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Cite as: [1999] UR 155

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ROYAL COURT

(Samedi Division)

 

14 September 1999

 

Before: F C Hamon, Deputy Bailiff

and Jurats Le Ruez and Bullen

 

In the matter of the désastre of Angela Mary Ostroumoff

Wife of Paul Charles Henry Ostroumoff

 

In the matter of an application by Angela Mary Ostroumoff, wife as aforesaid, Pursuant to Article 12 of the Bankruptcy (Désastre) (Jersey) Law, 1990.

 

 

 

 

Advocate A J N Dessain for the Viscount

Advocate R Renouf for the Applicant

 

 

 

 

JUDGMENT

THE DEPUTY BAILIFF: On 12 March 1998 this Court declared the property of Paul Charles Henry Ostroumoff and Angela Mary Ostroumoff (née) Martland his wife en désastre on the application of Bristol & West plc. [1998.050]

On 15 September 1997 Bristol & West plc obtained a Judgment in the capital sum of £625,709.72. Interest is accruing. The debt arose from a mortgage secured by a judicial hypothec on Mr and Mrs Ostroumoff’s property, Pont du Val Farm, St. Brelade, Jersey. The mortgage was obtained on 28 February 1992 in the capital sum of £375,000.

In the désastre there are claims against Mr and Mrs Ostroumoff jointly of £808,630.40, against Mr Ostroumoff only of £228,725.91 and claims against Mrs Ostroumoff only of £240,306.54.

The progress of this matter has been somewhat tortuous. The affidavits of Lynda Jane Allo (neé Crosly), the senior administrator, désastre section sets out the progress of the matter in this way:

This, then, is the Application by Mrs. Ostroumoff under Article 12 of the

Bankruptcy (Désastre) (Jersey) Law 1990.

We shall refer to Mrs. Ostroumoff hereafter as "the Applicant".

Article 12 reads as follows:

The relief sought is for the applicant (and her husband and their two children aged 14 and 16) to continue in possession of the matrimonial home until the children have finished full time secondary education. That, in practical terms, means for another four years.

We have immediately a conflict of interpretation which requires us to make a ruling. That interpretation requires an examination of the words "the spouse of the debtor". It is not a point that has been interpreted before. Advocate Renouf put the point bluntly to us. He says that because the applicant is without peradventure "the spouse of the debtor" and it could not have been the intention of the legislature that the applicant could not apply because she is herself a debtor then if there is an error the legislature should amend the statute and not the Court.

We must examine this legal point with some care.

We agree with Mr. Dessain that there are three issues:

(1)Does the Applicant have a right to make a claim for relief under Article 12?

Of course, if we answer the first question in the negative then the other two questions may be otiose. We shall examine that point when we have decided the first question:

DOES THE APPLICANT HAVE A RIGHT TO MAKE A CLAIM FOR RELIEF UNDER ARTICLE 12?

The law provides that the applicant must show;

(1)The she is the spouse of the debtor. (Article 12(1))

(2)That she has applied within 3 months of the declaration (Article 12(1))

(3)That the property vesting in the Viscount pursuant to paragraph 1 of Article 8 and paragraph 3 of Article 9 represents the matrimonial home or an interest in part thereof (Article 12(1)).

For the purpose of the Law the following terms are defined

"debtor"

(a)in relation to an application for a declaration means a person who is insolvent.

(b)in relation to a declaration means the person in respect of whose property that declaration is made (Article 1).

"declaration" means an Act of the Court made under Article 6 declaring the property of a person to be "en désastre" (Article 1)

"property" means land, money, goods, things in action, goodwill and every valuable thing, whether movable or immovable and whether situate in the Island or elsewhere; and also means obligations, servitudes and every description of estate, interest and profit, present or future vested or contingent arising out of or incident to property (Article 1).

"matrimonial home" means the residence that is used habitually or from time to time by the debtor and the spouse or either of them as the only or principal family residence. (Article 12(12)).

"spouse" includes a person to whom the debtor is alleged to be married by habit or repute (Article 12(12)).

The main question that we have to ask ourselves (a question which is purely rhetorical so far as Advocate Renouf is concerned) is whether the applicant is the spouse of the debtor in respect of Pont du Val Farm.

The applicant is clearly the spouse of Mr Ostroumoff. She is also a debtor. It appears to us to be stretching credulity to say that the law intended to include in its definition the spouse of a debtor who is herself a debtor. To put it another way, the applicant is a debtor spouse of a debtor. The illogicality of the argument put forward by Advocate Renouf that the Court needs to go no further than the actual words of the statute can be seen in this way. The applicant is a debtor in a désastre. If the désastre extended only to her own property she would have no claim for relief whatever her personal circumstances. The claims of her creditors would have to be satisfied from the sale of her "property". She claims that because her husband is also a debtor that has given her a right to relief under Article 12. That gives her a greater right to prevent a sale of jointly owned property and in that event prevents the claims of creditors from being satisfied only because she shares the property en désastre with him. If, for example, he were discharged from the désastre, her claim would automatically fail.

The property is owned jointly. The applicant and Mr Ostroumoff signed the Bond and each of their signatures is witnessed by their Advocate. The property then is subject to both désastres. The applicant for the purposes of the bond, the hypothec and the désastre is as involved as her husband.

In our view to argue otherwise could have the effect of making jointly owned property in some way less valuable as security than property owned solely.

In relation to her own désastre the applicant is not the spouse of the debtor. She is the debtor. Her half share in the property has been converted to ownership "en indivis en parts égales" or tenancy in common. It does seem to us difficult to appreciate how the applicant who is herself en désastre can prevent a sale of both shares including her own.

The Viscount contends that as a matter of correct statutory interpretation that Applicant is not and should not be treated as a spouse of the debtor because she is herself a debtor. Does the Law allow of such construction?

The contention of the Viscount is that Article 12 was intended to protect a spouse (with or without an interest in the matrimonial home) from the effects of the bankruptcy of the other spouse and it is argued that these considerations do not apply when both spouses are bankrupt (as in this case).

If the applicant’s half share (as tenant in common) is realisable, in practice no purchaser could be found who would buy a half share in a property where the other half was subject to Mr. Ostroumoff’s désastre coupled with the applicant’s Article 12 relief. In effect the result would be that the claimant as a debtor in her own désastre would have a right effectively and for a period of years to prevent a sale of both shares including her own.

The facts of this case are very different to the facts in re Désastre Hanley (1993) JLR N2. There Mr Hanley had been sentenced to a sentence of six years imprisonment for fraud. Mr Hanley was declared en désastre, owing some £3½m. The matrimonial home was jointly owned and there were two minor and very young children of the marriage. In that case the Royal Court ordered that the Viscount’s half share in the matrimonial home was to vest in Mrs Hanley, subject to a sum of £50,000 becoming payable to the Viscount on the sale of the property, the death of Mr Hanley or any comparison of her 100% interest in it or in the event that she should cease occupancy. The sum was secured by way of hypothèque conventionelle simple, bearing no interest.

Advocate Renouf called in aid the words of the judgment in Attorney General -v- Howard (1974-76) J.J. 105 at 113:

Lord Morton said, at page 192:

There is some difficulty in that argument, for that case was dealing with a penal statute and the duty on the legislature is a heavy one.

As the Court said at page 116:

There are in our view, special rules with regard to penal statutes which cannot be called in aid here.

Advocate Renouf referred us to a work called Bankruptcy Law and Practice by Christopher Berry and Edward Bailey (the 1987 Edition).

He cited this passage at paragraph 22.12:-

The authors of this work go on to say that "this equity is not limited to cases in bankruptcy but is of general application and will apply for example in the administration of estates."

The concept of the wife as a form of surety for her husband in circumstances where the money is raised for his sole benefit - as for the payment of his debts - is attractive but again, need not concern us here as we have no doubt, that the applicant benefited indirectly from the loan which was to the mutual advantage of the parties. It does not help us to interpret Article 12.

Advocate Dessain asked us to consider 12 propositions for the construction of statutory provisions as follows:

The New Guarantee Trust Finance Limited -v- Birbeck (1980) JJ at 119:

see Macready -v- Amy (1950) JJ 11 at 15.

(4) "A statute has been defined as the will of the legislature."

see Bradshaw -v- McCluskey (1976) JJ 335 at 341.

Overall of course, although Advocate Dessain did not say so in so many words it may be better for us (bearing in mind all the valuable judicial authority above) to remember what is said by Benyion in his seminal work Statutory Interpretation where he says at page 259:

The Viscount has raised sufficient doubt in our minds as to the present situation where the applicant is a debtor herself and claims to be the "spouse of a debtor". In our view the words are not clear and explicit.

The classic definition of a désastre both prior and post the Bankruptcy Law is:

We remain convinced that it was the intention of the legislature to protect a non-involved spouse and to strike a balance between her interest (which may also be the interest of the children) and the proper demands of creditors to receive satisfaction for their claims.

The proposition of the Applicant would in our view lead to an absurdity. It cannot have been the intention of the legislature to give more protection to joint owners of property who are en désastre (and less security to their creditors) than to a single owner who is en désastre. That is immediately apparent when we see that the result of a granting of the application would result in a freezing of the Applicant’s assets in her own désastre. In our view the law did not intend that. We agree with the argument in Désastre Hanley that the provisions of Article 12 makes a considerable change in the previous position but to alter the common law concept in such a radical way as Advocate Renouf contends is a step too far.

We agree with the Viscount that the intention of Article 12 is that the Applicant should be treated as a debtor and not as the spouse of a debtor and we order accordingly. That is, of course a proposition of law which might not be accepted by an Appeal Court, if an appeal were progressed.

In deference therefore to the other arguments on fact put forward by the applicant we shall attempt to deal with them as briefly as the circumstances allow and in the context of our rejection of the interpretation of Article 12 postulated by the applicant.

Advocate Renouf put forward several points on the merits of the applicant’s case. They may of course be cumulative in effect but we will take each one in turn.

(1)THE INSURANCE GUARANTEE POINT

As is shown in the "Offer of Advance" signed by Mr. Ostroumoff and the Applicant on 19 February 1992, the Bristol and West Building Society would normally have lent only £299,970 on Pont du Val Farm but this was increased to the actual mortgage amount of £375,000 because there was a mortgage indemnity guarantee policy (MIG) with the London and Edinburgh Insurance Company. There was a single premium of £2,626.05.

In the Bond itself entered into jointly by the Borrowers on 28 February 1992 they expressed themselves bound by the Offer of Advance and its conditions. According to that document they had to provide a guarantor, and enter into a Security Interest Agreement. The company chose not to insist on these requirements. That cannot be a point upon which the applicants can now take a point of exception.

The guarantee is in our view even less cogent as a sustainable argument. Advocate Dessain cited authorities Parry -v- Cleaver (1970) AC 1 and Woolwich Building Society -v- Brown 1995 QBD 13 12 led us to Bristol & West -v- May, May and Merrymans. Unreported Judgment of High Court of England (17th February, 1997). This was a judgment of Chadwick J (well known to this Court as a one time a member of the Jersey Court of Appeal.) Although this case concerned MIG’s in the context of a claim against third parties, the reasoning of Chadwick J is invaluable to an understanding of the true meaning of the arrangement.

At page 2 the Court said this:

At page 16 the learned judge said:

The application form for a mortgage required a premium to be paid. That premium was paid but it gave them no better rights. They had no recoverable interest in the policy because the MIG makes a contractual relationship between Bristol & West and its insurer only so that even if Bristol & West were able to recover under its insurance there is no element of double recovery or double jeopardy to which in law the Applicant can complain.

2.THE GUARANTEE POINT

We have already dealt with the guarantee point. The applicant and Mr Ostroumoff would not have wanted it, even though they agreed to it, we can only conjecture on who would have taken on such a guarantee. Even if a guarantor would have been found, it cannot be conceivable that if that person had taken over the bond by subrogation he would have allowed them to continue to live on discounted terms while he remained heavily out of pocket.

3.Advocate Renouf asked the court to consider that Bristol & West plc in deciding to lend the funds secured on Pont du Val Farm concentrated on Mr. Ostroumoff’s assets. It was him (and impliedly him alone) that was the lynch pin for this substantial loan. That may well be in the overall scheme but the applicant was herself an underwriter at Lloyds. There is a claim of £126,064 filed against her by Lloyds in her désastre. On15 November 1991 Moores Rowland, Chartered Accountants to the applicant and Mr. Ostroumoff wrote this:

1989 - £135,000

1990 - £ 85,000

1991 - £205,000

Of course, the applicant ceased to be a beneficiary of the family trust in 1990 but there were other sources of income. We cannot see that the depth of investigation into Osto Consultants and its purported ability to make considerable sums of money can affect this issue. The mortgagor looked first at the security, then it looked at the debt, the value of the security and the ability of the borrowers to repay. The position is perhaps different to many a husband and wife borrowing for here was a wife who (on the face of it) had an income of her own.

4.Was the Applicant an "innocent party" as regard repayment.

We must remind ourselves that in 1980 she and her husband purchased Les Augerez Farm, St. Peter. They borrowed three separate tranches on that property which they sold for a profit in 1986. Other loans had been charged on Pont du Val Farm.

We have examined with some care the affidavit of Brian Jack Youd who was a close family friend of the Applicant’s family. He had previously advised Mr. Ostroumoff on a professional basis.

Part of his affidavit says this:

The applicant deals with the matter in this way in her affidavit sworn on the 25th August 1999.

We become concerned when she says, at paragraph 8:

The witness to her signature and to that of her husband was an Advocate of the Royal Court. It is difficult for us to conceive that an Advocate in the circumstances of an onerous undertaking would not have explained its consequences to both parties.

5. INTEREST HAS BEEN ALLOWED TO ACCRUE

That complaint, in the light of the correspondence is breathtaking. Advocate Kelleher for Bristol & West wrote to Advocate Dessain on 18 November 1998 in these terms:

There has been delay but banks are often reluctant to foreclose on property. In our view the interest on the capital sum secured is also secured to the extent of at least three years (Re Superseconds Limited 1996 JLR 117). In fact the Viscount confirmed that as a matter of practice he takes three years interest as a secured amount. Even if we were to take the three year period (bearing in mind that a longer period might be ordered after argument), the interest still continues to accrue and that remaining interest will be an unsecured debt. The problem is that if one looks at the figures involved (capital and three years interest) the applicant and her husband can have no equity in the property. There seems to be little realistic expectation that even if an order of some kind were made they would be able to comply with the terms of the order. The dialogue has been protracted since 12 March 1998. The Viscount acts for all the creditors and they have waited until he patiently entered into the dialogue. It will inevitably be the creditors who will ultimately suffer for the suggestion is that Mr Ostroumoff and the applicant shall continue to live in this large, purpose built house heavily subsidised by the creditors.

There is of course the problem that the applicant says she is an innocent party because her husband opened all her business mail. She says so in her draft affidavit:

We might have been helped had Mr Ostroumoff been in court. He was unable to do so. His counsel told us that he was looking after the children (aged 14 and 16) who were still on holiday. Natasha (16) starts a course this September at Highlands College, Nicholas (14) is a boarder at Elizabeth College, Guernsey. He returns home every weekend and for school holidays. Their school fees are paid from a family trust established by the applicant’s father. We have no knowledge of its value.

The applicant at paragraph 13 of the draft affidavit says this:

There is no proposal to pay interest due as it arises or to pay overdue past interest or to pay interest on the outstanding overdue interest or to pay capital or to pay rent to anyone. Mr Ostroumoff on the latest evidence available has an income of £10-15,000 and possibly less.

Advocate Dessain sent Mr Ostroumoff a copy of the Applicant’s draft affidavit by registered letter on 26 August. That letter sought clarification. There has been no written reply. This is surprising when, in May, the court ordered that whatever information the Viscount required should be provided. In any event Article 18(1)(d) of the Bankruptcy Law states that a debtor "shall supply such information...... regarding his expenditure and sources of income after the declaration as the Viscount may require."

There are heavy penalties for non compliance. Information has been obtained with difficulty. There is in Advocate Dessain’s words "A spectral vision of hope." It is unrealistic and impossible.

A point made by Advocate Renouf is that the borrowings were used "for business purposes of Mr Ostroumoff." That strikes us as a weak argument. This substantial property was built to the applicant and Mr. Ostroumoff’s specification. The standard of living of the family was clearly high. Prior to 10 March 1998 Mr. Ostroumoff deposed to an income of £150,000 per annum, they had an apartment in Switzerland.

Advocate Renouf spoke of the "upheaval sadness and psychological harm that would be caused to the two children." That is not supported by any evidence. The childrens’ school reports show that they are well balanced. The funding of their education, fortunately, is not in jeopardy. The applicant has shown care, attachment and love to them. Mr Ostroumoff appears to be a good father. There are many children living in the Island who have survived worse traumas than the spectre of leaving a substantial property for more modest accommodation and who have survived unscathed.

In our view the fact that the applicant is unable to work only means that she is unwilling to work. Why should Mr Ostroumoff continue in a speculative and ill-paid employment in England? His place is here with his family.

In our view the quicker that this substantial property is sold the better for everyone. It will take time to market the property. In the meantime the applicant can return to court or negotiate with the Viscount on alternative accommodation more suited to the present sad but parlous position in which they find themselves. We suggest that two months notice should be sufficient to enable alternative accommodation to be found. We would nearer that time be able to give some guidance when the picture becomes clearer. The application is refused.

 

Authorities

Bankruptcy (Désastre) (Jersey) Law 1990: A.12.

De Désastre Hanley (1993) JLR N.2.

A.G. -v- Howard (1974 - 76) JJ 105.

Berry & Bailey: Bankruptcy Law and Practice (1987 Ed’n): para. 22.12.

New Guarantee Trust Finance, Ltd. -v- Birbeck (1980) JJ @ 119.

Macready -v- Amy (1950) JJ 11 @ 15.

Re Overseas Insurance Brokers, Ltd. (1963) JJ 325 @ 326.

Constable of St. Helier -v- Baal & Baudains (1965) JJ 503 @ 504.

Jersey Maincrop Potato Marketing Board -v- de Gruchy (1971) JJ 1819 @ 1824.

Bristol & West -v- May, May Merrymans (17^th February, 1997) Unreported Judgment of the High Court of England.