Nicholls v Lan and Another
| Jurisdiction | England & Wales |
| Judge | (Mr Paul Morgan QC sitting as a Deputy Judge of the High Court) |
| Judgment Date | 26 May 2006 |
| Neutral Citation | [2006] EWHC 1255 (Ch) |
| Docket Number | CASE NO. CH/2006/APP/0155 |
| Court | Chancery Division |
| Date | 26 May 2006 |
[2006] EWHC 1255 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE CAMBRIDGE COUNTY COURT
IN BANKRUPTCY
Royal Courts Of Justice
Strand, London WC2A 2LL
Mr. Paul Morgan QC sitting as a Deputy Judge of the High Court
CASE NO. CH/2006/APP/0155
Mr. Max Thorowgood (instructed by Law Hurst & Taylor of 153 Hamlet Court Road, Westcliff on Sea, Essex SS0 7EL) for the Appellant
Mr. Gary Pryce (instructed by Judge Sykes Frixou of 23 Kingsway, London WC2B 6YF) for the First Respondent
The Second Respondent, Mr. Beverley Nicholls, did not appear and was not represented.
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
The Deputy Judge
This is an appeal by Mrs. Patricia Nicholls against a part of an order made by District Judge Temple in the Cambridge County Court on the 13 th February 2006.
The application which came before the District Judge was an application by Mr. Henry Lan, the Trustee in Bankruptcy of Mr. Beverley Nicholls who was and still is the husband of Mrs. Nicholls. For the most part, Mr. and Mrs. Nicholls have lived apart since around 1995 but they have not divorced. Indeed, in recent months, Mr. Nicholls has spent some time visiting, and possibly living at, the property which is the subject of these proceedings.
Before his bankruptcy, Mr. Nicholls practised as a solicitor under the style and title of Beverley Nicholls & Co. He was adjudged bankrupt on the 1 st September 1995 on the petition of HM Customs & Excise. Mr. Nicholls was discharged from bankruptcy on the 1 st September 1998.
At the date of the bankruptcy order, Mr. and Mrs. Nicholls were joint owners of a house at 2 Weir Farm Road, Rayleigh, Essex ("the property"). There was no dispute before the District Judge about the fact that Mrs. Nicholls had a one half beneficial interest in the property and neither side contended that this was a case in which the Court should carry out equitable accounting to reflect payments which Mrs. Nicholls made in relation to a mortgage on the property nor was it a case in which Mrs. Nicholls should be regarded as liable to pay an occupational rent for her occupation of the property. As I understand it, both sides have proceeded on the basis that if there were equitable accounting and if the question of an occupational rent were investigated, the various processes would cancel each other out and leave one with the original position that Mrs. Nicholls has a one half beneficial interest in the property. The District Judge appears to have proceeded on that basis.
On bankruptcy, Mr. Nicholls' half share in the property vested in the Official Receiver. So far as I am aware not very much happened in relation to the bankruptcy until Mr. Lan, the Trustee in Bankruptcy, was appointed on the 19 th May 2003 apparently by the Secretary of State. It may be that what prompted the appointment of the Trustee was the enactment of section 283A of the Insolvency Act 1986, introduced by the Enterprise Act 2002. The transitional provisions under the 2002 Act imposed a time limit for applications of the present kind and this may have led to a decision being taken that this present application should be bought within the appropriate timescale.
On the 2 nd August 2004, the Trustee made an application in the County Court for declaratory relief as to the extent of the beneficial interests of Mr. and Mrs. Nicholls and for an order for sale of the property. Mrs. Nicholls was considered to be incapable of managing her defence of this application and the Official Solicitor has been appointed as her litigation friend. Evidence was filed on both sides in the County Court and the matter came on for hearing before the District Judge on the 20 th January 2006. The District Judge reserved his judgment and handed down a written judgment on the 13 th February 2006. The Order made in the County Court following that judgment declared that the property was held beneficially in equal shares by the Trustee (in whom Mr. Nicholls' half share had vested) and by Mrs. Nicholls. The District Judge ordered that the property should be placed upon the market for sale not earlier than 18 months from the date of the Order (in the absence of agreement to the contrary). The Order stated that the conduct of the sale was to be given to the Trustee and that Mr. and Mrs. Nicholls were to give vacant possession of the property to the Trustee not later than 18 months from the date of the Order. The Order then gave other consequential directions and provided for the costs of the application.
The Trustee's application for an order for the sale of the property was made under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. Under section 14(2) on an application under section 14 the Court may make any order relating to the exercise by the Trustees of any of their functions (including sale) "as the Court thinks fit". In the ordinary case under section 14, the matters which are relevant to such an application are provided by section 15. Amongst the matters relevant under section 15 is the matter specified in section 15(1)(d), namely, the interests of any secured creditor of any beneficiary. However, section 15(4) provides that section 15 does not apply to an application if section 335A of the Insolvency Act 1986 (which was inserted by Schedule 3 to the 1996 Act) applies to the application. In the present case, it is common ground that section 335A of the Insolvency Act 1986 does apply to the application made by the Trustee.
Section 335A of the Insolvency Act 1986 is in these terms:
"335A Rights under Trusts of Land
(1) Any application by a trustee of a bankrupt's estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of Court in relation to Trusts of Land) for an order under that section for the sale of land shall be made to the Court having jurisdiction in relation to the bankruptcy.
(2) On such an application the Court shall make such order as it thinks just and reasonable having regard to-
(a) the interests of the bankrupt's creditors;
(b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt's spouse or civil partner or former spouse or former civil partner-
(i) the conduct of the spouse, civil partner, former spouse or former civil partner, so far as contributing to the bankruptcy,
(ii) the needs and financial resources of the spouse, civil partner, former spouse or former civil partner, and
(iii) the needs of any children; and
(c) all the circumstances of the case other than the needs of the bankrupt.
(3) Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt's estate in a trustee, the Court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations.
(4) The powers conferred on the Court by this section are exercisable on an application whether it is made before or after the commencement of this section."
I have set out section 335A as amended by the Civil Partnership Act 2004 with effect from the 5 th December 2005, although those amendments are not material to the present set of facts.
There was an issue before the District Judge as to whether the present case was one where the circumstances were "exceptional" within section 335A(3). I will refer later in more detail to parts of the evidence of Dr. Jeffrey Roberts who prepared a number of psychiatric reports on Mrs. Nicholls. In summary, Dr. Roberts reported that Mrs. Nicholls had long term chronic schizophrenia. The District Judge considered the case of Re: Raval [1998] BPIR 389 and held that the circumstances of the present case were exceptional within section 335A(3). The District Judge's attention had also been drawn to a decision of mine in Hosking v. Michaelides [2004] All ER (D) 147 in which I had given the word "exceptional" in this context what I regarded as its ordinary familiar meaning as "out of the ordinary course, or unusual, or special, or uncommon". The District Judge applied that test to the present facts and found that the circumstances were exceptional. This finding meant that the assumption in section 335A(3) was disapplied and the task of the District Judge was to consider what was "just and reasonable" having regard to the matters in section 335A(2).
The Trustee has not appealed against the District Judge's finding that the circumstances of the present case were exceptional within section 335A(3).
For the purpose of considering section 335A(2), the District Judge pointed out that there was no relevant conduct on the part of Mrs. Nicholls within section 335A(2)(b)(i) and there were no children to be considered under section 335A(2)(b)(iii). In this way, the task for the District Judge was to do what he thought was just and reasonable having regard to the interests of Mr. Nicholls' creditors, the needs and financial resources of Mrs. Nicholls and all the circumstances of the case, other than the needs of Mr. Nicholls.
At the bottom of page 2 of his judgment, the District Judge correctly identified the matters he had to take into account and he correctly stated that he had to carry out "a balancing exercise" in those circumstances.
The evidence and the submissions before the District Judge...
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Personal Insolvency Bankruptcy
...sufficient to deprive creditors of the presumption in favour of realisation of the property to pay their claims. Nicholls v Lan (2006) EWHC 1255 Ch Mr Nicholls, a former solicitor, was made bankrupt on 1 September 1995. At the date of the bankruptcy order, Mr Nicholls and his wife were join......