Papanicola v Humphreys and Others
| Jurisdiction | England & Wales |
| Judge | The Hon Mr Justice Laddie |
| Judgment Date | 14 March 2005 |
| Neutral Citation | [2005] EWHC 335 (Ch) |
| Docket Number | Case No: CH/2004/APP10805 |
| Court | Chancery Division |
| Date | 14 March 2005 |
[2005] EWHC 335 (Ch)
The Hon Mr Justice Laddie
Case No: CH/2004/APP10805
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
RE: SAMUEL SING KEE MAK
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Christopher R. Parker (instructed by Judges Sykes Frixou) for the Appellant Applicant
Mr Jamie Riley (instructed by RHF Solicitors) for the First Respondent
Hearing dates: 16–17 February, 2005
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 Appellant is the Trustee in Bankruptcy of Samuel Sing Kee Mak. I shall refer to him throughout as the Trustee. Mr Mak owned and operated a restaurant known as the Ugly Duckling. He was made bankrupt on 11 September 2002. He continued to run the Ugly Duckling until September 2003 when it was sold. The net proceeds of sale were received by the Trustee as part of Mr Mak's estate. On 17 February 2003, after he was made bankrupt but before the sale of the restaurant business, Mr Mak entered into a contract with Readygame Ltd (Readygame) under which the latter provided a PDQ facility for use in the Ugly Duckling business. In other words, it provided facilities through which Mr Mak could accept credit card payments made by customers of the business. Readygame is the third respondent but it is not represented before me on this appeal. It is in liquidation. The first respondent, Mr Benjamin Toby Humphreys, and the second respondent, Mr Craig Dunne, operated Readygame. It offered professional assistance to individuals and companies facing insolvency. Only Mr Humphreys is represented before me on this appeal.
On 16 June 2004, Registrar Rawson held that the sum of £50,361.83 received by Readygame between the week ending 1 March 2003 and the week ending 13 September 2003 was held upon trust for the Bankrupt Estate of Mr Mak and ought not to be mixed with other funds of Readygame. He also ordered Mr Humphrey and Mr Dunne to attend for examination on 20 July 2004. I will refer to this as the Second June Order.
On 24 November 2004, the Registrar ordered that the Second June Order be rescinded and, in its place, he declared that:
"all sums generated by credit card receipts from the bankrupt's business between the week ending 1 March 2003 and the week ending 13 September 2003 (subject to any proper deduction by Ready Game Ltd under the contract dated 17 February 2003) are prior bankruptcy income of the Bankrupt."
The effect of this (which I will refer to as the November Order) was not only to reverse the declaration the Registrar had made on 16 June 2004 but also to rescind the order for the examination of Mr Dunne and Mr Humphrey. It is from the November Order that this appeal is brought. Before me the Trustee is represented by Mr Christopher Parker. Mr Humphreys is represented by Mr Jamie Riley.
There is one other order to which it is necessary to refer at this stage. On 30 January 2004 District Judge Blomfield gave judgment against Readygame and in favour of the Trustee in the sum of £50,000 together with costs. This was money received by Readygame through processing credit card payments made to the Ugly Duckling. It is not in dispute that it is, in substance, the same money as is covered by the November Order. On 19 April 2004 Readygame applied to set Judge Blomfield's order aside. That application, which was signed by Mr Humphreys as director, included the following two paragraphs:
"Judge Sykes Frixou acting on behalf of the Claimant (i.e. the Trustee's solicitors) contacted us with regard to the credit card processing machine claiming all monies that we had received to date. We stated that they were not entitled to the money as it was Mr Mak's income and under the Insolvency Act 1986, the Trustee in Bankruptcy can only apply to the Bankrupt for an Income Payments Order. As such, we have refused to make a payment to the Trustee in Bankruptcy and we have deducted our fees from the monies held as detailed in our Contract of Engagement.
The Claimant maintains he is entitled to the money by describing the funds received by us as property. We have clearly demonstrated that the funds received are income and not property. As such the Claimant has no right to bring this action against us and we are not indebted to the Claiment."
Notwithstanding that submission, the application to set aside Judge Blomfield's order was dismissed by Deputy Registrar Brettle on 8 June 2004 (the First June Order).
Mr Parker advances four grounds in support of the Trustee's appeal:
(1) The Registrar should have rejected Mr Humphreys' application because no or no sufficient grounds existed for exercising the powers to rescind under s 375 of the Insolvency Act 1986.
(2) Mr Humphreys was a party to the proceedings in which the order of District Judge Blomfield dated 30 January 2004 was made. For that reason the Registrar should have held that Mr Humphreys was estopped from seeking the relief which he secured by the November Order.
(3) The Registrar's decision that the restaurant revenue was post-bankruptcy income of the bankrupt was wrong in law.
(4) The decision to rescind the order for examination of Mr Humphrey and Mr Dunne was wrong in law.
S 375(1) provides:
"Every court having jurisdiction for the purposes of the Parts in this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction."
Mr Parker argues that it was only open to the Registrar to rescind his own earlier order in exceptional circumstances and here, far from there being exceptional circumstances supporting rescission, the circumstances pointed the other way.
Mr Riley argues that Mr Parker is wrong both on the law and the facts. As to the former he says that s 375(1) creates a very wide jurisdiction to rescind and that the discretion is at large. There are some cases where the party seeking rescission needs to demonstrate exceptional circumstances, but this is not one of them. As to the latter, he argues that, even if he is wrong on the law, there are circumstances here which qualify as exceptional.
Mr Parker relies on the decision in Fitch v Official Receiver [1996] 1 WLR 242. In view of Mr Riley's arguments, that authority deserves close analysis. The relevant facts of Fitch are that bankruptcy orders were made against Mr and Mrs Fitch on petitions presented by a creditor, the Co-Operative Bank Plc. An appeal by Mr Fitch was dismissed. Three months later the debtors applied under the provisions of s 375(1) for rescission of the bankruptcy orders. On this application they were supported by the bank and many of the larger creditors. No creditor opposed. On the material before the court, it appeared that the creditors had come to believe that there was a serious risk that the bankruptcy orders, particularly that against Mr Fitch, would prejudice the recovery of a substantial asset for the estate. The matter came on before Chadwick J. He refused the application.
On appeal the respondent Official Receiver felt unable to support either of the two grounds upon which Chadwick J. had based his judgment. Nevertheless he argued that the appeal should be dismissed. He said that the jurisdiction to rescind a bankruptcy order is an exceptional one and that authority under the former Bankruptcy Acts indicated that it was a jurisdiction which should be exercised only where the circumstances are closely analogous to a scheme of arrangement. In re A Debtor (No 12 of 1970) [1971] 1 WLR 1212 was relied upon in support of the latter proposition.
Millett LJ, giving the judgment of the court, analysed the statutory provisions and the caselaw including the Court of Appeal decision in In re Izod [1898] 1 QB 241 which had been distinguished in In re A Debtor (No 12 of 1970). As he pointed out, the jurisdiction under s 375 replaced sections in identical terms in earlier Bankruptcy Acts, including s 104 of the Bankruptcy Act 1883, and that it is:
"… unique to insolvency, (having recently been extended from bankruptcy to company winding up), in that it allows the court to review and rescind or vary an order made by a court of co-ordinate jurisdiction. It applies to any order made in the exercise of the bankruptcy jurisdiction. It is available to rescind a bankruptcy order as it was formerly available to rescind a receiving order. The court's power to review and if thought fit rescind a bankruptcy order is, in theory at least, virtually unlimited." (p 246)
He then referred to In re Izod and commented:
"None of the members of the court doubted the existence of the jurisdiction or that section 104 of the Bankruptcy Act 1883 gave the bankruptcy court an absolute discretion to rescind or vary any of its orders. By a majority the court held that a receiving order may properly be rescinded where the debtor has afterwards come to a private arrangement with his creditors, but emphasised that the court will act only with great caution and under special circumstances which make it clear that the arrangement is for the benefit of the creditors and where the debtor has not been guilty of any misconduct in connection with his insolvency." (p 247–8)
He then referred to In re A Debtor (No 12 of 1970) and cited the following passage from the judgment of Russell LJ upon which the respondent relied:
"In our judgment the exceptional circumstances that justify the exercise of the power under section 108(1) to rescind a receiving order and set aside the bankruptcy must be such as are...
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