England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY

		The Court House Oxford Row Leeds LS1 3BG
		26 June 2015

Judge Behrens :

1 Introduction

1. This is an appeal by Mr Wilson against part of an order made by D J Edwards on 24^th October 2014. On that day DJ Edwards was dealing with a number of applications by the Trustee and made an order which included:

1. An order directing an examination of Mr Wilson under ss 333 and 366 of the Insolvency Act 1986 ("the 1986 Act") (listed with a time estimate of 1 day).

2. An order requiring Mr Wilson to deliver to the Trustee all information in relation to his financial affairs within his possession and/or under his control including but not limited to:

Contact details and all correspondence [Mr Wilson] has had with Financial Advisor Jason George in Halifax

Full details and documentation in relation to a Leeds City Union Account (number 01009929 99) and

Full details and documentation in relation to [Mr Wilson's] pension(s).

3. An order suspending the automatic discharge of Mr Wilson's bankruptcy until

such time as [the Trustee] prepares a report and files it with the Court confirming [Mr Wilson] has complied with his duties and obligations to [the Trustee]'s satisfaction of the Court orders otherwise'.

2. It is common ground that there is a typographical error in the order. As is clear from the transcript of DJ Ewards's judgment the fifth last word should be "or" and not "of". That is an error which could have been corrected under the slip rule.
3. Mr Wilson sought permission to appeal on a number of grounds. All were refused on paper. However, at an oral hearing on 7^th May 2015 I granted limited permission to appeal on one ground only – namely whether the terms on which the suspension was granted were too wide. It seemed to me arguable that the terms should have been linked to compliance with the conditions set out in paragraph 2 of the order.

2 The history

4. Mr Wilson was adjudged bankrupt on his own petition on 19^th March 2014. In his statement of affairs he disclosed liabilities of at least £1 million. He also disclosed that he had contributed £1 million to a SIP since 1988. The Trustee was appointed on 9^th April 2014.
5. The application, which was issued on 21^st July 2014, alleged non co-operation by Mr Wilson which was particularised in paragraphs 5 to 14 of the Trustee's witness statement. In summary:

1. On 29 April 2014 the Trustee wrote to Mr Wilson seeking information about his income and outgoings, details of his Financial Advisor, and details of his pensions.

2. Mr Wilson replied on 20th May 2014. He did not provide the relevant details. He asserted that his pension was exempt from the bankruptcy process and he refused to provide details to the Trustee.

3. An employee of the Trustee replied the same day asking for details of Mr Wilson's pension. A chasing letter was sent on 2nd June 2014.

4. Mr Wilson replied on 2nd June 2014 but again did not provide the relevant details. He was asked again on 2nd June 2014, 17th June 2014 and 2nd July 2014.

6. On 29^th September 2014 Mr Wilson filed a witness statement in answer to the application. In paragraphs 6 to 14 he set out his answer to the allegations and asserted that he had done his best to co-operate with the Trustee. In summary: he had offered to speak or meet with the Trustee on a number of occasions. He referred to his emails of 16^th June 2014, 30^th June 2014, 11^th August 2014 and 22^nd September 2014.
7. In paragraphs 23 to 33 he set out details of a medical condition from which he suffers. He is a high functioning autistic formerly referred to as "Asperger's syndrome".
8. In paragraphs 34 to 36 he dealt with the application for an examination under s 333 of the 1986 Act. He suggested that there were no grounds or need for an order.
9. In paragraphs 38 to 50 he dealt with his means in some detail. It is not necessary to summarise his reply.
10. In paragraphs 51 to 61 he dealt with the question of his pension. In paragraph 55 he said:

I believe my pension fund is excluded from my bankrupt estate by virtue of s 11 of the Welfare Reform and Pensions Act 1999. That being so I do not believe that the trustee is entitled to any order in relation to it.

11. In paragraphs 62 to 66 he dealt with the Credit Union Account. He said he had not been asked for it before and that he had supplied relevant details on 22^nd September 2014.

3 The Judgment of DJ Edwards

12. As already noted the matter came before DJ Edwards on 24^th October 2014 who gave an ex tempore judgment.
13. In paragraph 3 he pointed out that the Trustee had repeatedly asked Mr Wilson to disclose documents and Mr Wilson had repeatedly asked for a meeting. He referred to the obligation under the 1986 Act on Mr Wilson to do all things reasonably requested by the Trustee. Thus the question was whether the Trustee's requests were reasonable.
14. In paragraph 4 he held that Mr Wilson had complied with his obligation in relation to the Statement of Affairs and the income and outgoings questionnaire.
15. In paragraphs 6 and 7 DJ Edwards dealt with the correspondence with the Financial Advisor and the Credit Union. He held that Mr Wilson had not complied with the reasonable request of the Trustee in respect of either of these.
16. In paragraphs 8 and 9 he dealt with the pension which he described as "the most contentious point of all". He recognised that there was a dispute as to whether the pension was within the assets to which the Trustee was entitled. However he held that the Trustee was entitled to see the relevant documents so as to form his own view. If necessary the question could be referred back to Court for a determination of whether Mr Wilson's view was correct. That could only happen after the Trustee had seen the documents.
17. DJ Edwards then dealt with legal arguments under the ECHR and s 279 of the 1986 Act. I dealt with the arguments under s 279 when dealing with the application for permission to appeal.
18. In paragraphs 14 to 16 DJ Edwards considered the condition upon which the order was to be suspended
19. In paragraph 14 he pointed out that the application was for suspension "until the Trustee is satisfied as to the issues raised in the application".
20. In paragraph 16 he said:

The only thing I would add is that there is some acrimony at least on Mr Wilson's part between Mr Wilson and the Trustee and therefore I think that it should say there "… or the court otherwise orders …" which leaves it open should Mr Wilson be absolutely satisfied that he ahs complied with everything that could possibly be required of him and [the Trustee] is unreasonably refusing to confirm that Mr Wilson has complied with his obligations, and it will be open to Mr Wilson to return the matter to the court to get the Trustee to explain why he feels that that is not the case.

4 Subsequent events

21. Subsequent to the granting of permission to appeal Mr Wilson has submitted a supplementary bundle which includes email correspondence between himself and the Trustee between the date of DJ Edwards's order and 5^th May 2015.

1. Each month Mr Wilson sent to the Trustee (or one of his employees) a statement setting out his monthly income. Each of the emails invites a request for further information and contains an assertion that Mr Wilson believes that he has complied with his obligations.

2. On 7^th November 2014 Mr Wilson sent an email in purported compliance with paragraph 2 of DJ Edwards's order. He included relevant details in relation to Leeds City Credit Union, the name and address of his financial advisor and enclosed some copy correspondence from them. However he dealt with the pension as follows:

I continue to maintain my right to privacy of my financial affairs as regards my pension funds which are excluded from the bankrupt estate by law. However as I have intimated before I have no objection to you satisfying yourself of the latter fact and I will co-operate with to the extent necessary for that purpose.

3. The Trustee did not respond substantively to any of these e-mails until 1^st May 2015 when an employee of the Trustee made the point that

You have expressly refused to divulge your pension information to us, which is why our lawyer will examine you under court compulsion. Please deal directly with our lawyer.

4. Mr Wilson replied on 5^th May 2015 stating that he did not recognise that anything was outstanding from him.

5 The Law

S 279 of the 1986 Act

22. Section 279 of the 1986 Act provides:

Duration

279(1) [Discharge from bankruptcy in one year] A bankrupt is discharged from bankruptcy at the end of the period of one year beginning with the date on which the bankruptcy commences.

279(3) [Order that discharge period ceases to run] On the application of the official receiver or the trustee of a bankrupt's estate, the court may order that the period specified in subsection (1) shall cease to run until-

(a) the end of a specified period, or

(b) the fulfilment of a specified condition.

279(4) [When order may be made] The court may make an order under subsection (3) only if satisfied that the bankrupt has failed or is failing to comply with an obligation under this Part.

279(5) ["Condition" in s.279(3)(b)] In subsection (3)(b) "condition" includes a condition requiring that the court be satisfied of something.

Authorities

23. Ms Harvey-Smith referred me to two authorities in relation to s.279 of the 1986 Act – Bramston v Hart [2012] EWCA Civ 1637 and Shierson v Rastogi [2007] EWHC 1266 (Ch). Mr Wilson referred me to one authority Chadwick v Nash [2012] BPIR 70.
24. During the course of the hearing I was also referred to Mawer v Bland [2013] EWHC 3122 (Ch).
25. Rastogi was a decision of Sir Andrew Morritt C. It was an appeal against an order refusing to suspend the automatic discharge of the bankrupt. In the event the appeal was allowed. Much of the judgment is not relevant to this appeal. In paragraphs 63 to 65 of his judgment the Chancellor dealt with the discretion which arises if the jurisdictional threshold in s 279(4) is met. In paragraph 65 he said:

'It is clear from the terms of s.279 that postponement of discharge is linked to a failure to comply with the obligations imposed on a bankrupt by Part IX . But is the purpose of the power to postpone a discharge to provide an incentive to full compliance? Or is it that the disabilities arising from being an undischarged bankrupt should, in the public interest, continue until there has been full compliance? I doubt whether, on the facts of this case, it is necessary to reach a final conclusion on those questions. But in my view the purpose of the power is the latter, even though its effect may be to achieve the former. Were it otherwise I would have expected Parliament to have made discharge conditional on full compliance'.

26. Bramston was an unusual case in that it involved the application by the bankrupt to suspend his automatic discharge so as to enable him to make an application for an IVA. The application was granted by the judge at first instance. The appeal against the judgment was allowed by a Court comprising Arden, Kitchin and Rix LJJ. The only judgment was given by Kitchin LJ.
27. In the course of his judgment Kitchin LJ made the point (in paragraphs 53 to 56) that the bankrupt had failed to establish the jurisdictional threshold in s 279(4) in that he had failed to show that he had failed to comply with his obligations under the Act. In paragraphs 48 to 50 of his judgment he quoted extensively from the judgment of the Chancellor in Rastogi . In paragraph 51 of his judgment he set out the purpose of s 279:

'A purpose of the power conferred by section 279 is therefore to extend the period of the bankruptcy and to ensure that the bankrupt continues to suffer the disabilities arising from his undischarged bankruptcy until he complies with his obligations. I accept the submission advanced by the trustee that in this sense the power is intended to be penal in character and used for purposes connected with the functions of the official receiver and the trustee and to allow the trustee to get in, realise and distribute the bankrupt's estate in accordance with the provisions of Chapter IV'

28. Chadwick was a decision on its facts by Mr Registrar Nicoll. The Registrar refused to suspend the automatic discharge for a variety of reasons. These included the lateness of the application, the serious effect of a suspension on the facts of the case, that mere suspicion that there was inadequate disclosure was not sufficient to justify suspension. Mr Wilson drew it to my attention not for any statement in the judgment but because of the conditions that had been sought by the Trustee. He pointed to the fact that the suspension that was asked for sought to impose conditions which simply required the bankrupt to comply with the alleged breaches. He submitted that DJ Edwards should have imposed similar conditions in this case.
29. Mawer was a decision of Rose J in an appeal against an order of Registrar Baister. It has some similarities to the present case in that it involved a case where the bankrupt had been made bankrupt on his own petition and who had failed to co-operate with the Trustee. The discharge of the bankruptcy was suspended on terms not dissimilar to those imposed by DJ Edwards in this case:

"1. The period for the discharge of the Respondent from bankruptcy shall continue to be suspended and shall not run again until the Applicants [that is the trustees] have or either of them has confirmed to the Court in writing that the Respondent has properly and fully co-operated with the Applicants in all respects required of him.

2. The trustees are to file and serve a report confirming such cooperation within 14 days of being satisfied thereof, and shall specify therein the date from which the discharge period has again run and the consequential date of the Respondent's discharge."

30. It was accepted by Counsel that the form of order was one that is commonly used in bankruptcy proceedings but he argued that it was inappropriate because

it puts too much discretion in the hands of the trustees and appears to delegate the Court's supervision of the period of bankruptcy to the subjective appreciation of the trustees.

31. Counsel submitted that the order should be for a particular time or alternatively the condition to be fulfilled should be more specific. It is plain from paragraph 21 of her judgment that Rose J was initially attracted to the submission. Yet she rejected it. After holding that there was no oppression by the trustees her decision is contained in paragraphs 22 and 23 of her judgment:

22 Mr Barker points out that there are two courses open to Mr Bland if he answers all the questions in paragraph 17 of Mr Mawer's witness statement, but Mr Mawer still refuses to certify that he has cooperated, or if Mr Bland feels that he is not being given the opportunity to show that he is now at last prepared to cooperate with the trustee. The first course is to activate the liberty to apply provision in the order made by Registrar Baister. The second is provided by Rule 6.216 of the Insolvency Rules . That provides that where the Court has made an order under s.279(3) stopping the year from running, the bankrupt can apply to the Court for the order to be discharged.

23 In my judgment, the best course is to leave the order in its current form; for Mr Bland to answer the questions in Mr Mawer's witness statement as fully and frankly as he can and for matters to progress from there. I therefore dismiss the Appeal.

6 Discussion and Conclusion

32. Mr Wilson made a number of detailed submissions in his skeleton argument some of which are in my view inconsistent with authorities binding on me. He suggested that s 279(3) is not penal. With respect, it is clear from the judgment of Kitchin LJ cited above that it is.
33. He submitted that the facts of this case are nothing like as extreme as the facts in Chadwick or Mawer. If and in so far as the purpose is to punish then the terms of this order are disproportionately severe. He submitted that the condition imposed by DJ Edwards was not sufficiently specific as to what he was required to do. That problem was not cured by the final 5 words of the order which still did not make clear what he was required to do. He was, in effect, at the mercy of the trustee and might be left as an undischarged bankrupt for an indeterminate time. That was contrary to the policy of the 1986 Act.
34. Ms Harvey-Smith invited the Court to follow the decision of Rose J and dismiss the appeal. She pointed out that Mr Wilson has still not provided details of his pension in accordance within paragraph 2(c) of DJ Edwards's order. She relied on the Respondent's Notice and pointed out that it was open to Mr Wilson to make an application if he had complied with his obligations and the Trustee was unreasonably refusing to make a report and file the same with the Court. In her submission paragraph 3 of the order struck the right balance between the Trustee's need for Mr Wilson to remain subject to the duties and obligations imposed by the 1986 Act and the need for the Trustee to file a report as soon as Mr Wilson has complied with his obligations.
35. I have to confess that, like Rose J, I was initially attracted to Mr Wilson's submissions. It was for that reason I granted permission to appeal. However Ms Harvey-Smith has persuaded me not to interfere with DJ Edwards's order. There are a number of reasons for this:

1. This is not a case where there is any evidence of oppression by the Trustee. The requests he has made are perfectly reasonable and have not been made in any oppressive manner.

2. Whilst Mr Wilson submitted that his default was not serious I do not agree. It has to be borne in mind that the only significant asset disclosed by Mr Wilson is the pension fund worth in excess of £1 million. Mr Wilson contends that this is an asset that does not vest in the Trustee. He may be right or wrong about this. It is a matter that may have to be debated on another occasion. The Trustee wishes to investigate the circumstances and the terms of the pension fund in order to determine whether to challenge Mr Wilson's view in relation to it. Mr Wilson has steadfastly refused to provide the Trustee with the necessary information or documents relating to his pension fund which would enable the Trustee to carry out the investigation. He was ordered to do so in paragraph 2(c) of DJ Edwards's order. He has not complied with that order. In my view the offer to co-operate contained in the email of 7^th November 2014 is not compliance with the order. Mr Wilson remains in breach of his duty to co-operate and provide information about his pension fund. Whilst this breach may be different from the breaches in the reported cases referred to above I regard it as both significant and serious.

3. This is an appeal against a discretionary decision of DJ Edwards. As is well-known:

"Before the court can interfere it must be shown that the judge has either erred in principle in his approach or has left out of account, or has taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale."

[See the judgment of Lord Woolf MR in Phonographic Performance Ltd v AEI Rediffusion Music Ltd [1999] 1 WLR 1507 at 1523C-D]

I am far from satisfied that DJ Edwards made any of the errors set out in the above passage. He plainly considered the need to protect Mr Wilson and felt as a matter of discretion Mr Wilson's rights to make an application to Court was sufficient protection. I find it impossible to say that that view was wrong.

4. As is clear from the judgment of Rose J an order substantially in the form made by DJ Edwards is commonly made in bankruptcy proceedings. Mr Wilson is protected by his right to apply to the Court either under the express provisions of the order or under rule 6.216 of the Insolvency Rules 1986. Unless and until he provides full disclosure and information relating to his pension any such application would appear to have very limited prospects of success.

36. In the result, save that I would vary the order by amending the fifth last word of paragraph 3 to "or", this appeal is dismissed.