Dr Mohammed Eltom Abdulla v Mr Andrew John Whelan (as Trustee in Bankruptcy of Sarah Omer Hassan Amin) and Others
| Jurisdiction | England & Wales |
| Judge | Mr John Male |
| Judgment Date | 20 April 2017 |
| Neutral Citation | [2017] EWHC 605 (Ch) |
| Court | Chancery Division |
| Date | 20 April 2017 |
| Docket Number | Case No: CH-2016-000182 |
[2017] EWHC 605 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
ON APPEAL FROM THE COUNTY COURT AT KINGSTON UPON THAMES
IN THE MATTER OF SARAH OMER HASSAN AMIN
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr John Male QC
(sitting as a Deputy Judge)
Case No: CH-2016-000182
Ms Bridget Williamson (instructed by Brecher LLP) for the Appellant
Mr Samuel Laughton (instructed by Coleman & Betts) for the First Respondent
Mr Joseph Ollech (instructed by Carter Bells LLP) for the Second and Third Respondents
Hearing date: 7 th March 2017
Judgment Approved by the court for handing down (subject to editorial corrections)
Mr John Male QC (sitting as a Deputy Judge):
Introduction
This is an appeal by Dr Mohammed Eltom Abdulla ("Dr Abdulla") against the decision of District Judge Gold made on 7 July 2016 in the County Court at Kingston Upon Thames. The appeal concerns the operation of the disclaimer provisions in sections 315 to 321 of the Insolvency Act 1986 ("the Act") in the case of jointly owned leasehold property.
Dr Abdulla is the husband of the Fourth Respondent, Mrs Sarah Omer Hassan Amin ("the Bankrupt"). Dr Abdulla claims to be a creditor of the Bankrupt, although his proof has not yet been accepted (or rejected) by the First Respondent, Mr Whelan, who is the trustee in bankruptcy ("the Trustee"). The bankruptcy order was made on 8 June 2010. The Trustee was appointed with effect from 2 February 2011.
At the time of the bankruptcy order the Bankrupt was a joint tenant with a Mr Elhilali of business premises in Kingston Upon Thames ("the Property"). She and Mr Elhilali (together "the Tenants") held the Property under the terms of an underlease dated 26 September 2003 ("the Underlease") for a term expiring on 31 July 2018. The Underlease was contracted out of the protection of Part II of the Landlord and Tenant Act 1954. The Second and Third Respondents, Mr Walter Terence Weir and Mr David Ansell ("the Landlords"), are the current landlords under the Underlease.
On 24 June 2011 the Trustee served a notice of disclaimer pursuant to section 315 of the Act. By that notice the Trustee disclaimed "all my/our interest in Leasehold property under the terms of [the Underlease] in respect of [the Property]". There was an earlier notice of disclaimer served by the Official Receiver on 12 July 2010. I am not concerned with that notice.
The parties do not agree upon the effect of the notice of disclaimer. The Trustee, on advice from Counsel and supported by the Landlords, takes the view that the notice of disclaimer does not end the legal estate in the Underlease and that the estate of the Bankrupt remains liable for the payment of rent until the expiry of the term. Dr Abdulla contends that the notice of disclaimer was effective to disclaim all of the Bankrupt's interest in the Underlease and that the estate of the Bankrupt is liable for no further rent after the disclaimer.
That issue was debated at some length in correspondence between the parties' Solicitors but they were unable to agree on the effect of the disclaimer. The Trustee therefore sought the directions of the Court in relation to a range of issues. The only live issue for the purposes of this appeal is whether the notice of disclaimer had the effect of preventing the Landlords from proving for rents falling due after the date on which it was served.
On 7 June 2016 District Judge Gold heard argument on this issue. On 7 July 2016 the District Judge handed down a written judgment. In that judgment he accepted the arguments advanced by the Trustee and the Landlords. On the same day the District Judge ordered and directed:
" that neither of the purported disclaimers dated 12 July 2010 and 24 July 2011 of the [Underlease] had the effect of preventing [the Landlords] from proving for rents falling due after either of the dates on which such disclaimers were served."
Dr Abdulla applied for permission to appeal. On 25 October 2016 Hildyard J granted permission to appeal. The appeal was heard on 7 March 2017. Ms Bridget Williamson represented Dr Abdulla. Mr Samuel Laughton represented the Trustee. Mr Joseph Ollech represented the Landlords. I am grateful to all three Counsel for their helpful written and oral arguments.
The statutory provisions
Section 315(1) of the Act provides that a trustee in bankruptcy may disclaim any "onerous property". The expression "onerous property" is defined in section 315(2) as:
"(a) any unprofitable contract, and
(b) any other property comprised in the bankrupt's estate which is unsaleable or not readily saleable, or is such that it may give rise to a liability to pay money or perform any other onerous act."
Section 315(3) provides that a disclaimer:
"( a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the bankrupt and his estate in or in respect of the property disclaimed, and
(b) discharges the trustee from all personal liability in respect of that property as from the commencement of his trusteeship,
but does not, except so far as necessary for the purpose of releasing the bankrupt, the bankrupt's estate and the trustee from any liability, affect the rights or liabilities of any other person."
Section 283 of the Act defines what is comprised in a bankrupt's estate. Section 283(1) provides as follows:
"(1) Subject as follows, a bankrupt's estate for the purposes of any of this Group of Parts comprises—
(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and
(b) any property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling within the preceding paragraph."
"Property" is defined in section 436(1) of the Act as including:
"money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, where present or future or vested or contingent, arising out of, or incidental to, property."
Section 283(3) sets out two exceptions to section 283(1). So far as material, it provides as follows:
"(3) Subsection (1) does not apply to –
(a) property held on trust for any other person…"
I will examine these provisions later when I discuss the issues.
The rival arguments
On behalf of Dr Abdulla, Ms Williamson argues that, by virtue of the disclaimer, the legal estate in the Underlease has come to an end such that no rent is payable by the Bankrupt's estate after the disclaimer. Ms Williamson raised two main points in her skeleton argument and in her opening oral argument.
Ms Williamson's first main point is based on the approach taken by the House of Lords in Hindcastle Limited v. Barbara Attenborough Associates Limited [1997] AC 70. That case concerned the effect of the disclaimer of a lease held by an assignee on the liability of an original tenant or a surety.
In particular, Ms Williamson relied upon what Lord Nicholls said about the purpose of the equivalent provisions in the case of disclaimer by a liquidator of a company that is being wound up. Lord Nicholls said this at pp.86H/87C:
"The fundamental purpose of these provisions is not in doubt. It is to facilitate the winding up of the insolvent's affairs. There is a further purpose in personal insolvency cases. A bankrupt's property vests automatically in his trustee. The disclaimer provisions operate to discharge the trustee in bankruptcy from all personal liability in respect of the property: see section 315(3)(b).
Equally clear is the essential scheme by which the statute seeks to achieve these purposes. Unprofitable contracts can be ended, and property burdened with onerous obligations disowned. The company is to be freed from all liabilities in respect of the property. Conversely, and hardly surprisingly, the company is no longer to have any rights in respect of the property. The company could not fairly keep the property and yet be freed from its liabilities.
Disclaimer will, inevitably, have an adverse impact on others: those with whom the contracts were made, and those who had rights and liabilities in respect of the property. The rights and obligations of these other persons are to be affected as little as possible. They are to be affected only to the extent necessary to achieve the primary object: the release of the company from all liability. Those who are prejudiced by the loss of their rights are entitled to prove in the winding up of the company as though they were creditors."
Ms Williamson submitted that the Trustee being able to disclaim the Bankrupt's legal interest in the Underlease was entirely consistent with these principles and, in particular, with what Lord Nicholls said was the "fundamental purpose" of the disclaimer provisions.
Ms Williamson also relied upon what Lord Nicholls said when he was considering the position upon disclaimer as between an insolvent tenant, a guarantor and a landlord. Lord Nicholls said this at p.88C:
"…there is a recondite point which must be faced and resolved here as part of the process of interpreting the sections as a whole. It concerns what happens to the lease in this tripartite situation. The point may be stated shortly. A lease either exists, or it does not. If disclaimer has the effect of ending the lease, no further rent can become due, and so the guarantor and original tenant cannot be called upon. It is a contradiction in terms for rent to accrue for a period after the lease...
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