Lewis and Another v Metropolitan Property Realisations Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Laws |
| Judgment Date | 12 June 2009 |
| Neutral Citation | [2009] EWCA Civ 448 |
| Docket Number | Case No: A2/2008/3006 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 June 2009 |
[2009] EWCA Civ 448
Before : Lord Justice Laws
Lord Justice Thomas
and
Mr Justice Mann
Case No: A2/2008/3006
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION IN BANKRUPTCY
MRS JUSTICE PROUDMAN
MR. S. DAVIES Q.C. and MR. S. SCHAW MILLER (instructed by Edwin Coe LLP) for the Appellants/Applicants.
MR. J. BRIGGS (instructed by Messrs. Mishcon de Reya) for the Respondent.
Hearing date: 20 th May 2009
Lord Justice Laws:
Introduction
This the judgment of the court on an appeal from a judgment of Proudman J dated 21 st November 2008 in which she refused a claim for a declaration that the respondents (Metropolitan Property Realisations Limited, “MPRL”) had no interest in property formerly belonging to the claimants (Mr and Mrs Lewis) known as 35 Little Common, Stanmore, Middlesex (“the property”). Mr and Mrs Lewis appeal with her permission. The appeal raises the question of what is meant by “realises” in s.283A(3)(a) of the Insolvency Act 1986.
The facts
Immediately before his bankruptcy on 12 th July 2004, the property was vested jointly in Mr and Mrs Lewis and was their sole or principal residence. Although the judge below made no finding about its value, evidence from MPRL indicates that at the time of the bankruptcy the property was worth approximately £1m, with charges of about £720,000 affecting it. The trustees investigated the nature, extent and enforceability of Mr Lewis' interest, and Mrs Lewis claimed an equity of exoneration over it which, she said, made her in effect the sole owner of the equity in the property. The trustees did not accept this version, but decided not to incur expense in trying to get in the value of Mr Lewis' share in the conventional way by seeking an order for sale of the property. The creditors as a whole were not prepared to fund any litigation to achieve that. MPRL, as the second largest creditor in the bankruptcy, was disappointed with that state of affairs and took an assignment of Mr Lewis's beneficial interest, which has given rise to the questions determined by the judge below.
The assignment is dated 11 th July 2007 (the day before the third anniversary of the bankruptcy, the significance of which will appear shortly). It is, to our eyes, somewhat oddly worded. It recites that the trustees have agreed to assign the benefit of “the beneficial and equitable interest hereinafter referred to” to MPRL and recites the fact that Mr and Mrs Lewis were “registered proprietors of the Property” that is to say the whole of the 35 Little Common property. Its material wording then goes on as follows:
“4. In consideration of the sum of one pound (£1.00) now paid by the Assignee to the Assignor [sic]…the Assignors [ie the trustees in bankruptcy] HEREBY ASSIGN to the Assignee all the equitable and beneficial rights and interest as the Assignor has in the Property.
5. In the event that the Assignee effects a sale of the Property, then following completion of the sale and upon receipt of the proceeds of sale and the deduction of all costs and expenses including but without limitation to professional and legal fees, marketing costs and further taxes, twenty-five per cent (25%) of the net proceeds of sale of the Property will be paid by the Assignee to the Assignor.”
It is paragraph 5 which seems to us to contain odd wording. What was being assigned was a beneficial interest in property in respect of which Mr and Mrs Lewis remained the legal owners. The “Property” is the whole of the property, and not the interest assigned to MPRL. It is not readily apparent how MPRL can “effect a sale” of the Property thus defined. It could sell its own interest (in theory) but that would not generate a sum which can be seen to be a percentage of the proceeds of sale of “the Property”. Were MPRL to apply successfully for an order for sale, then it would not technically have “effected” a sale; but what if there is a voluntary sale? Furthermore, if there is a sale of the whole of the property by the legal owners, it might still be that MPRL is not in a position to pay 25% of the net proceeds; that would depend on what it manages to get in its own hands when all accounts are taken and all claims given effect to. The deed is therefore somewhat unsatisfactory. However, at the invitation of the parties, and in particular of Mr Stephen Davies QC who appeared for the Lewises, we have assumed for the purposes of this appeal that the assignment is one of Mr Lewis's interest in the property, in exchange for an obligation to pay £1 immediately and a proportion of what MPRL receives when the money eventually falls in, however that might happen.
The statute and the principal issue
S.283A was added to the Insolvency Act 1986 by s.261 of the Enterprise Act 2002. It contains modifications of the rights of the trustee in order to restrict the possibility of a trustee hanging on to a beneficial interest for many years without taking any steps to realise it. It provides as follows:
“283A Bankrupt's home ceasing to form part of estate
(1) This section applies where property comprised in the bankrupt's estate consists of an interest in a dwelling house which at the date of the bankruptcy was the sole or principal residence of:
(a) the bankrupt,
(b) the bankrupt's spouse or [civil partner], or
(c) a former spouse [or former civil partner] of the bankrupt.
(2) At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall –
(a) cease to be comprised in the bankrupt's estate, and
(b) vest in the bankrupt (without conveyance, assignment or transfer).
(3) Subsection (2) shall not apply if during the period mentioned in that subsection –
(a) the trustee realises the interest mentioned in subsection (1),
(b) the trustee applies for an order for sale in respect of the dwelling-house,
(c) the trustee applies for an order for possession of the dwelling-house,
(d) the trustee applies for an order under section 313 in Chapter IV in respect of that interest, or
(e) the trustee and the bankrupt agree that the bankrupt shall incur a specified liability to his estate (with or without the addition of interest from the date of the agreement) in consideration of which the interest mentioned in subsection (1) shall cease to form part of the estate.
(4) Where an application of a kind described in subsection (3)(b) to (d) is made during the period mentioned in subsection (2) and is dismissed, unless the court orders otherwise the interest to which the application relates shall on the dismissal of the application –
(a) cease to be comprised in the bankrupt's estate, and
(b) vest in the bankrupt (without conveyance, assignment or transfer).
(5) If the bankrupt does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2) –
(a) shall not begin with the date of bankruptcy, but
(b) shall begin with the date on which the trustee or official receiver becomes aware of the bankrupt's interest.
(6) The court may substitute for the period of three years mentioned in subsection (2) a longer period –
(a) in prescribed circumstances, and
(b) in such other circumstances as the court thinks appropriate.
(7) The rules may make provision for this section to have effect with the substitution of a shorter period for the period of three years mentioned in subsection (2) in specified circumstances (which may be described by reference to action to be taken by a trustee in bankruptcy).
(8) The rules may also, in particular, make provision –
(a) requiring or enabling the trustee of a bankrupt's estate to give notice that this section applies or does not apply;
(b) about the effect of a notice under paragraph (a);
(c) requiring the trustee of a bankrupt's estate to make an application to the Chief Land Registrar.
(9) Rules under subsection (8)(b) may, in particular –
(a) disapply this section;
(b) enable a court to disapply this section;
(c) make provision in consequence of a disapplication of this section;
(d) enable a court to make provision in consequence of a disapplication of this section;
(e) make provision (which may include provision conferring jurisdiction on a court or tribunal) about compensation.”
The point in this case concerns the extent to which the assignment which we have identified above amounts to a realisation for the purposes of subsection (3)(a). Mr and Mrs Lewis maintain that it does not and that Mr Lewis's interest has now revested in him pursuant to subsection (2); MPRL maintains that the trustees “realised” the estate's interest by virtue of the assignment.
The judgment below
In her judgment, the learned judge set out the short facts and the relevant provisions of the section, and identified the issue. She came to the conclusion that the assignment fell within the expression “realises” within subsection (3)(a) by considering the following:
i) The dictionary definition, which she did not find helpful.
ii) The use of the word elsewhere in the 1986 Act, together with other provisions of the Act, which she found did not clearly support Mr and Mrs Lewis's construction of “realises” in the subsection.
iii) A trustee's power to sell on deferred consideration, which she found did not sit well with the submission that a...
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