th September 2002

1. LADY JUSTICE ARDEN: This is an application for permission to appeal from the order of Peter Smith J sitting in the Chancery Division in Bankruptcy on 25th April 2002. The judge had before him an appeal by Mr and Mrs Housiaux from the order of District Judge Fink, sitting in the Croydon County Court in Bankruptcy, dated 31st July 2001. By his order the judge dismissed the appeal and affirmed the order of the District Judge, ordering that the appellants before him, Mr and Mrs Housiaux, did, on or before 9th May 2002, pay to the respondents, namely HM Customs and Excise, the sum of £5,095, being the respondents' costs of the appeal, as summarily assessed.
2. The applicant before me today is represented by Mr Egleton. The only applicant is Mr Housiaux. By his application notice, paragraph 7, he states that the grounds of the appeal are that:

"1. This is a second appeal and so CPR 52.13 applies to the appeal. The important point of principle or practice to be considered is the extent to which a court in insolvency proceedings is entitled to make an order for costs against a party who has successfully applied to have a bankruptcy petition annulled pursuant to section 282(1)(a) of the Insolvency Act 1986 on the grounds that the order ought not to have been made, and the extent of the court's discretion on costs in such circumstances.

2. There is a compelling reason to hear the appeal in that the Court of Appeal's judgment in Christian Leonard v Legal Services Commission (2002) decided on 1st May 2002 ... appears to be contrary to the decision of Peter Smith J in this first appeal."

By section 9 of the notice, the order which the appellant seeks is that:

"1. The appeal be allowed.

2. The respondents do pay the costs of the appellant before the DJ Fink, the court below and of this appeal, or

3. There be no order as to the costs as to the hearing before DJ Fink and the costs of the annulment proceedings, and that the respondents do pay the costs of the first appeal and of the appeal to the Court of Appeal."

As the application notice rightly says, this is a second appeal and, therefore, it must be shown that there is an important point of principle or practice or some other compelling reason for this appeal to be heard.

3. I can summarise the facts quite quickly. They arise out of an order made by consent for the annulment of a bankruptcy order against the applicant. The position was that he was in business, assisted by his wife, who intercepted the statutory demand by Customs and Excise. The applicant was accordingly not served personally on the applicant or pursuant to any order for substituted service. The petition, which I have not seen but which I understand to have been based solely on that demand, was subsequently presented and a bankruptcy order made. Again, the petition was not served personally; it was served pursuant to an order for substituted service. Mr Housiaux only found out about the statutory demand and the bankruptcy order after the event.
4. There were, on counsel's submission, a number of defects, in particular that the statutory demand was not served personally, as required by the Insolvency Rules, and there was no order for substituted service. I said that Mrs Housiaux intercepted the statutory demand and Mr Egleton has fairly accepted today that she gave Customs and Excise the run-around. However, he stresses that she did not represent to Customs and Excise that she had authority to accept service on her husband's behalf.
5. The rules as to service in the Insolvency Rules are very strict and, as I said at paragraph 44 of my judgment in the Leonard case:

"The presentation of a bankruptcy petition is the invocation of a collective remedy for the administration of the debtor's affairs. It is a very serious matter for the debtor. Other debtors will come to know of the petition and notice will be sent to the Chief Land Registrar who places it on the Register of pending actions. All these consequences of the presentation of a bankruptcy petition are well-known."

So there are strong policy reasons for strict compliance with the service requirements of the Insolvency Rules.

6. As I have said, the bankruptcy order was set aside by consent. The terms of the order contain a recital that this was without any admission of liability by Customs and Excise. The operative part of the order states that:

"The Bankruptcy Order ... be annulled pursuant to Section 282(1)(a) Insolvency Act 1986 on the grounds that the Order ought not to have been made,"

and that the bankruptcy petition be dismissed. It further provided that the costs of the bankruptcy petition and the annulment application should be reserved, and that was the matter which was the subject of the order by District Judge Fink, which was appealed to the judge. In the meantime Mrs Housiaux was joined to the petition and ordered to give a statement as to why she should not be made responsible for the costs.

7. The matter came on before the District Judge. The District Judge had limited time available. She accepted the submission by counsel for Customs and Excise that, in the interests of proportionality, she should not make findings on those facts which were disputed, but reach her decision on the facts which were self-evident. She then set out a number of the facts, based on statements filed. As regards one matter, the District Judge declined to make any finding, and the matter was this: Mr Housiaux contended that he had had a conversation with Customs and Excise's Mr Lelliot, to whom he had given his correct address and telephone number, and Customs and Excise had agreed to contact him there. This was a disputed matter because Customs and Excise did not have a note of that conversation and contended that it was not possible to change a VAT-registered address in that way. So the District Judge made no finding on that issue and went on to say that, even if Mr Housiaux had given his home address to Customs and Excise, his affidavit said that he could be contacted there, not that all business should be conducted from there, and his registered address for VAT remained at the shop in Church Street. However, the argument which Mr Housiaux would have wanted to raise, namely that he had provided an address and expected communication by Customs and Excise there, was not open to him, as a result of the course taken by the District Judge.
8. I should say that the District Judge went on to find that Mrs Housiaux' actions were entirely responsible for the affair. She said she did not tell her husband because she did not believe there was a debt, and that was clearly wrong. So, in those circumstances the District Judge had made an order for costs against both Mr Housiaux and his wife and assessed the costs in the sum of £4,817.
9. The judge on the appeal refused to interfere with the findings of the District Judge. He said that the question was one for the discretion of the District Judge and the matter was within the ambit of the discretion of the District Judge and, further, went on to say that he himself would have made the same order.
10. In his skeleton argument to this court, Mr Egleton has referred to the decision in the case of Leonard v Legal Services Commission, which was handed down by this court after the matter was heard by the judge. I have already referred to that case. Very briefly, what happened was a petition was based on a debt which had been stayed. It was presented by a public body. Nonetheless, the judge had made an order, the effect of which was to make the debtor, who should not have had a petition presented against him, liable to pay some of the debts of the petitioner, the Legal Services Commission. In the course of his judgment Simon Brown LJ, Vice President of the Court of Appeal, said this at paragraph 26:

"Because of the stay, which remained in force, the petition should never have been brought, least of all by a public body. Whatever criticisms therefore fall to be made against the appellant (notably for his conduct in twice misleading courts in the ways already described; for somewhat cynically, as it appears, employing the stay provision by never applying for taxation of his own costs; by wrongly -- although, as the Registrar had concluded, not dishonestly -- asserting that he had never received the commencement notice; by failing to take the stay point instead of, or at any rate alongside, the argument advanced about the issue of service) they cannot in my judgment justify not merely refusing the appellant his costs but actually requiring him to pay the respondent's costs. However the matter had proceeded, the respondent would inevitably have failed at the substantive hearing on the stay issue and would have been liable then for the costs of the petition."

Likewise, at paragraph 44 I said:

"Moreover, as Simon Brown LJ has observed, the Legal Services Commission is a public body. When it is a petitioning creditor the court is entitled to expect that it will, as a minimum, observe the standards required of other petitioning creditors in the Bankruptcy Court."

11. The application came on paper before Simon Brown LJ and he refused permission to appeal. He said this:

"There is no justifiable basis here for a second appeal, least of all as to costs. No important authority, principle or practice arises and no other compelling reason exists for an appeal. I am of course well aware of the decision in LSC v Leonard, having myself given the lead judgment. The District Judge's initial decision was fully reasoned and, not only did Smith J conclude that it was within the wide range of the District Judge's costs discretion, but he expressly agreed with it."

12. Accordingly, there is considerable judicial opposition to the argument which Mr Egleton seeks to raise on an appeal. However, nothing daunted, he has renewed the application in open court and made submissions to me. I have considered the first point in the applicant's notice; that is whether there is some special point of principle or practice relative to annulment orders. In my judgment, there is no special principle applying to annulment matters and there would be no triable issue on an appeal as to that. The disposition of costs must follow the rules in the Civil Procedure Rules applicable to all civil proceedings.
13. I then turn to consider the other matters raised by this case and in particular whether there is some other compelling reason to permit an appeal to be advanced in the light of Mr Egleton's submissions in his skeleton argument and before me today. With the very greatest of respect to Simon Brown LJ, I have reached a different view. Firstly, this was an order, albeit by consent and although containing the recital which I have read, which declared that the bankruptcy should be annulled because the bankruptcy order should never have been made. It is properly arguable, it seems to me, that the recital goes more to the question of whether there was some pecuniary liability on Customs and Excise for what had happened and that reflects the reservation as to costs. But there must at least be an arguable issue that they were accepting that the statutory demand and/or petition had not been properly served. Otherwise, this order would not take effect according to its tenor. Therefore, as Mr Egleton submits, there must be a triable issue. The judge approached the matter on the wrong basis by saying that the reason for the order was that there were doubts as to the validity of service. It is arguable that he failed, therefore, to give proper weight to the consent order. In my judgment there is a real prospect of success on appeal on this point.
14. Secondly, there is the question of whether the District Judge was right to fail to make a finding of fact on the issue whether or not Mr Housiaux had given a notice of his address to Customs and Excise and whether they had, in effect, agreed to contact him there, so that he would have received notice of the proceedings. The position is that the District Judge refused to go into this on the ground of proportionality. However, there is an issue here as to whether or not the course which the District Judge took, which would normally, of course, be within the wide range of discretion in case management decisions, was such as to lead to a situation where the outcome could not be just, in accordance with the first part of CPR 1.1. Thus, it seems to me that there is a real prospect of success on appeal on this point too.
15. Thirdly -- and this is perhaps one of the most substantial points -- it seems to me properly arguable that there was a defective exercise of discretion at both levels because no account was taken of the petitioning creditors' responsibility. That is obviously a matter which would now be arguable in the light of the Leonard decision.
16. As to whether or not those matters amount to a compelling reason, the view I have taken is this: there is at stake for Mr Housiaux, who is a small businessman, some £10,000 at least, taking into account the two sums that he has been ordered to pay in the courts below, and the points to which I have referred were not addressed on the appeal before the judge. Accordingly, although in the normal way I would not expect this matter to have gone further than the judge, it seems to me that in the circumstances of this case the requirements for a second appeal are met and that I ought to give permission to appeal.

Permission to appeal granted.

Stay of costs orders granted, pending appeal, with liberty to respondents to apply to the court.

Direction that applicants file a further skeleton argument within 14 days.