Jersey Unreported Judgments

[2010]JRC166A

royal court

(Samedi Division)

14^th September 2010

Before     :

W. J. Bailhache, Q.C., Deputy Bailiff, and Jurats Le Breton and Kerley.

 

IN THE MATTER OF THE REPRESENTATION OF DR NAGY FOUAD YOUSSEF MICKHAEL

AND IN THE MATTER OF THE LOI (1839) SUR LE REMISES DE BIENS

Advocate R Wakeham for Dr Nagy Mickhael

Advocate E Layzell for Lloyds TSB Offshore Ltd

Advocate M Goulborn for Mrs Radcliffes, Messrs Radcliffes, a firm

Advocate O Blakeley for Acorn Finance (CI) Ltd

Advocate A Hoy for Mr Stratford representing the Mavanna Group

Advocate M Harris for the Attorneys.

judgment

the deputy bailiff:

1.        On 29th January 2010, the immovable and movable property of Dr Nagy Fouad Youssef Mickhael ("Dr Mickhael") was adjudged by the Royal Court to have been renounced and the Court ordered that a dégrèvement take place pursuant to the Loi (1880) sur la propriété fonciĕre ("the 1880 Law").  The hearing for the dégrèvement was fixed for Tuesday 2nd March 2010, and the attorneys appointed to carry out the dégrèvement placed the notices in the Jersey Gazette and informed the secured creditors of that date.  On Friday 26th February 2010, Dr Mickhael made an application to the Royal Court for the granting of a remise de biens pursuant to the Loi (1839) sur les remises de biens ("the 1839 Law").  The application was accompanied by a sworn schedule of all his property pursuant to Article 1 of the 1839 Law, and, in accordance with Article 2 of that law, the Court appointed Jurats De Veulle and Nicolle to examine the schedule and the application, and report back to the Royal Court as to whether or not a remise was viable.  In the interval, the dégrèvement was stayed in accordance with usual practice.  The Jurats duly reported to the Royal Court on 12th March 2010, having reviewed the extent of the property of Dr Mickhael, recommending that he and the creditors be convened to enable them to be heard on Mr Mickhael's application.  The Court as presently constituted sat on 22nd March to consider Dr Mickhael's application, and, having heard the parties, exercised its discretion not to grant the application for a remise de biens, indicating that it would give its reasons later.  The Court now gives those reasons.

2.        The 1839 Law provided a revised procedure for applications for a remedy which is of some historical antiquity.  The rationale for the remedy under the 1839 Law, is that there is provided to the debtor an opportunity to mitigate the rigours of the bankruptcy processes of décret or dégrèvement, or of the making of cession in order to avoid an acte â peine de prison by providing time for an orderly realisation of his property, through handing over control of his property to the Court.  Whether or not to grant an application for a remise de biens is a matter for the discretion of the Court, although it is to be noted that in Re Barker [1985] JLR 284, Sir Charles Frossard, Commissioner, said this at page 391:

"We have come to the conclusion that a remise de biens is always preferable to a dégrèvement when conditions warrant it.  We have also come to the conclusion that in directing that the dégrèvement should proceed subject to the undertakings given by ASB, the Inferior Number was creating a new and hybrid procedure which was neither a remise de bien nor a dégrèvement, and that the discretion vested in the Inferior Number did not extend to taking such a course."

3.        Taking up the language of Sir Charles Frossard, it may be helpful to give an indication of the principles which the Royal Court would be likely to consider in determining when conditions warrant the granting of the remise de biens.  It seems to us that they are these: 

(i)        The Court must recognise that it has no jurisdiction to grant a remise unless, at the time of so doing, it reasonably considers that there may be a surplus available for distribution amongst the ordinary creditors - see Re Shield Investments (Jersey) Limited and Others Jersey Unreported Judgments 141A/1991.  In the event that the value of the real estate in question were to be precisely equal to the secured creditors, there would be no purpose in proceeding by way of remise de biens as opposed to dégrèvement.  The need for a surplus for the ordinary creditors is a condition precedent for the exercise of discretion in favour of the debtor.  One should note that the original decision is not affected by any subsequent change in the valuation of the assets or the debts, but if it should transpire subsequently that there is a change of circumstance which leads to the view that the remise will not result in any distribution to the ordinary creditors, there will be an application to the Court for the remise to be discontinued - see Re Super Seconds Limited and Others [1996] JLR 117.

(ii)       If the Court is satisfied that there may be a credit balance available for distribution amongst the ordinary creditors, it is right to investigate the matter and give consideration to the application for a remise - see Re Barker [1985-86] JLR 186 at page 194 line 30 to 195 line 12. 

(iii)      An order for a dégrèvement arises after a creditor has obtained judgment against the debtor and obtained, no sooner than one month or thereafter, an Acte Vicomte chargé d'écrire, following which the debt remained unpaid.  The dégrèvement process itself takes some time to accomplish, but it does at least provide some finality whereby one or more of the creditors can recover all or part of their respective debts due.  The Court will in those circumstances have regard to the impact which any extended delay in the recovery of the debt may have on the creditor or creditors who might be effected by that delay.

(iv)      Where there is a clear and significant equity in the debtor's property, which would accrue to one or more of the creditors on a dégrèvement and be lost to the debtor if the dégrèvement were to proceed, the Court had a solid basis upon which to exercise a discretion to grant a remise. 

(v)       Conversely, where there is only a marginal equity, and a potentially complex process for the sale or other realisation of the assets, it is highly doubtful as to whether a remise would be appropriate. 

(vi)      Between the two extremes set out in the preceding two paragraphs, other factors will inevitably have some relevance - the weighting of them will depend upon the Court's assessment of the margin of equity in the property which appears to exist, the length of time the realisation of the assets is likely to take place if a remise were to be granted and any other factors which would particularly go to show hardship on the part of the creditors or the debtor.

(vii)     Where bad faith can be shown on the part of the debtor, whether in relation to his application for a remise or in his response to his creditors, it is less likely that the Court will exercise a discretion in his favour to grant the remise.  He who comes to Court seeking equitable relief must come with clean hands. 

(viii)    Where there is uncertainty about the outcome of the remise, particularly by reason of uncertainty as to realisable asset values, that is likely to weigh substantially against the exercise of discretion to grant the remise and stay the dégrèvement.  

4.        The schedule of movable and immovable assets proposed by Dr Mickhael when he made his application for a remise de biens put his total assets as having a value of £1.845M.  Of this sum, £295,000 value was ascribed to certain medical, physiotherapy, hydrotherapy, cardiology and other equipment, as well as to the goodwill in respect of the business which he had previously undertaken from the premises known as St Mark's Medical Centre.  The schedule of assets ascribed £1.45M to the freehold property at Jubilee Promenade, St. Helier, including the premises known as St Mark's Medical Centre, and against which there were a number of secured charges.

5.        In their report, the Jurats investigating the application took valuation advice both in relation to the properties and in relation to the medical equipment and computers.  The freehold properties were considered, on the basis of an immediate sale, to have a market value as at March 2010 of £900,000.  The medical equipment and computers were also assessed by a valuer, and found to have no significant value.  Furthermore, the computer equipment was likely to contain confidential patient information, and the advice obtained by the Jurats was that it should be disposed of securely.  As to goodwill, Dr Mickhael appears to have had at least one and possible two partners at St Mark's Medical Centre, but the Jurats understood they had now moved to other medical practices and as a result no one was currently using those premises.  In the circumstances goodwill was thought to have no realisable value.

6.        For these reasons, the Jurats excluded the movable property from their assessment as they considered it had no significant value.  They also noted that Advocate Wakeham, on behalf of Dr Mickhael had advised the Viscount's Department by email dated 9th March 2010 that he considered the medical equipment housed at the property as his tools of the trade, which would fall outside a réalisation in any event, had that been ordered. 

7.        Having reached the view that there were realisable assets of £900,000, the Jurats then went on to consider what the proposed administrative expenses might be.  These came out at a figure of £29,874.05, leaving an available balance for distribution of £870,125.95.  As the secured claims seemed to amount to £900,083.74, there would be a shortfall of some £30,000.  However the investigating Jurats noted that there were matters in relation to some of the claims which might give rise to further argument, namely the extent to which a current account overdraft was secured, the extent of interest claimed on that current account, and the claim for various legal fees.

8.        By the time it came to the hearing on 22nd March there was one significant development.  One of the unsecured creditors, Mr Stratford, had apparently made an offer of £960,000 for completion within five weeks.  This offer was subject to a title check but was not conditional on any survey or on finance becoming available.  On behalf of Mr Stratford, Mr Hoy indicated that title could be relatively quickly determined.  When pressed upon why the offer should be made, Mr Hoy indicated that Mr Stratford's claim was in the sum of approximately £500, and as an unsecured creditor standing pari passu with all other unsecured creditors, including possibly Lloyds TSB Offshore Ltd, Mr Stratford thought that the dégrèvement could be, as he put it, "messy", and hence the offer as he would prefer to have some certainty.

9.        Lloyds TSB Offshore Ltd opposed the application for a remise.  The first objection was that in all previous cases where a remise had been granted at this stage of the proceedings, it was upon the basis that the Jurats had recommended that a remise take place.  Advocate Layzell contended that if the Jurats did not make that recommendation, the Royal Court had no jurisdiction to order the remise.  For this proposition, reliance was placed on the decision in relation to the applications by Shield Investments (Jersey) Ltd and others for a remise de biens ([1993] JLR N 3a).  Advocate Layzell also relied upon the terms of Article 2 of the 1839 Law which, she asserted, envisaged a remise only where the Jurats recommend it.

10.      For Acorn Finance, Advocate Blakeley supported the submission of Lloyds TSB Offshore but he went further in asserting that Article 2 of the 1839 Law did not allow the debtor to address the Court at all.  It only allowed creditors to do so, and the basis of that provision was so that the creditors would have an opportunity of objecting if the Jurats recommended a remise.  It followed, he asserted, that if the Jurats did not recommend a remise there was nothing for the Court to consider further.  One potential difficulty with this argument was that if he were right, he would not be entitled to put the argument to us at all.

11.      In reply, Advocate Wakeham, accepting that Article 2 of the 1839 Law was not as clear as it could be, asserted that it had to be construed in a human rights compliant way in accordance with Article 4 of the Human Rights (Jersey) Law 2000.  Article 6 of the Human Rights Convention required that every person should have a fair hearing in relation to the determination of his civil rights, which included Dr Mickhael's property rights under Article 1 of Protocol 1, and therefore it was clear that he had a right to be heard.  Advocate Wakeham also pointed out that any bankruptcy of Dr Mickhael would have an impact on an approach to the General Medical Council, and this was a factor which the Court was entitled to take into account when having overall regard to the "fairness" of the position generally.

12.      Article 2 of the 1839 Law provides:-

"La Cour, avant d'accorder ladite demande, nommera 2 des Jurés-Justiciers pour faire l'examen desdits biens; lesquels feront dans quinze jours un rapport á la Cour Royale de la valeur desdits biens, et donneront leur opinion s'il est utile d'accorder ladite remise.

La Cour, après la présentation dudit rapport et avoir entendu ceux qui opposeront ladite remise, accordera ou refusera ladite permission.  Cette decision sera finale et sans appel."

13.      Dealing first of all with the submission that the debtor was not able to address the Court at all, it appears to us that this is plainly wrong for these reasons:-

(i)        Article 2 does not say that the debtor cannot be heard.  It would be surprising if it did.  After all, it is the debtor's application for remise de biens, and it would follow that one would anticipate the Court could receive his submissions.  The purpose of providing expressly that the Court should hear those who oppose the grant of the remise is to flag up the right of the creditors to be heard as well. 

(ii)       Secondly, the fact that the decision is final and without appeal is also an indicator that the debtor should be heard. 

(iii)      Thirdly, the debtor is clearly affected by the outcome.  On ordinary principles of natural justice, there is no doubt that he can be heard. 

(iv)      Finally, although it is unnecessary to do so because the customary and statutory law is clear, nonetheless to the extent that it is relevant, Article 4 of the Human Rights (Jersey) Law 2000 would require us to read the 1839 Law in a convention compliant way, and give effect to the rights of the debtor to a fair hearing in the determination of his property rights.  Such a fair hearing requires, absent some exceptional circumstances, that he be entitled to address the Court.

14.      We turn next to the submission by Advocate Layzell that the Court had a jurisdiction to alter the remise only where the Jurats made a recommendation to that effect.  Reliance was placed on Shield Investments for that purpose, but a study of the judgment given by the Deputy Bailiff in that case shows that there is no support to be had for the proposition there.  It is clear that the case is authority for the proposition that as a matter of law the Court has no jurisdiction to grant a remise unless it is satisfied that there will be a credit balance, however small, for distribution among the ordinary creditors.  It does not follow, of course, that even if the Court does have jurisdiction to grant a remise, because the figures show that there would or might be a credit balance for distribution among ordinary creditors, that the Court would be required to grant a remise.  The Court will no doubt wish to take into account the report of the Jurats who have been nominated to make the report; but it is a matter of discretion for the Court at that time and there is nothing in Article 2 which would suggest that the Court is not free to depart from the opinions expressed by the Jurats in their report.  Nor is there anything in the Shield Investments case which would enable one to reach that conclusion.  Furthermore we note that in Re Barker [1985] JLR 284 at p291 line 35, the Royal Court said unequivocally that it had an unfettered discretion to depart from the recommendation in the Jurats' Report. 

15.      In the circumstances we reject the submission of Advocate Layzell that the Court only has jurisdiction to grant a remise where the Jurats recommend it.

16.      The alternative submission made by Advocate Layzell was that, if the Court did have jurisdiction to grant a remise, notwithstanding the fact that the Jurats nominated to investigate the matter had not recommended the same, it should not do so for a number of reasons:-

(i)        The bank was already secured for three years arrears of interest within the dégrèvement process, and interest was running at £4000 per month.  She contended that the Jurats were right to see the bank as fully secured for a number of reasons which are not germane to this judgment.

(ii)       The Jurats received an up to date valuation of the real estate of the debtor.  Her clients took the view that the Court could not be certain that the offer which appears currently to be on the table would remain there if a remise de biens was ordered.  It was contended that there was no guarantee that Mr Stratford would in fact complete the purchase.  Furthermore, the Jurats might well feel that if a remise were ordered, they would have to put the property on the open market for sale so as to ensure that Mr Stratford's offer was in fact the best offer, and given that he was not legally committed at present, the offer might well be reduced in the future.

(iii)      Dr Mickael had been inactive for over three years, and the timing of the application for the remise, right at the last moment, caused particular prejudice to the bank which had spent money on fees in the dégrèvement.  Advocate Layzell claimed that Dr Mickael did not come to the Court with clean hands because he had broken his contract with Lloyds by having second charges registered against the property.

(iv)      All in all, it was contended that for a number of reasons it was impossible to indicate whether there would or would not be a credit balance available if a remise were granted.  There was a suggestion that there might be, for example, further unsecured claims.

17.      Advocate Layzell's submissions were supported by Advocate Blakeley on behalf of Acorn Finance, who contended that the Jurats would be obliged to place the property for sale on the open market, and would come under pressure from the debtor not to accept the offer of £960,000.  He submitted that the debtor should have sold the property in question over a year ago and then he would have been best placed to get the best possible offer for it.

18.      In reply on these points, Advocate Wakeham submitted that the bankruptcy would have an impact on the approach which he was to make on behalf of his client to the General Medical Council, and that the Court should take this into account as a matter of fairness.  Furthermore, he pointed out that if the remise were to be granted, his client would have to do what the Jurats required.  He confirmed on behalf of his client that Dr Mickael would accept £960,000 for the property.  He also pointed out that if the sale to Mr Stratford proceeded, there would be no estate agents' fees.

19.      As to the reasons why his client had delayed dealing with his personal affairs, Advocate Wakeham said that Dr Mickael had been away from the Island because he had lost both his parents in a short period, and had himself been very ill.

20.      The Court has considered all the points which have been made by the parties, against the principles which are described above in paragraph 3.  We have in the event determined we should not exercise a discretion to grant the remise de biens for the following reasons:-

(i)        There may be a surplus and we have accordingly considered whether or not to grant the remise.

(ii)       We recognise that there would be a need to ascertain the extent of the unsecured creditors, and given the costs of a remise and the uncertainty, the figures reflect a very close call indeed.  The Court recognises there is the risk of some hardship to the debtor not only if there should turn out to be some equity even if relatively small, but also in relation to any application to the General Medical Council in relation to his practising certificate; but if the remise were to be granted and should fail, there is also a risk of hardship to the creditors.

(iii)      The offer of Mr Stratford has come up at a very convenient time for the debtor, and the Court does not have confidence that it will necessarily come to fruition.  We take into account that Mr Stratford is not currently committed in law to complete the transaction and that he could not necessarily be criticised if he were to rescind or vary his offer if circumstances were to change from those which applied at the date the offer was made. 

(iv)      For these reasons the Court refused the application for a remise.

Authorities

Loi (1839) sur le remises de biens.

Re Barker [1985-86] JLR 284.

Re Shield Investments (Jersey) Limited and Others Jersey Unreported Judgments 141A/1991.

Re Super Seconds Limited and Others [1996] JLR 117.

Re Barker [1985-86] JLR 186.

Shield Investments (Jersey) Ltd and others [1993] JLR N 3a.

Human Rights (Jersey) Law 2000.