England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
NEWCASTLE UPON TYNE DISTRICT REGISTRY

		Newcastle Combined Court Centre The Quayside Newcastle Upon Tyne
		20 September 2013

Judge Behrens:

1. Introduction

1. This is an application for permission to appeal against a decision of D J Pescod made on 6^th February 2013. By his order D J Pescod declared that the Applicant ("the Trustee") was solely beneficially entitled to property known as 327 Highcliffe, Spittal, Berwick-upon-Tweed ("the property") and to the net proceeds of sale of the property. He determined that the appropriate choice of law to be applied in the discretion of the Court in determining the question of any revesting of the property in the Respondent ("Mr Graham") was Scottish law. He accordingly held that the property did not revest in Mr Graham. He made a number of ancillary directions including an order that Mr Graham give possession of the property to the Trustee on 13^th March 2013. He stayed the order provided permission to appeal was sought before 27^th February 2013. On 5^th March 2013 D J Pescod extended that date until 21^st March 2013.
2. It is Mr Graham's case that the application for permission to appeal was made on 21^st March 2013. As there is no evidence to contradict this it follows the application was made in time.
3. On 4^th May 2013 Judge Walton directed that the application for permission be listed with the appeal to follow immediately if permission to appeal is granted. The order directed the Trustee to prepare for the appeal even though no permission had been granted. On 13^th September 2013 the solicitors for the Trustee wrote to the Court stating that the Trustee would not be represented at the hearing.

2. The facts

4. On 16^th October 2008 an order for sequestration (bankruptcy) was made against Mr Graham in the Edinburgh Sheriff Court. Thus this is a Scottish bankruptcy. In answer to a bankruptcy questionnaire made in February 2009 Mr Graham gave his address as 4/6 Rodney Place, Edinburgh, a rented property. However he disclosed that he was the owner of the property which he had inherited from his mother.
5. In early 2011 the Trustee's solicitors instructed tracing agents to visit the property. They reported it as being "unoccupied except a few days a year". In August 2011 the Trustee's solicitors wrote to Mr Graham at 4/6/Rodney Place asking for proposals and threatening to issue proceedings. The letter was returned marked "addressee gone away".

3. The issue

6. On 12^th July 2012 the Trustee issued a Part 8 Claim form seeking possession of the property and an order for sale. As this is a Scottish bankruptcy the application was made under section 426 Insolvency Act 1986. The principal defence raised was that as the application was made more than 3 years after the date of the sequestration order the property had ceased to be part of the sequestrated estate and had re-vested in Mr Graham.
7. It is common ground that both Scottish law and English law contain provisions relating to the revesting in the bankrupt of real property if no application is made to Court within 3 years of the date of the bankruptcy. However there are differences between the relevant Scottish and English law.
8. Under Scottish law the section [section 39A Bankruptcy (Scotland) Act] applies "where a debtor's sequestrated estate includes any right or interest in the debtor's family home". Family home is defined in section 40(4)(a):

Family home means any property in which at the relevant date the debtor had (whether alone or in common with any other person) a right or interest being property which was occupied at that date as a residence by the debtor and his spouse or civil partner or the debtor's spouse or former spouse or civil partner (in any case with or without a child of the family) or by the debtor with the child of the family.

9. Under English law the section [section 283A Insolvency Act 1986] applies "where property comprised in the bankrupt's estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of the bankrupt, the bankrupt's spouse or civil partner or a former spouse or civil partner of the bankrupt."
10. The difference between the two sections relates to a house occupied solely by the bankrupt. If it is solely occupied by the bankrupt then there is no relief in Scotland but there is potential relief under English law if the house was his sole or principal residence. In all other respects the provisions of the English and Scottish statutes are similar.
11. It is not in dispute that the property was not Mr Graham's "family home". Thus if Scottish law applied no question of revesting of the property could arise. Equally it is not in dispute that the property was not Mr Graham's sole residence. It is, however, asserted that there is an issue whether it was, at the date of the bankruptcy, his principal residence. If it was a claim under English law would fail.
12. It might be thought, especially in the light of the report from the tracing agents that the factual issue of whether the property was Mr Graham's principal residence on 16^th October 2008 would have been relatively easy to determine. However that was not the course the parties chose to take.
13. D J Pescod was required to deal with the preliminary issue under section 426(5) of the 1986 Act of whether to apply English law or Scottish law. As already noted he decided to apply Scottish law with the result that the property had not revested in Mr Graham and there was no defence to the possession claim.

4. Section 426 of the 1986 Act.

14. Section 426 provides so far as relevant

426: Co-operation between courts exercising jurisdiction in relation to insolvency

….

4. Assistance between courts The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory.

5. Request under s.426(4) For the purposes of subsection (4) a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction. In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.

6. Claim by trustee or assignee Where a person who is a trustee or assignee under the insolvency law of any part of the United Kingdom claims property situated in any other part of the United Kingdom (whether by virtue of an order under subsection (3) or otherwise), the submission of that claim to the court exercising jurisdiction in relation to insolvency law in that other part shall be treated in the same manner as a request made by a court for the purpose of subsection (4).

15. As can be seen from the above sections:

1. The English courts are required to assist the Scottish courts.

2. The English court has discretion whether to apply Scottish or English law in relation to the request. However it has to have regard to the principles of private international law.

3. The claim by the (Scottish) Trustee to property in England has (under subsection (6)) to be treated by the English Court in the same way as a request under subsection (4).

5. The proceedings before D J Pescod

5.1 The Trustee's submissions before D J Pescod

16. Before D J Pescod the Trustee was represented by Mr West. Mr West produced a detailed skeleton argument. In summary he argued:

1. That as the property was vested in the Trustee by the provisions of Scottish law the Trustee should only be divested in accordance with Scottish law.

2. He referred to a passage in Dicey, Collins and Morris, Conflict of Laws (15^th Ed paragraph 31-034. In the case of an English trustee making a claim to Scottish property Dicey suggests that a Scottish court should, albeit in its discretion be able to give effect to that claim applying English law under s 426(6).

3. He drew attention to a number of authorities where a trustee's title under one part of the UK to property situated in another part of the UK is recognised in that other jurisdiction.

4. He relied on the principle of modified universalism. Under this principle the courts apply principles of international comity without requiring statutory underpinning. He referred me to the decision of the House of Lords in McMahon v McGrath [2008] 3 AER 869 as explained in Rubin v Eurofinance [2012] 2 BCLC 682. He referred to paragraph 51 of the speech of Lord Collins where he said:

Lord Hoffmann characterised the principle of universality as a principle of English private international law that, wherever possible there should be a unitary insolvency proceeding in the courts of the insolvent's domicile which receives worldwide recognition and which should apply universally to all the bankrupt's assets.

5.2 Mr Graham's submissions before D J Pescod

17. The principal submission made by Mr Knowles was that it would be unjust to apply Scottish law as to do so would contravene the English law that governs property covered by an English bankruptcy. This property is situated in England and English law should apply. He suggested that the law contravened Mr Graham's human rights and he drew attention to the delay by the Trustee in bringing the proceedings.

5.3 The judgment of D J Pescod

18. In a clear and careful judgment to which I would pay tribute D J Pescod first rejected the human rights argument. He contrasted the two provisions and could not see how either of the revesting provisions infringed the bankrupt's human rights. He pointed out that the provisions were introduced to prevent the situation arising where a bankrupt lost the family home many years after the bankruptcy. He thought there was no merit in the suggestion that to give effect to the provisions infringed the bankrupt's human rights.
19. He then considered the question of delay. In his view delay was not relevant when deciding the preliminary issue of which law was to be applied.
20. It is in fact self evident, as he pointed out, that the provisions will only be relevant if there has been a delay of more than 3 years.
21. He then went on to consider which law to apply. He made the point that he was required to have regard to the principles of private international law. He referred to the passage in Dicey mentioned by Mr West. He agreed that he was entitled to apply Scottish law but he did not think that the passage was authority requiring him to do so. The passage expressly refers to the Court's discretion.
22. D J Pescod went on to consider in some detail the decision in McMahon v McGrath. He cited expressly paragraphs 30 and 32 of the speech of Lord Hoffmann (which Lord Collins had summarised in Rubin v Eurofinance) and paragraphs 79 to 80 of speech of Lord Neuberger. In the cited passages both Lord Neuberger and Lord Hoffmann recognised that by remitting the English assets to be distributed in accordance with the Australian insolvency regime some of the creditors would be worse off than under a distribution under an English insolvency regime. However this did not offend against any fundamental principle of English insolvency law or perpetrate any unfairness.
23. In paragraph 32 of his judgment D J Pescod summarised the effect of the decision.

Reasons for not implementing the principle of modified universalism and for not applying foreign law to the administration of property in England … would appear to fall into 2 categories:

i. Something that is manifestly unfair or which offends against insolvency proceedings already taking place in England or against the general principle underlying insolvency law of fair distribution of assets amongst creditors.

ii. Something that is otherwise against public policy.

24. In paragraph 35 he concludes that there is a modest difference between the position under Scottish and English law he accordingly concludes that there is no case for saying that the Scottish provision offends against public policy or is manifestly unfair. Accordingly he applied Scottish law.

6. Mr Graham's submissions on the appeal.

25. Mr Knowles adopted the submissions made before D J Pescod. He criticised D J Pescod's analysis of the difference between the Scottish and the English provisions. He submits that the Scottish provisions must give rise to situations that are manifestly unfair and this must give rise to a public policy decision to deal with the injustice. In paragraph 32 of his skeleton argument he puts the matter thus:

Parliament legislated to correct injustice. Parliament legislated to not discriminate against the vulnerable, elderly or individual living in their family home. This can only be for reasons of public policy and to prevent injustice and as such must satisfy those tests set out in paragraph 32 of [McMahon v McGrath].

He also submitted that the principles in McMahon v McGrath did not apply to personal insolvencies. He pointed out that McMahon v McGrath involved a commercial liquidation.

7. Discussion and Conclusion

26. Despite the forceful argument from Mr Knowles I regret that I cannot accept his submissions. I would uphold the judgment and the reasoning of D J Pescod on the following grounds:

1. As noted above under section 426(5) D J Pescod had discretion as to whether to apply English or Scottish law having regard to the principles of private international law. An appellate court will only interfere with that discretion on well known grounds such as if it is based on an error of law or if it is a decision that no reasonable tribunal could have reached.

2. D J Pescod analysed the relevant law with considerable care. He correctly concluded that the principle of modified universalism required him to apply Scottish law unless the case fell within one of the exceptions he set out in paragraph 32 of his judgment. In my judgment D J Pescod adopted the correct approach. In particular I do not think that the principles of modified universalism apply only to commercial insolvencies. There is no reason why it should not apply to personal insolvencies and there is nothing in the judgments which suggest it is so limited.

3. In my view D J Pescod was right to conclude that the difference between the Scottish and English law did not offend a fundamental principle of English insolvency law or offend any public policy. Equally it did not give rise to manifest unfairness. The purpose of the legislation was to provide some limited protection to the bankrupt or his family in relation to his home in cases where the trustee had taken no action to enforce his rights for 3 years. The fact that Scottish law chose to do this by reference to "the family home" rather than the English law reference to "the sole or principal residence of the bankrupt, the bankrupt's spouse or civil partner or a former spouse or civil partner of the bankrupt" does not seem to me to come within a measurable distance of offending public policy or a fundamental principle of English insolvency law. As I have indicated the only difference between the 2 sections are the rights afforded to the bankrupt where he alone occupies the family home. Both jurisdictions provide protection where there is occupation by a spouse, civil partner or children. To my mind this difference is not fundamental to English insolvency law, nor does it offend public policy or create manifest unfairness.

4. It follows that this was not an exceptional case so as to exclude the principle of modified universalism and D J Pescod's decision to apply Scottish law is not open to criticism.

5. I also agree with D J Pescod that delay of itself by the trustee adds nothing to the debate. It is because of the delay that the question of revesting arises. If there had been no delay there is no doubt that the property would have vested in the Trustee and there would have been no defence to the possession proceedings. Thus the question is whether the Scottish law's provision for limited relief where such delay occurs offends public policy or a fundamental principle of English insolvency law. For reasons given above it does not.

6. Similarly I agree that the Human Rights Act does not assist Mr Graham.

8. Result.

27. In the result I would grant permission to appeal but would dismiss the appeal and would remove the stay imposed by Judge Walton.