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
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
(MR JUSTICE HEDLEY)

		Royal Courts of Justice The Strand London, WC2A 2LL
		16 November 2004

Tuesday, 16 November 2004

1. LORD JUSTICE THORPE: This is the husband's appeal against an order made by Hedley J in ancillary relief proceedings on 4 March 2004. The barest facts are that the husband and the wife have been a couple since 1986, although they did not marry until 1993. They purchased their matrimonial home at 34 Longmeadow Close in 1988. In 1990 the husband and his family bought a property at 11 Westfield Road, and there has been a degree of obscurity surrounding the respective interests of the husband, his brother Solinder and his father, since deceased on 3 February 1998. By his will the deceased purported to leave a quarter share in 11 Westfield Road to the husband and Solinder equally. The next significant event occurs approximately six months after the death of the husband's father. He is the subject of a bankruptcy order made on a petition filed I think at the behest of the Inland Revenue asserting unpaid tax debts.
2. The divorce proceedings commenced with the wife's petition of 20 May 2002 and financial proceedings began at once. The financial proceedings have been protracted, and one of the interlocutory orders was appealed to this court and was the subject of a judgment given on 19 March 2003. The proceedings demonstrate great folly on the part of both the principal parties. The wife seems to have been reluctant to recognise or accept the legal consequences of the prior bankruptcy proceedings. She has throughout been represented by Mr Peter Duckworth. He has conducted a campaign on the wife's behalf which took him into bankruptcy proceedings in the Chancery Division, which culminated in a judgment given by His Honour Judge Norris QC on I think 17 December 1993. He held that the wife had no interest in the matrimonial home, but granted her permission to appeal, recognising that in some senses she was the victim of the effect of section 423 of the Insolvency Act 1986. That appeal was determined by this court on 5 November 2004. Carnwath LJ gave the judgment of the court, which upheld the conclusion of Judge Norris and dismissed the wife's appeal.
3. The husband's folly has lain in his machinations in the ancillary relief; failing to cooperate responsibly in the process, failing to make full and frank disclosure of his assets, and thereby incurring strong criticism by the judges of the trial court and criticism in the prior judgment of this court.
4. Mr Duckworth has characterised this strategy as a strategy intended to defeat the wife's claims. He has specified the significant points of the strategy as failing to turn up at any of the court hearings in ancillary relief since the first, swearing a defective Form E, failing to disclose an important interest in his late father's estate, and resisting disclosure of documents relating to that interest. So the prospects of the ancillary relief proceedings compromising must have seemed extremely remote. The case was fixed for a three-day hearing before Hedley J commencing on 3 March. Hedley J certainly prepared himself for a contest, carefully reading the papers in advance of the fixture. However, he knew that the husband's public funding certificate had been withdrawn shortly before the fixture, and he was anticipating an application by the husband for an adjournment when the case was called. However, the wife's solicitors had written on 1 March an open letter in which they said:

"... I shall simply set out [Mrs RAM's] own terms which are as follows:

1. She would take 34 Longmeadow Close free of mortgage and subject to any existing incumbrances on the title. This together with the capital adjustment referred to below would enable [her] to accept a clean break of all her claims including maintenance for herself.

2. In addition [she] would wish to be paid a lump sum of £150,000 to capitalise effectively 8 years worth of maintenance ordered by Her Honour Judge Hindley QC. Payment to be within 56 days. Interest to run at the judgment rate in default.

3. Your client should forthwith pay all arrears that have accumulated under the Order of Her Honour Judge Hindley QC.

4. Your client should pay or cause to be paid [her] entire legal costs incurred at [this firm] inclusive of costs, VAT and disbursements which in turn include Counsel. Payment to be made in full and on an indemnity basis.

A Consent Order drawn up on these lines would enable these parties to put the past behind them and get on with their lives."

Then finally under the sub-heading "other assets:

"It follows that each party should retain those assets vested either in their respective names or in their individual possession, save for the assets mentioned above."

To that letter on the following day came this urgent fax response:

"Having considered the proposals with our client, we are instructed to inform you that our client accepts your client's proposals as set out in the four numbered paragraphs of your ... letter, in full and final settlement of all of the claims of your client that are outstanding.

We would be grateful if you could please reduce the terms in your letter into a draft consent order, which can be signed by our respective clients and then submitted to the Court for sealing."

In the penultimate paragraph that last point was reiterated in this way:

"We look forward to receiving your draft Consent Order. We intend to write to the Court to inform the Court that a settlement has been reached between our respective clients and that a Consent Order will be submitted in due course."

On the same day the same writer wrote to the court this urgent fax response:

"Dear Sirs With reference to [this case] we are pleased to inform you that our client has now accepted the Petitioner's Terms of Settlement and accordingly a Consent Order will be submitted shortly.

Accordingly, the three-day contested hearing will not be taking place tomorrow..."

5. On the morrow it is possible to discern what happened since we have a full transcript of the proceedings. Page 1 shows Mr Duckworth bringing the judge up to date. He said:

"My Lord, I don't know if you know that there was a development yesterday in that, much to our surprise, thinking that we would simply formally set out to [the husband's solicitors] ... the terms on which [our client] would be prepared to settle this case, to our surprise they came back to us yesterday saying that their client would accept those terms. So the first thing I am going to do is to hand to your Lordship copies of the offer letter and the reply."

They were handed to the judge, who said:

"That, I suppose, could be thought to represent a significant development in the case. May I just read them?"

Mr Duckworth said: "Indeed". Unfortunately then the tape was switched off, and by the time it was reactivated the discussion had passed to a different point. Thus it is impossible to discern why there was not simply a general disbursal to fulfil the apparently agreed intention of the solicitors to submit in due course a draft consent order. Instead, the case proceeded throughout what seems to have been the rest of the day with Mr Duckworth persuading the judge to go well beyond the simple exercise of drafting the consent order containing the four essential terms supported by conventional paragraphs for reciprocal dismissal of claims. Thus, the exercise turned into one of immediate enforcement, so that it became in a single process both the registering of a consent order and also the writing of rigid lines of enforcement, supported by a penal order.

6. As well as Mr Duckworth, the husband's trustee in bankruptcy was also before the court in the shape of Mr Lee, his solicitor. At page 13 of the transcript the judge invited Mr Lee to state what was his role. Mr Lee made it plain that he was initially alarmed at the provision within the compromise that the wife was to receive 34 Longmeadow Close free of mortgage, when of course that property was vested in the trustee in bankruptcy. The judge reassured Mr Lee that the term agreed was expressly subject to any other charges and that that must include the trustee in bankruptcy's interest. The judge said:

"... the family court has got no power to override that anyway."

There were further exchanges, in the course of which it became plain that Mr Lee had had very little time to consult his counsel and the judge agreed that Mr Lee would take advice overnight and return on the following day.

7. The exchanges between Mr Duckworth and the judge towards the end of the day make it plain that the judge was not allowing the husband any opportunity to be heard in relation to the rigid programme of enforcement, other than allowing him a conventional liberty to apply in relation to implementation and a liberty to be heard as to the quantum of the wife's costs.
8. That latter acknowledgment reflected the fact that, whereas the compromise in the correspondence obliged the husband to pay the wife's solicitor's indemnity costs, they had not been assessed and the judge was going further in assessing them in the sum of approximately £66,000. So, in recognition that to that extent he had exercised a discretion that was not within the four corners of the compromise, the judge allowed the husband an opportunity to apply, but not otherwise. The exchanges between the judge and Mr Duckworth (between pages 24 and 30) make it plain that Mr Duckworth was going to make some amendments and embellishments to his draft order which was already on his word processor, and that he would bring the polished draft back to the judge on the following day for perfection.
9. On 4 March we see from the full transcript that Mr Duckworth at once presents to the judge his overnight handiwork and almost at once he addressed the judge:

"My Lord, may they then be sealed as representing what the court ordered yesterday?"

The judge said "Yes". The resulting order bears at its foot the date 3 March, but the official seal of the court on the face of the order is indeed dated 4 March. I assume that the developments of 3 March must have been communicated overnight to the husband's solicitors. They had come off the record with the withdrawal of the public funding certificate, but had apparently continued to act for him on a pro bono basis. That was the basis upon which letter of 2 March was written and the basis upon which the writer had proposed to continue to participate in the exercise of drawing a consent order and getting it signed by the parties.

10. In precisely that same mode the husband's solicitor and his counsel, Mr Stenhouse, appeared before the judge on 4 March. The judge at the outset of the proceedings noticed Mr Stenhouse's presence and said:

"Mr Stenhouse, thank you for your attendance this morning. What do you see as the field of your endeavour today?"

Mr Stenhouse then explained that he had a dual role. First, he was representing his instructing solicitors in relation to certain production orders that had been issued by the court. Then the judge said:

"... I am sorry to interrupt you just to tell you what I know. Mr Duckworth produced to me yesterday the exchange of correspondence relating to the offer and acceptance. Indeed you will have seen, with one possible exception which you may or may not want to come to, that that is effectively embodied in the order."

Mr Stenhouse responded thus:

"Yes, there are some exceptions which I would like to come to. I agree about the embodiment of the terms. That is how matters came to the point where your Lordship was making the order. I am instructed to appear on behalf of [the husband] and my instructions are to apply for leave to appeal. It might assist the court if I indicate the basis upon which I am instructed to ask for leave by reference to the particular terms of the order."

Mr Stenhouse then went through the order, objecting to those paragraphs which exceeded the correspondence compromise and imposed the rigid process of enforcement.

11. The judge also heard from Mr Lee again when he said that his client, the trustee, wished to know what was meant by paragraph 1 of the order that required the transfer of 34 Longmeadow Close forthwith to the wife. When Mr Lee posited that Barclays, the mortgagee, might evict her for arrears and the property would then be sold and converted into cash, the judge reassured him, saying:

"As I understand it, under the ordinary insolvency law you have first claim on it".

That satisfied Mr Lee, and the judge delivered a judgment refusing Mr Stenhouse's application for permission to appeal.

12. The judge dealt individually and in turn with Mr Stenhouse's submission in relation to each of the paragraphs which were more enforcement than compromise. The order of 3 March I will return to, but I complete the chronology by recording that on 20 April an application was received in this court for permission to appeal. I believe that that application was in time, pursuant to extension granted by Hedley J and, when the papers were referred to me, I made an order for an oral hearing on notice with appeal to follow if permission granted. I am not clear why it has taken so long for the oral hearing to be listed.
13. Because of that delay there have been further and unnecessary proceedings in the trial court. On 7 July the wife issued an application for an order that the property at 11 Westfield Road be delivered up to her within 14 days with vacant possession and that her solicitors be given the conduct of the sale. That attracted a cross-application from the husband's brother, Solinder, in which he sought the discharge of the order for sale of 11 Westfield Road made by Hadley LJ. The grounds were that he had not been notified of any application for the order for sale and that there were pending appeals concerning the order for sale and the petitioner's interest. It seems to me unfortunate that there should have been a contested hearing before Her Honour Judge Hindley QC on 11 October to determine those cross-applications. After all, the hearing of the husband's application in this court had been fixed for 16 November, and equally it was known that the wife's appeal from the order of Judge Norris was to be heard on 5 November. Nonetheless the judge proceeded on 11 November. She made robust orders designed to support and implement the judgment of Hedley J. She granted the wife the relief sought by her application of 7 July and dismissed her brother-in-law's application of 9 September.
14. However the reliance on the essential foundation, namely the order of Hedley J, seems to me to be one that could not safely be made, given that there had been an order made on paper setting up a relatively full-scale appeal to this court.
15. The only other observation that I would like to make derives from the chronology. It is that all this complexity and considerable wastage of family and public funds might have been avoided if there had been a timely dispatch of the bankruptcy proceedings. After all, the bankruptcy proceedings had been on foot for a period of almost four years before the initiation of the matrimonial proceedings; the bankruptcy petition, 28 May 1998; the wife's divorce petition, 20 May 2002. If the bankruptcy proceedings had brought to a prompt conclusion before the initiation of the divorce proceedings, then the jurisdiction of the court and the discretionary range of the judge in ancillary relief would have been plainly established.
16. I turn now to the order which we review. In a clear and helpful submission Mr Sharp QC has distinguished between those paragraphs which are properly expressive of the compromise and those which are plainly part and parcel of the rigid scheme of enforcement. The prelude to the order contains four recitals, the fourth of which reads:

"AND UPON the trustee indicating to the court his support for the wife's application for a sale of 11 Westfield Road."

I doubt whether the judge should have endorsed that expression of Mr Duckworth's. As the transcripts reveal, Mr Lee was essentially there to safeguard the trustee's position. His position was not essentially one of support, but one of forbearance from objection once he had received from the judge satisfactory assurances that his client's interests were recognised and respected.

17. Coming to the order itself, it was the essential task of the court to draw an order by consent. Not only is this order not stated to be a consent order, but it is preceded by the writing of a penal notice. Nothing could more clearly demonstrate the point at which these proceedings ran off the rails. If the husband was to be faced with the imposition of a rigid regime of enforcement supported by a penal notice, that could only be legitimately achieved in separate proceedings on notice giving him the proper opportunity to be heard.
18. The paragraphs that are essentially expressive of the compromise in correspondence are paragraphs 1, 3, 4 and 6. In relation to them, Mr Sharp only essentially takes objection to the requirements that the paragraph 1 transfer of 23 Longmeadow Close and the paragraph 6 requirement to pay all the wife's costs should each be expressed to be forthwith. There was no such provision in the compromise and the introduction of a time element was no doubt dictated by the impermissible introduction of the penal notice. The paragraphs which are most stringently criticised by Mr Sharp are paragraphs 2 and 5, which read as follows:

"2. For the purpose of enabling the husband to comply with Order 1 and in order to meet the claims of the trustee the Court hereby directs that the property at 11 Westfield Road... be sold forthwith at the best price reasonably obtainable through agents to be jointly instructed by the wife and the trustee. Upon a sale of the property being agreed, the trustee shall report to this court with a view to the court giving further directions as to the distribution of the net proceeds of sale.

5. Until the transfer of 34 Longmeadow Close to the wife, and pending payment of the lump sum, the husband shall continue to make payments to the wife by way of maintenance pending suit until decree absolute and thereafter by way of periodical payments at the rate of £2,000 per month payable monthly in advance on the 20th of each month..."

19. Now, any comparison of the agreed terms with the order said to express them reveals at once that the order for sale of 11 Westfield Road was completely uncontemplated and, in any event, it was a property in which neither the wife nor the husband had any current interest, the husband's interest in the property being vested in his trustee. Equally, the terms of compromise had expressly excluded the possibility of any periodical payments order. It was characteristically a clean break compromise.
20. The following provisions of the order are not so much a matter of concern to Mr Sharp in that paragraph 9 granted to the husband's brothers, Solinder and Monder, a right of application on notice in the event that they or either of them wished to make representations as to the order for sale of 11 Westfield Road. The subsequent application of 9 September determined by Judge Hindley was just such an application. Paragraph 10 joins Solinder as a party for the purposes of determining whether he should be jointly liable for the wife's costs. That provision has some present legitimacy in that Mr Starcevic, who appears for Solinder today, tells us that there is an imminent two-day fixture to determine whether or not Solinder has any such obligation. Equally, the order went on to provide that there should be a hearing before Her Honour Judge Hindley to determine whether applications for wasted costs orders made against the husband's solicitors were still available to the wife for pursuit or whether she had lost her right of pursuit as an implied term of the compromise.
21. Finally, the judge provided in paragraph 12 that there should be an extension of a freezing injunction that had been granted on 12 November 2003 until the trial of the applications. The extension was granted until compliance with the orders contained in paragraph 1-6.
22. Mr Sharp's attack on this order falls into two distinct compartments. The first compartment is one of fairness. He emphasises the unwarranted, and on the transcript as it now stands inexplicable, extension of the purpose and goal of the appearance before the judge on 3 March. How on earth did the listing amplify from a simple standing out to enable the solicitors to obtain a signed consent order into a full-scale programme of implementation and enforcement? The criticism is, in my view, unanswerable.
23. Mr Duckworth, who might have been here to answer it, has taken a realistic view that the consequence of her failed appeal on 5 November is that the wife has now no subsisting interest in the appeal. She is not in a position to pay lawyers to appear before the court, and Mr Duckworth has simply filed a position statement in which he makes only two observations on the husband's appeal. He says, first, that since the husband has no subsisting interest in Westfield Road he has no standing to oppose or to appeal any order for sale or possession of that property. That seems to me to be a completely unpersuasive submission. If one product of the events of 3 March has been an order in relation to Westfield Road, it is manifest that that product has been achieved without proper regard to the husband's rights in any process of fair trial. Equally vain is Mr Duckworth's second submission that because the husband is in breach of orders for maintenance pending suit he should be denied a hearing on the application of the rule in Hadkinson v Hadkinson [1952] Probate 285.
24. The arrears of periodical payments were, after all, the subject of one of the terms of compromise. There was no bar to the husband's appearance in the court below, and the suggestion that he should be denied a hearing in this court on the grounds that he is in contempt is simply imaginative unreality. So Mr Sharp has demonstrated conclusively, to my mind, that there was an impermissible extension of the purpose of the listing on 3 and 4 March, and any provision within the order that is not simply expressive of the compromise achieved in the exchange of letters must be struck out.
25. Mr Sharp has an equally impressive submission which relates only to paragraph 2 of the order. That paragraph purports to be an order made under section 24A of the Matrimonial Causes Act 1973. There are two subparagraphs of the order that need to be cited. Subparagraph (1) provides:

"Where the court makes under section 23 or 24 of this Act a secured periodical payments order, an order for the payment of a lump sum or a property adjustment order, then, on making that order or at any time thereafter, the court may make a further order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion."

Subparagraph (6) provides:

"Where a party to a marriage has a beneficial interest in any property, or in the proceeds of sale thereof, and some other person who is not a party to the marriage also has a beneficial interest in that property or in the proceeds of sale thereof, then, before deciding whether to make an order under this section in relation to that property, it shall be the duty of the court to give that other person an opportunity to make representations with respect to the order; and any representations made by that other person shall be included among the circumstances to which the court is required to have regard under section 25(1) below."

26. Let me deal first with the procedural point derived from subparagraph (6). Solinder and Moner fall within the range of subparagraph (6). They are persons not a party to the marriage, having a beneficial interest in Westfield Road. Accordingly, in my judgment, the procedural provisions of subparagraph (6) had to be carefully observed. The judge did not have the power to make an order under section 24A in relation to 11 Westfield Road without having given both Solinder and Monder an opportunity to make representations with respect to the order; and any such representations had to be included among the circumstances to which the court had to have regard. It was simply not compliant with subparagraph (6) to say, as the judge said in paragraph 9 of his order, that they had a liberty to apply on 48 hours' notice.
27. I turn now to what is perhaps an even more substantial point. The court's power under section 24A(1) is a power restricted to property in which either or both of the parties has or have a beneficial interest either in possession or reversion. Plainly the wife had no interest of any sort in 11 Westfield Road. The presentation to the judge that the husband had a beneficial interest in possession or reversion simply ignored the effect and consequence of the outstanding bankruptcy order. The reality was that the interest vested in the trustee and the extent of the husband's potential interest had to await the completion of the process of insolvency and the determination of whether or not there was any surplus. Such an interest could not properly be described as a present beneficial interest either in possession or reversion. Mr Sharp has produced an erudite skeleton argument in which he has referred to a number of 19th Century authorities, some of which he suggests are conflicting. He says that they should all be reviewed and some condemned by this court. However, both my Lady and my Lord are much more learned in this field of law than I am and my Lady will say more on this topic in due course. In particular she will refer to modern authority which makes it plain that it is unnecessary to pursue the resolution of the conflict which Mr Sharp suggests exists amongst the earlier authorities. So it is plain to me that Mr Sharp succeeds on both his grounds that the order made by Hedley J on 3 March must be substantially reduced in extent so that it contains no more than the first three opening recitals, the plain label that it is a consent order, the provision of paragraph 1 deleting the words "forthwith"; paragraph 3 deleting the last line in brackets; paragraphs 4 and 6 deleting the word "forthwith". Paragraphs 7 and 8 may stand. Paragraph 9 falls because it is consequential upon the impermissible paragraph 2. There can be no harm in leaving paragraph 10, since the inquiry into Solinder's costs liability is still pending. It seems to me that only slight amendment is required for paragraph 12.
28. Accordingly I would grant permission and allow the appeal to the extent indicated.
29. In relation to Mr Starcevic's separate applications he has two in number. First, he has an application which has been given the Court of Appeal reference 2247. That is an application not issued until 25 October, and it seeks an extension of time and permission to appeal the root order of Hedley J. I well understand that once Judge Hindley had perhaps unfortunately determined the cross-applications in advance of the appeal hearings the brothers, Solinder and Monder, had to move this court in relation to the possession order. Their second notice, which has been given the designation 2248, attacks the order of Judge Hindley and is overwhelmingly obviously merited. It follows as night follows day that Judge Hindley's order cannot stand if Hedley J's order has fallen.
30. Accordingly, on application 2248 I would grant permission, allow the appeal and set aside the order of Judge Hindley in its entirety. However, I am not satisfied in the exercise of a broad discretion that it would be appropriate to grant an extension of time to cover the large interval between the hearing of March and the recent application to this court. Obviously it would have been open to Solinder and Monder to have sought to appear and to support the permission application of their brother when issued in April. Had they done so there might have been a similar limited grant such as was made by my order of 20 May; but directions would have been given to ensure that there was no duplication of representation. As it is, it would have been perfectly open to the brothers to have laid down a marker that they too challenged the court's jurisdiction in relation to 11 Westfield Road and sought to reserve their position pending the outcome of their brother's appeal. So for those reasons I would not grant any extension in relation to the application 2247.
31. LADY JUSTICE ARDEN: I agree with the orders that my Lord proposes, and I would like to add some reasons why I have come to the same conclusion as my Lord on the jurisdiction issue.
32. Mr Ram was adjudicated a bankrupt on 17 September 1998. He was discharged from his bankruptcy pursuant to section 280 of the Insolvency Act 1986 in September 2001. In 1996 prior to becoming bankrupt, Mr Ram transferred his quarter share in 11 Westfield Road, Edgebaston, to his father. However, the respondent to this appeal, Mrs Ram, commenced proceedings to set aside that transfer pursuant to section 43 of the Insolvency Act 1986. On 18 February 2004 His Honour Judge Norris QC held that the transfer should be set aside under section 423, but directed that the property should be re-vested in the trustee in bankruptcy of Mr Ram. An appeal against that part of the order was dismissed by this court, (Potter, Buxton and Carnwath LJJJ) on 5 November 2004.
33. Accordingly, when this matter came before the judge the position was that Mr Ram's share in the property, which had been transferred to his father, was vested in the trustee in bankruptcy and it so remains. Moreover, during the course of the bankruptcy, Mr Ram's father died. Mr Ram's father's share in the property was divided among his three sons. Accordingly, at the time the matter came before the judge the trustee in bankruptcy held a three-eighths share in the property, that being the aggregate of the two shares which I have mentioned to which Mr Ram would, but for his bankruptcy and but for the transfer to his father, would have been entitled.
34. The bankruptcy has now been in progress for many years. There is little information about the assets and liabilities. In the recent appeal in this court the unpaid liabilities of Mr Ram in respect of his debts and the costs charges and expenses of the bankruptcy were said to be about £411,000. The assets available for the payment of debts and costs were estimated in that appeal to be between £500,000 and £675,000. Those assets include a share in a house (or the house itself) in which Mrs Ram now lives. That is the property referred to in paragraph 1 of the judge's order. The arrears also included the share to which I have referred to above in 11 Westfield Road. On the basis of those figures, Mrs Ram anticipates that there will be a surplus in the bankruptcy.
35. The trustee in bankruptcy has not put in evidence. Mr Shakil Najib has attended the appeal in order to assist the court if called upon. He has informed the court that only about £6,000 has in fact been paid to creditors and that large amounts remain outstanding for the Inland Revenue and Customs and Excise in respect of unpaid tax and value added tax, statutory interests and penalties. Mr Najib, however, accepts that there may be a small surplus in due course. There are a number of uncertainties including the size of Mrs Ram's beneficial interest in the matrimonial home and the amount of the proceeds of sale of 11 Westfield Road; in other words this bankruptcy is nowhere near its conclusion.
36. I now turn to section 24A of the Matrimonial Causes Act 1973. Subsection (1) provides:

"Where the court makes under section 23 or 24 of this Act a secured periodical payments order, an order for the payment of a lump sum or a property adjustment order, then, on making that order or at any time thereafter, the court may make a further order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion."

An interest in possession is one which a person currently has. However the expression "in reversion" refers to an interest which an owner has in a property, subject to an outstanding more limited interest, for example the freehold of a property which is subject to a lease, or the ownership of investments over which a life interest has been granted if they were the third party.

37. An order of the court under section 24A(1) can extend not simply to the party's interest when the order is made, but to the interest which she will have when the limited interest comes to an end. When section 24A refers to "a beneficial interest in property in reversion" it is, in my judgment, referring to a present entitlement to a future interest. The words "has or have" in the concluding part of section 24A(1) makes it clear that a person must actually have an interest in the relevant property, whether that interest is in possession or is an interest which is only "in reversion".
38. So far as assets held by a trustee in bankruptcy following a person's bankruptcy are concerned, the bankrupt, or if there has been a discharge, the former bankrupt, has no present entitlement to anything until a surplus is established. When the bankruptcy order is made the assets are vested in the trustee in bankruptcy under section 306 of the Insolvency Act 1986. This provides:

"(1) The bankrupt's estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee.

(2) Where any property which is, or is to be, comprised in the bankrupt's estate vests in the trustee (whether under this section or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer."

It is useful to take in here the commentary from Muir Hunter on Personal Insolvency paragraph 3-936. It states:

"This section perpetuates one of the historic principles of English bankruptcy, namely the automatic vesting, by operation of law, of the bankrupt's property in his trustee in bankruptcy. A significant difference between the provisions of the Insolvency Act 1986 and those of the [Bankruptcy] Act OF 1914 is that whereas under the latter Act (sections 18(1) and 53(1)) the property of the bankrupt vested in the trustee or official receiver automatically upon the making of an order of adjudication, under section 306 the bankrupt's estate does not (with two exceptions) vest in any person upon the making of a bankruptcy order. The bankrupt's estate remains vested in the bankrupt until either a trustee is appointed or the official receiver becomes trustee by operation of law: see notes to sections 293 to 295 above."

The commentary then goes on to deal with the two exceptions with which I am not concerned.

39. Because of the statutory vesting under section 306(1) it cannot be said that a bankrupt retains the beneficial interest which he had immediately before the bankruptcy. Moreover, the automatic discharge does not affect this position. Thus section 281 of the Insolvency Act 1986 provides:

"Subject as follows, where a bankrupt is discharged, the discharge releases him from all the bankruptcy debts, but has no effect -

(a) on the functions (so far as they remain to be carried out) of the trustee of his estate, or

(b) on the operation, for the purposes of the carrying out of those functions, of the provisions of this Part;

and, in particular, discharge does not affect the right of any creditor of the bankrupt to prove in the bankruptcy for any debt from which the bankrupt is released."

40. Can it, however, be said that the bankrupt thereafter retains a beneficial interest in the property because there may be a surplus at the end of the day because the property in question may not need to be sold? The judge thought that a bankrupt does retain such an interest. In paragraph 17 of his judgment, he said:

"... I believe that the respondent retains some beneficial interest. The reason I believe it is this: the property is almost certainly held as tenants in common in equity as between the brothers and the estate. Two consequences flow from that. The first is that any tenant in common is entitled to seek the realisation of his or her share. Secondly, notionally it is a beneficial interest not in land but in the proceeds of sale. It seems to me that there remains some beneficial interest in that belonging to the respondent, because the trustee in bankruptcy cannot have any interest that exceeds the responsibility of the creditors. If there is an interest - and on the evidence displayed to me yesterday there may well be an interest that goes beyond that - that remains the beneficial property of the respondent, albeit postponed to the trustee.

18. That is my view about the law as presently advised and, accordingly, it seems to me the court has jurisdiction."

41. The right of a bankrupt to receive the surplus of his estate is conferred by section 330(5) of the Insolvency Act 1986. This states:

"If a surplus remains after payment in full and with interest of all the bankrupt's creditors and the payments of the expenses of the bankruptcy, the bankrupt is entitled to the surplus."

However, that provision does not of itself suggest anything more than a conditional interest - that is an interest that is conditional on a surplus being found to exist after the payment in full and with interest of all the debts and the payments of the costs, charges and expenses of the bankruptcy.

42. In my judgment, a mere contingent interest of this nature is not within section 24A(1). However, it is not necessary to go this far as it is, in my judgment, clear that the interest of a bankrupt in a surplus is not an interest in property at all until the surplus has been finally determined. This can be seen most conveniently from the decision of the House of Lords in Ayerst (Inspector of Taxes) v C & K (ConStruction) Ltd [1976] AC 167. This establishes that a company is not the beneficial owner of its asset once it enters liquidation. There are many similarities between the system of corporate and personal insolvency which makes this authority a relevant one even in relation to personal insolvency. The leading speech was given by Lord Diplock, with whom the remainder of the House agreed. He summarised the statutory scheme of the liquidation at page 176:

"Upon the making of a winding-up order:

(1) The custody and control of all the property and choses in action of the company are transferred from those persons who were entitled under the memorandum and articles to manage its affairs on its behalf, to a liquidator charged with the statutory duty of dealing with the company's assets in accordance with the statutory scheme (section 243). Any disposition of the property of the company otherwise than by the liquidator is void (section 227).

(2) The statutory duty of the liquidator is to collect the assets of the company and to apply them in discharge of its liabilities (section 257 (1)). If there is any surplus he must distribute it among the members of the company in accordance with their respective rights under the memorandum and articles of association (section 265). In performing these duties in a compulsory winding up the liquidator acts as an officer of the court (section 273), and if the company is insolvent the rules applicable in the law of bankruptcy must be followed (section 317).

(3) All powers of dealing with the company's assets, including the power to carry on its business so far as may be necessary for its beneficial winding up, are exercisable by the liquidator for the benefit of those persons only who are entitled to share in the proceeds of realisation of the assets under the statutory scheme. The company itself as a legal person, distinct from its members, can never be entitled to any part of the proceeds. Upon completion of the winding up, it is dissolved (section 274).

Lord Diplock then continued:

"The functions of the liquidator are thus similar to those of a trustee (formerly official assignee) in bankruptcy or an executor in the administration of an estate of a deceased person. There is, however, this difference: that whereas the legal title in the property of the bankrupt vests in the trustee and the legal title to property of the deceased vests in the executor, a winding-up order does not of itself divest the company of the legal title to any of its assets. ...

The question in this appeal is whether the legal title to its property which remains in the company after the commencement of the winding up still carries with it any beneficial interest in that property, so as to leave the property in the company's 'beneficial ownership' within the meaning section 17(6(a) of the Finance Act 1954."

Lord Diplock went on to hold that there could in law be a situation where a person was only the legal owner even if the beneficial interest in the property of which he was legal owner could not be said to be in any other person. Thus he continued at 177G:

"My Lords, the concept of legal ownership of property which did not carry with it the right of the owner to enjoy the fruits of it or disposes of it for his own benefit, owed its origin to the Court of Chancery. The archetype is to trust. The 'legal ownership' of the trust property is in the trustee but he holds it, not for his benefit, but for the benefit of the cestui que trust or beneficiaries. Upon the creation of a trust in the strict sense as it was developed by equity the full ownership in the trust property was split into two constituent elements, which became vested in different persons: the 'legal ownership' in the trustee, what came to be called the 'beneficial ownership' in the cestui que trust. But it did not follow even in equity that a person could only be the legal owner without being at the same time the beneficial owner in cases where it was possible to identify some other person or persons in whom the beneficial ownership had become vested. Executorship of an estate in course of administration provides one example which does not owe its origin to statute. No one would suggest that an executor, who was not also a legatee, was beneficial owner as well as legal owner of any of the property which was in the full ownership of the deceased before his death. He could not enjoy the fruits of it himself or dispose of it for his own benefit. Yet because an estate while still in course of administration was incapable of satisfying the technical requirement of a 'trust' in equity that there had to be specific subjects identifiable as the trust fund, it was impossible to identify, at any rate in the case of residuary legatees, a person or persons in whom the beneficial ownership in any particular property forming part of the estate was vested: see Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694, 705-708 per Viscount Radcliffe."

The important point for present purposes is that Lord Diplock then cites the position in bankruptcy as a further example of phenomenon, that is of a situation where one person, the "trustee", has a legal but not beneficial interest but it cannot be said that any other particular person has any beneficial interest in the assets. Thus he continues at 178C:

"Another example, which owes its origin to statute, is to be found in the law of bankruptcy. The legal ownership of the bankrupt's property becomes vested in the trustee in bankruptcy. Here, while the property is still being administered, not only is there a similar absence of specific subjects identifiable as the trust fund but also the fact that the right to share in the proceeds of realisation of the property is dependent upon the creditor making a claim to prove in the bankruptcy makes it impossible until the time for proof has expired to identify those persons for whose benefit the trustee is administering the property. Both these factors would, in equity, have prevented that property possessing those characteristics of trust properties which have the consequence of vesting the beneficial ownership of any part of the undistributed property in those persons who will eventually become entitled to share in the proceeds of realisation. Nevertheless, as the very word 'trustee' used in the statute implies, the beneficial ownership is not vested in him. He cannot enjoy the fruits of it himself or dispose of it for his own benefit. He is under a duty to deal with it as directed by the statute for the benefit of all the creditors who come in to prove a valid claim. It is no misuse of language to describe the property as being held by the trustee on a statutory trust if the qualifying adjective 'statutory' is understood as indicating that the trust does not bear all the indicia which characterise a trust as it was recognised by the Court of Chancery apart from statute."

Lord Diplock went on to deal with and reject the argument that the fact that the assets of a company remain vested in it on its winding-up makes any difference. In so doing, he cites the judgment of Mellish LJ in Re Oriental Inland Steam Co (1874) 9 Ch App 557, which is directly relevant in this case. Mellish LJ said:

"No doubt winding up differs from bankruptcy in this respect, that in bankruptcy the whole estate, both legal and beneficial, is taken out of the bankrupt, and is vested in his trustees or assignees, whereas in a winding up the legal estate still remains in the company."

Lord Diplock's conclusion was that the effect of the statutory scheme in winding-up was:

"... to give to the property of a company in liquidation that essential characteristic which distinguished trust property from other property, viz, that it could not be used or disposed of by the legal owner for his own benefit, but must be used or disposed of for the benefit of other persons."

In conclusion in Lord Diplock's judgment there was a consistent line of judicial authority that upon going to liquidation a company ceases to be "beneficial owner" of its assets.

43. In my judgment, it was an essential part of Lord Diplock's reasoning that the beneficial ownership of property of a bankrupt is neither in the bankrupt nor in the creditor of the bankruptcy while the assets still remain unadministered. No interest in that property can accrue until it can be said with certainty what the creditors are entitled to receive. Assuming that the bankruptcy is being properly administered, that will rarely be until immediately prior to distribution. Lord Diplock does not specifically deal with the position of the bankrupt himself. However, as Mr Petar Starcevic, for the brothers submits, it would be touching on absurdity if you could say that a bankrupt has an interest in the surplus while the creditors have no such interest.
44. A large number of earlier cases are included in the bundle of authorities but, in my judgment, any doubt on the position has been resolved by Ayerst. Until the surplus in Mr Ram's bankruptcy is finally ascertained it cannot be said that he has any beneficial interest in the property. He therefore had no beneficial interest in 11 Westfield Road on 4 March 2004, whether in possession or in reversion. Accordingly, the judge had no jurisdiction on that date to make any order under section 24A(1) on the basis of that interest on that date.
45. The judge thought that he was preserving the interest of the trustee in bankruptcy. He said, in the course of submissions, to Mr Lee, representing the trustee, that everyone understands that the transfer of the matrimonial home would have to be subject to the interests of the trustee. Moreover, it is clear from paragraph 2 of his order that the judge was seeking to preserve the interest of the trustee.
46. I appreciate also that the judge wished to avoid duplication of efforts by the bankruptcy court in the Family Division. However, the question on section 24A(1) is not a mere technical point. The point goes to jurisdiction. There was no inherent jurisdiction to order a sale: see R v Rushmoor Borough Council ex parte Barratt [1987] 1 All E 253 at 256. Moreover, it is clearly right that the trustee in bankruptcy should have sole control of the conduct of the sale so long as creditors remain unpaid. The learned judge was not sitting in bankruptcy. Applications under the Insolvency Act are assigned to the Chancery Division.
47. There is one final point that I would like to make. It concerns the form of the order, on which I have some concern. The order directed Mr Ram to take certain actions "forthwith". The order had a penal notice attached to it. Under the Civil Procedure Rules, if an order requires a person to do something, the time when he is to do that thing must be specified. This is clear from the Practice Direction on Judgments and Orders Supplementing Part 40 at paragraph 8. Paragraph 8.1 reads:

"An order which requires an act to be done (other than a judgment or order for the payment of an amount of money) must specify the time within which the act should be done."

48. Moreover, since this order had a penal notice attached to it, the time for compliance with the judge's order should have been stated to run from service of the order upon Mr Ram.
49. With those observations, I agree with the order my Lord has proposed.
50. LORD JUSTICE NEUBERGER: I agree with the judgments given by my Lord Thorpe LJ and Lady Justice Arden, and I agree with the orders proposed by my Lord, Thorpe LJ.
51. LORD JUSTICE THORPE: I wish to add a short footnote to my judgment. I would not want my judgment to be read as critical of either Mr Duckworth, Hedley J or Judge Hindley.
52. It is important to emphasise that the letter from the husband's solicitors agreeing the four essential terms of the proposed consent order, a letter from which I have already cited, included this inflammatory passage:

"We are glad that this sorry and rather pointless litigation between our clients has now been concluded. You are aware that it is and has always been our client's assertion that he has no assets of any description in his title, control or possession, and no income that is worth talking about. Your client has indulged in a process designed to establish the existence of other assets apart from those that are and have always been known about which are in the control of our client's Trustee in Bankruptcy. Your client has failed to do this. Your client's current case seeks to enter into a pointless attempt to establish the previous financial position of our client prior to his bankruptcy. We have to say that whatever might or might not have been that position in the past, his present position is that he is a bankrupt and has no assets and little income, and that situation is not going to change.

With this in mind our client has quite simply had enough of this futile and abusive litigation. Your client will now have to enforce the Judgment and order that is made in her favour. At that point, we believe that your client will finally wake up to the fact that her claims were worthless, pointless and abusive. Effectively, your client will now have to enter into litigation with the Trustee in Bankruptcy and hope to recover whatever she can from the bankruptcy estate. Our client is quite happy to let your client proceed to that stage of her claims and sees no point in attempting to stand in her way. We tell you this so that you and your client are under no illusions as to the position of our client in accepting your client's terms."

Plainly, Mr Duckworth and Mr Hedley J were fully entitled to accept that as a challenge to proceed into enforcement and as a position statement that no further opposition would be received from the husband himself. Furthermore, the husband's misconduct in the ancillary relief litigation was sustained and of itself provocative.

(Application (0882) granted, appeal allowed; application (2247) refused; application (2248) granted, appeal allowed; further orders to be agreed by counsel).