England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		5 July 2012

1. JUDGE PURLE: The preliminary point is taken that the appellant has no standing to pursue the appeal. The appeal is from the whole of the judgement which in its substantive part consisted of a declaration as to the effectiveness of the claimant's charge against the appellant's interest in a particular property.
2. The proceedings were served upon the appellant and upon the Official Receiver, who is the appellant's Trustee in Bankruptcy following a Bankruptcy Order of 18 December 2009, though he was not formally joined as a party. The declaration related to the effectiveness of a 2007 charge against the appellant's interest in the property. The appellant was subject to an earlier bankruptcy, and the 2007 charge was executed in anticipation of an annulment of that bankruptcy which then occurred.
3. The point was taken in the court below that, because of the present bankruptcy, the appellant had no interest in defending the proceedings, but he did defend the proceedings on the merits. The Official Receiver indicated that he would take no part in the proceedings, although he did indicate that he wished to be notified of the outcome. He did not resist the relief sought, although he did not in terms consent to it. He was clearly willing to abide by the court's decision, whichever way it went, though he was not joined as a party. It is difficult to see how, given that stance, the Official Receiver could have reneged, or could now renege, from the position thus adopted.
4. In the event the issues of substance were tried out and resolved in the respondent's favour, without actually determining what was the size of the beneficial interest in question. The inevitable consequence of that ruling was adverse to the appellant because the appellant was ordered to pay the costs on the indemnity basis.
5. The notice of appeal was accompanied by grounds which were in their entirety grounds of substance saying effectively that the judge was wrong in determining the rights of the respondent in the way he did. The appeal, if allowed, will also have costs consequences because, if the decision below is reversed, that will potentially, if not inevitably, have an effect upon the costs order.
6. However, Mr Bailey for the respondent says that the appellant can have, and has, no locus standi to pursue this appeal. Against that, it is said on the appellant's part that as a result of arrangements made with the Official Receiver, he does now have an interest in the nature of a contractual licence or lease until at least sometime in 2013; I am not too sure exactly when. However, upon the footing that the respondent had a prior interest under the 2007 charge, which is what the judge below decided, that interest would be subject to the prior charge. The respondent is not claiming to have a charge upon that interest but upon the beneficial interest found previously to have subsisted in the appellant immediately prior to his second bankruptcy. As the respondent has established (subject to this appeal) that it has the benefit of such a charge, that charge clearly has priority over the new interest now asserted by the appellant.
7. I should say that the point on contractual licence or lease was not taken in the court below, perhaps because the bankruptcy point was not taken until the skeleton argument was put in by the respondent. It did not seem to me to be right, however, to shut out Mr Wolman completely from raising that point in case it should be of any relevance. However, in my judgment it is not of any relevance.
8. I should refer to the relevant parts of the order under appeal, which was made on 12 July 2011. It started by reciting the mortgage deed of 7 September 2007 and various other procedural matters. It then recited a 2009 judgment against the appellant of a little under £200,000 in 2009, and continued:

"It is declared that:

1. The charge took effect on 7 September 2007 so as to give the claimant an equitable charge over the defendant's beneficial interest in the property on such terms and conditions as otherwise apply to the purported legal charge;

2. Without prejudice to paragraph 1 and for the avoidance of doubt, the said equitable charge secured all the defendant's liabilities to the claimant whether as at 7 September 2007 or thereafter, whether of principal, interest or otherwise, whether actual or contingent and whether incurred as principal or surety including the aggregate of each and every advance owing by the defendant as at 7 September 2007 or thereafter and all interest accruing on those amounts and any other amounts which were as at 7 September 2007 or may thereafter become payable under the said mortgage deed;

3. Without prejudice to paragraphs 1 and 2 above the sum secured by the said equitable charge includes but is not limited to the sum of £194,399 together with compound interest thereon from 12 November 2009 at the compounded rate of 1.5 per cent per month."

9. The principal sum referred to there was the subject matter of the judgment which had already been recited.
10. Following the second bankruptcy in September 2009 the appellant's interest in the property became vested in the Official Receiver once he became Trustee in Bankruptcy and the task of dealing with any indebtedness within the bankruptcy passed to the Official Receiver. It may well be (and I expect is) the case that the respondent is in this case relying entirely upon its security.
11. The Court of Appeal in Heath v Tang [1992] 1 WLR 1421 held that a bankrupt has no right to appeal in his own name from a judgment against him which is enforceable only against the estate vested in his Trustee. The bankrupt's interest in a potential surplus is protected to the extent that he can apply under section 303(1) of the Insolvency Act 1986 to challenge any decision of the Trustee in Bankruptcy. The appellant's true remedy in this case, Mr Bailey says, is to challenge the decision of the Official Receiver and require him formally to intervene or take over the appeal.
12. Heath v Tang was applied in James v Rutherford-Hodge [2005] EWCA (Civ) 1580, another decision of the Court of Appeal, in circumstances not altogether dissimilar from the present where possession proceedings were brought against a bankrupt and his wife. The Trustee in Bankruptcy was subsequently joined. Both a possession order and a declaration as to beneficial ownership were made with consequential orders as to costs. It was said that is was not in doubt that the appellants were entitled to challenge the judge's order for costs. That, however, was because a possession order had been made against them personally and it was therefore open to them to say that the costs order should have been different if they succeeded in their argument that a possession order should not have been made. By contrast, no possession order was sought or made in the present case.
13. The appellants, however, went further in that they also sought to challenge the judge's decision that Mr Hodge was entitled to a beneficial share of 65 per cent in the property. The problem was that Mr Hodge was bankrupt, and the Court of Appeal, applying Heath v Tang held that neither of the appellants had any standing enabling them to appeal from the relevant paragraph of the order, determining that Mr Hodge had no beneficial interest. Both appellants therefore (the other appellant not claiming a beneficial interest) had no standing to appeal which, the court said, ought not to have been brought. As however there was a separate order for possession made against the appellants, the Court of Appeal did consider the underlying merits in dismissing the appeal against the costs order as well. It may be however that this was not necessary to the decision, as the following remarks of Chadwick LJ at [43], made after consideration of the merits of the appeal, suggest:

"Were it not for the fact that this appeal must be dismissed on the grounds of lack of standing, it would be dismissed on the merits."

14. In this case, there is no separate paragraph of the order that the appellant has standing to appeal enabling him to challenge the costs order in consequence. The grounds of appeal raise and raise only points of substance. In my judgment that appeal falls fairly and squarely within the bar of Heath v Tang and James v Rutherford-Hodge. It follows that this is another appeal which, on questions of substance, should not have been brought. I do not consider that in this case the appellant is entitled to get round that by re-arguing the merits on a costs alone appeal. The declaration, as made, stands and will remain standing in light of the finding that the appellant has no locus standi to appeal. Given that, it would be in my judgment wholly inappropriate for the court even to embark upon an examination of the merits.
15. Mr Wolman (I should say) summarised very fairly and succinctly his client's case. He said that at the time of the 2007 charge, when his client was then still under the disability of his first bankruptcy, that charge (which was expressly a charge on the interests of the chargors) could only take effect as a charge on his wife's share because he himself had no interest of his own. The charge on his wife's share was subsequently set aside for undue influence, and this was confirmed in the Court of Appeal. Therefore the 2007 charge affected nothing. That was an argument which did not appeal to the judge in the court below and which, in light of the appellant's lack of standing, cannot now be disturbed.
16. In those circumstances it seems to me that the appeal should be dismissed including the costs element. I take comfort in reaching that conclusion by noting that the judge in the court below, whilst going on to consider the merits, did comment in paragraph 5 (I think it was) that it was difficult to see what interest the defendant, as the appellant then was, had in pursuing the defence.
17. There is no separate appeal in this case against the costs order and none of the grounds relates to the costs order alone. The only grounds for setting aside the order predicate that the declaration should not have been made for reasons of substance. Upon the footing that the judgment below on issues of substance cannot be disturbed, no grounds are advanced for saying that the costs order should not have been made.
18. In those circumstances it seems to me that in reality there is no free-standing costs appeal at all and that that appeal must be dismissed.
19. There is one other point I should deal with for the sake of completeness, which I omitted to deal with expressly in my extempore judgment delivered orally. Mr Justice Sales in granting permission to appeal observed that it was arguable that the Respondent could only properly obtain the relief sought (a declaration that it is entitled to an equitable charge over property which, subject to any order, will automatically have vested in the appellant's new trustee in bankruptcy, and with a view to obtaining priority over the appellant's other creditors) if the appellant's present trustee in bankruptcy were also made a defendant to the claim. I have already noted in paragraph 3 that the Official Receiver as Trustee in Bankruptcy was content to abide by the outcome of the proceedings below, and that it is difficult to see how he could now renege from that position. He effectively left it to the appellant to argue the estate's corner. It does not follow from that that the appellant should have a right to appeal an order with which the Official Receiver as Trustee is content. The appellant might conceivably have taken the point in the court below that no declaration should be made in the absence of the trustee, in which case the Official Receiver could have been joined whilst not being required to take an active role. The appellant did not take that point and nor does the point appear in his grounds of appeal. He argued the case below, and wishes to pursue the appeal, on the merits. For the reasons I have given, only the Official Receiver as Trustee in Bankruptcy can do that.