England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
CIVIL DIVISION
ON APPEAL FROM THE HIGH COURT
QUEEN'S BENCH DIVISION
(His Honour Judge Zucker QC,
sitting as a Judge of the High Court)

		The Royal Courts of Justice The Strand London Monday 17 June 2002

Monday 17 June 2002

1. LORD JUSTICE PETER GIBSON: By the Insolvency Act 1986 ("the 1986 Act") new provisions were produced, designed to make it simpler for companies and individuals in financial difficulties to enter into voluntary arrangements with their creditors so as to bind dissentient creditors, if a sufficient majority of creditors approved a proposed arrangement
2. In the case of an individual debtor, the statutory procedure is laid down in Part VIII of the 1986 Act. It requires the individual to apply to the court for an interim order, that application to be supported by an affidavit setting out a number of matters relating to reasons for the application and other details as prescribed in rule 5.5(1) of the Insolvency Rules 1986 ("the Rules"). The debtor has to be a person intending to make a proposal to his creditors for a composition in satisfactions of his debts or a scheme of arrangement of his affairs: section 253(1). I shall refer to such individual voluntary arrangement as an IVA. The debtor has to give notice of his proposal to a number of persons specified in section 253(4) and, by rule 5.5(4)(b) of the Rules, to any creditor who has presented a bankruptcy petition against him. He does not, however, have to notify other creditors.
3. By section 255(1) the court cannot make an interim order unless satisfied that the debtor intends to make the proposal and that, when making the application, he was an undischarged debtor or able to petition for his own bankruptcy, that is to say, he was unable to pay his debts: section 272(1). If the court makes an interim order it is for a limited period: section 255(6). The order ceases to have effect at the end of that period unless it is extended. In that period the qualified insolvency practitioner (who must be named in the proposal as "the nominee") has to report to the court on whether, in his opinion, a meeting of the debtor's creditors should be summoned to consider the debtor's proposal: section 256(1). If a meeting is summoned and approves the proposal with or without modifications by the specified majority, the IVA takes effect. These procedures are further fleshed out in Part V of the Rules.
4. It can be seen from that brief summary that the obtaining of the interim order is what starts off the whole IVA procedure. The effect of the order is stated in section 252(2), which provides:

"An interim order has the effect that, during the period for which it is in force --

(a) no bankruptcy petition relating to the debtor may be presented or proceeded with, and

(b) no other proceedings, and no execution or other legal process, may be commenced or continued against the debtor or his property except with the leave of the court."

5. The primary issue raised on this appeal is what effect, if any, does the section have when a charging order nisi on property of the debtor is, without the leave of the court, made absolute during the period for which the order is in force. The debtor applied nearly six years after the charging order absolute was made to set it aside. That application was refused by Master Rose on 3 October 2001 and the debtor's appeal was dismissed on 21 December 2001 by His Honour Judge Zucker QC, sitting as a Judge of the High Court. Permission for the debtor to appeal to this court was given by Mance LJ.
6. I must now set out the background facts. The debtor is the defendant, David Clarke. He became indebted to the claimant, Coutts & Co ("Coutts"), on 9 August 1995. Coutts obtained judgment against Mr Clarke in the sum of £38,440.52 inclusive of interest and costs. On 15 August 1995 Coutts obtained a charging order nisi over Mr Clarke's home, 1 Holly Green, Weybridge, Surrey ("the property"). The order was in the usual form, directing that unless sufficient cause to the contrary was shown before the named Master on a specified date, Mr Clarke's interest in the property should in the meantime stand charged with the specified sum, and interest and costs.
7. The specified date was 7 September 1995 and the named Master was Master Murray. There were already two substantial prior charges on the property. On 18 August 1995 Coutts' solicitors wrote to Mr Clarke's solicitors enclosing a copy of the order nisi and the affidavit used to support the application for that order. Mr Clarke's solicitors passed details to Mr Clarke of what was sent but, as they notified Coutts' solicitors by letter dated 22 August 1995, they were then without instructions.
8. On the same day Mr Clarke, with the help of insolvency practitioners called IAS, prepared documents for an application to the county court for an interim order. Mr Clarke obtained such order from the Kingston County Court, the material terms of which mirrored section 252(2). It said:

"It is ordered that during the period of 28 days beginning with the day after the date of this order and during any extended period for which this interim order has effect:

(a) no bankruptcy petition relating to [Mr Clarke] may be presented or proceeded with, and

(b) no other proceedings, and no execution or other legal process, may be commenced or continued against the debtor or his property except with the leave of the court."

9. In his affidavit in support of his application, Mr Clarke had said that he was unable to pay his debts in full and in his statement of affairs, as at that date, he disclosed that his debts exceeded his assets by nearly £500,000.
10. On 7 September the charging order nisi was made absolute at a hearing at which Mr Clarke was neither present nor represented. Coutts was represented by solicitors but they were wholly unaware of the interim order. They were subsequently to say by letter of 10 July 2001 to Mr Clarke's solicitors that, had they been served with the interim order, they would have brought it to the attention of the court or would have requested that the application to make the charging order absolute be adjourned pending the outcome of the meeting of creditors.
11. On 14 September 1995, Coutts' solicitors sent Mr Clarke's solicitors a copy of the charging order absolute but Coutts still was not told of the interim order. There was an extension of the interim order on 21 September for a further period of 46 days. In the meantime, Coutts sought to register a caution against the property. That prompted Mr Clarke to write to the Land Registry, objecting to the registration of the caution because of the interim order made by the Kingston County Court.
12. Coutts first learned of the interim order when the Land Registry passed Mr Clarke's letter to them. Coutts wrote to Mr Clarke on 2 October 1995 asking for further details of the interim order, but Mr Clarke did not reply. Further extensions of the interim order were obtained until 5 February 1996 when Mr Clarke's proposal for an IVA was rejected by his creditors at a creditors' meeting. The interim order then ceased to be in force.
13. There was a gap of five months when no interim order was in force. On 2 July 1996 Mr Clarke obtained an order from the county court to the effect that there was a material irregularity at the creditors' meeting which rejected the IVA proposal. A further interim order was then granted on 2 July 1996 but on 4 September 1996 Mr Clarke's proposal was rejected again by his creditors and the second interim order was discharged.
14. A bankruptcy petition had been issued by the Revenue in the five-month interval to which I have referred. A further interim order was made on 12 November 1996 by the Bankruptcy Court, but Mr Clarke was unable to procure agreement on the IVA and he was made bankrupt on 6 February 1997.
15. A representative of Stoy Hayward attended the various creditors' meetings on behalf of Coutts and he voted consistently on the basis that Coutts was an unsecured creditor as regards the entire judgment debt. Presumably that was on the basis that the prior charges were of an amount that exceeded the value of the property. But there is no evidence that Coutts proved in the bankruptcy as an unsecured creditor.
16. Mr Clarke was discharged from his bankruptcy on 7 February 2000. For a long time Coutts did not seek an order for sale. Again, that would appear to have been the effect of prior charges and the value of the property. But when property prices rose sufficiently, on 1 March 2001 Coutts commenced proceedings in the county court for an order for the sale of the property.
17. That prompted Mr Clarke on 9 July 2001 -- that is to say, two months short of six years from the making of the charging order absolute -- to apply to set aside that order on the basis that it had been made in breach of section 252(2). Master Rose refused the application on the basis that the decision of this court in Haly v Barry (1868) 3 Ch App 452 applied. In that case a judgment creditor obtained a charging order nisi but before it was made absolute a decree was made for the administration of the debtor's estate. An injunction was sought in order to restrain further proceedings by the judgment creditor, but that was refused on the basis that the charging order nisi having been made, it could only be defeated by something prior to it. Page Wood LJ said at page 456:

"I do not think that such a case can be treated as one in which the creditor's title is incomplete."

18. And Selwyn LJ at page 457 said:

"The language of the [Common Law Procedure Act 1852] appears to me quite opposed to this view, it speaks of one order which is at first an order nisi and is afterwards made absolute."

19. The Master held that the charging order nisi was not to be regarded as something different from the charging order absolute.
20. On appeal, the judge upheld the decision of the Master but on different grounds. The judge first considered, but rejected, an argument for Coutts that no leave under section 252(2) was needed because the process of execution was complete and the order nisi had been obtained. The judge held that the obtaining of the order absolute was a continuation of execution against the property and the leave of the court was required pursuant to section 252(2)(b). The judge then considered Coutts' argument, that the court had a discretion as to whether to discharge the charging order absolute, and the argument for Mr Clarke, that the court was bound to set the order aside. The judge held that he had a discretion, which he exercised by refusing to discharge the order for a number of reasons which he then specified.
21. Mr Clarke appeals from the judge's main decision and Coutts, by its respondent's notice, in effect cross appeals on the point whether leave under section 252(2) was needed.
22. Miss Geraldine Andrews QC, for Mr Clarke, submitted that, first, the judge was plainly wrong to hold that he had a discretion whether or not to set aside the irregular charging order made in breach of section 252(2); she argued that the language of the section was mandatory. She said that, consistently with the policy behind the statutory requirement of leave to be obtained before the continuation of an execution, the judge could only set aside the order. Secondly, she submitted that if the judge had a discretion, he exercised it wrongly.
23. Mr David Berkley QC, appearing with Mr Andrew Butler for Coutts, submits that, first, the judge was wrong to hold that leave was required under section 252(2) for a judgment creditor to make absolute a charging order nisi obtained before the making of the interim order; secondly, the court has a discretion to set aside a charging order made without leave; thirdly, in any event the exercise of discretion by the judge is not open to challenge: the merits on the facts, he says, are overwhelmingly in favour of Coutts.
24. The following issues therefore arise on this appeal. (1) Was the leave of the court needed for the making of the charging order absolute? (2) Did the judge have a discretion whether to set aside the order? (3) If so, can this court interfere with the judge's exercise of discretion?

(1) Was leave needed?

25. Mr Berkley submits that a charging order is a security over the debtor's interest in land and takes effect as such from the date upon which the order nisi is made. He says that the execution is complete at that point, subject only to the debtor or some other interested party showing cause. He claims that it is well-settled law that at the charging order nisi stage, the execution is complete. Such an order, he says, is a charging order within the Charging Order Act 1979 ("the 1979 Act"). He says that section 346(1) and (5) of the 1986 Act relating to bankruptcy, like the corresponding provisions in section 183(1) and (3) of the 1986 Act relating to insolvent companies, makes clear that it is on the making of the charging order nisi that the execution is deemed to be complete.
26. Section 346 is in this form, so far as material:

"(1) .... where the creditor of any person who is adjudged bankrupt has before the commencement of the bankruptcy --

(a) issued execution against the .... land of that person ....

that creditor is not entitled, as against the official receiver or trustee of the bankrupt's estate, to retain the benefit of the execution .... unless the execution ... was completed .... before the commencement of the bankruptcy:

(5) For the purposes of this section ....

(b) an execution against land is completed by .... the making of a charging order under [section 1 of the 1979 Act]."

27. The authorities relied on by Mr Berkley were, first, the Haly case and, second, Roberts Petroleum Ltd v Kenny Ltd [1983] 2 AC 192 in which, he said, there were observations supporting him. He took us to a number of passages, but I am afraid that I was unable to discern how that authority was of any assistance to him. On the contrary, it seemed to me to tell powerfully against his submission. He also relied on a note in the Autumn 2001 edition of the White Book at page 1210-11 sc50.1.6:

"(5) Bankruptcy or liquidation of judgment debtor -

The completion of an execution for the purposes of ss 346(5) and 183(3) of the Insolvency Act 1986 will take effect on the making of the charging order nisi."

28. It is to be noted that no authority is given in support of that proposition.
29. Miss Andrews submits that the language of section 252(2) is apposite to cover the second stage of a two-stage process of execution. She argues that the underlying purposes of section 252(2) would be undermined if it did not affect the ability of a creditor who has a charging order nisi to obtain a charging order absolute. She says that the judge's view of section 252(2) on this point is consistent with, and supported by, the decision of the House of Lords in Roberts and also by the decision of His Honour Judge Paul Baker QC, sitting as a Judge of the High Court, in Calor Gas v Piercy [1994] BCC 69.
30. I start with section 252(2) itself. It plainly contemplates that an execution, having been commenced, may be "continued" and that the effect of the subsection will be to prohibit such continuation unless leave is obtained.
31. The 1979 Act provides in section 1(1) for the making of a charging order so that a charge is imposed on property of the debtor for securing the payment of money due under a judgment obtained by the creditor against the debtor. Subsection (5) provides as follows:

"In deciding whether to make a charging order the court shall consider all the circumstances of the case and, in particular, any evidence before it as to --

(a) the personal circumstances of the debtor, and

(b) whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order."

32. Section 3(1) provides:

"A charging order may be made either absolutely or subject to conditions as to notifying the debtor or as to the time when the charge is to become enforceable, or as to other matters."

33. The Rules have provided for a two-stage procedure whereby initially the charging order nisi is obtained ex parte and then that is followed by a hearing inter partes when the court will consider whether or not to make the charging order absolute.
34. Mr Berkley accepted at one point that section 1(5) of the 1979 Act was relevant to the court's consideration of whether to make the order nisi absolute. He later retracted that, when it was pointed out to him that the subsection states that it is in deciding whether to make a charging order that the court is to consider the matters specified in paragraphs (a) and (b) of the subsection, and that subsection, therefore, supported the notion that the court is making the charging order when it makes the charging order nisi absolute. Mr Berkley submitted that section 1(5) was only applicable at the charging order nisi stage.
35. That seems to me to be an impossible argument. The debtor is the person who is likely to provide the evidence as to his personal circumstances and as to possible prejudice from the making of the order. In my judgment, the making of a charging order is indeed in two parts and section 1(5) envisages that, in relation to both parts, the court is deciding whether to make a charging order. True it is that at the stage when it considers whether to make an order nisi, it will, if it makes the order, make a charging order within the meaning of the Act and that order creates security. But it is an order that is only temporary and is liable to be defeated at the stage when cause is shown. The obtaining of the order absolute seems to me naturally to amount to a continuation of an already-commenced execution for the purposes of section 252(2). Further, as a matter of language it appears to me, I have to say, self-evident that execution in the form of an order nisi is not complete unless and until the order is made absolute.
36. The judge found the Roberts case to be determinative. In that case, by a charging order nisi a debtor company's land was charged on 23 March 1979 in favour of a judgment creditor with the amount of the judgment debt and a receiver was appointed. On 2 April 1979 a resolution was passed to wind up the company. On 4 April 1979, the district registrar ordered that the charging order be made absolute. The company appealed and Bristow J discharged the order. The Court of Appeal restored the district registrar's order but the House of Lords reversed this court and restored Bristow J's order. Lord Brightman gave the only reasoned judgment dealing with the merits of the case. He said at page 208E:

"The basic question, therefore, which confronts the court when it is faced with an application by an execution creditor to convert an order nisi into an order absolute in a case such as the present is whether the asset in question should fall outside the statutory scheme which, by virtue of the liquidation, is then in existence, or should be subject to that scheme. In the absence of persuasive authority to the contrary, and it will of course be necessary to consider the authorities, I would myself have thought that the court should exercise its discretion so that the asset falls within the statutory scheme. The purpose of the further consideration of the order nisi is to enable the court to review the position inter partes. At the date of the order nisi the court has made no irrevocable decision. If therefore the statutory scheme for dealing with the assets of the company has been irrevocably imposed on the company, by resolution or winding up order, before the court has irrevocably determined to give the creditor the benefit of a charging order, I would have thought that the statutory scheme should prevail. Unquestionably that would be the position if the winding up order or resolution had preceded the order nisi: see section 228 (compulsory liquidation) and Westbury v Twigg & Co Ltd [1892] 1 QB 77 (voluntary liquidation). To my mind the position should be the same if liquidation commences after the order nisi but before the court has committed itself to a final order. I do not see why a creditor should gain an advantage merely because he has a revocable order for security at the time when the statutory scheme comes into existence.

The main thrust of Roberts's argument is that the order nisi imposes an immediate charge, which is correct, and that therefore at the date of the commencement of the liquidation the assets were already outside the statutory scheme. That proposition, by reference to that date, is also correct. The liquidator was unable, at that date, to collect those assets by going into possession, because the receiver was already in possession. But the weakness of the argument to my mind is that Roberts had no more than a defeasible charge at the date of the commencement of the liquidation, so that the right of the receiver to retain the asset as against the liquidator was only a defeasible right. Neither the precarious existence of the charge nor the precarious possession of the receiver seems to me to afford a convincing reason for consolidating the position of the judgment creditor vis-à-vis the general body of unsecured creditors and thereby defeat quoad that asset the statutory scheme which was already in full force and effect."

37. Then at page 212, Lord Brightman referred to an argument based on section 325 of the Companies Act 1948. That section is in somewhat similar terms to section 183 of the 1986 Act. It disentitles a creditor to retain the benefit of an execution unless he has completed the execution before the commencement of the winding-up and by subsection (2) it deems an execution against land to be completed by the appointment of a receiver. Lord Brightman referred to the argument, based on that provision, that the execution was deemed to be complete by the appointment of the receiver before the winding-up. Lord Brightman said at page 213B:

"The argument is formidable but I do not think it is correct. When the section speaks of an execution against land being 'deemed to be completed ... by the appointment of a receiver' I think that it is looking at a final order of the court affecting such appointment, and not at an order which is made provisionally, ex parte, pending further consideration by the court when the application is heard inter partes. I would expect to find clear words if I am to construe 'completion,' even 'deemed completion,' as comprehending a mere interim appointment of a receiver which is made ex parte and is not a final appointment. 'Completion' of execution infers an element of finality."

38. Later on that page he held that Bristow J was correct in his conclusion, pointing out that he reached that conclusion without regret because it might help to avert an unseemly scramble by creditors to achieve priority at the last moment and as establishing a clear working rule and avoiding the uncertainties of an inquiry as to whether a scheme of arrangement had been set on foot and had a reasonable prospect of succeeding.
39. To my mind those remarks and that reasoning plainly support the approach of the judge, and are quite inconsistent with the remarks to which I have referred in the Haly case, which must be treated as no longer of validity. The recognition by Lord Brightman that the order nisi created an immediate charge and converted the creditor into a secured creditor did not detract from the fact that the order was defeasible if sufficient cause were shown. The argument that the execution was complete on the making of the order nisi was specifically rejected. For similar reasons it seems to me clear that the execution was not complete by a mere order nisi rather than an order absolute. The specific references to a charging order in section 183 and section 346, and the completion of the execution, must in my judgment be construed now consistently with the reasoning in Roberts, and in the absence of an element of finality there is no completion of execution for the reasons which Lord Brightman gave.
40. That conclusion is also supported by Judge Paul Baker's decision in Calor Gas. At page 80-81 the judge, after referring to passages in the Roberts decision, said this:

"I take that still to be the law, despite the changes in statute law since that time. Notably, the Charging Orders Act 1979 has come into force and brought about certain changes and relaxations in the Companies Act and Insolvency Act. Shortly, I do not accept, as has been submitted to me, that this decision has been overtaken in some way by the Charging Orders Act so that now there would be a completed execution simply by the making of a charging order nisi."

41. The judge explained what the changes in the law since Roberts had been. He pointed out that, previously, before a charging order nisi could be regarded as completed it had to be accompanied by the appointment of a receiver, and that the 1979 Act ensures that an order without a receiver is completion of the execution. But, he said, "the initial order nisi is still defeasible in the sense as it was used by Lord Brightman in the Roberts case."
42. The result, as it seems to me, is that the charging order nisi was irregular, in that it was obtained in breach of the prohibition in section 252(2); though in saying that I do not, of course, suggest that Coutts knowingly obtained that order without leave. Mr Berkley is right to say that the order is not a nullity, but that has not been suggested. The order remains in force unless and until it is set aside.

2. Did the judge have a discretion whether to set aside the order?

43. Miss Andrews submits that he did not. She argues that he did not even have the discretion to cure the absence of permission, because only the court which made the interim order -- that is to say the Kingston County Court -- could have done that. Further, she says, the court can not allow the irregularity to continue and must discharge the order. She referred us to In re Saunders [1997] Ch 60, as showing a remedy which is available in certain circumstances to a party which has taken a procedural step in contravention of a statutory provision requiring, for example, prior leave to be obtained.
44. In Saunders, Lindsay J was faced with an application for retrospective leave to be given, under section 285(3) of the 1986 Act, to proceedings commenced without the leave of the court. That subsection provided that, after the making of a bankruptcy order, no creditor should commence an action or other legal proceedings against a bankrupt except with the leave of the court. It was common ground before that judge that the parties could not waive compliance with the statutory requirement. That judge, after a full and careful review of the authorities, both here and in the Commonwealth, held that it was possible to grant leave retrospectively, even at a time when the limitation period had expired, to continue the proceedings commenced earlier and within the limitation period but without leave.
45. Miss Andrews accepts that on the basis of In re Saunders it is possible for a creditor to obtain leave under section 252(2) retrospectively, and that the court, faced with an application for such retrospective leave, has a discretion whether to grant it. But she submits that the onus lies on the party obtaining the irregular order to cure the irregularity, and she submits further that there are other conditions which need to be satisfied, such as that the effect of granting leave would not subvert the policy behind the statutory provision requiring leave. She further contends that, if leave has not been obtained and leave is not sought when the irregular step is challenged, the court must give effect to the challenge. She argues that the existence of a discretion would subvert the policy underlying the statutory regime and relies on the same policy considerations as led the House of Lords to decide Roberts as it did; that is to say, that one creditor should not be allowed to gain a late advantage over other creditors by obtaining or retaining a charge over an asset which could fall within the insolvent debtor's estate when that charge has not been made absolute.
46. Mr Berkley disagrees. He submits that the judge had a discretion to set aside a charging order in circumstances such as applied in the present case. He further submitted that the court had a discretion under the Rules and he relied in particular on CPR rule 3.10 which provides:

"Where there has been an error of procedure such as a failure to comply with a rule or practice direction --

(a) the error does not invalidate any step taken in the proceedings unless the court so orders; and

(b) the court may make an order to remedy the error."

47. I start with the question whether the High Court had jurisdiction to grant leave retrospectively. That question arose in the Calor Gas case. In that case, after a charging order nisi was obtained in the High Court from a Master, an interim order was made by the county court. At the hearing to show cause, Master Eyre made the charging order absolute after granting leave under section 252(2)(b). The point was taken by the debtors that the county court which had made the interim order alone had jurisdiction to give leave under section 252. That was not accepted by Judge Paul Baker. He referred to section 373 as defining the court which had jurisdiction in relation to insolvent individuals. That provided in subsection (1) that the High Court and the county court had jurisdiction for the purposes of the relevant parts of the 1986 Act; and, by subsection (2), that the county court had, in addition to its ordinary jurisdiction, all the powers and jurisdiction of the High Court. Subsection (3) was in this form:

"Jurisdiction for the purposes of [the Second Group of] Parts is exercised --

(a) by the High Court in relation to the proceedings which, in accordance with the rules, are allocated to the London insolvency district, and

(b) by each county court in relation to the proceedings which are so allocated to the insolvency district of that court."

48. Subsection (4) provided that subsection (3) was without prejudice to the transfer of proceedings from one court to another in the manner prescribed by the Rules and nothing in that subsection invalidated any proceedings on the grounds that they were initiated or continued in the wrong court.
49. Judge Paul Baker said at page 79: "There is no doubt that the relevant county court for the purposes of these proceedings is the Chester County Court."I add that that was the court which made the interim order. Then, after quoting section 373(4), the judge said this:

"In my judgment the master, who of course is part of the High Court, did have jurisdiction and I think it would be too restrictive to say that because one bankruptcy court has made an interim order or any other order, that precludes any other court from giving leave under s 252. It may be that in any particular case the court to which application for leave is made should decline to exercise its jurisdiction and transfer the proceedings to another court, as indeed happened subsequently when the proceedings before the Queen's Bench Division were transferred into this division. I do not read subs (3) as cutting down the wide terms of subs (1). That subsection does not say 'Subject as hereinafter follows' or something like that. What it says is the High Court and the county courts have jurisdiction throughout England and Wales for the purposes of the Parts in this Group."

50. I respectfully agree. In my judgment, Parliament was deliberately seeking to avoid points on jurisdiction being taken in bankruptcy proceedings, such as used to be the regular practice prior to the 1986 Act coming into force. Jurisdiction is conferred quite widely and, though in practice there will no doubt be powerful reasons why the county court seised of the bankruptcy proceedings should be the court to consider whether leave should be granted, I do not accept Miss Andrews' submission that the High Court has no jurisdiction.
51. No application to grant leave under section 252(2) retrospectively was sought until very late in this appeal and, for the reasons given by my Lord, Lord Justice Simon Brown, we rejected that application.
52. The judge, in asserting as he did that he had a discretion whether to set aside the irregular charging order absolute, appears to have accepted the argument advanced by junior counsel for Coutts before him that the judgment of the Privy Council in Isaacs v Robertson [1985] 1 AC 97 assisted on this point. In that case, Lord Diplock at page 102 had pointed out that in no case had any order of a court of unlimited jurisdiction been held to fall into a category of court orders which could simply be ignored as void without any need for proceedings to set them aside. That was the point at issue in the Isaacs case, where there had been an application in contempt proceedings which had been defended on the basis that the order said to have been ignored by the alleged contemnor was void.
53. Lord Diplock said that what the cases supported was:

"... the ... proposition that there is a category of orders of such a court which a person affected by the order is entitled to apply to have set aside ex debito justitiae in the exercise of the inherent jurisdiction of the court without his needing to have recourse to the rules that deal expressly with proceedings to set aside orders for irregularity and give to the judge a discretion as to the order he will make."

54. Lord Diplock went on to say that the judges in the cases which drew the distinction between the two types of orders had refrained from seeking to lay down a comprehensive definition of defects that bring an order into the category that attracts ex debito justitiae the right to have it set aside, save that it specifically included orders obtained in breach of the rules of natural justice.
55. The judge sought to distinguish the Roberts case on the basis that in that case the resolution to wind up the company and appoint a liquidator had been made after the order nisi and before the order absolute. The judge said:

"There was therefore an act of execution which affected the assets of the defendants in [the Roberts case]. In this matter, all that had occurred was the making of an interim order which simply prevented the continuance of the execution but had no direct effect on the property."

56. The judge said that that it followed from the passage in the judgment of Lord Diplock in Isaacs that the charging order absolute had been in force since it was made and remained in force today. That is uncontroversial. He continued:

"In my judgment, the fact that it was made without leave does not place it in the category of orders that attracts the right to have them set aside ex debito justitiae. The interim order does not, as I have said, confer any right on anyone with regard to the property, and there will be many examples of cases where a charging order absolute is made without leave having been obtained where no prejudice has been caused to anyone."

57. I have difficulty with this view and this reasoning of the judge. First, whilst there was a factual difference between the present case and the Roberts case, in that in Roberts the liquidation had started before the charging order was made absolute, whereas in the present case there was no bankruptcy, the judge was wrong if he thought that the resolution to wind up the debtor company in Roberts conferred rights over the land subject to the charging order. It did not, any more than the interim order. Until the court decided not to make the charging order absolute, and so discharged that order, the liquidator could not treat the land subject to the order nisi as not subject to the creditor's security. Further, the ratio of Roberts is that it is wrong to allow a creditor who by an order nisi only has a defeasible right to steal a march on other creditors when liquidation has commenced. Liquidation initiates the imposition of a statutory scheme for the pari passu distribution of the assets of the debtor company. But similar reasoning is applicable where an individual debtor who is insolvent obtains an interim order to commence the IVA procedure. That procedure is intended as a substitute for bankruptcy proceedings. The judge's approach is that a debtor who takes steps to put in place an IVA should have less protection than someone who is made bankrupt or a company in liquidation. In my judgment that flies in the face of the policy of the 1986 Act evident from section 252(2).
58. As for the judge's reliance on Isaacs, I confess I do not follow on what logical basis the judge asserts that a breach of section 252(2) is not within the category of cases where an order can be set aside as of right. Isaacs was concerned only with the question whether a person can be held in contempt of court for disobeying an irregular order which had not yet been set aside. It is accepted that the irregular order in the present case remains in force until set aside. That throws no light on whether the debtor seeking to set the regular order aside has no entitlement to relief, or whether the court may exercise a discretion to refuse an application.
59. As I have indicated, Mr Berkley, when asked what gave rise to the discretion which he submitted the court had, was only able to point to CPR rule 3.10. But I am far from persuaded that that relates to other than procedural rules and directions under the CPR regime. I do not see how that can be relied on to defeat a statutory requirement, such as one finds in section 252(2), that there should be no continuation of an execution without the leave of the court.
60. Mr Berkley at one point indicated that his submission was that an order nisi, followed by an order absolute, which is set aside, may nevertheless continue in full effect. He was unable to point to any authority in support of that proposition, and I for my part do not accept it. It seems to me that the order nisi only operates by conferring a charge "in the meantime", viz until a specified date when the court decides what to do about making the charging order absolute. If the charging order absolute goes, it seems to me that inevitably the charging order nisi should go as well.
61. In any event, the only relevance that I can see for that submission is the argument that the judge had a discretion whether or not to make a fresh charging order absolute if the irregularity caused the court to set aside the charging order made by the Master. But it is plain that that is not the exercise on which the judge was engaged. In my judgment, the fact that there may in other circumstances be a discretion exercisable by the court is of no avail in the present case. I can see no answer to Miss Andrews' submission that this is a case where the mandatory requirement of section 252(2) was not complied with and, there being no relevant application for leave to be granted retrospectively, there is no reason whatever not to accede to the application made by Mr Clarke to set aside the charging order absolute.
62. I confess that I do not have great sympathy with Mr Clarke because of the way in which he behaved at about the time when the charging order absolute was made. He, or those acting for him, certainly ought to have alerted Coutts to the fact that the interim order was made. But, on the other hand, Coutts itself seems to me not to deserve huge sympathy either. It was well aware of the interim order from shortly after the order absolute was made, but it did not seek to obtain leave retrospectively. I of course appreciate that the present round of proceedings has been brought about as a result of the rise in property values, leading to Coutts seeking an order for sale, and that in turn prompted Mr Clarke to make the application. However, none of these considerations seems to me to be relevant to the present question before this court.
63. For the reasons which I have given, I would respectfully disagree with the judge in concluding that he had a discretion to exercise.

3. Can this court interfere with the judge's exercise of discretion?

64. In those circumstances the third issue does not arise and we have not heard any argument on it.
65. For these reasons, therefore, I am persuaded by Miss Andrews that the appeal should be allowed, the judge's order should be set aside and the charging order absolute also should be set aside.
66. SIR MURRAY STUART-SMITH: I agree. I would allow the appeal for the reasons given by my Lord.
67. LORD JUSTICE SIMON BROWN: Two central questions arise on this appeal. First, does the crystallisation of a charging order nisi by making it absolute constitute the continuation of execution against the debtor's property so as to fall within section 252(2)b) of the Insolvency Act 1986, or (as the bank here contends) does the making of the charging order nisi of itself complete that execution? Secondly, if (contrary to the bank's argument) the making of the order absolute is indeed prohibited by section 252 "except with the leave of the court", must such an order, made without leave, be set aside ex debito justitiae on the debtor's application, or has the court a discretion to leave it in place?
68. On both those important issues I agree with all that Peter Gibson LJ has said. Accordingly, no question of discretion arises in this case.
69. Nevertheless, I want to add just these few words. As my Lord has mentioned, at the conclusion of his submissions on both the main issues Mr Berkley QC, prompted clearly by certain thoughts which we ourselves expressed at the outset of the hearing, sought permission to apply directly to us for retroactive leave under section 252 with a view to retrospectively validating the charging order absolute. This permission we refused since, as already explained, we thought it altogether too late to make such an application at the very end of what is in any event a second-tier appeal, no such application having been advanced to either of the lower courts.
70. What I now particularly want to add, however, is this. There would in my view have been undoubted difficulties in such an application even if it had been made promptly in response to Mr Clarke's application to set aside the charging order absolute. True it is that in one sense the recently-established positive equity in this property can now be seen to represent a windfall for Mr Clarke. On the bank's approach, however, it would have become no less a windfall for them, certainly as between them and Mr Clarke's other creditors. There is, moreover, this consideration too. On 6 February 2000 Mr Clarke was discharged from bankruptcy on the third anniversary of his having been made bankrupt. Ordinarily, by a bankrupt's discharge he is freed from all his prior debts. Not so, however, on the bank's case here; and that despite Mr Clarke having in fact paid the trustee in bankruptcy a sum (if only a nominal sum) for what was then perceived to be the value of the house. I do not say, of course, that had the application been made it would inevitably have failed. I do say, however, that it was by no means assured of success.
71. Ultimately, however, these observations are by the way. The appeal is to be allowed for the reasons given by Lord Justice Peter Gibson, with all of which I respectfully agree. I agree too with the order which he proposes.

ORDER: Appeal allowed with costs here and in both courts below. A payment on account of £10,000 to be paid by the respondents within 14 days.

(Order not part of approved judgment)