Phillips v Symes (No. 3)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE PETER SMITH,MR. JUSTICE PETER SMITH |
| Judgment Date | 03 October 2005 |
| Neutral Citation | [2005] EWHC 2867 (Ch),[2005] EWHC 90 (Ch) |
| Court | Chancery Division |
| Date | 03 October 2005 |
| Docket Number | Case No: HC100810 |
[2005] EWHC 2867 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Mr. Justice Peter Smith
MR. STEINFELD QC appeared on behalf of the Applicant.
(As approved by the Judge)
On 25 th August this year the claimants made a without notice application for an interim charging order against the first defendant, Mr. Symes, seeking a charging order over the asset described in the schedule to the order. That asset was any surplus that might arise on the bankruptcy of Mr. Symes, he having been made bankrupt, if my recollection is correct, in March 2003 pursuant to a petition presented by Messrs. Lovells, one of his many former solicitors. Shortly after that bankruptcy I struck out Mr. Symes' defence in the substantive action and ordered the usual partnership accounts and enquiries, and ordered him to make an interim payment of a sum of £2,343,987 together with further interest and costs. Mr. Symes has not paid any of the sums. This is because, of course, Mr. Symes asserts that he has no assets.
The only possible asset which he could have, assuming he has no other assets elsewhere, is any surplus arising in his bankruptcy. Whether or not there is a surplus is a matter which will take some little time, given the complexity of the affairs of Mr. Symes and the former partnership, and the company Robin Symes Limited which is itself in administrative receivership.
The two trustees, a Mr. Roley and a Mr. Hellard, retained Messrs. Wedlake Bell. They were served. Mr. Steinfeld QC, who appears for the applicant, described it as a matter of courtesy but it seems to me it was a matter of obligation bearing in mind they were seeking to say that the trustees held a surplus upon trust for the claimants, and they wrote a detailed letter directly to me on 23 rd September in which they set out arguments as to whether nor the ex parte interim order I made on 25 th August should be made a final charging order. The letter contained submissions that an order should not be made and that the interim order itself should be discharged. Their primary argument is that there is no interest that is capable of being charged. That is on the basis that there is no certainty that there will be a surplus and until there is an ascertainment that there is a certainty of a surplus no interest arises under the trust and, therefore, no charging order can be made because there is no property capable of being charged before that ascertainment. Therefore the trust fails one of the three basic certainty requirements, it is submitted, and as the claimants seek to charge the property of the surplus under s.2(1)(a)(ii) of the Charging Orders Act 1979 on the basis that it is trust property; if there is no trust there can be no charge. It was also submitted by Messrs. Wedlake Bell that there was no authority on this point.
Having sent that detailed missive to me on 23 rd September, on the 29 th they decided that the purpose of the letters was to alert me as to genuine concerns and a genuine desire to assist the court, but that the letter should now be disregarded. This is apparently not because they did not believe the arguments were incorrect but because their trustees could not afford to retain Wedlake Bell to attend court. It seems odd to me that a legal argument should fail because of a lack of funding. The reality is that Messrs. Wedlake Bell and the trustees appear to be wanting to have the benefit of the arguments without the disadvantage of coming to court to argue them. It is disappointing, in my view, because the acceptance of an office of trusteeship contains benefits and burdens. The benefits are that if you are properly remunerated in their assets you will be paid. The burdens are that your duties do not cease to become duties simply because there are no funds to pay you. I firmly believe that they should have come to court and argued the case, but they have not done so.
Mr. Steinfeld, therefore, has come to court but, quite properly, he has not treated it as a rubber stamping exercise and he has taken me through the authorities, and I am quite satisfied that Wedlake Bell's stance is misconceived.
The starting point is s.330(5) of the Insolvency Act 1986, which enshrines the principle which has long been in the insolvency law of a bankrupt individual, that if there is a surplus after payment in full and with interest of all the bankrupt's creditors, and the payment of the expenses of the bankruptcy, the bankrupt is entitled to the surplus. It is long established and acknowledged that the trustee in bankruptcy holds the surplus upon trust to give effect to that provision. It might be that when the final account is taken that there is nothing, but it does not, in my view, lead to the conclusion that until there is an ascertainment that there is nothing or there is something, there is nothing that is property for the purposes of the Charging Orders Act 1979. One can test it by an easy example. If Wedlake Bell's argument was correct and the applicants in this case had, for example, petitioned for a second bankruptcy based on the non-payment of the monies which were out with the first bankruptcy, there would be a second bankruptcy. The applicants would prove in that second bankruptcy that on Wedlake Bell's arguments any surplus not then ascertained would not vest in the second trustee in bankruptcy because it is not trust property for the purposes of the section, so it cannot vest in the trustee in bankruptcy of the second bankruptcy. Then the second bankruptcy would be discharged and Mr. Symes would then be released from the debt on which the second bankruptcy were based, and if a surplus was then found under the first bankruptcy he would then have that surplus (because it then vests in him) free from the claims in the second bankruptcy. It seems to me that it would be a bizarre result if that was the law.
I am quite satisfied that it is not the law and the clearest indication of that is the decision of Mr. Justice Farwell in Bird v Philpott [1900] 1 Ch.822. I do not propose to set out the facts of that case, but, in my judgment, they are precisely the same as the present dilemma, save that here the charging order which operates involuntarily as an equitable charge underhand, whereas in the Bird v Philpott case there was a voluntary charge given. Nevertheless, the same arguments were put up at the suggestion of a second bankruptcy, that the charge was ineffective because until ascertainment there was no interest that was capable of being charged in respect of the bankrupt's surplus. Mr. Justice Farwell dismissed those arguments and I refer, for the purpose of the transcript, to his judgment at p.828 starting at:
"He cannot trouble the trustee by taxing the bill of costs or interfere with the administration of the estate in any way, but, subject to that and subject to his non-interference with the administration and with the management of the trustee during the bankruptcy in the due course of the execution of his duty, he can, in my opinion, demand the surplus, and he has a right to the surplus – a right which he can dispose of by will or deed or otherwise during the pendency of the first bankruptcy, even before the surplus is ascertained, although such disposition will of course be ineffectual unless in the event there prove to be a surplus upon which it can operate."
And to his further part of the judgment at p.830 starting at the top of the page and in the second two paragraphs:
To some extent it resembles the case of a cestui que trust, who is entitled to a share of the proceeds of sale of real property under a trust for sale. If that cestui que trust contracts to sell his share of the proceeds of sale in specie, and it turns out that the real estate has never been sold, I do not see how he could be heard to say that his interest had not passed, because at the time that he made the contract his only strict right was to share in a distribution of the proceeds of sale of the estate. Therefore, I hold that that objection also fails.
In my opinion the trustee in the second bankruptcy has no claim to any part of the surplus which the bankrupt has effectually dealt with. He can only take the property of the bankrupt at the time of the second receiving order. What that property is depends on what the bankrupt has done with it between the date of the first order and the date of the second order, and if and so far as the bankrupt has effectually dealt with it, then, in my judgment, it is not property of the bankrupt which can pass to the trustees in the second bankruptcy. [His Lordship then considered the plaintiff's claim to the first and second sets of property, and held on the facts that he had no charge on them unless under the indenture of June 17, 1898, and that they were vested in the trustee in the first bankruptcy, and continued:-]
The other three plots of land raise a different question – a question of some little nicety. As regards them, I find as a fact that the property was acquired by Mr. Bird's money entirely, both as regards deposit and as regards the balance, under an agreement by which he took up the contract and obtained a memorandum of charge, which corroborates the view that he was making the advance with the intention of taking the benefit of the conveyance when it was obtained, to the extent of his charge, and which is not displaced by the subsequent conveyance of July 6, 1898. To my mind the facts of the case – and I treat the charge June 17, 1898, as part of the evidence for this purpose – are brought substantially within the decision of Meux v....
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