England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HARLOW COUNTY COURT
HIS HONOUR JUDGE O'BRIEN
4HA02556

		Royal Courts of Justice Strand, London, WC2A 2LL
		28th February 2006

The Chancellor :

1. The defendant, Mr Hall, occupied 52 The Stow, Harlow, Essex as the tenant of the Harlow District Council. The tenancy was a secure tenancy within s.79 Housing Act 1985. Accordingly it could not be terminated except by, inter alia, an order of the court for possession of the dwelling-house (s.82(1) and (1A)). By February 2004 Mr Hall was having difficulty paying the rent due to the Council. The Council commenced proceedings against him in the Harlow County Court and obtained a judgment ("the Possession Order") from District Judge Pelly on 12th January 2005 that Mr Hall do "give the claimant possession of [the dwelling-house] on or before 9th February 2005". In addition the District Judge ordered Mr Hall to pay the arrears of rent and costs totalling £1919. Paragraph 5 of the order provided that:

"This order is not to be enforced so long as the defendant pays the claimant the rent arrears and the amount for use and occupation and costs totalling £1,919 by the payments set out below in addition to the current rent."

Such payments were:

"£10 per week, the first payment being made on or before 9th February 2005."

It is not disputed that such a payment was made before 9th February 2005 and periodically thereafter.

2. On 10th February 2005 a bankruptcy order was made against Mr Hall on his own petition by District Judge Pearl. On 28th May 2005 Mr Hall applied to District Judge Shanks for the discharge of the Possession Order on the grounds that the liability of Mr Hall for the arrears of rent and costs were debts provable in his bankruptcy and the order for possession was precluded by s.285(3)(a) Insolvency Act 1986 because it was "a remedy against the property...of [Mr Hall] in respect of [those] debt[s]...". The application was dismissed by District Judge Shanks. The appeal of Mr Hall against the latter order was dismissed by HH Judge O'Brien on 15th July 2005. The appeal now before us is the appeal of Mr Hall against the order of Judge O'Brien and is brought with the permission of Jacob LJ given on 17th October 2005.
3. It transpired in the course of the hearing that on 19th July 2005 Mr Hall applied in person for a variation of the possession order by reducing the weekly payment from £10 to £5. The application was allowed by District Judge Pearl on 11th August 2005. We were invited by counsel for Mr Hall to treat this appeal as an appeal from the order of HH Judge O'Brien seeking to set aside the Possession Order as varied by the order of the District Judge made on 11th August 2005. This was not opposed by counsel for the Council and I shall do so.
4. Before I consider the reasons why Judge O'Brien dismissed the appeal and the submissions of counsel as to their validity I should set out the relevant provisions of the Housing Act 1985 and the Insolvency Act 1986. As I have already pointed out the tenancy of Mr Hall was a secure tenancy, as described by s.79 of the former. Accordingly it could only be determined by an order of the court, s.82(1). S.82(2) provides:

"Where the landlord obtains an order for the possession of the dwelling house, the tenancy ends on the date on which the tenant is to give up possession in pursuance of the order."

The court may only make an order for possession on one or more of the grounds set out in Schedule 2. Part of ground 1 is that

"Rent lawfully due from the tenant has not been paid...."

The court may only make a possession order on that ground if "it considers it reasonable to" do so, s.84(2)(a).

5. S.85 provides that:

"(2) On the making of an order for possession of such a dwelling-house on any of those grounds, or at any time before the execution of the order, the court may –

(a) stay or suspend the execution of the order, or

(b) postpone the date of possession,

for such period or periods as the court thinks fit.

(3) On such an adjournment, stay, suspension or postponement the court –

(a) shall impose conditions with respect to the payment by the tenant of arrears of rent (if any) and rent or payments in respect of occupation after the termination of the tenancy (mesne profits), unless it considers that to do so would cause exceptional hardship to the tenant or would otherwise be unreasonable, and

(b) may impose such other conditions as it thinks fit.

(4) If the conditions are complied with, the court may, if it thinks fit, discharge or rescind the order for possession."

6. The effect of these provisions has been authoritatively considered by the House of Lords in Burrows v London Borough of Brent [1996] 1 WLR 1448. It is sufficient to refer to two passages, one in the speech of Lord Browne-Wilkinson and the other in the speech of Lord Jauncey of Tullichettle. At page 1454 Lord Browne-Wilkinson said:

"A secure tenancy protected by Part IV of the Act of 1985 is not like an ordinary tenancy. It can only be terminated by an order of the court ordering possession to be given on a particular date or in a particular event. But even determination by order of the court is not final. Until the possession order is executed, the court can by variation of its order change the date on which possession is to be given and thereby revive a secure tenancy which has already been terminated. During the period between the date specified by the order for the giving of possession and the date on which the order is executed there is a period of limbo: the old tenancy has gone but may be revived by a further order of the court varying the date for possession."

At page 1457 Lord Jauncey of Tullichettle said:

"..whereas an order postponing the date of possession necessarily affects the operation of section 82(2), an order staying or suspending the execution of an order for possession on a stated date has no effect on the operation of that subsection but merely postpones execution so long as the conditions of suspension are complied with."

7. There is no dispute that the liability of Mr Hall for the rent and costs referred to in paragraphs 2 to 4 of the Possession Order became, on the making of the bankruptcy order on 10th February 2005, debts provable in the bankruptcy of Mr Hall. Similarly it is common ground that the secure tenancy, if it continued, would not vest in the trustee in bankruptcy, Insolvency Act 1986 s.283(3A)(d), with the consequence that Mr Hall would remain personally liable for rent accruing due after the date of the bankruptcy order.
8. The other relevant statutory provisions are to be found in the Insolvency Act 1986. So far as relevant s.285 provides:

"285 Restriction on proceedings and remedies

(1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.

(2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.

(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall –

(a) have any remedy against the property or person of the bankrupt in respect of that debt, or

(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.

This is subject to sections 346 (enforcement procedures) and 347 (limited right to distress).

(4) Subject as follows, subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.

(5)....

(6) References in this section to the property or goods of the bankrupt are to any of his property or goods, whether or not comprised in his estate."

9. I should also refer to s.436 which provides that

"property" includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future, or vested or contingent, arising out of, or incidental to property."

10. Those are the provisions which the HH Judge O'Brien had to apply. The grounds on which the judge dismissed Mr Hall's appeal appear clearly from paragraphs 19 to 22 of his judgment. He said:

"19. I think the argument at the end of the day, though interesting, is misconceived because this plainly is not a case where the local authority are seeking to exercise a remedy against the property, far less the person, of the bankrupt. The situation is that his right to be in possession of 52 The Stow has been ended by 9 February 2005. He has been given the opportunity to cling onto occupation of that property so long as he pays the figure that was the rent, which is now called the amount for use and occupation, in accordance with the order, that is to say, at the rate of the current rent plus £10 per week. I accept the submission that he has a choice as to whether he pays the extra money or leaves and finds other accommodation. It is not enforcing a remedy. The remedy has already been granted.

20. The practical situation seems to me to be this. If this were really something which was undermining the position of other creditors, then the receiver, or if it is a trustee, a trustee, can consider the matter and say to the bankrupt tenant, `I am not allowing you sufficient money to comply with this order because I have to preserve what assets there are and what income you can provide for the other creditors', but of course the receiver or trustee has to allow the bankrupt to provide for his own necessary needs. It seems unlikely that any cheaper method of housing this particular bankrupt than rent of, I think, something of the order of £57 a week plus £10 arrears would be very difficult to come by, very inconvenient to arrange and to administer, and that any receiver in this position would tell the bankrupt to keep paying his rent, of course, and to keep paying the amounts which are to be paid as a condition for the non-enforcement of the possession order. That, it seems to me, would be inevitably what a well-informed receiver would permit and/or direct the bankrupt to do so.

21. So what we are faced with here is not a real problem in practice at all. As I say, interesting though the argument has been, I have no doubt the district judge was absolutely right to refuse to interfere with the order and that the defendant has been right thereafter to have been making these payments, nor is it suggested that the receiver has either advised him not to do so or forbidden him to do so. For those reasons, permission is granted but the appeal fails."

11. Counsel for Mr Hall submitted that the bankruptcy order made against Mr Hall on 10th February 2005 had two consequences; first the liability for arrears of rent and for costs established by the Possession Order were debts provable in the bankruptcy; second s.285(3) precluded the enforcement of the Possession Order. The first consequence was not in issue. However I should point out that the fact that those debts become provable in the bankruptcy of Mr Hall does not have the effect, as counsel submitted in his oral argument of "paying them off". The liability remains, though the means of its enforcement changes. I would also note that Mr Hall is personally liable for all rent subsequently accruing due.
12. Before the judge it appears to have been common ground that the Possession Order was a 'suspended possession order' with the consequence that the secure tenancy did not terminate unless and until Mr Hall failed to continue to observe the conditions set out in paragraph 5. Before us, counsel for the Council contended, without objection from counsel for Mr Hall, that the secure tenancy terminated on 9th February 2005 even though enforcement of the order was postponed under paragraph 5.
13. In my view the Possession Order and its effect is clear. Paragraph 1 of the order required Mr Hall to give possession on 9th February 2005. As the order was made on 12th January 2005 it was suspended in the sense that it was to take effect on a specified future date, but the obligation to give possession on or before 9th February was not qualified by the postponement of its enforcement in the event of compliance with paragraph 5. The distinction between suspending the execution of the order and postponing the date for possession is also made in s.85(2). Accordingly it is, in my view, plain that the date on which the tenant "is to give up possession [of the dwelling house] in pursuance of the order" for the purposes of s.82(2) was 9th February 2005 whether or not the conditions prescribed by paragraph 5 for the postponement of its enforcement were observed. It follows that the secure tenancy had ended before the bankruptcy order was made on 10th February 2005.
14. It follows that the principal submission of counsel for Mr Hall that the maintenance of the Possession Order constituted a remedy against the property of Mr Hall in the form of the benefit of the secure tenancy precluded by s.285(3) must also be rejected. While it subsisted the benefit of the secure tenancy was property of Mr Hall but it did not subsist at the time the bankruptcy order was made and does not subsist now. This conclusion is consistent with the decision of this court in Ezekiel v Orakpo [1977] QB 260 to which I refer in more detail later in this judgment.
15. Counsel for Mr Hall submitted in the alternative that the right of Mr Hall to seek a postponement of the date for possession under s.85(2) or to discharge it altogether under s.85(4), either of which could give rise to a new secure tenancy, was itself property for the purposes of s.436. He submitted that the continued existence of the Possession Order was a remedy against that property and so precluded by s.285(3).
16. Given the width of the definition of 'property' contained in s.436 I am prepared to assume, though in the absence of fuller argument than we had I am reluctant to decide, that the right of Mr Hall to apply for orders such as I have mentioned is 'property' for the purpose of s.285. But I cannot accept the second stage of the argument. The right arises and continues to subsist because of the existence of the Possession Order. The Possession Order is in no sense a remedy against that right in respect of the arrears of rent.
17. These consequences seem to me to be entirely consistent with the purpose of s.285, namely to preserve the estate of the bankrupt for the benefit of his unsecured creditors, see per Lord Jauncey of Tullichettle in Smith v Braintree DC [1990] 2 AC 215, 230. The benefit of a secure tenancy does not vest in the trustee in bankruptcy so there is no property to preserve in that respect. The court will fix the sum to be paid in respect of the arrears and current use and occupation in a sum the bankrupt can pay out of current income which, in the absence of a notice under s.307 or an order under s.310, does not vest in the trustee either. As the judge pointed out in paragraph 20 of his judgment, provided the cost of the accommodation is not too high and is within the bankrupt's current income the trustee may be expected to facilitate the continued occupation by the bankrupt.
18. For all these reasons I would dismiss this appeal. Normally I would not take up further time considering what the position might be if the facts were different. But there is some suggestion in this case that the conduct of Mr Hall was prompted by an article suggesting that the effect of a possession order in respect of a secure tenancy might be avoided by a bankruptcy order. In this case the bankruptcy order was made after the date on which the tenant was ordered to give possession. What would be the position if the bankruptcy order was made before that date, ie in this case on 8th February 2005?
19. In my view the change in the order of events would have made no difference in the outcome. In Ezekiel v Orakpo [1977] QB 260 the court was concerned with a lease which had been forfeited for non payment of rent. The lessor then took proceedings for possession. The tenant claimed that the action was invalid because a receiving order had been made against him between those two events. The relevant legislation was then contained in s.7 Bankruptcy Act 1914 in materially the same terms as s.285(1) and (3). The Court of Appeal rejected the tenant's contention on the ground that the claim for possession was not a remedy against the tenant's property. At page 267 Shaw LJ said:

"It is clear that the section intends to inhibit any form of remedy or action which is directly designed to enforce payment of the debt which is owed. What has first to be considered is whether an action in which an order for possession is sought where a lease has been forfeited for default in payment of rent, comes within the terms of s.7(1) at all. If it does not, it is not necessary to get the leave of the court under s.7 before commencing such an action. In our view, an action for possession following the forfeiture of a lease is not within the terms of the section, and this is so whatever the ground of forfeiture to which the lessor has recourse under the covenants in the lease. The nature of the action is the same in every case, namely, that the right and interest of the lessee to possession has been terminated before its natural expiry in pursuance of a contractual provision in his lease so that he become a trespasser if he continues in occupation of the premises. The obverse of this situation is that the lessor becomes entitled to possession on forfeiture of the lessee's interest. The action for re-entry is in the nature of an action in trespass. It is not a remedy against the property of the debtor in respect of a debt, notwithstanding that the occasion of the forfeiture is default in payment of the rent reserved by the lease. The consequence of forfeiture (subject to the power of the court to grant relief) is to determine the lessee's interest. It is not a remedy enforcing payment of the rent due and it is not within the ambit of s.7(1)."

20. Plainly there are differences in the case of a secure tenancy because an order of the court is necessary to terminate it. But assuming an order to have been made sufficient to terminate the secure tenancy for the purposes of s.82(2), then, as it seems to me, the subsequent continuance or enforcement of the order is to the same effect as a possession action following forfeiture of a lease, and, as in Ezekiel v Orakpo, does not constitute a remedy enforcing the payment of the arrears of rent. And that is so, in my view, whether the bankruptcy order is made before or after the date on which possession of the dwelling house is to be given pursuant to the order.
21. For all the reasons given earlier I would dismiss the appeal. And for all those given later it would be unwise to assume that our decision might have been different if the bankruptcy order had been made before rather than after the date on which possession was to be given pursuant to the original order, that is on 8th instead of 10th February.

Lord Justice Chadwick:

22. I agree that, for the reasons which the Chancellor has set out in his judgment, this appeal should be dismissed. But there is one point on which I wish to add some observations of my own.
23. Section 82(2) of the Housing Act 1985 provides that, where a landlord obtains an order for the possession of a dwelling let on a secure tenancy, the tenancy ends on the date that the tenant is to give up possession in pursuance of the order. Section 85(2) of the Act empowers the court, on making an order for possession – or at any time before execution of the order – (a) to stay or suspend the execution of the order or (b) to postpone the date of possession. It is important to keep in mind that a stay or suspension of the execution of the order can only operate in respect of a period after the date that the tenant is to give up possession. An order that the tenant give up possession cannot be executed until after that date in any event: there is no need to stay or suspend the execution of the order in respect of the period before that date. On a true analysis the court, when considering the exercise of its powers under section 85(2), must first decide whether to postpone the date of possession – under paragraph (b) – and then decide whether execution of the order for possession should be stayed or suspended for a further period under paragraph (a). The court's task under section 85(2) would, perhaps, be more readily understood if the order in which paragraphs (a) and (b) appear had been inverted.
24. It is, of course, not unusual for a court, when making a possession order under Part IV of the Housing Act 1985, to exercise both the powers conferred by section 85(2). The court will specify the date in the future on which possession has to be given by the tenant – thereby postponing the obligation to give immediate possession at the date when the order is made – and will direct that the order that possession be given up on that future date shall not be executed for so long as the tenant complies with conditions. But, although the effect of an order in that form is that the tenant remains in possession for so long as he complies with the conditions, it is important to appreciate that the basis upon which he does so changes in an important respect on the date specified in the order as the date on which possession has to be given. On that date his secure tenancy is brought to an end under the provisions of section 82(2) of the Act.
25. It is necessary, therefore, to construe a possession order made under Part IV of the Act with the provisions of sections 82(2) and 85(2) in mind. The object is to ascertain whether the court, when making the order, has specified a date in the future – and, if so, what date - when possession has to be given by the tenant. The point can be illustrated by comparing the form of order which was before this Court in Thompson v Elmbridge Borough Council (1987) 1 W.L.R. 1525, (1987) 19 HLR 526 and in Greenwich London Borough Council v Regan (1996) 28 HLR 469 with the order in the present case. The orders in those earlier cases were in what Lord Justice Millett described in Regan (ibid, 471) as "a standard form in use in the County Court". They included four elements (so far as material): [A] that the plaintiff do recover possession of the premises from the defendant; [B] that the plaintiff do recover a monetary sum (representing arrears of rent, mesne profits and costs) from the defendant; [C] that the judgment for possession "shall not be enforced for 28 days in any event and for so long thereafter as the defendant punctually pays to the plaintiff or his agent the [arrears of rent, etc.] by [weekly] instalments [of a specified amount]; and [D] that the judgment would cease to be enforceable when the monetary sum had been paid. Lord Justice Millett explained the effect of an order in that form (ibid, 476):

". . . Literally construed, [the terms of the order in the present case] would appear to bring the tenancy to an end almost immediately and only to suspend or stay the enforcement of the order. But the order is in the same form as that which was considered by this court in Thompson v Elmbridge Borough Council (1987) 19 HLR 526. Despite the infelicity of language of an order of this kind, it was not there treated as an order for immediate possession coupled with a stay of execution. On the contrary it was treated as an order requiring the delivery of possession to be postponed, in the first instance for 28 days and thereafter until there was a breach of the conditions of the order. As a result the court came to the conclusion that the tenancy came to an end at the date of the first breach of the conditions."

26. As Lord Justice Millett observed in Regan, this Court may have given "a generous interpretation" to the order which had been before it in Thompson. Be that as it may, I agree that it is not possible to treat the order made in the present case as an order which postpones the date on which possession is to be given beyond the date specified in paragraph 1; that is to say, to any date after 9 February 2005. It follows that the secure tenancy ended on 9 February 2005, the day before the bankruptcy order was made.
27. That conclusion is determinative of the present appeal, for the reasons which the Chancellor has set out. But I share his view that the outcome would have been the same if the bankruptcy order had been made, say, on 8 February 2005. And I would take the same view if the possession order had been made in the Thomson form – so that the secure tenancy was to be treated as continuing under the possession order at the date when the bankruptcy order was in fact made (on 10 February 2005). The basis for that view is the decision of this Court in Ezekiel v Orapko [1977] QB 260 that proceedings for forfeiture on the grounds of non-payment of rent are not to be treated as "a remedy against the property of the debtor in respect of a debt" for the purposes of the provisions for the protection of the bankrupt and his estate now enacted in section 285 of the Insolvency Act 1986. Although the analogy between proceedings for forfeiture under the general law and proceedings for possession under Part IV of the Housing Act 1986 is not exact, the reasoning in Ezekiel is, to my mind, equally applicable to a case where possession of premises held under a secure tenancy is sought under the statute.
28. It would, I think, be unfortunate if the outcome in cases of this nature turned on whether the bankruptcy order was made just before or just after the possession order; and equally unfortunate if the outcome turned on whether the possession order was made in the Thompson form or in the form in the present case. I am satisfied that that is not the position.

Sir Paul Kennedy:

29. I agree with both judgments and that there is nothing that I wish to add.