Hughes and Hughes v Howell
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lewison,Lord Justice Coulson |
| Judgment Date | 06 July 2021 |
| Neutral Citation | [2021] EWCA Civ 1431 |
| Docket Number | Case No: A2/2020/0561 |
| Year | 2021 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 1431
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE INSOLVENCY LIST
The Royal Courts of Justice
Strand, London, WC2A 2LL
THE MASTER OF THE ROLLS Sir Geoffrey Vos
Lord Justice Lewison
Lord Justice Coulson
Case No: A2/2020/0561
Mr Robert Brown (instructed by Anthony Gold Solicitors) appeared on behalf of the Respondent
THE APPELLANT appeared in person
On 10 September Deputy District Judge Revere gave judgment in favour of Mr and Mrs Hughes against Mr Howell in the sum of £47,131.01, arrears of rent and contractual interest, and ordered him to pay their costs, summarily assessed at £26,000. Mr Howell did not pay the judgment sum. Mr and Mrs Hughes issued a bankruptcy petition in May 2017. The petition was adjourned several times, notably on 11 December 2018 to allow Mr Howell to pay part and secure the balance. By March 2019 Mr Howell had paid £29,500 towards the outstanding sum, but the remainder remained unpaid. On 25 March 2019 ICC Judge Burton made a bankruptcy order.
Mr Howell's principal complaint about that order was that the judge should have accepted his evidence that he would be in a position to make a payment reducing the outstanding balance within a short time and that once that offer of payment had been accepted the balance of the debt would have been adequately secured. Birss J dismissed an appeal against that order, but Newey J granted permission for this second appeal.
Section 271 of the Insolvency Act 1986 provides:
“(1) The court shall not make a bankruptcy order on a creditor's petition unless it is unless it is satisfied that the debt, or one of the debts, in respect of which the petition was presented is either—
(a) a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured or compounded for, or
(b) a debt which the debtor has no reasonable prospect of being able to pay when it falls due.
[…] (3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied—
(a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented,
(b) that the acceptance of that offer would have required the dismissal of the petition, and
(c) that the offer has been unreasonably refused,
and in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.”
Section 383(2) provides:
“[…] a debt is secured for the purposes of this Group of Parts to the extent that the person to whom the debt is owed holds any security for the debt (whether a mortgage, charge, lien or other security) over any property of the person by whom the debt is owed.”
In Edginton v Sekon and Anor [2015] EWCA Civ 816, [2015] 1 WLR 4435 I said, in a judgment with which Lord Dyson MR and Underhill LJ agreed:
“18. […] The starting point is that if the petitioning creditor establishes that the statutory conditions are fulfilled, he is prima facie entitled to a bankruptcy order […].
19. The court, of course, has the power to adjourn the petition, but the practice is to do only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time.”
I also pointed out that if the debtor does not produce any evidence of his ability to pay he takes the risk that the court will not accept his bare assertion as to his means and his ability to pay. At [26] I said that this court should not cast any doubt on the validity of that longstanding practice.
A number of cases have considered the approach to be taken where it is asserted that a creditor has unreasonably refused an offer to secure a debt in respect of which a petition is presented. In HMRC v Garwood [2012] BPIR 575 Chief Registrar Baister reviewed all the relevant authorities and drew from them the following principles (in the quotation I omit references to authorities):
“1. The starting point is to ask whether a reasonable hypothetical creditor in the position of a petitioning creditor would accept or refuse the offer, bearing in mind, however, that there could be a range of reasonable positions that such a creditor could adopt.
2. The test is objective.
3. It is necessary to consider the extent to which the reasonable hypothetical creditor may be taken to have the characteristics of a petitioning creditor.
4. The court must look at the position at the date of the hearing.
5. The court is not limited to considering the matters taken into account by the petitioning creditor when the offer of security was refused. It must look at all the relevant factors and their impact on the reasonable hypothetical creditor.
6. That includes the history.
7. The debtor must be full, frank and open in providing the necessary information to enable the creditor to make an informed decision.
8. A rigid institutional policy of rejecting offers to secure could be a relevant consideration, since the reasonable hypothetical creditor was obliged to consider an offer on its merits. Coherent in-house policies, however, are not necessarily wrong.
9. A creditor is entitled to have regard to his own interests and is not obliged to take a chance or to show patience or generosity.
10. The costs and resources implications for the creditor are a highly material consideration.”
I am content to approve that summary as a correct statement of principle. The ninth of these principles is pertinent to the present case. It is based on a judgment of Robert Walker J in IRC v A Debtor [1995] BCC 971 and that of Henderson J in Ross and Anor v HMRC [2010] EWHC 13 (Ch), [2010] 2 All ER 126. In my judgment, it is a sound point.
Mr Howell's evidence was that his aunt died in May 2018. His evidence was that he was entitled to one quarter of her residuary estate. That consists primarily of the proceeds of sale of a house. There is no evidence of a grant of probate, although in a witness statement made on 1 August 2018, wrongly dated 2017, Mr Howell said that probate was expected before 1 December 2018. In a subsequent witness statement he said that probate was expected by mid-December 2018 or thereabouts. It does appear from later material that probate was granted, although we do not know when.
In his witness statement of 5 December 2018 Mr Howell offered to pay £15,000 forthwith and a further £15,000 “on imminent closure of estate accounts”. He had given what were described as “irrevocable instructions” to the executors' solicitors to pay all sums that he was due to receive from the estate to Mr and Mrs Hughes' solicitors. It is those instructions that are said to amount to security over Mr Howell's property.
In his order of 20 December 2018 Deputy ICC Judge Shaffer recorded that those instructions had been given and that Mr Howell had also given irrevocable authority to Mr and Mrs Hughes' solicitors to receive Mr Howell's share of the estate. He ordered that Mr and Mrs Hughes were entitled to receive any interim or final payment out of the estate that would otherwise be payable to Mr Howell.
Mr Howell was wrong about his entitlement to his aunt's residuary estate. Her will named five residuary beneficiaries rather than four, as the executors confirmed in an email of 21 March 2019. It follows that all his calculations about what the value of his inheritance might turn out to be were wrong. So far as the value of the residuary estate is concerned Mr...
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