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O'Maoileoin (A Bankrupt) v. Official Assignee [1999] IEHC 75 (21st December, 1999)

THE HIGH COURT

BANKRUPTCY

No. 2046

IN THE MATTER OF THE BANKRUPTCY ACT, 1988

AND IN THE MATTER OF MICHAEL B. O'MAOILEOIN (A BANKRUPT)

AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTIONS 85 & 135 OF THE BANKRUPTCY ACT, 1988

BETWEEN

MICHAEL B. O'MAOILEOIN (A BANKRUPT)

APPLICANT

AND

THE OFFICIAL ASSIGNEE

RESPONDENT

Judgment of Ms. Justice Laffoy delivered the 21st day of December, 1999.

1. On this application Michael B. O'Maoileoin, (the Bankrupt) seeks the following orders, namely:

(1) An order pursuant to section 85(5)(b) of the Bankruptcy Act, 1988 (the Act of 1988) annulling the order of this Court dated 12th January, 1987 adjudicating him a bankrupt; and

(2) An order pursuant to section 135 of the Bankruptcy Act, 1988 setting aside the order of this Court made on 9th November, 1995 whereby it was ordered that the aid of the High Court of Justice (in Bankruptcy) in England and Wales be sought to act in aid of and be auxiliary to this Court.

2. The background to this application is that the Bankrupt was adjudicated a bankrupt on 12th January, 1987 on the petition of Patrick McDonald (the Petitioning Creditor). Following his adjudication the Bankrupt applied to this Court for an order annulling the adjudication order on the ground that the debtor's summons served by the Petitioning Creditor was defective and that his failure to respond to it could not amount to an act of bankruptcy. On 21st September, 1988 Hamilton P., as he then was, delivered judgment on that application, which is reported as O'Maoileoin -v- Official Assignee, [1989] I.R. 647. Hamilton P. held that the debtor's summons was in the correct form and that the failure of the Bankrupt to comply with the terms thereof constituted an act of bankruptcy. He dismissed the Bankrupt's application. No appeal was taken by the Bankrupt against that order. Subsequently, on 14th November, 1988 the Petitioning Creditor applied ex parte to this Court for the annulment of the bankruptcy. That application was refused but, the Court noting that the Petitioning Creditor was withdrawing all claims against the Bankrupt, the Court ordered that the Petitioning Creditor was thereby relieved of all further obligations in the matter. The Court further ordered that the Official Assignee was at liberty to appoint a solicitor do take carriage of the proceedings and directed that the bankruptcy be advertised forthwith and that a sufficient sum should be withdrawn from the unclaimed dividend fund to discharge the costs of advertising.

3. Because of lack of funds and the Bankrupt being out of the jurisdiction, the bankruptcy was dormant from the end of 1988 to the beginning of March 1995 when the Official Assignee became aware that the Bankrupt was practising as a barrister in London. By letter dated 10th March, 1995 the Official Assignee requested the Bankrupt to file a statement of affairs without further delay and to attend at his office for interview on 6th April, 1995. In response, on 27th March, 1995, the Official Assignee received a communication ostensibly from the Bankrupt but written in the third person and unsigned, which at the hearing of this application was acknowledged to have been written by the Bankrupt, in which reference was made to an affidavit of the Petitioning Creditor sworn on 6th December, 1988 which it was contended confirmed that the bankrupt was not indebted to the Petitioning Creditor in any sum and that at no time did the Petitioning Creditor ever swear an affidavit for his solicitors which would have enabled his solicitors to file an affidavit and petition of the type required by Appendix O, Form No. 12, of the Rules of the Superior Courts which would have enabled the Court to make an order of adjudication against the Bankrupt. The Official Assignee was requested to arrange to have the order of adjudication "on foot of a fraudulent affidavit" discharged forthwith and declared nugatory.

4. Despite further correspondence no co-operation was forthcoming from the Bankrupt, he did not file the statement of affairs and he did not attend at the office of the Official Assignee for interview. On 6th November, 1995 an order was made in this Court by Murphy J., on a motion ex parte by the Official Assignee, wherein it was ordered that the aid of the High Court of Justice (in Bankruptcy) of England and Wales and the officers of such Court be sought and this Court requested such aid pursuant to section 426(4) and (5) of the Insolvency Act, 1986. Subsequently, the following steps were taken in the bankruptcy:-

(a) On 24th November, 1995 the High Court of Justice acceded to an application of the Official Assignee for a "mirror" order to the order of 6th November, 1995. The order was granted by Mr. Registrar Scott.

(b) On 25th January, 1996 the Bankrupt applied to set aside the order granted by Mr. Registrar Scott on the grounds that the bankruptcy order had been obtained by fraud. On 14th February, 1996 Mr. Registrar Scott dismissed that application.

(c) On 15th October, 1996 an application was made by the Official Assignee to the High Court of Justice for an Income Payments Order against the Bankrupt. On 25th November, 1996 Mr. Registrar Baister made an order under section 310 of the Insolvency Act, 1986 for payment by the Bankrupt of £600 per month to the Official Assignee.

(d) On 24th December, 1996 the Bankrupt issued an application to set aside the order of Mr. Registrar Baister. On 30th January, 1997 Mr. Registrar Baister dismissed that application.

(e) On 27th February, 1997 the Bankrupt issued an application to Mr. Registrar Baister to rescind the orders of 25th November, 1996 and 30th January, 1997. On 14th April, 1997 Mr. Registrar Baister dismissed that application.

(f) On 24th June, 1997 the Bankrupt applied to the High Court of Justice to rescind the orders of 25th November, 1996 and 30th January, 1997 and that application was subsequently dismissed by Neuberger J.

(g) On 27th July, 1998, on application of the Official Assignee, this Court sanctioned the disbursement of all funds then comprised in the bankrupt's estate and, in particular, funds received from Lloyds of London between 30th October, 1996 and 8th December, 1997 aggregating STG£45,654.39.

5. The Official Assignee has incurred legal costs of £49,989.34 in respect of the legal action necessitated by the bankrupt's refusal to co-operate with the Official Assignee. As of 10th November, 1999 the amount standing to the credit of the bankruptcy was £4,259.63. While the Official Assignee has not advertised for creditors in view of the fact that there is no prospect of being able to pay a dividend, he has received claims from creditors in the bankruptcy in the amount of £424,468.23.

6. In his affidavit sworn on 28th September, 1999 to ground this application, the Bankrupt has exhibited an affidavit sworn by the Petitioning Creditor in England on 18th September, 1999 in which the Petitioning Creditor averred that in connection with the bankruptcy petition he signed papers for his solicitors in their office on 7th January, 1987 but he did not swear any papers on that date or on any subsequent date, that he never swore any affidavit of non-compounding or any affidavit of verification before a Commissioner for Oaths in Dublin on 9th January, 1987, that he was not in Dublin on that day and that he never swore any document before the Commissioner for Oaths referred to in the jurat of the affidavit verifying the petition. In that affidavit the Petitioning Creditor exhibited a copy of an affidavit sworn by him in England on 6th December, 1988 in which he averred that the papers he signed for his solicitors on 7th January, 1987 "were signed and not sworn" and that he never swore the affidavit which is on the file in the bankruptcy office and endorsed on the petition of bankruptcy filed in Court. In his affidavit sworn on 18th September, 1999, the Petitioning Creditor has averred as to the circumstances in which he came to swear the affidavit of 6th December, 1988. On 14th November, 1988, in the company of his English solicitor, he inspected the file in the bankruptcy office and noted that there were two affidavits on the file which purported to be sworn by him on 9th January, 1987. His English solicitor advised him that he should file an affidavit bringing the matter to the Court's attention and his English solicitor subsequently drafted the affidavit for him which was sworn on 6th December, 1988. He further averred that the affidavit "has been filed with this Court since December 1988". This averment has not been controverted by the Official Assignee.

7. The gravamen of the Bankrupt's challenge to the validity of the order of 12th January, 1987 is that section 116 of the Irish Bankrupt and Insolvent Act, 1857, which governed his adjudication, made it mandatory that the truth of a petition should be verified by the affidavit of the petitioner and that the purported verifying affidavit which supported the petition of the Petitioning Creditor, while signed by the petitioner, was neither signed nor sworn by him in the presence of the Commissioner for Oaths referred to in the jurat. The position of the Official Assignee is that he is a stranger to the facts deposed to by the Petitioning Creditor as to the affidavit of verification. It has been agreed by the parties, however, that the Court should decide the issue whether the bankruptcy should be annulled if it is the case that the facts deposed to by the Petitioning Creditor are true and that this issue should be tried as a preliminary issue without prejudice to the entitlement of the parties to adduce evidence later if the Court answers the question in the affirmative.

8. It is clear from the affidavits sworn by the Petitioning Creditor filed on this application that the facts set out in the petition on which the adjudication order was based were true, in that at the date of the petition the Bankrupt was indebted to the Petitioning Creditor in the sum of £46,429.18 on foot of a judgment of the High Court. It is also clear that the petition was brought on the instructions of the Petitioning Creditor.

Section 85(5) of the Act of 1988 provides as follows:-

"A person shall be entitled to an annulment of his adjudication -

(a) where he has shown cause pursuant to section 16 or

(b) in any other case where, in the opinion of the Court, he ought not to have been adjudicated bankrupt."

9. Mr. Sanfey, on behalf of the Official Assignee, referred to the Bankruptcy Law Committee Report (Prl. 2714) at paragraph 38.6.1 in support of his suggestion that sub-section (5)(b) of section 85 was intended to give statutory effect to the existing jurisdiction of this Court to annul a bankruptcy on equitable grounds or under its general jurisdiction. That such a jurisdiction existed for over a century before the coming into operation of the Act of 1988 is undoubtedly the case, as was illustrated by the decision in In Re M'G, 11 I.L.T.R. 93, where it was held by Harrison J. that where it was sought to set aside or annul an adjudication of bankruptcy on equitable grounds, the alleged bankrupt should proceed, not by way of motion showing cause against the adjudication, but by way of special application to set aside the proceedings or to annul the adjudication. Mr. Sanfey also cited In Re Gorham , [1924] II I.R. 46 as a case which illustrated the operation of the jurisdiction to annul on equitable grounds. In that case, a debtor's summons had been issued against the bankrupt, but was personally served on him two days outside the time prescribed in the Rules of the Supreme Court of Judicature then in force. No cause had been shown against the adjudication, but the bankrupt applied to annul the bankruptcy on the ground that the late service of the debtor summons vitiated the proceedings. In his judgment, Pim J. said that he was prepared to hold that in a proper case in Ireland, as in England, the Court had power, no matter what time had elapsed, to annul the bankruptcy. On the question of what was a proper case, the only authority which had been cited to Pim J. in which there had been a successful application to annul was Ex parte Geisel , 22 Ch.D. 436, a case which Pim J. regarded as a proper case, being a case in which the bankruptcy was annulled on the ground that the Court was not satisfied that the bankrupt was alive at the date of the alleged act of bankruptcy. Pim J. went on to state that the only other proper cases that occurred to him were those in which a bankruptcy had been obtained by fraud, or where the bankruptcy was an abuse of the process of the Court. He also referred to cases in which the applications had been refused: a case in which a bankrupt was a minor and at the time a minor could not be made a bankrupt unless he had fraudulently concealed or misstated his age, which the bankrupt had not done; a case in which the insufficiency of the petitioning creditor's debt was proved; and a case in which it was being alleged that the bankrupt was not a trader and therefore could not be adjudicated, the Court refusing to consider the question of whether he was a trader or not after the bankruptcy had been "gazetted". Pim J. went on to say:-

"In all these cases the complaint made was a matter of substance. In the case before me it is, at most, a matter of procedure. It seems to me to be much less strong than any of the three cases I have quoted. As a result I am satisfied that I should not annul the present bankruptcy."

10. It was submitted by Mr. Sanfey on behalf of the Official Assignee that the factor relied upon by the Bankrupt as entitling him to the annulment of the bankruptcy amounts to no more than a procedural defect in the Petitioning Creditor's proofs. On behalf of the Bankrupt, Mr. Faughnan, B.L., argued that the adjudication order was made by the Court erroneously believing the petition was verified owing to the deliberate actions of the legal representatives concerned, which amounted to fraud on the Court and that the adjudication was procured by mala fides. As I have said, the parties have asked the Court to assume for present purposes that the facts deposed to by the Petitioning Creditor are true. On that assumption, and having regard to the state of the evidence, one could not conclude that a fraud was perpetrated on the Court or that the adjudication was procured by mala fides.

11. The real issue for determination is whether, as contended for by Mr. Sanfey, the Bankrupt is estopped from applying for annulment at this juncture by reason of his conduct in the bankruptcy and his unconscionable delay in bringing the application.

12. That estoppel by conduct could be a bar to the annulment of a bankruptcy under the pre Act of 1988 inherent jurisdiction is illustrated by In Re Hussey, a Bankrupt , in which judgment was delivered on 23rd September, 1987, Hamilton P. In that case, Hamilton P. found that the seal of a company petitioner was not affixed to the petition, on foot of which an adjudication order was made on 13th September, 1985, in accordance with the requirements of the Articles of Association of the petitioner and that the seals and signatures on the petition were not properly attested in accordance with the requirements of the Rules of the Superior Courts then in force but, nonetheless, he held that it was not open to the applicant bankrupt to rely on that point over a year and a half later to have the bankruptcy annulled. In his judgment, Hamilton P. stated as follows:-

"He did not raise this point on the motion to show cause, allowed the bankruptcy to proceed, allowed the realisation of assets to proceed, allowed the proof of debt sittings to proceed, allowed the interim dividend hereinbefore referred to to be paid, negotiations with his creditors for the purpose of making an offer of composition after bankruptcy and generally the bankruptcy to proceed in the ordinary way, and allowed the Official Assignee to continue to fulfil his statutory functions in this regard after the date of adjudication.

I am satisfied that he is thereby estopped from raising this or any other point with regard to his original adjudication at this stage."

13. It seems to me that in considering whether an application under section 85(5)(b) for annulment of an adjudication should be acceded to or not because of the delay in bringing the application, the Court should apply the same principles as are applied in determining whether a claim in civil proceedings should be dismissed for want of prosecution on the ground of delay. The relevant principles were most recently outlined by the Supreme Court in Primor Plc. -v- Stokes Kennedy Crowley , [1996] 2 I.R. 459 and they are summarised in the following passage from the judgment of Hamilton C.J. at page 475:-

"The principles of law relevant to the consideration of the issues raised in this appeal may be summarised as follows:-

(a) the Courts have an inherent jurisdiction to control their own procedure and to dismiss a claim when the interests of justice require them to do so;

(b) it must, in the first instance, be established by the party seeking a dismissal of proceedings for want of prosecution on the ground of delay in the prosecution thereof, that the delay was inordinate and inexcusable;

(c) even where the delay has been both inordinate and inexcusable the Court must exercise a judgment on whether, in its discretion, on the facts the balance of justice is in favour of or against the proceeding of the case;

(d) in considering this latter obligation the Court is entitled to take into consideration and have regard to:

(i) the implied constitutional principles of basic fairness of procedures,

(ii) whether the delay and consequent prejudice in the special facts of the case are such as to make it unfair to the defendant to allow the action to proceed and to make it just to strike out the plaintiff's action,

(iii) any delay on the part of the defendant - because litigation is a two party operation, the conduct of both parties should be looked at,

(iv) whether any delay or conduct of the defendant amounts to acquiescence on the part of the defendant in the plaintiff's delay,

(v) the fact that conduct by the defendant which induces the plaintiff to incur further expense in pursuing the action does not, in law, constitute an absolute bar preventing the defendant from obtaining a striking out order but is a relevant factor to be taken into account by the judge in exercising his discretion whether or not to strike out the claim, the weight to be attached to such conduct depending upon all the circumstances of the particular case,

(vi) whether the delay gives rise to a substantial risk that it is not possible to have a fair trial or is likely to cause or have caused serious prejudice to the defendant,

(vii) the fact that the prejudice to the defendant referred to in (vi) may arise in many ways and be other than that merely caused by the delay, including damage to the defendant's reputation and business."

14. In applying the foregoing principles to the facts in the instant case, the first question is whether the Bankrupt has been guilty of inordinate and inexcusable delay in bringing this application. In addressing that question the period to be considered is the period from March 1995, when the Official Assignee was in a position to and did reactivate the bankruptcy process, and the 29th September, 1999, when this application was initiated. It is clear on the evidence that the Bankrupt was aware of the contents of the Petitioning Creditor's affidavit of 6th December, 1988 as early as March 1995 at least. Given that knowledge, which forms the basis of this application, a delay of four and a half years in initiating this application, in my view, is inordinate and inexcusable. The delay on the part of the Applicant is not negatived or mitigated in any way by the fact that Official Assignee was apprised of the Bankrupt's assertion that the adjudication order should be declared nugatory. The functions of the Official Assignee under the Act of 1988 are to get in and realise the property, to ascertain the debts and liabilities and to distribute the assets of bankrupts in accordance with the provisions of that Act. It was not part of the functions of the Official Assignee to question the validity of the order made on 12th January, 1987.

15. The second question to be addressed is whether, on the facts, the balance of justice favours allowing the Bankrupt to proceed with his application or dismissing it on the ground of delay. A bankruptcy adjudication order inures not only for the benefit of the petitioner, but also for the benefit of all of the creditors of the bankrupt. Section 136 of the Act of 1988 provides that on making of an order of adjudication, a creditor to whom the bankrupt is indebted for any debt provable in the bankruptcy shall not have any remedy against the property or person of the bankrupt in respect of the debt apart from his rights under the Act and shall not commence any proceedings in respect of such debt unless with the leave of the Court and on such terms as the Court may impose. Since 12th January, 1987 the creditors of the Bankrupt have been precluded from pursuing the normal legal remedies available to a creditor. If the bankruptcy was annulled at this juncture, over twelve years after the date of the adjudication order, the creditors, other than the Petitioning Creditor whose debt apparently has been satisfied, would in all probability be unable to pursue their normal legal remedies because their claims would be statute barred in consequence of which they would be seriously prejudiced. On the evidence, it has been the conduct of the Bankrupt which has hindered the prosecution of the bankruptcy process, including the proof of debt element of that process, to date. Moreover, the depletion of the assets of the Bankrupt by reason of the legal costs necessarily incurred by the Official Assignee is attributable to the Bankrupt's conduct. Finally, if the Court were to allow this application to proceed, there is a substantial risk that because almost thirteen years have elapsed since the occurrence of the events which give rise to the issue of fact on this application, that issue could not be fairly tried. Therefore, I am satisfied that the balance of justice is in favour of not allowing the Bankrupt to prosecute this application.

16. Accordingly, the claim under section 85(5)(b) is dismissed.

Section 135 of the Act of 1988 provides that the Court may review, rescind or vary an order made in the course of a bankruptcy matter other than an order of discharge or annulment. The Bankrupt contends that the order of 6th November, 1995 should be set aside on the basis that the Bankrupt should have been put on notice of the intention to apply for that order. In this connection, the Bankrupt relies on Rule 48 of the Rules of the Superior Courts (No. 3), 1989 (S.I. No. 79 of 1989) which provides as follows:-

"Where any person other than the applicant is affected by the motion, no order shall be made except with the consent of that person duly shown to the Court, or upon proof that notice of the intended motion and copies of supporting affidavits have been duly served upon that person; provided that the Court, if satisfied that the delay caused by proceeding in the ordinary way would or might entail serious mischief, may make any order ex parte on such terms as to costs and otherwise, and subject to such undertaking (if any) as the Court thinks just, and any person affected by such order may move to set it aside."

17. It was submitted on behalf of the Official Assignee that an application to seek the aid of a foreign court is a matter which is properly brought ex parte and that the practice has been to bring such applications ex parte. No doubt serious mischief might ensue if a bankrupt who was out of the jurisdiction was put on notice of an application to seek the aid of the court of the jurisdiction within which the bankrupt was believed to be. In the circumstances, in my view, the practice of not giving notice to the bankrupt of applications for leave to seek an order in aid is prima facie justifiable. Apart from this, however, there has been inordinate and inexcusable delay by the Applicant in bringing the application under section 135 and, having regard to the conduct of the Applicant and the many unsuccessful attempts he has made in the High Court of Justice to negative the order of 6th November, 1995 in the interim, the balance of justice clearly favours not allowing him proceed with this application.

18. Accordingly, the application under section 135 is dismissed.