England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(His Honour Judge Howarth)

		Royal Courts of Justice Strand London WC2 Monday, 17th June 2002

1. LADY JUSTICE ARDEN: This is an application for permission to appeal against the order of His Honour Judge Howarth dated 15th October 2001. This is a second appeal. Therefore, in addition to showing that there is a real prospect of success on appeal, the applicant must show that there is an important point of principle or practice involved in the appeal, or that there is some other compelling reason for this court to hear the appeal.
2. By his orders the judge dismissed an appeal against an order for possession made by District Judge Forrester of that part of a property known as 72 to 76 West Cliff, Preston which was occupied by the appellant. In fact, the judge went on to vary the order in a manner which I will explain. The judge's reasons for dismissing the appeal were as follows: first, that there was no prospect of success in setting aside the judgment on which the order for bankruptcy made against the appellant in 1997 was based; secondly, the judge held that an application for annulment was unlikely to succeed and, thirdly, he held that there was no prospect of success under section 335A of the Insolvency Act 1986. This provides that any application by a trustee of a bankrupt's estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 for an order that the sale of land should be made by the court having jurisdiction in relation to the bankruptcy order, and that on any such application the court should make the order which it thinks just and reasonable having regard to a number of specified matters, including the interests of the bankrupt's creditors, and where the application is made in respect of a dwelling house which has been the home of the bankrupt, the conduct of the bankrupt, the needs and financial resources of any spouse and the needs of any children and all the circumstances of the case, other than the needs of the bankrupt. Section 335A(3) provides that, where the application is made after the end of one year after the vesting of the property in the bankrupt's trustee, the court is to assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations. The judge held that, as this was a case where one year had elapsed since the bankrupt's property was vested in the trustee, the court had to assume that the bankrupt's creditors' interests outweighed all other considerations unless the circumstances were exceptional. He held that, in this case, the circumstances were not exceptional. I will come back to that point in a moment. The judge went on to dismiss the appeal. Accordingly, there is now an order for possession of the property.
3. Before I go on to describe that order, I will explain that I have been addressed this morning by Mr. J L Stoker at the appellant's request. Mr. Sladen is in court but he explained to me that Mr. Stoker had appeared on previous applications and knew about the background. In all the circumstances, it seemed to me right that I should permit Mr. Stoker to address me.
4. The appellant himself is a man in his 70s and, while obviously he is now a senior citizen, I am glad to see that he looks fit. He must be very active to have done that which he has done.
5. I go back to the judge's order. The judge considered that, as there was the possibility of an application for annulment of the bankruptcy order made against the appellant, there should be a stay on the possession order to allow such an application to be made. The material part of the order as made by him provides that the order for possession should not be enforced without the permission of the court prior to disposal of the application for annulment. His order also provided for that application to be made by a specified date which was duly done. What the judge said in his judgment was that if the appellant was able to persuade the judge that the bankruptcy order should be annulled, then: "So be it, the order will not be enforced."So the judge clearly had it in mind that if the bankruptcy order was annulled the possession order would fall away. There is some doubt whether the order truly reflects what the judge said in that regard, because it does not expressly go on to deal with that point. As I see it, that is what the judge intended and how the order should be read.
6. On that basis the appellant will have the opportunity to raise, on an application for annulment, all the points which he wishes to raise about the debt on which the petition was based not being a debt of his. The judge went on to say that there should be liberty to apply in the order and that he considered that that would be useful in case an application for annulment were not properly made. As I see it, the order made by the judge does not expressly provide for liberty to apply but that was the judge's intention and the order should be so construed.
7. That may be important in this regard since, if there were to be any change in circumstances between now and the disposal of the annulment application, which were relevant to whether a possession order should be enforced even though the annulment application had failed, then the liberty to apply could be invoked; for instance, if the appellant had come into funds or had a reasonable prospect of funds to enable him to pay off the petition debt.
8. Be that as it may, the position with which I am now dealing is the question whether there should be permission to appeal against the order which the judge made. As I have explained, the order of District Judge Forester as varied by the judge and as explained in the last few paragraphs of this judgment allows for the possibility that the appellant will succeed in his application for the annulment of his bankruptcy. Accordingly in this application the court has to contemplate a set of circumstances arising where the appellant has failed to set aside the judgment on which the petition was based. That judgment was obtained in 1994 but there are applications pending to set it aside, and I am told that the annulment application is awaiting the outcome of those applications. The question whether or not those debts were sound will be investigated in other proceedings and need not be investigated by this court on any appeal. Thus the circumstances to which this appeal is addressed are the circumstances in which those applications fail.
9. That point is relevant to the first ground of appeal in the application notice, which was that the judge should have concluded that there was no debt owed to the Revenue, that being the debt on which the petition was based. The petition for bankruptcy was based on the sum of £125,828.61 in respect of arrears of income tax and national insurance. Put shortly, the appellant says that he was not liable for the income tax or the national insurance which was charged on rental income received from the property since a charity was entitled to that rental income. What happened after the bankruptcy order was made was that the trustee in bankruptcy negotiated with the Revenue and obtained a reduction in that sum to £60,000 but the essential point which remains outstanding is whether the income was paid to a charity. That is the matter to be investigated in the proceedings to set aside the judgment. It does not now arise on any appeal from the order of His Honour Judge Howarth.
10. The second ground of appeal put forward is that the judge did not refer to the evidence of Patrick Bracewell. Mr Bracewell is a chartered surveyor. He says in his witness statement of 14th October 2001 that he has known the appellant for some 50 years. He knows that Mr. Sladen devotes "every hour of his life and every penny of his finances to helping young underprivileged people in distressed circumstances, and in later years for the financing and running of the Stanley House Hostel to provide help and accommodation for the homeless and underprivileged of Preston". He continues:

"Brian Sladen's life is entirely devoted 24 hours a day, 365 days a year to running the hostel. He has no other interests whatsoever, other than previously being a church organist for many years, and his personal requirements are absolutely minimal. He has no other financial commitments other than the hostel, he never has holidays or luxuries of any sort. As far as I can see his needs are simple - basic food and clothing and to run an ancient motor car. Every other penny of either the income from the hostel and his old age pension together with many thousands of pounds of personal inheritance received over the years, have all been ploughed into the hostel which constantly requires additional finance to meet running costs and adaptation costs to meet ever increasing fire authority and local authority byelaw requirements."

11. Mr. Bracewell's statement goes on to deal with other matters, including a valuation which had been caused to be made of the property by the trustee at that stage. I do not think that I need to go into that matter further at this stage, other than to say that Mr. Bracewell thought that a figure significantly in excess of £80,000 could be obtained. He also said that if the property had to be sold, then there should be a direction that they should be sold by tender with an appropriate tender period to ensure that the best price reasonably obtainable is achieved.
12. Mr. Stoker has elaborated on those points. He tells me that there is other evidence in support of what Mr Bracewell is saying. He has explained that the property consists of about 50 rooms with about nine residents at the moment. Other rooms are awaiting repair. The residents are people such as drug addicts and persons with mental disabilities who have not been assisted by the local authority, and that Stanley House Hostel was therefore carrying out a public function of public benefit and ought to be able to continue to do so. Moreover, this represents some 50 years work by Mr Sladen.
13. The judge dealt with the section 335A point in the following way. He pointed to the fact that there were other respondents to the application before him. He said that, if it were held ultimately that they had tenancies, then of course any sale would have to be subject to their interests. Accordingly, they would not be prejudiced by any order for possession in favour of the trustee under section 335A, but he did not deal expressly with the further point that has been put to me today, that the hostel is serving a public benefit and therefore there ought to be no order for possession so that it can continue.
14. On that point I have not been referred to any authority. What Mr Stoker says is that this is a point of importance, a point of law with which this court ought to deal. But as regards that I have to determine whether or not there is a real prospect of success in that argument. The position is that at this point in time the bankruptcy order has been in place for some five years. There are creditors who are unpaid. I say that because I am assuming, as I must for the purpose of this argument, that the application to set aside the judgment has failed. At that point in time the court is left having to draw a balance between the interests of creditors and the interests of other persons, that is other persons than the bankrupt. It does not seem to me that, where there are unpaid creditors and there are persons who have no property interest, that the court can fairly say that the order for sale ought not to be made. The section itself draws a form of balance between the rights of creditors and those of the bankrupt by giving a year before the assumption which the court is to make under subsection (3) arises. Once that assumption arises, then the court is bound to assume that the bankrupt's creditors' interests outweigh all other considerations unless the circumstances are exceptional. I do not think that there is any real prospect of showing that, because the hostel is currently performing a public purpose and represents the life time's work of Mr Sladen, that the bankrupt's creditors should not now have the benefit of any proceeds of sale. Accordingly, in my judgment, I cannot give permission on that point.
15. Mr. Stoker goes on to say that there was an application for restrictions on the sale by the trustee with which the judge did not deal, and that this application was in one of the witness statements made by Mr. Sladen which I have not seen. I have referred to Mr. Bracewell's statement in which he makes a proposal that the sale should be by way of open tender. Of course, the situation is a long way from being one where the possession order is about to be enforced since the annulment application has not yet been heard. The order made by the judge includes liberty to apply. As he did not deal with the directions sought then, and on the assumption that that is correct (there is no further transcript of any discussion in which the court dealt with those directions), then it seems to me that it must be open to Mr. Sladen at the appropriate moment to make an application to the court that directions be given as to sale. That matter cannot itself found a good ground of appeal in this court.
16. Mr. Stoker drew my attention to the fact that the judge had not read all the documents. The documents in this case are somewhat voluminous. It seems to me that the judge could reasonably ask to be directed to the relevant parts, otherwise the time and resources of the court that ought to be available to other applicants would be spent reading matters which were not necessarily relevant to the application. On this application the documentation has usefully been limited and I have received a helpful skeleton argument. The position is that the judge dealt with the material points in front of him. I do not think that he is to be criticised for not having read something to which his attention was not directed. Insofar as he did not deal with any point, then it seems to me that, either the matter has been taken care of in some other way, or that it is a matter which does not found the basis for an appeal to this court.
17. In all the circumstances I refuse the application. I will direct that a transcript of this ruling be made available at public expense to Mr Sladen. I have been asked whether I will order a transcript of the proceedings before District Judge Forester. That is not necessary. Mr. Stoker was present at that application. He has been able to tell me what he submitted. So far as the judgment of the District Judge is concerned, the court has a detailed note from the District Judge which has been made to available to the parties. I do not propose to accede to the application. There are a large number of other orders sought in the notice of appeal. In the light of my order, none of those other matters arise.
Order: Application refused; transcript of judgment to be provided at public expense to the applicant.