English and Welsh Courts - Miscellaneous

IN THE CROYDON COUNTY COURT

		The Law Courts Altyre Road Croydon Surrey CR9 5AB
		16 April 2015

1. THE DEPUTY DISTRICT JUDGE: This is as application to annul a bankruptcy order made on 17 September 2013 against Peter Brister, who sadly died on 14 August 2013. The application is brought by his nephew, Joseph Brister, as his personal representative. As an alternative to annulment the applicant seeks that the bankruptcy order be rescinded.
2. The application is dated 6 November 2014, and the applicant relies on his witness statement dated 4 November 2014 and the exhibits thereto and a statement of his solicitor, Michael Hall, dated 6 November and the exhibits attached to that statement.
3. The Official Receiver is the first respondent and filed a report dated 25 March which indicated that the Official Receiver did not support the application as a result of the provisions of Article 5 of the Administration of Insolvent Estates of Deceased Persons Order 1986. The second respondents to the application are the trustees appointed following the bankruptcy order and who took on a neutral stance to the application and were not represented at the hearing before me some weeks ago albeit their representative from their solicitors was present. The third respondents are petitioning creditors, Hitachi Capital UK Plc. They relied on the statements of Brian David Addlestone, solicitors for the company, dated 3 March of this year, and the exhibits which were attached, and Paul Weaver, a legal recovery specialist employed by them. His statement was dated 27 February, and they relied on the exhibits attached to that statement. Mr Pester of counsel represented the applicant and Ms Dainty of counsel appeared for the third respondents. Ms Cook attended on behalf of the Official Receiver. Both Mr Pester and Ms Dainty had prepared skeleton arguments and produced bundles of authorities.
4. In 2010 the deceased, who was then in his mid-seventies, entered into three fixed-sum loan agreements with the third respondent. Two were dated 9 April and were for windows and luxury windows respectively. The third was dated 27 October and was for replacement windows. The bankruptcy petition was based on the first of these agreements. It appears that for two years or so payments were made in respect of all three agreements. Payments in respect of the agreement relied on by the petitioning creditors ceased in August 2012. A letter before action dated 17 October 2012 was sent by the petitioning creditors' solicitors to Mr Brister. It referred to the agreement number and requested payment of £14,357.40. A statutory demand was then served on Mr Brister personally on 30 November 2012. That incorrectly referred to a letter giving full particulars of the claim as dated on 3 May 2012 when it should have been 17 October. It also said that any applications to set aside the statutory demand should be made to Medway County Court when in fact it should have been this court.
5. The agency served this statutory demand and reported to the petitioning creditor by letter on 3 December 2012, and their letter (which appears at page 94 in the bundle prepared for the hearing) included this information:

"Mr Brister is in his eighties and can hardly see or stand. He looks very unwell.

He and the house are in a dreadful state. He said he was told by a salesman that the Council were paying for the porch and windows and he really had no idea what was going on.

My agent had to read the demand to him and he was quite concerned as Mr Brister said he had no one to speak to about the matter and believes he would not be well enough to attend Court."

6. The petition was subsequently issued by the petitioning creditor in Medway but transferred to this court, and it was served on 6 February 2013, and again the agents reported to the solicitors for the petitioning creditor (these documents appearing at pages 98 and 99 of the bundle), and in the first of them dated 6 February the agent said:

"Please note the subject is elderly and suffers from dementia, his carer was present upon our arrival, she stated she would try and sort the matter out."

7. A further letter on 8 February went into some more detail. It said:

"Mr Brister is in his eighties and can hardly see or stand. He looks very unwell.

He and his house are in a dreadful state. He said he was told by a salesmen that the Council were paying for the porch and windows and he really had no idea what was going on.

My agent had to read the demand to him and he was quite concerned as Mr Brister said he had no one to speak to about the matter and believes he would not be well enough to attend Court."

8. The petition was listed at this court for hearing on 27 March 2013. On 26 March the petitioning creditor's solicitors wrote and sent by fax or email a letter to Medway County Court seeking an adjournment. In that letter they say:

"Our agent has indicated that the Debtor was not in a position to stand up and appeared very unwell. Our agent also reported that the property was in a dreadful state.

Our agent had to read the Petition to the Debtor and was concerned as the Debtor indicated that he had no one to discuss the matter with and believed he would not be well enough to attend Court.

It is our intention to contact Age Concern and Social Services in order to help assist the Debtor with his financial difficulties and ongoing concerns."

9. They sought an adjournment. That letter was not before District Judge Avis when the matter came on on 26 March, and his initial order said petition dismissed but he wrote on the court file a note to the court staff saying:

"Before drawing up this order, please double check that no requests to adjourn have been received. If they have, please return the papers to me without an order."

10. In due course some weeks later the letter from the solicitors which had been sent to Medway came to this court and the matter was referred to District Judge Avis who relisted the petition for hearing on 25 June. Again, the day before that hearing the petitioning creditor's solicitors wrote requesting an adjournment "to allow the defendant to obtain legal advice and due to his medical condition".
11. On 26 June 2013 a solicitor from a firm called Browns, presumably at the request of social services, attended upon Mr Brister. She sent an email to the applicant's solicitors on 10 October summarising her meeting on that date, and it appears at page 83 in the bundle. She said:

"I am afraid that Mr Brister is wholly unable to explain from where the debts had arisen and although he is quite content for me to look at his bank statements, he would not allow me to take them away nor to give me any proper instructions.

I understand Bromley Social Services had been in correspondence with the various parties making claims to advise them that they had assessed Mr Brister as lacking capacity to understand his finances. I would confirm that in my experience, I would agree that Mr Brister did indeed have limited capacity and it was proposed that an application to the Court of Protection for the appointment of a Deputy would have been the only practical way forward. I would confirm that he was extremely vague as to fairly simple questions such as his date of birth, nor could he clearly recall his late wife's name or how long ago that she had died.

When pressed he seemed to believe that the loans had been obtained for the purpose of purchasing some new windows and he seemed confused by this as he had been told that the windows were being changed free of charge due to his age and the need to insulate his house. Although I seem to recall that the windows had been changed some years before, it was perfectly clear from the bank statements that I saw that Mr Brister's income could not possibly have supported the cost of the loans which were forming the basis of the claim.

As it was clear that Mr Brister was not able to give proper instructions, Bromley Social Services had clearly advised the solicitors representing the claimants of the problems with his capacity, it was left that a mental health assessment would be obtained and Bromley would advise the creditors of the steps being taken."

12. The petition was then adjourned as a result of that letter to 17 September when the bankruptcy order was made and, as I have already indicated, by that time Mr Brister had sadly died. But the applicant was not however aware of his uncle's death until January of 2014, and he eventually obtained a grant of letters of administration on 20 October 2014.
13. I was referred to the case of Hunt v Fylde Borough Council [2008] BPIR 1368 in relation to the defendant's capacity. Within that judgment from District Judge Ashton, a very experienced district judge who had great expertise in the matter of capacity and disability, he recorded at paragraph 14:

"It is therefore incumbent upon a Petitioning Creditor to inform the Court of any relevant circumstances when the Petition is heard, and there must be an element of risk if bankruptcy proceeds without any enquiry as to the debtor's circumstances."

14. He at that stage was referring to section 282(1)(a) of the Insolvency Act 1986 which says that "if it at any time appears to the court that on any grounds existing at the time the order was made, the order ought not to have been made". He was also referring to the Insolvency Rules 7.43 and 7.44, and it is said they apply where:

"… it appears to the court that a person affected by the proceedings is one who is incapable of managing and administering his property and affairs either—

(a) by reason of mental disorder within the meaning of the Mental Health Act 1983, or

(b) due to physical affliction or disability."

15. Further on in that judgment District Judge Ashton referred to the Court of Appeal emphasising the duty imposed on a district judge in the case of Masterman-Lister v Brutton & Co and Jewell & Home Counties Dairies [2002] EWCA Civ 1889 and quoted that:

"… courts should always, as a matter of practice, at the first convenient opportunity, investigate the question of capacity whenever there is any reason to suspect that it may be absent (e.g. significant head injury) …"

16. The Insolvency Rules are somewhat wider than the Civil Procedure Rules in that they include physical affliction or disability and not just mental incapacity. In my view, if District Judge Bishop (who made the bankruptcy order on 17 September) had been told that the petitioning creditors had been informed that the debtor was suffering from dementia, it is implausible that the bankruptcy order would have been made without obtaining some further information as to his capacity.
17. I have been referred to the case of Hope v Premierpace (Europe) Ltd [1999] BPIR 695, where the court held that if at the hearing of a bankruptcy petition the district judge had been made aware of the reasons for the non-attendance by the debtor it was almost inconceivable that a bankruptcy order would have been made. But if it was, on the subsequent application to annul there had been a discretion to discharge the bankruptcy order.
18. The petitioning creditor had information as to the difficulties that Mr Brister was facing both as to his mental capability and indeed his physical capability. When the matter came before the court on 17 September no evidence was placed before the court, and indeed the report from social services does not appear to have been made available or from Ms Brown through social services was made available, and it does not appear that it was a written report at all. Whether it was provided to the petitioning creditor is not clear but they clearly had their own agent's report and had previously indicated they would be making enquiries of Age Concern and social services.
19. Within the third respondent's skeleton argument there was a reference to paragraph 19 to the editorial introduction to CPR 21 stating that the Court of Appeal has said that as a matter of practice the court should at the first convenient opportunity investigate the question of capacity whenever there is a reason to suspect that it may be absent, and that means, even though the issue does not seem to be contentious, the master or district judge who is responsible for case management will almost certainly require the assistance of a medical report before being able to satisfy that incapacity exists. Clearly the court had no medical evidence before it when the bankruptcy order was made.
20. I was also referred to the case of Haworth v Cartmel and HMRC [2011] BPIR 428 which supported the argument that both parties agreed that even if the court is satisfied that there are grounds for annulment of the bankruptcy order that does not necessarily mean that the discretion should be exercised to annul it. Within that case the court considered an argument that there had been a delay in bringing the application to annul, but the court considered that to be unmeritorious. Quite clearly at the time of the bankruptcy order being made the petitioning creditor knew or ought to have known that there were at least question marks as to Mr Brister's capacity and ability to attend court. In my view, if all of the information the petitioning creditors had had on 17 September been placed before the court, the court following the authorities of Hunt v Fylde and Haworth v Cartmel would not have made the bankruptcy order, which is of course a draconian order to make.
21. However, as already indicated, that does not mean that it automatically should result in the bankruptcy order being annulled. It is a matter of discretion, and the petitioning creditor argues that there is no point in annulling the bankruptcy as the petitioning creditor would be successful in obtaining a bankruptcy when the matter is reheard on the basis that there is no genuine or substantial dispute and to annul the bankruptcy in those circumstances would lead to a waste of costs and time. They also rely on the delay between the bankruptcy order being made and the applications to annul, namely around 14 months.
22. The applicants refer to what I would describe as the "Marquis case" where it was held that at the hearing of the petition the registrar dealing with it fell into error when she decided to proceed with the petition in the absence of representation for the debtor but should have adjourned the matter for the appointment of a representative on behalf of the debtor. Clearly, had all the information been before the court, in my view, that is what would have happened. However, in that case the court also took the view that if the court is satisfied that the debt is due that alone would not be a reason to refuse to annul. It is a matter of discretion.
23. The applicants argue that there are grounds to support their contention that the debt is disputed on grounds which are substantial. They refer to the alleged defects in the statutory demand although accept that on their own these defects are insufficient to justify annulment. The applicant also raises concerns about the fact that three agreements were entered into over a period of six months, two on the same day with a total credit of about £20,000 or more, this at a time when Mr Brister was a retired man in his mid-seventies with an income of only around £15,000 per annum. In fact Mr Brister did not fully understand the terms of the contracts or the agreements. The applicant says it is clear from his comments in 2013 that he did not have to pay, as I have already quoted from the agent's and Ms Brown's (of Browns Solicitors) reports.
24. The petitioning creditor says the agreement is fair and that the applicant's argument on these matters is based on speculation. It seems to me to be more than speculation. The respondent's own agent reported that Mr Brister said that he was told by the salesman that he would not have to pay. There is no evidence that this was placed before the court on the hearing on 17 September. Mr Wheeler's statement on behalf of the petitioning creditor says at paragraph 4 that he has satisfied himself that the loans are genuinely due and owing and that the defendant willingly signed up to them. It does not say how he came to satisfy himself, and neither he nor Mr Addlestone comment on their agent's comments as to what Mr Brister says, but their agent says Mr Brister told him about the salesman saying that the council would pay.
25. Furthermore there does appear to be some inconsistency on the face of the agreement itself. On the face of the agreement it is recorded that Mr Brister is confirming that he is eligible for the Hitachi Capital Gold option, which confirms that he was eligible for that, he is aged 18 or over, he lives in the UK, he works in the UK for at least 16 hours a week either in permanent paid employment or self-employed and had been doing so continuously for at least the last six months and I am paying the appropriate class of National Insurance and income tax. At the time of the agreement the salesman for the glazing company knew that Mr Brister was a retired gentleman. Indeed the agreement itself says he is retired. On the reverse of the agreement at paragraph 14.2 it says that "The Gold option is available if you are aged 18 or over and live in the UK". It says nothing whatsoever regarding working or paying tax or National Insurance. Paragraph 14.10 continues that:

"If you die, you or your personal representatives will not be obliged to make any further payments under the agreement, and any outstanding debt under the agreement will be written off."

26. Mr Wheeler in his statement refers to paragraph 14.9 which says that the agreement would come to an end. The petitioning creditors were no longer accepting payments from Mr Brister and were claiming the entire balance.
27. Counsel for the petitioning creditor says that the wording on the front of the agreement should take precedence over the wording on the reverse if there is any dispute between them. However, the wording on the front of the agreement does say that "We agree to lend you the amount of credit described above on the terms set out above, below and overleaf". On behalf of the estate of Mr Brister it is argued that the contra preferendum principle should apply and, applying normal reading, the applicant argues that at the date of the bankruptcy order there was no debt owing to the petitioning creditor as Mr Brister had passed away.
28. There seems to me to be some force in that argument, particularly in view of the petitioning creditor's knowledge of Mr Brister's circumstances from their own agent and social services, who had provided them with a letter from the hospital which sadly had not been produced in this application. I have to say it is not clear to me why there would be three separate agreements over a stage of six months and indeed why two of the agreements should be entered into on the same day. It is equally not clear to me why so much credit would be granted to an elderly gentleman with a very limited income. Such evidence as there is indicates that at least in 2013 Mr Brister expressed the view that he had been told by the salesman attending his premises that he did not have to pay for the double glazing or the windows.
29. I accept that there is an issue both as to how the agreement came to be entered into and the apparent inconsistency on the face of the documents. I accept that there is no evidence before me as to Mr Brister's mental or physical condition as it was in 2013, but for the purposes of dealing with this application I do not have to decide whether Mr Brister had a defence to the claim which would ultimately be successful. In my view it is not enough for the petitioning creditor to merely assert that the reference on the first page of the agreement to the Gold option takes precedence over the inconsistent terms of that option set out on the reverse of the agreement.
30. One other point made by the applicant's solicitors is that at the time of the order made by Judge Avis relisting the petition for 26 March there was no jurisdiction to make such an order because there was already an order dismissing the petition. In my view there is no merit in that argument. The court clearly had jurisdiction to set aside an order drawn up incorrectly, and it is clear from the note made by Judge Avis that it has in fact been drawn up incorrectly. It is also correct that his order of 24 April does not specifically refer to setting aside the order of 27 March and that no reference was made to that order being set aside until the bankruptcy order was made on 17 September. In my view the paragraph in the order of 17 September was as it says for the avoidance of doubt and it was merely a question of crossing the t's and dotting the i's.
31. I also find that the defects which were in the statutory demand were insufficient to justify the annulment of the bankruptcy order, and, as I have also indicated I am satisfied that the petitioning creditor failed to provide the court with all of the information they had as to Mr Brister's mental and physical condition and that, had they done so, no bankruptcy order would have been made on 17 September and that therefore the bankruptcy order should not have been made.
32. So far as exercising my discretion is concerned, I have to say that the failure by the petitioning creditors to provide all of the relevant information to the court on 17 September is in my view of such a serious nature that no court in exercising its discretion should allow an order obtained in these circumstances to stand. To do so effectively would be to uphold an order obtained where the petitioning creditor had withheld, for whatever reason, and perhaps unintentionally, very relevant and important information. However, if I am wrong on that point I would nonetheless exercise my discretion to annul on the basis that there are issues as to how the agreements came to be entered into and the construction of the agreements which means that it is not automatic that the petitioning creditor would be successful in obtaining a bankruptcy order at the hearing of a petition.
33. I do not consider the delay in making the application to be anything like enough to justify refusing the application. There does appear to be some indication from the correspondence in the bundle that the applicant was attempting to obtain information from the petitioning creditors which was not forthcoming promptly. In any event the application was issued within nine months or so of the applicant becoming aware of Mr Brister's death, and I do not consider that period to be of sufficient length to justify refusing the application, particularly in view of the fact that the letters of administration were only obtained in October of last year.
34. For those reasons I will grant the application and annul the bankruptcy order.
35. The parties have also disagreed on the effect of the Administration of Insolvent Estates of Deceased Persons Order 1986, Article 5(1), but I am far from sure in view of the findings that I have made in relation to this matter that the dispute as to the meaning of that order is one that I have to consider, but for the sake of completeness I propose to consider those conflicting arguments. The petitioning creditors rely on that Article, that unless the court orders otherwise, if a debtor by or against whom a bankruptcy petition has been presented dies, the proceedings continue as if he were alive. This is an argument supported by the Official Receiver.
36. The applicants in this application say that Article does not assist the petitioning creditor. They argue that it does not deal with the position where a petition was served but the debtor dies before the hearing, and fundamentally the applicant argues that the order was specifically made pursuant to section 421 of the Insolvency Act 1986 and that section 421(4) provides:

"For the purposes of this section the estate of a deceased person is insolvent if, when realised, it will be insufficient to meet in full all the debts and other liabilities to which it is subject."

37. Here there is no dispute whether Mr Brister's estate can meet its debts and liabilities and it is argued is therefore not insolvent. Article 5(3) refers to the situation where death occurs after presentation and before service. It seems to me therefore that Article 5(1) is intended to cover the situation where service is effected before the death occurs. However, the order itself is titled "The Administration of Insolvent Estates of Deceased Persons Order". Mr Brister's estate is not insolvent. His personal representative under the grant of letters of administration will have to administer the estate and discharge any outstanding debts. It seems to me that under the wording of the Order, and once it was realised the estate of Mr Brister was not insolvent, the matter should have been referred back to his personal representatives for them to deal with the estate because clearly no one is arguing that the estate was insolvent. I therefore do not accept the arguments put forward on behalf of the petitioning creditor and supported by the Official Receiver in relation to the effect of the Administration of Insolvent Estates of Deceased Persons Order.
38. For the reasons I have given, the bankruptcy order will be annulled, and I will deal with any other matters that arise now.