England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Civil Justice Centre The Priory Courts 33 Bull Street Birmingham B4 6DS
		23rd April 2009

JUDGE PURLE QC:

1. This is an appeal from the decision of District Judge Oliver on 13^th February 2009 adjourning for 3 months a bankruptcy Petition brought by Nottingham City Council against Leroy Pennant ("the debtor") in respect of liability orders for council tax. A number of orders historically have been made in the magistrates' court going back to 2005 and these formed the subject matter of a statutory demand for just over £3,000, though by the time the Petition came to be heard the amount outstanding was a sum something in excess of £2,000.
2. The basis upon which the bankruptcy Petition came to be adjourned was that the debtor had been and was proposing to pay off the arrears together with the current instalments of council tax. It was estimated that the period of time needed for that purpose from the hearing date - that is to say, the one in February of this year - was approximately two years, at the end of which the arrears would have been paid off.
3. The point of an adjournment for three months in those circumstances is not easy to divine. Presumably, the idea was to police the progress of repayment of the instalments.
4. It has been said on more than one occasion that a petitioning creditor has a prima facie right to obtain a bankruptcy order on a duly presented Petition where the liability of the debtor for the Petition debt is clearly established. It has also been said that the court likewise has a discretion to adjourn the Petition for payment, but only if there is a reasonable prospect of the Petition debt being paid in full within a reasonable period of time. That much emerges from Re Gilmartin [1989] 1 WLR 513 at page 516 and, more recently, Harrison v Seggar [2005] BPIR 583, in particular, at paragraph 7, a decision of Blackburne J. Here, however, the adjournment had as its purpose not the payment off of the debt over the period of the adjournment but the policing of the initial period of the proposed repayment schedule. Presumably, a bankruptcy order would be made at the expiration of 3 months if the repayment schedule was not adhered to. If it was adhered to, it is unclear whether the District Judge had in mind a further adjournment or dismissal of the Petition. Clearly, an adjournment of the Petition in February for 2 years would not have been appropriate, and was not regarded as appropriate by the District Judge. Repeated adjournments cumulatively totalling 2 years would not in my judgment be appropriate either.
5. It seems to me that the adjournment of the Petition for the purpose of policing the proposed repayment schedule was misconceived and had a number of objectionable features, not the least of which was that any instalment payments made in the intervening period, should a bankruptcy order finally be made, would be recouped because they would, on the face of it, be void. Moreover, other payments made by the debtor during that period might likewise turn out to be void.
6. These were factors which attracted the disapprobation of Lloyd J in Judd v Williams [1998] BPIR in the context of repeated adjournments. This is not (as yet) a repeated adjournment case, as one does not know what the District Judge has in mind on the resumed hearing if, as appears to be the case, the instalments are kept up. Nevertheless, the same objections as arise in a repeated adjournment case arise in this case. It seems to me that the district judge was clearly wrong to adjourn the matter. He should either have made a bankruptcy order or have dismissed the Petition.
7. Why, it might be asked, should he have dismissed the Petition given the fact that there was an undisputed debt? The answer, it is said, lies within section 271 of the Insolvency Act 1986, subsection (3) of which provides that the court may dismiss the Petition if it is satisfied that the debtor is able to pay all his debts - that is not this case – or is satisfied, amongst other things, that the debtor has made an offer to secure or compound for a debt in respect of which the Petition is presented and the offer has been unreasonably refused. That is a summary of the relevant parts of the section, not a verbatim recital of it. It is said in this case that the debtor's offer in this case was unreasonably refused and, therefore, justified the dismissal of the Petition.
8. It is evident from the transcript of the hearing before the district judge that he took the view, in all the circumstances of the case, that the petitioning creditor had refused an offer that no reasonable creditor would refuse. He said so in terms at page 8F of the transcript. A number of objections have been made to his approach which, subject to one point, I should now to turn to consider.
9. The one point that I need to consider first, though, is whether or not certain alleged procedural irregularities affecting the appeal to which Mr. Gunstone, for the debtor, refers require me to grant a further adjournment to enable the debtor to deal with the issues arising on the appeal properly. The question would then be whether the matter should be adjourned back to the district judge, in which case the order I would make would have exactly the same effect as the order that I have said he should not have made, or whether it should be retained by me as I am now on this appeal considering the consequences of what should follow from what I have ruled to be the inappropriate course of the district judge in granting an adjournment.
10. The procedural irregularities relied upon are:-

(a) the failure to supply a transcript (now cured) or, given that there was no transcript until relatively recently, a note of the hearing below prepared by the advocate;

(b) the Notice of Appeal contravenes the Practice Direction to CPR 52 at 52.11.3A in failing to specify in respect of each of the two grounds specified whether the ground raises an appeal on a point of law or is an appeal against a finding of fact.

11. The hearing below was relatively short, and a full transcript of the hearing including the reasons of the District Judge has been made available, albeit late in the day. Mr Gunstone dealt with all points arising out of the transcript without any difficulty attributable to late production.
12. It is correct that the Notice of Appeal, which simply says that the district judge was "wrong" to conclude that the debtor's offer was one that no reasonable creditor could refuse and that the district judge was also "wrong" to grant an adjournment, does not, in terms, specify whether that is an objection of fact or law. Miss Markandya, for the creditor, says her complaint is really about the wrongful exercise of a value judgment but that does not seem to me to advance matters in any helpful way, though I respect her ingenuity in finding this meaningless middle-ground term that characterises her objections as neither objections of fact nor as objections of law.
13. Nonetheless, the Notice of Appeal was accompanied with a skeleton argument and it is clear from that skeleton argument, from which Miss Markandya has not departed, precisely what the grounds of appeal are and the extent to which the points that are being taken are points of law or points of fact. As is often the case, the appeal is on questions of mixed law and fact. It is quite clear, for the reasons I have given, that the district judge did not apply the correct test when considering whether to grant an adjournment. He did, however, on the face of it, articulate the correct test when he came to considering whether or not the creditor was acting reasonably in refusing the debtor's offer. The objection that is developed in the skeleton argument (and has been developed before me) is that the application of the facts to that test was so clearly wrong that I should intervene.
14. It does seem to me that I can fairly hear the appeal because, despite Mr. Gunstone's admirable attempts to persuade me that the appeal is riddled with procedural error, I am satisfied that the errors, such as they are, are insubstantial and have not caused him or his client any prejudice. That is a tribute to the quality of the arguments that, despite his expressed disabilities, Mr Gunstone has managed to put before me. I am sorry to punish him, if that seems to be the case, for his competence.
15. I turn then to consider the substance of the appeal.
16. I am reminded by Mr. Gunstone that I have limited powers of intervention sitting in an appellate capacity, which the case of Gilmartin, to which I have referred, confirms. Those limits are well known and are certainly understood by me.
17. The conclusion that the district judge reached was expressed in the following terms:

"In these circumstances, having regard to the current situation economically, an offer of £100 per month at this stage is one that I think no reasonable creditor would refuse."

The reference to £100 per month is a reference to an offer that was made previously in August of 2008 and, in particular, a letter dated 14^th August 2008 from a Mrs. McCabe, who was helping the debtor, to the local authority.

18. That was initially rejected out of hand but attempts were made to persuade the local authority to re-visit the matter and, by a letter dated 8^th October 2008, a reasoned rejection was articulated as follows:

"1. Although Mr. Pennant has not made any arrangements with the council directly, he has made arrangements with bailiffs acting on the council's behalf. These arrangements have not been maintained. In view of this history, it is felt unlikely a further arrangement will be honoured and it is extremely unlikely that Mr. Pennant will increase his offer should his circumstances change.

2. At the rate suggested it would take in excess of thirty months to clear the petitioner's debt alone. No provision has been made for the ongoing charge. A Petition has already been issued in this case and our client feels that it is unlikely that a judge will permit an adjournment for a length of time sufficient to monitor this matter. This would mean that, should there be a further default, the council would have to commence proceedings from scratch and this would involve Mr. Pennant in additional costs.

3. The financial statement provided states that Mr. Pennant pays £67 per month towards his current council tax. This is not the case and suggests that Mr. Pennant may not have supplied the advice agency with all the facts relevant in this case."

On the face of that letter, that does not appear to be an irrational rejection which, as far as I can see, is the test that needs to be applied.

19. The correct test was considered by Mr. Timothy Lloyd QC, as he then was, sitting as a Deputy High Court Judge, in Re a Debtor (No.32 of 1993) [1994] 1 WLR at 899. It is sufficient to read point 2 of the head-note:

"In order to determine that a petitioning creditor's refusal of the debtor's offer was unreasonable, the court had to be satisfied that no reasonable hypothetical creditor would have refused the debtor's offer in the circumstances but, although a different creditor might have accepted the debtor's offer, it could not be said that the petitioning creditor's refusal of it was outside the range of what was reasonable and that, accordingly, the dismissed Petition should be set aside and a bankruptcy order made."

20. Though the decision of a deputy judge, it has subsequently been followed in IRC v A Debtor [1995] BCC 971 by Robert Walker J and in HM Customs and Excise v Dougall [2001] BPIR 269 by Lightman J.
21. I was referred also by Mr Gunstone to the decision of Hazel Williamson (now Judge Marshall) QC, sitting as a deputy High Court Judge, in O'Brien v IRC [2000] BPIR 306. He pointed out that Miss Williamson QC regarded the test propounded by Mr Lloyd QC as "not quite as stringent" as certain observations of Harman J in the Gilmartin case.
22. That may be so, but the test as propounded by Mr Lloyd QC is nevertheless quite stringent. Miss Williamson QC was not in any way watering the test down, as her subsequent citation of passages from the decision of Robert Walker J in IRC v A Debtor (referred to above) demonstrates. She pointed out that Robert Walker J in that case endorsed the approach of Mr. Lloyd QC and cited and applied the following passages:

"He also points out… ( this is Robert Walker J pointing out) "…although I think Mr. O'Brien has some difficulty accepting this, that acting reasonably is not the same as acting justly, fairly or kindly."

…

"A creditor is not required to balance his interests against those of the debtor, or to take a chance, or to show patience or generosity, even though some other creditors might do so."

…

"The officials of the Revenue concerned with collection ought not and, therefore, are, on the face of it, unlikely to refuse an offer which increases the likely net recovery to public funds but the Revenue is, on the face of it, the best judge of what internal costs and diversion of resources may be involved in accepting the security in a case like this."

23. Those observations have some relevance also to the position of a local authority which is under a duty to collect sums for the local public revenue and who one expects and hopes would act with the interests of the public purse in mind. Public bodies are, as was recognised by both Mr Lloyd QC and Robert Walker J, less likely to act vindictively, though bureaucratic incompetence and inflexibility may sometimes lead to institutional oppression. In the circumstances of the present case, however, when there has been continued default by the debtor over some years and the rebuttal of bailiffs who have been sent in to collect, I can well understand how the recent rejection of October 2008 came to be made. There is no hint of oppression on the part of the local authority.
24. Why, then, did the district judge reach a different view?
25. He started by saying that the position, in effect, was similar to the exercise that the court commonly exercises in dealing with mortgagees' possession actions where the court has wide powers, though not unrestricted, to grant adjournments or suspended possession orders under section 36 of the Administration of Justice Act 1970 as amended. This analogy was criticised by Miss Markandya as being an inappropriate analogy. The regime, she says, under the Administration of Justice Act is very different from the bankruptcy regime where the creditor is prima facie entitled to the class remedy of bankruptcy. Mr. Gunstone accepts that the two regimes are different. Indeed, he used the expression "radically different". It seems to me that this is a valid criticism of the district judge's approach.
26. He did, however, have two other points. He said:

"If a bankruptcy order were to made today, it is unlikely that the creditors whom you represent would recover as much."

And then, later:

"If the city council did recover the full amount under a bankruptcy order, it would probably take a darned sight longer than an order of £100 of a month or an agreement of £100 a month."

27. As to the first point, the district judge was speculating. As to the second point, the district judge was assuming, which the city council was not prepared to assume, given the previous history, that the £100 per month would continue to be paid throughout the period in which it would be necessary to pay it. Even the district judge was not as confident, so it would appear, as his words suggest, which is, no doubt, why he ordered an adjournment just to see how things went in the early months, rather than dismissing the Petition.
28. It seems to me that what the district judge was doing was substituting his own judgment for the judgment of the local authority and reaching the conclusion that he would have reached and, from that position, leaping to the conclusion that any other conclusion was one which no reasonable creditor could come to. It seems to me that his approach was, with respect to him, flawed and that his decision was clearly wrong.
29. I have not overlooked the fact, as has been urged upon me by Mr. Gunstone, that in this case security was offered: when the offer was made in August 2008, it was said that the debtor would submit to a voluntary charging order in respect of his home. That would, of course, compel the local authority to bring further proceedings for a charging order, and then to enforce it. Mr. Gunstone suggested before me that it would have been relatively simple to organise a legal mortgage. That, however, was not the offer which was made and refused and, in any event, I am not satisfied on the evidence I have heard that it would have been (or would now be) easy to arrange. I do not know whether or to what extent this would contravene the terms of the first mortgage, in respect of which there is already a suspended possession order. As the offer of a legal mortgage was never made, this point has simply not been explored.
30. In those circumstances, it seems to me that the offer of security is of no great weight and, in any event, I would not regard it as satisfactory. A charging order, which is what was offered, is not something which can be enforced as of right. It is something which the court has a discretion to enforce and it requires bringing proceedings. Likewise, with a legal mortgage there is the power under the Administration of Justice Act to which I have referred to defer possession orders and one knows from the history of this case that a suspended possession order has already been made in respect of the mortgagee which has prevented an earlier sale.
31. In those circumstances, it seems to me that there was no basis for characterising the refusal of the debtor's offer as unreasonable. Without that, there is no answer to the Petition. This appeal must succeed and I shall, therefore, allow the appeal and make a bankruptcy order.