England and Wales Court of Appeal (Civil Division) Decisions

		Neutral Citation Number: [2002] EWCA Civ 931
		Case No: A2/2001/2779

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		3 July 2002

B e f o r e :

LORD JUSTICE THORPE
LORD JUSTICE RIX
and
LADY JUSTICE ARDEN
____________________

Between:


	Clive Emile Gustav Cartwright	Appellant
	- and -
	Simone Mary Cartwright & Ors	Respondent

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(Transcript of the Handed Down Judgment of
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____________________


Mr Lloyd Tamlyn (instructed by the Bar Pro Bono Unit) for the appellant
Mr Timothy Carlisle (instructed by Lucas & Co) for the respondent
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HTML VERSION OF JUDGMENT
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Lady Justice Arden :

1. This is an appeal by Mr Clive Emile Gustav Cartwright from the order of Rimer J dated 21 November 2001. By this order the judge dismissed Mr Cartwright’s appeal against a bankruptcy order made against Mr Cartwright by District Judge Field sitting in the St Albans County Court. Mr Cartwright had made no application to set aside the statutory demand which was served on him prior to presentation of the bankruptcy petition.
2. The petition is brought by Mr Cartwright’s former wife and it is based on an order (“the Hong Kong order”) made in Hong Kong on 14 January 1994 for a lump sum payment and arrears of maintenance and interest thereon. The daughter is a supporting creditor in the sum of £74,851.56 under the Hong Kong order. The Hong Kong order provides in material part as follows:-

“(D) IT IS HEREBY ORDERED BY CONSENT THAT:

(1) The Respondent [Mr Cartwright] do pay or cause to be paid to the Petitioner [Mrs Cartwright] periodical payments at the rate of HK$12,000.00 (twelve thousand Hong Kong Dollars) per month such sum to be payable on the first day of each month commencing on 1^st December 1993 to continue during the joint lives of the parties, or until the Petitioner do remarry, or permanently cohabit with another man, or until further Order.

(2) The Respondent do pay or cause to be paid directly to the child of the family Sarah Cartwright HK$6,000 (six thousand Hong Kong Dollars) per month such sum to be payable on the first day of each month commencing on 1^st December 1993 to continue until such time as she cease full time education or until further Order.

(3) The Respondent do pay or cause to be paid to the Petitioner within 28 days of decree absolute herein a lump sum of HK$72,000 (seventy two thousand Hong Kong Dollars) in full and final settlement of the Petitioner’s claims for lump sum orders.”

3. Mr Cartwright considers that there has been change in his circumstances since the order was made in 1994 and he is seeking to have the Hong Kong order set aside in Hong Kong.
4. The sole question on this appeal is whether as a matter of law a bankruptcy petition could be based on sums due under the terms of the Hong Kong order.
5. The point taken before the judge was that the petition debt was not a provable debt and therefore could not form the basis of a petition. Under section 383 of the Insolvency Act 1986 (“the 1986 Act”), a petition can be based on a debt which is not a provable debt. However, in Levy v Legal Services Commission [2001] 1 FLR 435, this court held that the court should not, save in exceptional circumstances, which this court found it difficult to envisage, make an order on such a petition.
6. Provable debts are defined by Insolvency Rule 12.3(1), (2) and (3). Insolvency Rule 12.3(1), (2) and (3) provides:-

“(1) Subject as follows, in both winding up and bankruptcy, all claims by creditors are provable as debts against the company or, as the case may be, the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages.

(2) The following are not provable –

(a) in bankruptcy, any fine imposed for an offence, and any obligation arising under an order made in family proceedings [or under a maintenance assessment made under the Child Support Act 1991]

...

‘Fine’ and ‘family proceedings’ have the meanings given by section 281(8) of the Act (which applies the Magistrates’ Court Act 1980 and the Matrimonial and Family Proceedings Act 1984)

...

(3) Nothing in the Rule prejudices any enactment or rule of law under which a particular kind of debt is not provable, whether on grounds of public policy or otherwise.”

The judge’s judgment

7. The question which the judge had to decide in this case was whether the petition debt fell within subrule (2)(a) or (3) of Rule 12.3. The material words in subrule (2)(a) are “any obligation arising under an order made in family proceedings”. Section 281(8) of the 1986 Act defines ‘family proceedings’ (so far as material) as follows:

“In this section –

‘family proceedings’ means –

(a) family proceedings within the meaning of the Magistrates’ Courts Act 1980 ...; and

(b) family proceedings within the meaning of Part V of the Matrimonial and Family Proceedings Act 1984...”

8. Section 65(1) of the Magistrates Courts Act 1980 (“the 1980 Act”) sets out a list of proceedings which are treated as “family proceedings” for the purposes of that Act. The only relevant provision was Part 1 of the Maintenance Orders (Reciprocal Enforcement) Act 1972 (“the 1972 Act”). The judge held that, as the Hong Kong order was not capable of being registered under the 1972 Act (or indeed any other enactment listed in section 65(1)), section 281(8)(a) of the 1986 Act did not apply. The judge also expressed the view that the order was registrable under the Administration of Justice Act 1920 (“the AJA 1920”) but the AJA 1920 was not within the list in section 65.
9. There is an exception in Section 65(1). Even if the proceedings fall under one of the enactments listed in section 65(1), those proceedings do not include “proceedings for the enforcement of any order made, confirmed or registered under any of those enactments”. Mr Registrar James considered the meaning of that provision in Wehmeyer v Wehmeyer [2001] 2 FLR 84. He said this:-

“It appears to me that the maintenance order falls within the description of family proceedings in subparagraph (m) above. It is not caught by the exception at (i) above because a petition in bankruptcy is not a proceeding for the enforcement of an order.

A bankruptcy petition seeks an adjudication in the nature of a declaration of insolvency, the consequence of which is the imposition upon the insolvent’s estate of a statutory scheme for the distribution of his assets among his creditors. Mr Spon-Smith described bankruptcy as ‘a system providing for the orderly distribution of the assets of insolvent persons amongst their creditors and the subsequent release of the debtor from any further liability’. I do not quarrel with that description. There is no requirement under the Insolvency Act 1986 for a creditor to have obtained a judgment or order in respect of the debt upon which he relies in his petition. A bankruptcy petition is therefore not an enforcement procedure.”

10. Accordingly, the Registrar held that, if an order is registered under one of the enactments listed in section 65(1), it is not taken out of that section by reason of the exception in section 65(1) because a bankruptcy petition is not a proceeding for the “enforcement” of any order registered under a specified enactment.
11. The judge went on to consider section 32 of the Matrimonial and Family Proceedings Act 1984 and rejected the argument that the definition of family proceedings in that section could include these proceedings. He followed a decision of Neuberger J to that effect in Cadwell v Jackson [2001] BPIR 966. It is not contended on this appeal that the petition debt fell within section 32 of the 1984 Act so I need not summarise the judge’s reasoning on that point.
12. The next question was whether the judgment or the underlying debt was within Insolvency Rule 12.3(3). In an unreported case, Re Dodal, disapproved by Neuberger J in Cadwell v Jackson, Mr Registrar Simmonds held that a foreign maintenance order, which did not fall within section 65(1) of the 1980 Act, was non-provable by virtue of Insolvency Rule 12.3(3). Likewise, Mr Registrar James in Wehmeyer v Wehmeyer, held that a claim for maintenance arrears, which gave rise to a judgment which (having been registered under an enactment which was listed in section 65(1) of the 1980 Act) could not give rise to a provable debt, was not in the circumstances provable as a matter of public policy. Rimer J held that Wehmeyer was distinguishable because the Hong Kong order could have been registered under the AJA 1920. That Act was not one of those listed in section 65 of the Matrimonial Causes Act 1980. The Hong Kong order had not been registered in this country and the concept of public policy was ill-defined. In the judge’s view, the question was purely one of statutory construction. If the Hong Kong order was not made in “family proceedings” as defined in Insolvency Rule 12.3(2), it was a provable debt. The judge did not refer to Re Dodal.

Submissions on appeal

13. On this appeal, it is not contended that the Hong Kong order was registrable under the AJA 1920, in view of the special provisions made by Maintenance Orders (Facilities for Enforcement) Act 1920, for the enforcement in England of maintenance orders made in Her Majesty’s dominions outside the United Kingdom. Accordingly, we have not been concerned with the AJA 1920. Likewise, it is common ground that, contrary to the judge’s conclusion, the Hong Kong order was registrable under article 3 of the Reciprocal Enforcement of Maintenance Orders (Designation of Reciprocating Countries) Order 1979, made under the 1972 Act, in so far as the Hong Kong order was a “maintenance order” for the purpose of section 21 of the 1972 Act (set out below). As the judge noted, the 1972 Act is one of those listed in section 65 of the 1980 Act. It is common ground that the exception in section 65(1) of the 1980 Act mentioned above does not apply.
14. The argument of Mr Lloyd Tamlyn for the appellant, is succinct. He argues first that the Hong Kong order is a “maintenance order” for the purpose of section 21 of the 1972 Act. That definition in material part provides that “maintenance order”

“means an order (however described) of any of the following descriptions, that is to say –

a) an order ... which provides for the payment of a lump sum or the making of periodical payments towards the maintenance of any person, being a person whom the person liable to make the payments under the order is, according to the law applied in the place where the order was made, liable to maintain ...”

15. Mr Tamlyn submits that the reference to “lump sum” in that definition includes the lump sum provided for by the Hong Kong order and that the periodical payments provided for by that order for both Mrs Cartwright and their daughter fall within the words “periodical payments towards the maintenance of any person” in that definition.
16. Second, Mr Tamlyn submits that, had the Hong Kong order been registered under the 1972 Act, the amounts alleged to be due to the petitioner and her daughter would have been an obligation “arising under an order made in family proceedings” for the purpose of Insolvency Rule 12.3(2)(a).
17. Third, in the alternative, Mr Tamlyn submits that Insolvency Rule 12.3(3) applies to the Hong Kong order in so far as it provides for periodical payments. At common law a foreign maintenance order which was variable could not be enforced in England because it was not final and conclusive: see, for example Harrop v Harrop [1920] 3 KB 386. There is no evidence as to Hong Kong law and therefore the court must make the assumption that the provision for periodical payments in the Hong Kong order can be varied by the court, but that the provision in that order for a lump sum payment cannot.
18. Mr Tamlyn submits that where an order of a foreign court is not enforceable here it is not provable. In support of this proposition he cites Government of India v Taylor [1955] AC 491, where the House of Lords held that foreign revenue claims which were unenforceable in England could not be the subject of a proof in a liquidation. The same would follow in bankruptcy since unenforceable claims do not constitute liabilities for the purposes of the Insolvency Act.
19. Accordingly, on this alternative argument the sums due under the Hong Kong order constituted as to the periodical payments non-provable debts which cannot support a bankruptcy petition. Mr Cartwright has made lump sum payments totalling HK$55,500. These should be appropriated to the lump sum leaving a small sum of about £3,000 which Mr Cartwright should be given time to pay.
20. If the court is not satisfied that the payments already made should be attributed to the lump sum, the court should adjourn the case back to the Bankruptcy Court for directions as to evidence so that it can be ascertained whether payments already made represent maintenance or not.
21. Mr Tamlyn puts his submissions this way round (i.e. first under Insolvency Rule 12.3(2)(a) and then under Insolvency Rule 12.3(3)) because curiously Insolvency Rule 12.3(2)(a) renders sums due under a lump sum order non-provable even though they would have been provable prior to the Insolvency Rules 1986. In Woodley v Woodley (No.2) [1994] l WLR 1167, 1179, Balcombe LJ invited the Insolvency Rules Committee to consider whether a lump sum order made in family proceedings should be provable in bankruptcy as it was before the Rules of 1986 came into force. That invitation has not been taken up and I, therefore, repeat it. It is clearly an anomaly for which there is no obvious policy justification.
22. Mr Tamlyn further submits that it would be illogical if a maintenance order which was registrable, but not registered, gave rise to a provable debt whereas it would give rise to a non-provable debt if it was actually registered. Any such distinction would be manifestly absurd.
23. Mr Timothy Carlisle, for the respondent, submits that the court should not go outside rule 12.3(2)(a). To do so would inject uncertainty into the law. This was a point which Neuberger J made in Cadwell v Jackson, above, at 973. Mr Carlisle submits that the policy of the legislature may well have been that an order which was registrable, but not registered, should give rise to a provable debt but that a registered order should not. Mr Carlisle did not suggest what the policy might be, though if the law were as he contends it might be said that it would provide at least an incentive to registration. Mr Carlisle submits the payer could himself register the order.
24. Mr Carlisle submits that under section 21 of the Act, an order for lump sum payment is not a “maintenance order” unless the lump sum payment is for the purpose of maintenance.
25. Mr Carlisle submits that rule 12.3(3) is dealing with a situation where a debt is not enforceable because of illegality. It does not extend to the case of a variable maintenance order.

Conclusions

26. In my judgment, the Hong Kong order was a maintenance order for the purposes of section 21 of the 1972 Act in so far as it provided for periodical payments. A provision for payment of a lump sum could not under section 21 constitute a maintenance order unless the lump sum was for the maintenance of a person falling within the description given in the definition. The words in the definition “payment of a lump sum or the making of periodical payments” were substituted by the Civil Jurisdiction and Judgments Act 1982, section 37(1). The purpose of these words, therefore, was to reflect the provisions of the Brussels Convention. In Van den Boogaard v Laumen [1977] QB 759, the European Court of Justice had to consider whether the enforcement of an order for the payment of a lump sum for the maintenance of a person was an order in a matter “relating to maintenance”. It held that it was necessary to distinguish between those parts of an order which dealt with maintenance from those which dealt with rights of property and that it should be possible to deduce the aim of the decision from its reasoning. It held that maintenance could be provided for in the form of a lump sum. However, in this case, given the separate provision for periodical payments, the lump sum payment was, in my judgment, by way of the division of property between Mr and Mrs Cartwright.
27. Applying the foregoing, I turn to Insolvency Rule 12.3(2)(a). In my judgment, an order which could be registered under the 1972 Act, but which has not been so registered does not fall within Insolvency Rule 12.3(2)(a). The obligations on which the petition is based do not arise under an order made in proceedings under the 1972 Act. I do not see any way in which a registrable but unregistered order can be brought within Insolvency Rule 12.3(2)(a).
28. I then turn to Insolvency Rule 12.3(3). I accept Mr Tamlyn’s argument. The court must assume that the provision for periodical payments in the Hong Kong order is variable by the Hong Kong court. In those circumstances, those payments constitute a debt which by virtue of a rule of law is unenforceable in the United Kingdom (see Harrop v Harrop, above). Further they constitute a debt which is not provable in bankruptcy as a result. The provision for a lump sum payment does not, however, fall within Rule 12.3(3). It is not variable and there is, therefore, no impediment to its being enforced at common law.
29. In the circumstances, I would allow this appeal and set aside the bankruptcy order. As Mr Tamlyn submitted, the case should accordingly be remitted to the bankruptcy court.

Lord Justice Rix:

30. I agree.

Lord Justice Thorpe:

31. I have had the advantage of reading in draft the judgment of my lady, Arden LJ. I agree with her conclusions on the difficult points of law raised in this appeal. However I am in doubt as to the consequences.
32. I fully share her view that there is little doubt that the lump sum order did not contain any element of capitalised periodical payments. The case will now return to the bankruptcy court, and accordingly, unless the parties can agree the position, Mrs Cartwright will have to establish to the satisfaction of the bankruptcy court that the lump sum remains unpaid, in whole or part.
33. The lump sum became due for payment on 15 February 1994. Were any steps taken immediately on the husband’s default? We only know that two sums were subsequently paid, $18,000 in March 1994 and $37,500 in July 1994. By the date of that first payment the husband was also in default under the orders for periodical payments payable at the rate of $12,000 per month for the wife and $6,000 per month for their child, both with effect from 1 December 1993. No doubt contemporaneous correspondence might illuminate the basis upon which the two payments were tendered and accepted. There is a clear inference that the first was on account of the husband’s continuing liability to maintain since it precisely discharges one month’s liability in respect of wife and child. There is probably no such clear foundation for inference as to the second, although it does not greatly exceed two months liability in respect of wife and child.
34. There is no evidence or information as to the husband’s liability for interest on the unpaid lump sum or any outstanding balance under the law of Hong Kong and accordingly we have not been concerned with the question of any interest.
Order: Appeal allowed. The order is to be made as per the draft order lodged and signed by both counsel, which provides for the bankruptcy order against Mr Cartwright to be set aside, for the bankruptcy petition to be restored for hearing before St Alban’s County Court and for the order of the judge to be set aside with the consequential order for costs. Detailed assessment of the appellant’s costs. (Order does not form part of the approved judgment)