Re Citro (Domenico) (a Bankrupt); Re Citro (Carmine) (a Bankrupt)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE BINGHAM,SIR GEORGE WALLER |
| Judgment Date | 23 May 1990 |
| Judgment citation (vLex) | [1990] EWCA Civ J0523-4 |
| Docket Number | 90/0481 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 May 1990 |
and
[1990] EWCA Civ J0523-4
Lord Justice Nourse
Lord Justice Bingham
and
Sir George Waller
90/0481
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
(MR JUSTICE HOFFMANN)
Royal Courts of Justice
MR BERNARD P. DEVLIN, instructed by Messrs Stoneham Langton & Passmore, appeared for the Appellants (Applicants).
MR JAMES CAMERON, instructed by Messrs Phelps & Lawrence (Swindon), appeared for the Respondents (Respondents).
In the leading case of Jones v. Challenger [1961] 1 Q.B. 176 it was held by this court that on an application under section 30 of the Law of Property Act 1925 in relation to property acquired jointly as a matrimonial home neither spouse has a right to demand a sale while that purpose still exists. That is now a settled rule of law, applicable to property owned jointly by joint occupants, whether married or unmarried. But its application depends on the whole of the beneficial interest being vested in the occupants. If one of them has become bankrupt, so that part of the beneficial interest is vested in his or her trustee, there arises a conflict between the interests of the occupants and the statutory obligation of the trustee to realise the bankrupt's assets for the benefit of the creditors.
In a series of bankruptcy decisions relating to matrimonial homes subsequent to Jones v. Challenger it has been held that the interests of the husband's creditors ought usually to prevail over the interests of the wife and any children and, with one exception, Re Holliday (A Bankrupt) [1981] Ch. 405, a sale within a short period has invariably been ordered. It has also been assumed that no distinction ought to be made between a case where the property is still being enjoyed as the matrimonial home and one where it is not. That distinction, if it ought to be made, would be of significance on these appeals, which relate to the matrimonial homes of two bankrupt brothers, one of whom is still living there with his wife and the other of whom has been judicially separated and living elsewhere since 1984. It should be stated at the outset that section 336 of the Insolvency Act 1986 has no application to either case.
The two brothers are Domenico and Carmine Citro. Prior to 22nd October 1984 they carried on business together in partnership as panel beaters and car sprayers under the name or style of Broadley Contintental Garage. On that date receiving orders, and on 15th April 1985 adjudication orders, were made against the brothers, both individually and in respect of their joint estate. On 29th May 1987 Mr R.A. Powdrill, an insolvency practitioner and a partner in the firm of Spicer & Oppenheim practising from their Croydon office, was appointed as trustee of the brothers' separate and joint estates.
Domenico Citro's only asset is his half share of the beneficial interest in the former matrimonial home, 24 Dryfield Road, Burnt Oak, Edgware, Middlesex, which he owns jointly with his wife, Mary Catherine Citro, from whom he was judicially separated by an order made on 4th December 1984. She still lives there, together with their three children, who are now aged 20, 17 and 12 years. In November 1988 the house was valued at between £75,000 and £85,000, subject to a building society mortgage on which about £20,020 was then owing. In a statement of affairs prepared by the trustee as at 14th November 1988 Domenico Citro's half share of the beneficial interest in the house (taking the lower value of £75,000) was accordingly valued at £27,490. Against that he was shown as having unsecured debts of £4,824, of which £1,069 is owed to the Inland Revenue and £3,755 to other creditors. In addition, estimated amounts were shown for costs and expenses, fees and remuneration and statutory interest at 4 per cent to date, making a total of £11,353 as the estimated amount required to obtain a full discharge in respect of Domenico Citro's separate estate.
Carmine Citro's only asset is his half share of the beneficial interest in the matrimonial home, 109 Bell Lane, Hendon, London NW4, which he owns jointly with his wife, Josephine Violet Citro, with whom he lives there, together with their three children, who are now aged 15, 13 and 10 years. Although Josephine Citro has thought of taking proceedings for divorce and has sought advice from a solicitor about it, no proceedings have been commenced and a decision has been postponed until the outcome of these proceedings is known. In November 1988 a valuer instructed by the trustee hoped that the house would realise about £110,000, subject to mortgages in favour of a building society and an insurance company on which an aggregate sum of about £32,083 was then owing. (Josephine Citro has said in evidence that she has been advised that the house is worth £130,000.) In a second statement of affairs prepared by the trustee as at 14th November 1988 Carmine Citro's half share of the beneficial interest in the house (taking the valuation of £110,000) was accordingly valued at £38,859. Against that he was shown as having unsecured debts of £5,342, of which £567 is owed to the Inland Revenue and £4,475 to other creditors. When the estimated amounts for costs and expenses, fees and remuneration and interest were added in a total of £12,638 was shown as the estimated amount required to obtain a full discharge in respect of Carmine Citro's separate estate.
In a third statement of affairs prepared by the trustee as at 14th November 1988 the joint estate was shown as having no assets to satisfy unsecured debts of £72,970, of which £65,272 is owed to the Inland Revenue and the Customs and Excise in respect of PAYE income tax and VAT respectively. When the estimated amounts for costs and expenses, fees and remuneration and interest were added in, a total of £99,150 was shown as the estimated amount required to obtain a full discharge in respect of the joint estate.
Accordingly, as at 14th November 1988, the following estimated amounts were required to obtain full discharges in respect of the separate and joint estates:
| Domenico Citro | Carmine Citro | |
| Separate estate | £11,353 | £12,638 |
| Joint estate ( 1/2 share) | 49,575 | 49,575 |
| £60,928 | £62,213 |
Against these liabilities must be set the estimated net assets of £27,490 and £38,859 respectively, leaving a deficiency of £33,438 in the case of Domenico and £23,354 in the case of Carmine. Even if it had been right to take the higher house values of £85,000 and £130,000, the deficiencies would still have been £28,438 and £13,354 respectively. That is the position as between the two bankrupts. Vis-a-vis the creditors they are jointly and severally liable for the deficiency on the joint estate, which, after crediting the surpluses on the separate estates, would be £56,792 on the lower values of the houses and £41,792 on the higher.
By notices of motion dated 14th and 16th December 1988, to each of which one of the bankrupts and his wife were made respondents, the trustee sought declarations as to the beneficial interests in the houses and orders for sale and possession, together with ancillary and consequential relief. Those applications came on for hearing before Mr Justice Hoffmann who, on 15th June 1989, declared that the beneficial interest in each house was owned by the bankrupt and his wife in equal shares and made orders for sale and possession, subject to a proviso' in each case that the order was not to be enforced until the youngest child of the bankrupt and his wife had attained the age of 16 years. The youngest child of Domenico and Mary Citro was born on 20th May 1978 and the youngest child of Carmine and Josephine Citro on 4th November 1979. In other words, if the judge's orders stand, their enforcement will, in all normal circumstances, be postponed until 20th May 1994 in the one case and 4th November 1995 in the other. The trustee has now appealed in both cases. He contends that, in attaching the provisos to his orders, the learned judge erred in principle or exercised his discretion in a manner which was plainly wrong. He seeks their detachment accordingly. Although Mary Citro contended below that her share of the beneficial interest in 24 Dryfield Road was larger than a half, she has not cross-appealed against the judge's declaration on that question.
The evidence before Mr Justice Hoffmann consisted of affidavits sworn by the trustee, his solicitor and the two wives, each of the latter giving additional oral evidence in chief and then being cross-examined. The judge was referred to two authorities, Re Holliday and Re Lowrie (A Bankrupt) [1981] 3 All E.R. 353. From the first of these he drew the guiding principle which Goff L.J. stated in these words, [1981] Ch. 420:
"So we have to decide having regard to all the circumstances, including the fact that there are young children…, whose voice, that of the trustee seeking to realise the debtor's share for the benefit of his creditors or that of the wife seeking to preserve a home for herself and the children, ought in equity to prevail."
In applying that principle to the facts which were before him, Mr Justice Hoffmann carefully considered the personal circumstances of each wife and her children. He observed that they had very little money coming in and that Mary Citro was not well. In evidence they had both said that their children's education would be upset if they had to move. The judge was clearly...
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