England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY

ON APPEAL FROM THE BOW COUNTY COURT
DJ Stone
AND ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
DJ Clarke and DJ Lambert

IN THE MATTER OF MS. BOLA MUHAMMED (a Bankrupt) AND IN THE MATTER OF THE INSOLVENCY ACT 1986

		Rolls Building Royal Courts of Justice
		18th June 2014

MR. JUSTICE DAVID RICHARDS:

1. Ms. Bola Muhammed applies for permission to appeal against an order made by DJ Stone, sitting in the Bow County Court, on 20 February 2014, whereby he dismissed Ms. Muhammed's application to suspend a warrant for possession of her flat, where she lives, and stated the application to be wholly without merit. The application also seeks permission to appeal out of time a number of orders previously made. In chronological order, they are, first, a default judgment entered at the suit of First Credit Finance Limited (First Credit) against Ms. Muhammed on 7 September 2007; secondly, a final charging order made over Ms. Muhammed's flat by the Guildford County Court on 5 March 2008. Her application refers, as the third matter in respect of which permission to appeal out of time is sought, to a statutory demand based on the judgment dated 7 September 2007, but there were no proceedings to set aside the statutory demand and so there is no procedure open for appealing against the statutory demand. That I think though is largely a technical matter. The fourth order against which permission to appeal is sought out of time is a bankruptcy order made against Ms. Muhammed by DJ Clarke on 6 September 2011 in the Central London County Court. The fifth order was made on the application of the trustee in bankruptcy for possession of Ms. Muhammed's flat and an order for its sale to be conducted by the trustee in bankruptcy, that order having been made by DJ Lambert in the Central London County Court on 26 July 2013. Finally, permission to appeal is sought against the notice of eviction and warrant for possession issued by the Bow County Court on 27 January 2014. Again that is strictly speaking something against which Ms. Muhammed cannot appeal, but it would follow, if she was wholly successful in the present applications and any appeals that followed, that the notice of eviction would be set aside.
2. Just by way of explanation, a number of county courts have been involved in these proceedings. The initial proceedings leading to a judgment in favour of First Credit were in the Northampton County Court Bulk Centre, there being no notice of intention to defend. Subsequent proceedings in respect of the charging order were in the Guildford County Court. The bankruptcy proceedings were in the Central London County Court because that is the county court with insolvency jurisdiction in respect of the area in which Ms. Muhammed lives. The Bow County Court was involved at the very end of the story as the local county court dealing with the warrant of possession for her flat.
3. It will already be apparent from what I have said that this matter has a very long history. First Credit says, and this is the basis of the judgment which it obtained, that it took assignments from Lloyds TSB Bank plc in or about November or December 2004 of two debts said to be owed by Ms. Muhammed to Lloyds TSB and, for reasons which will become clear, it is important to distinguish between these two debts. One debt was in an amount of £17,567.86 relating to an account which has been given the number 020283594 in correspondence with First Credit. I was told that the account number had been given by First Credit, not by Lloyds TSB. The other debt was in a sum of £16,844.15 relating to an account number, again given by First Credit, of 020570289. There are in evidence, and they were in evidence in the bankruptcy proceedings, two notices in writing of those assignments sent to Ms. Muhammed and dated 2 December 2004. Both notices are addressed to her at her flat at 30 Nicholls Point, Park Grove, London, E15 3QU.
4. There are also in evidence subsequent letters which First Credit says were sent by post to Ms. Muhammed at her residential address. The first, following on shortly from the notice of assignment, was dated 16 December 2004. It is headed "Legal Proceedings", and states an intention to take legal proceedings, which may result in costs, interest and so on. The next is dated 1 January 2005 and again refers to the assigned debt. Mrs. Waterworth, who today appears pro bono for Ms. Muhammed, and I should record that I am very grateful for the clear way in which she has presented her submissions on behalf of Ms. Muhammed, has drawn attention to the oddity of this letter from solicitors for First Credit, being dated 1 January 2005, and she wonders whether in fact the letter was sent out on a bank holiday. But that letter does not stand alone. The next letter, from First Credit rather than its solicitors, is dated 12 February 2005. A subsequent but undated letter was sent by an organisation called Debt Help Services. Further letters from First Credit are dated 11 November 2006 and 12 January 2007. All these letters refer to the debt of £17,567.86 on account No. 02083594.
5. On 3 July 2007, First Credit issued a claim in the Northampton County Court. First Credit satisfied the court that it had served the claim form in accordance with the rules and on 7 September 2007 judgment in default of any appearance was entered in a sum of £21,206.11 together with £390 for costs. The judgment was addressed to Ms. Muhammed, albeit described as "Mr. Bola Muhammed", at her flat, Flat 30, Nicholls Point. Following that judgment, First Credit took steps to obtain a charging order over Ms. Muhammed's interest in her flat. The proceedings for a charging order were issued in the Guildford County Court. On 18 January 2008, an interim charging order was made by the court and a hearing date of 25 February 2008 was fixed. The charging order was made final by an order dated 25 February 2008, for which purpose First Credit would have to satisfy the court that it had duly served its application or the interim charging order on Ms. Muhammed.
6. First Credit registered a unilateral notice against Ms. Muhammed's title to the flat at the Land Registry. On 5 March 2008 notice was given to Ms. Muhammed at her flat at 30 Nicholls Point, and she responded by a notice given in the standard UN4 form on 19 March 2008, objecting to the notice and applying to cancel it. Notice of the notice of objection was duly given to First Credit. Its solicitors responded on 27 March 2008, referring to the judgment and charging order and stating that if Ms. Muhammed wished to challenge the charging order an application to the court should be made. There is not, so far as I am aware, in evidence the subsequent correspondence between the Land Registry and the adjudicator to the Land Registry which must then have followed. The next relevant document, as regards the unilateral notice, is an order dated 21 January 2009 made by the adjudicator requiring Ms. Muhammed, as the applicant, to serve her statement of case on the adjudicator and on First Credit by 4 February 2009, failing which her application to cancel the notice would itself be cancelled. The rules make provision of course for service of such a notice on Ms. Muhammed and her residential address is recorded as Flat 30, Nicholls Point. I have not seen the notice given to her, but her application for cancellation of the notice was itself cancelled by an order made on 5 March 2009.
7. There matters lay until the following year, 2010, when First Credit, rather than seeking to recoup its judgment debt through enforcement of the charging order, decided to bring bankruptcy proceedings against Ms. Muhammed. A statutory demand was prepared and there is before the court a witness statement dated 1 February 2011 of the process server, James Benedict Teague, relating to his attempt to serve Ms. Muhammed with the statutory demand. He states that on 23 November 2010 at 1:58 p.m. he attended Ms. Muhammed's flat at Nicholls Point. He says there was no answer. He left an attendance card at the property requesting her to contact his office. He spoke to a neighbour at Flat 31 and received confirmation that Ms. Muhammed remained in residence at the property. He goes on to say that on 24 November 2010 he sent by first class letter a letter of appointment addressed to Ms. Muhammed. The letter informed her about the earlier attempt to serve the statutory demand and gave notice that a further attendance would be made for the same purpose on 30 November 2010 at 9:45 a.m. The letter invited Ms. Muhammed to say if this was not a convenient time and to nominate some other time and place which would be convenient. No communication was received from Ms. Muhammed. Mr. Teague says that on 30 November 2010 at 9:45 a.m. he did attend the property. There was no answer and accordingly he put the statutory demand through the letter box of the property.
8. On 19 May 2011, First Credit presented a bankruptcy petition against Ms. Muhammed to the Central London County Court. Again Mr. Teague was engaged for the purpose of serving the bankruptcy petition. In a witness statement made by him on 29 June 2011 he says that he made numerous further attendances at Ms. Muhammed's flat at 30 Nicholls Point but was unable to meet her personally. He says that on 25 May 2011 at 12:48 p.m. he attended the property but there was no answer. He left an attendance card requesting her to contact his office. He called at the immediate neighbouring address at 29 Nicholls Point, and he says that he there met a black female who confirmed that Ms. Muhammed still resided at the address. Mrs. Waterworth has told me on instructions in the course of her short reply submissions that Ms. Muhammed says that there was no other black female living at any of the flats, at any rate on the same floor as her flat. She therefore takes issue with what is there said. Mr. Teague goes on to say that he again attended at the property on 2 June 2011 at 4:18 p.m. He sent a letter of appointment by first class post to Ms. Muhammed at her flat, but there was no reply. He again attended the property on 10 June 2011 and again there was no answer.
9. On the basis of that evidence, the court made an order for substituted service of the bankruptcy petition on Ms. Muhammed. The substituted service was to take the form of the petition, together with a sealed copy of the order for substituted service and notice of funding, being posted to Ms. Muhammed at her address at 30 Nicholls Point, both by first class prepaid post and also by recorded delivery prepaid post. A Mr. Mackie made a witness statement that he posted the petition and other documents in accordance with that order, and he gave the reference number for the recorded delivery.
10. The bankruptcy petition came on for hearing on 6 September 2011. Ms. Muhammed was not present and in her absence a bankruptcy order was made against her. Notice of the bankruptcy order was duly given to her by the Official Receiver, which, I take it, was sent to her at her flat at 30 Nicholls Point. This prompted the first of I think three applications to annul the bankruptcy order. The first application was made on 26 October 2011. There was evidence from Ms. Muhammed in support, and there was evidence in response. The application came on for hearing on 30 March 2012. Ms. Muhammed was not present and the application was dismissed. The second application was issued on 12 November 2012. Ms. Muhammed appeared in person at the hearing. The application was dismissed by DJ Smart who declared it to be an application totally without merit. The District Judge gave a judgment of which I have a transcript.
11. In January 2013 the trustee in bankruptcy, who had by now been appointed, issued an application for, amongst other things, the possession and sale of Ms. Muhammed's flat. On 26 February 2013 an application was issued by Ms. Muhammed to set aside the default judgment. The application was rejected by the court. DJ Price directed that it should be returned to Ms. Muhammed's solicitors as misconceived. There then followed an application to stay the bankruptcy proceedings, which was dismissed on 15 March 2013.
12. The proceedings for an order for possession and sale of Ms. Muhammed's flat came before the court on 26 July 2013 and DJ Lambert made the order sought. The third application to annul the bankruptcy order or, alternatively, for permission to set aside the original judgment debt, was issued on 22 August 2013. It was dismissed without a hearing by DJ Hart and declared to be totally without merit. An application to set aside the default judgment and to stay the possession and sale order was issued on 23 September 2013 and came before DJ Langley on 8 October 2013. Both Ms. Muhammed and First Credit were represented by counsel on that occasion. DJ Langley dismissed the application and the order states that the application was totally without merit. A warrant for possession was issued on 27 January 2014 setting a date for possession towards the end of February 2014. On 20 February 2014 DJ Stone, sitting in the Bow County Court, dismissed Ms. Muhammed's application to suspend the warrant for possession as wholly without merit and refused permission to appeal.
13. On 25 February 2014, Ms. Muhammed issued the appellant's notice which is presently before the court, seeking permission to appeal the order of DJ Stone and permission to appeal out of time against the other orders which I have earlier referred to. Ms. Muhammed made an application without notice on an urgent basis on 26 February 2014 to suspend execution of the warrant for possession. It came before Nugee J sitting in the Interim Applications Court of the Chancery Division. Mrs. Waterworth was available in court to appear pro bono for those without representation in the court that day, and she appeared then for Ms. Muhammed. Nugee J suspended execution of the warrant until 23 April 2014. It has subsequently been further suspended pending the hearing of this application. Nugee J also ordered First Credit to produce by 26 March 2014 all relevant court orders and paperwork upon which the court orders are based, including a copy of the final charging order. First Credit was required by para 3 of the order to disclose and produce by 4 p.m. on 26 March 2014, "evidence of the alleged assignment of the debt with Lowell reference No. 91600295 stated to be in respect of account No. 020570289 held at Lloyds TSB Bank for a purported debt in the sum of £16,844.15". Para.4 required First Credit to disclose and produce by 4 p.m. on 26 March 2014 evidence of the purported assignment by Lloyds TSB Bank of the alleged debt relating to account No. 020283594 stated as at 25 October 2011 to be in the sum of£22,189.21. Further, by para.5, First Credit was required to disclose and produce by the same date a copy of the statutory demand, bankruptcy petition and evidence of service of their service.
14. I should explain the reference in para.3 of Nugee J's order to Lowell. The debt of £16,844.15 apparently assigned by Lloyds TSB Bank to First Credit in 2004 had subsequently been assigned by it to a company called Lowell. Lowell had subsequently stated in correspondence with Ms. Muhammed that it would not pursue the claim, although it did not waive it but reserved the right to pursue it if relevant paperwork came to hand. The debt which has been pursued to judgment and on which the bankruptcy order was based is the debt referred to in para.4 of the order of Nugee J.
15. In response to those orders First Credit lodged with the court and made available to Ms. Muhammed a file containing all the various court orders and the paperwork on which they were based, the statutory demand, the bankruptcy petition and the evidence of service. So far as paras.3 and 4 of the order requiring First Credit to disclose and produce evidence of the alleged assignments, the documents produced were the notices of assignment dated 2 December 2004. In a letter from its solicitors to the court, addressed to the Clerk to Nugee J, they explained that beyond those notices First Credit no longer held documents relating to the assignment from the bank in 2004.
16. It is has been necessary to set out the procedural history at some length because it forms the critical background against which the application today is made. The case made by Ms. Muhammed, and put very skilfully on her behalf by Mrs. Waterworth, is that there never was a debt due from her to Lloyds TSB Bank plc which could be assigned to First Credit, and that all the steps which have followed, including of course the default judgment and the bankruptcy order as well as the charging order and the unilateral notice, are based on that fundamentally false premise. Mrs. Waterworth stresses that Ms. Muhammed has always maintained, when she has engaged at various points with the steps which were being taken against her, that a mistake had been made and that there was no debt.
17. Ms Muhammed is unable to produce any documentary evidence relating to her dealings with Lloyds TSB Bank before December 2004 save for one piece of paper which she has put before the court. She says that she obtained it quite recently from a branch of Lloyds Bank. It identifies six "closed products", that is to say, accounts or loans or insurance policies which she evidently had with Lloyds Bank. The document states that each of them had been closed at various dates, the last of which was 4 August 2003. This is not on any basis a particularly satisfactory document. I am told by Mrs. Waterworth on instructions that the clerk at Lloyds Bank tore off the top part of the document and that is what is exhibited. I have not seen the original document. It cannot be considered as satisfactory evidence that Ms. Muhammed had no other dealings with Lloyds TSB Bank and, in particular, that she had no outstanding accounts with them in 2004. The only evidence is her statement now that she had no such accounts and that such accounts as she had were fully closed before there could be any assignment to First Credit towards the end of 2004.
18. It is of course also the case that First Credit cannot produce either any documents from Lloyds TSB or the assignment of the debts to it. I am bound to say I do not find this wholly surprising. The assignments took place nine- and-a-half years ago. In the interim, they have obtained judgment, a final charging order and a bankruptcy order. It does not surprise me that documents relating to the original assignment itself and documents relating to the underlying debt should not in those circumstances have been retained. But the notice or notices of the assignment dated 2 December 2004 addressed to Ms. Muhammed at her flat are in evidence. It is improbable that such notices would have been given if there had not at any rate been purported assignments of the debts by Lloyds TSB Bank plc to First Credit. It also seems improbable that Lloyds TSB Bank plc would have assigned debts which did not exist. Of course it is not impossible that Lloyds made a mistake and that in fact both debts had by then, if they had ever existed, been paid off. But the court can do no more than proceed on the evidence which is before it or which might realistically be put before it, and, beyond what Ms. Muhammed says, there is really no basis for considering that she did not owe these debts to Lloyds TSB or for doubting that Lloyds TSB validly assigned those debts to First Credit.
19. In circumstances where there have been, it would appear, a very large number of communications to Ms. Muhammed at her residential address, it is of course very important for her to be able to explain to the court on this application why it is that she did not react to many of those communications, although of course she did react to some of them. This is very important for two reasons. First, it goes to the question whether there was a debt due from her which had been assigned to First Credit. One would expect that if she received notice of an alleged indebtedness, which she denies, she would take steps to deny it. Secondly, it is also important because she is seeking now to appeal well out of time against a number of orders which go back to a judgment in default entered in 2007, itself based on the assigned debt to which earlier communications related. Ms. Muhammed does not deny that she resided at her flat at 30 Nicholls Point throughout the relevant period from late 2004 until now, and that she continues to reside there, save for a period of, I am told, approximately 12 months beginning in the autumn of 2008. (I have seen a letter dated 24 September 2008 from the local authority which owns the freehold of the block of flats giving notice that they will be carrying out major refurbishment works on the block and that it will be necessary for the residents to move to alternative accommodation while that work is undertaken. Accordingly, for a period of up to about 12 months from the autumn of 2008 Ms. Muhammed was not resident in the flat.)
20. So far as communications sent since December Ms. Muhammed says that she did not receive most of them. She did receive some, and I have referred to those on which she acted. In respect of the time that has passed since she was made bankrupt, Mrs. Waterworth has submitted that although she had solicitors acting for her from time to time, there was a lack of consistent legal advice provided to her and that the steps being taken on her behalf were perhaps not always best directed.
21. In order to persuade the court at this very late stage to give Ms. Muhammed permission to appeal against the various orders, and particularly the default judgment which led to all the further steps, the court would have to be satisfied that there were realistic prospects of setting aside the judgment and a proper explanation for the delay which has occurred. In her submissions, Mrs. Waterworth said that this was a case to which CPR 13.2 applied rather than CPR 13.3. The significance of the distinction lies in the contrasting terms of those two provisions. CPR 13.2 requires the court to set aside a judgment if certain conditions are satisfied. It does not state the promptness of steps to set aside the judgment as being a relevant factor. CPR 13.3 confers on the court a discretion to set aside or vary a judgment if the defendant has a real prospect of successfully defending the claim, and requires the court to have regard, amongst other matters, to whether the person seeking to set aside the judgment has made an application promptly.
22. Mrs. Waterworth relied on CPR 13.2(c), which provides that: "The court must set aside a judgment entered under Part 12", i.e. a judgment in default, if judgment was wrongly entered because, "(c) the whole of the claim was satisfied before judgment was entered". Mrs. Waterworth submitted that this was a case falling within CPR 13.2(c) because it was Ms. Muhammed's case that there was no debt due from her to Lloyds TSB Bank which could form the subject of the assignment to First Credit and that therefore First Credit had no claim against her. In my judgment, it is clear that the default judgment does not fall within 13.2(c) both on its own terms and when read in the context of the rest of CPR 13 and, in particular, 13.3. CPR 13.2(c) is expressly directed at the case where a claim is made against a defendant but the whole of the claim is satisfied before judgment is entered. That clearly is not this case. What Ms. Muhammed is saying is that she has a complete defence to the claim which was brought against her by First Credit because, as I have earlier explained, there never was a debt due from her which could be assigned to First Credit. She would therefore be saying that she has a real prospect of successfully defending the claim, not that the claim has been satisfied.
23. I am not satisfied on the evidence that Ms. Muhammed can demonstrate a real prospect of successfully defending the claim. I say that by reference to the small amount of direct evidence that is before the court and the lack of any evidence to support what Ms. Muhammed says. I say it also by reference to her lack of response to the many communications which she has received in relation to this claim. I should say that I simply am not satisfied, and I do not see that a court could be satisfied, that so many communications addressed to her at her flat at 30 Nicholls Point could have gone astray.
24. That is a conclusion which is also relevant to my consideration as to whether she has acted promptly to set aside both the default judgment and the orders subsequently made. I am afraid it is clear to me that, for whatever reason, Ms. Muhammed has not acted promptly. Many steps have been taken against her without her seeking to challenge either the basis on which First Credit asserted its claim or to challenge the steps leading either to the judgment in default or to the making of the bankruptcy order. In my judgment, the circumstances of this case are clearly circumstances in which the court should not give permission to Ms. Muhammed to appeal long out of time against the default judgment and other orders.
25. I think I earlier mentioned that Mrs. Waterworth, rightly as it seems to me, had put her case firmly on the basis that what has gone wrong here happened at the start and that, if she cannot make that out, it is going to be difficult or impossible to make out that the subsequent steps were wrong. Accordingly, she has not submitted that if the default judgment was correctly entered then nonetheless either the bankruptcy order or subsequent steps in the bankruptcy, in particular the possession and sale order, should be set aside. Once the position is reached that there is valid judgment against Ms. Muhammed which cannot be set aside, the steps subsequently taken were entirely proper and are not susceptible to attack. Accordingly, it has not been necessary for Mr. Hunter appearing for the trustee to go into detail about the steps taken in the bankruptcy.
26. I have addressed directly the basis on which Ms. Muhammed puts her case before the court, but I should also say, and this is a further reason for rejecting her application, that there appears to be a fundamental legal bar to the application which she seeks to make. It is established by Court of Appeal authority that, once a bankruptcy order is made, the right to challenge a judgment entered against the debtor before the bankruptcy order vests in the trustee in bankruptcy. In Royal Bank of Scotland v. Farley [2006] BPIR 638 (decided on 17 March 1994), an appeal against an order of Harman J whereby he set aside an order annulling a bankruptcy order was dismissed, Hoffmann LJ said:

"The matter is complicated by the fact that the bankrupt had in fact no locus standi to make the application to set aside the default judgment in the first place. That, in my view, appears from the decision of this court in Heath v. Tang [1993] 1 WLR 1421. The essence of that decision is that a bankruptcy order divests the bankrupt of any further interest in what debts he owes because it provides that he shall no longer be under any personal liability. An appeal from the judgment against him or an application to set aside the judgment against him is therefore a matter for his trustee but does not concern the bankrupt."

Hoffmann LJ went on later in the judgment to explain further the rationale for that approach. It was treated as entirely correct by the Court of Appeal in James v. Rutherford Hodge [2005] EWCA Civ.1580, reported at [2006] BPIR 973.

27. Mrs. Waterworth pointed to the difficulty which arises for a debtor where the debtor seeks to challenge a judgment against the debtor, being the very judgment on which the bankruptcy petition and bankruptcy order were based. She observed that it was unlikely that the trustee in bankruptcy appointed would seek to undermine the judgment which formed the basis of the bankruptcy. I would not wholly go along with that latter observation. If there was a clear ground for appealing or setting aside the judgment it would clearly be the duty of the trustee in bankruptcy to consider carefully the situation and to bring proceedings if that was what was required. But there is no doubt that the principle which I have stated applies as much to the judgment debt on which the bankruptcy order is based as to any other judgment debt. In Royal Bank of Scotland v. Farley itself the judgment which the debtor sought to set aside was a default judgment entered against him on which the bankruptcy petition had been based and on which the bankruptcy order had been made.
28. This therefore is a further and, as it seems to me, insuperable legal obstacle in the way of the application brought before the court by Ms. Muhammed today. But I should say, for the reasons which I have already given, that even if that legal obstacle did not exist I would today refuse Ms. Muhammed's application, which is what I now do.