Burston Finance Ltd v Godfrey

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE MEGAW,LORD JUSTICE SCARMAN,LORD JUSTICE SHAW
Judgment Date13 April 1976
Judgment citation (vLex)[1976] EWCA Civ J0413-2
Date13 April 1976

[1976] EWCA Civ J0413-2

In The Supreme Court of Judicature

Court of Appeal

(Civil Division)

(From: Master Bickford Smith - London)

Before:

Lord Justice Megaw

Lord Justice Scarman and

Lord Justice Shaw

Burston Finance Limited
and
William Jack Godfrey and Ann Evelyn Godfrey (Married Woman) and George Albert Auger (the Trustee in Bankruptcy of William Jack Godfrey and Ann Evelyn Godfrey

(By Order to carry on Proceedings dated 8th July 1975)

Mr. LEONARD BROMLEY, Q.C. and Mr. Evans Lombe (instructed by Messrs. Booth & Blackwell) appeared on behalf of the Appellant (Third Defendant).

Mr. DONALD NICHOLLS, Q.C. and Mr. ALAN STEINFELD (instructed by Messrs, Michael Garston & Co.) appeared on behalf of the Respondents (Plaintiffs).

LORD JUSTICE MEGAW
1

The circumstances in which this appeal comes before this Court are unusual and in some respects unfortunate. The plaintiff company, Burston Finance Ltd., having obtained a judgment in default of defense on 20th December, 1974, in the sum of £462,932 against Mr. William Jack Godfrey and Mrs. Ann Evelyn Godfrey, applied exparte on 5th February, 1975, under Rules of the Supreme Court Order 50 Rule 1 for a charging order on land owned by Mr. Godfrey, Mrs. Godfrey, or both, and for the appointment of & receiver. The order, as asked, was made by Master Jacob on 5th February. The date for further consideration - the date on which any "sufficient cause to the contrary" was to be shown - was fixed by the order as 20th February, 1975. On 19th February Mr. and Mrs. Godfrey presented their own petition in bankruptcy at Bournemouth County Court. On that same day, 19th February, receiving orders were made in respect of both of them and they were both adjudged bankrupt. I shall refer to them hereafter as "the bankrupts". The estimated deficiencies, as appear from the Statements of Affairs, are over £10,000,000 as regards Mr. Godfrey and over £5,000,000 as regards Mrs. Godfrey. A large part of their debts, including the debts for which the plaintiffs recovered judgment, arise out of guarantees given by the bankrupts in respect of advances made by bankers and others to a property company, Pinewood Homes Ltd., which appears to have dealt extensively in the property market. A receiver for the company had been appointed on 3rd July, 1974.

2

On 20th February, 1975, the day following the petitions and adjudications in the Bournemouth County Court, the proceedings to make absolute the charging order, and to have the receivership in connection therewith continued, came before Master Bickford Smith in London. The plaintiffs were represented by a solicitor; the bankrupts were represented by counsel. The Official Receiver was notrepresented. He was unaware that those proceedings were to take place on that day in that court. The Master was not told of the receiving orders nor of the bankruptcy adjudication's of the previous day. It is unfortunate that this was so. I accept that no blame is to be attributed to the solicitor for the plaintiffs. He knew of the receiving orders but not of the adjudication's. He thought, erroneously, that counsel who appeared for the bankrupts also represented the Official Receiver. Counsel for the bankrupts, it appears, simply stated that he could not show cause why the charging order should not be made absolute. We do not know what information or instructions, if any, he had about the previous day's proceedings. Master Bickford Smith made the order absolute, including an order that the receiver appointed on 5th February should continue to act.

3

On 20th March, 1975, the present trustee in bankruptcy, Mr. George Albert Auger, was appointed. He applied on 13th June, 1975, to Master Bickford Smith under Rules of the Supreme Court Order 15 Rule 7 that he should be added as a defendant to the action (that is, the action between the plaintiffs and the bankrupts in which the judgment had been given in respect of which the charging order had been obtained) and that the action should be carried on accordingly. The application was supported by an affidavit sworn by the solicitors for the trustee in bankruptcy. We have not seen that affidavit; but the basis of the application was, presumably, that the Official Receiver, the trustee's predecessor in title, ought to have been made a party to the action when the bankruptcy adjudication's had been made. He ought to have had the opportunity, as such a party, to be represented at the hearing on 20th February; but he had not been given that opportunity. Master Bickford Smith heard the application interpartes on 13th July, 1975. It would seem that it was not opposed. At any rate the order, as asked, was made on that day. The trustee in bankruptcy was added to the action as third defendant.

4

I assume that the order was properly asked for and made. But what the effect of it was upon the proceedings which had taken place on 20th February and upon what had purported to he done on that date appears to me to he obscure. I should have thought that it would have been procedurally correct, and for practical reasons preferable, that, such an order having been made in such circumstances, ###Qurey### matter should have been heard afresh by the Master, with the trustee in bankruptcy represented at the fresh hearing, in substitution for the hearing, or purported hearing, of 20th February. The unsuccessful party could then, if so desired, have appealed to this Court. (I assume in the absence of submission to the contrary that an appeal lies to this Court, as a final appeal, from a Master's order under Rules of the Supreme Court Order 50 Rule 1). On an appeal thus brought this Court would have had the advantage, which it does not now have, of the decision of, and perhaps the exercise of discretion by, the learned Master; and, if any issues of fact arose on any relevant matter, the evidence which would then have been adduced on affidavit before the Master could, if necessary, have been tested by cross-examination before the Master. But a different course has been followed. The trustee in bankruptcy has appealed to this Court, in his capacity as third defendant, against the order which originated, at that stage properly, in exparte proceedings on 5th February, 1975, and which was, or was purported to be, made absolute in supposedly interpartes proceedings on 20th February. A notice of appeal was served accordingly, and both parties, the plaintiffs and the trustee in bankruptcy (the bankrupts take no further interest in the matter) have asked for leave to adduce affidavit evidence, being evidence which inevitably in the circumstances, was not before, or considered by, the learned Master. I have felt doubt whether we ought to allow the matter to proceed in this way. But, as the parties have urged us to do so. in order to save the time and expenseof going back to the Master, with a probable appeal thereafter to this Court, and as both parties are content that we shall deal with the matter on the basic of the affidavit evidence now before us, drawing any proper inferences therefrom, I think we ought to accept the invitation to determine the appeal as asked; though I am conscious of the possible existence of hidden pitfalls in the path of those who take a procedural short cut in such poorly mapped territory with its complicated topography of fact, procedure, statute and case law. So far as the exercise of discretion is concerned, the discretion which would have been the Master's discretion thus becomes ours to exercise, as though we were the court of first instance, on the material which would have been before the Master.

5

The first issue is one of law. It does not require any further statement of facts than I have already set forth. The essential facts for this issue are simply that the order nisi (I think it is convenient so to refer to it) was made on 5th February, 1975; the receiving orders and adjudications in bankruptcy on the bankrupts' petitions were made on 19th February, 1975; the consideration whether the charging order should be made absolute was on 20th February.

6

Section 40 (1) and (2) of the Bankruptcy Act, 1914, as amended, are as follows: "(1) Where a creditor has issued execution against the goods or lands of a debtor, or has attached any debt due to him, he shall not be entitled to retain the benefit of the execution or attachment against the trustee in bankruptcy of the debtor, unless he has completed the execution or attachment before the date of the receiving order, and before notice of the presentation of any bankruptcy petition by or against the debtor, or of the commission of any available act of bankruptcy by the debtor. (2) For the purposes of this Act, an execution against goods is completed by ###Qurey### and cale; an attachment of a debt is completed by receipt of the debt; and an execution against land is completed by seizure, or by the appointment of a receiver".

7

The decision of the majority of the Court in Re Overseas Aviation Engineering (G. B.) Ltd. (1963) Chancery 24 has been subjected to criticism, but it is binding on us. The effect of it, so far as is relevant for present purposes, is that a charging order on land under sections 34 to 36 of the Administration of Justice Act, 1956, is "execution" far the purposes of section 325 of the Companies Act, 1948, and, therefore, where, as here, the relevant person is an individual, not a company, is also "execution" for the purposes of section 40 (2) of the Bankruptcy Act, 1914; and that execution is not complete until a receiver has been appointed. For the purpose of the decision of this first issue, I leave out the question of the appointment of a receiver. I shall come to that later, as the third issue. 80, on the facts which I have stated, had the execution been completed before the date of the receiving orders in respect of the bankrupts? If the charging order was properly made absolute on 20th...

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    ...chance of success." 37On that ground the court allowed the appeal. This conclusion followed the majority decision in Burston Finance Ltd. v. Godfrey [1976] 1 W.L.R. 719, which was binding on the court, and to which I shall refer 38The matter now comes before your Lordships by leave of......
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