Re Dennis (a Bankrupt)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MILLETT,LORD JUSTICE KENNEDY,THE MASTER OF THE ROLLS |
| Judgment Date | 04 April 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0404-2 |
| Docket Number | CHBKF 93/1606/C |
| Court | Court of Appeal (Civil Division) |
| Date | 04 April 1995 |
[1995] EWCA Civ J0404-2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(The Vice Chancellor)
Before: The Master of the Rolls (Sir Thomas Bingham) Lord Justice Kennedy Lord Justice Millett
CHBKF 93/1606/C
MR. S ACTON (Instructed by Messrs. Bowling & Co., Stratford) appeared on behalf of the Appellant
MR. S MOVERLEY SMITH (Instructed by Messrs. Denton Hall, DX 242) appeared on behalf of the Respondent
Tuesday 4 April 1995
The question in this appeal is whether, in a bankruptcy governed by the Bankruptcy Act 1914 ("the 1914 Act"), a joint tenancy was severed by the act of bankruptcy of one of the joint tenants or was not severed until his subsequent adjudication.
The facts are not in dispute. The bankrupt, Mr. Winston Lloyd Dennis, and his wife were joint tenants of two properties in the East End of London. On 21st. September 1982 Mr. Dennis committed an act of bankruptcy by failing to comply with a bankruptcy notice. On 20th December 1982 a bankruptcy petition founded on that act of bankruptcy was presented against him. On 24th. February 1983 Mrs. Dennis died, having left the two properties to her children. A receiving order was made against Mr. Dennis on 23rd. May 1983, and he was adjudicated bankrupt on 11th. November 1983.
It is common ground that the alienation by a joint tenant of his interest inter vivos destroys the unity of title and thereby severs the joint tenancy; that this is the result of any alienation whether voluntary or involuntary; and that an involuntary alienation occurs when a bankrupt's estate vests by operation of law in his trustee in bankruptcy. The Vice-Chancellor held ( [1993] Ch. 72) that this did not take place until Mr. Dennis was adjudicated bankrupt. Accordingly, he held that Mr. and Mrs. Dennis were still joint tenants at the date of her death so that her share then passed to Mr. Dennis by survivorship, with the result that on his adjudication the whole interest in the properties vested in the trustee in bankruptcy.
Mr. Dennis' personal representatives challenge that conclusion. They claim that the relation back of the trustee's title provided for by Section 37 of the 1914 Act had the effect that, although Mr. Dennis' property did not actually vest in the trustee until the adjudication, it was nevertheless then treated as having done so as from the act of bankruptcy. Accordingly, it is submitted, the joint tenancy was severed before Mrs. Dennis' death, with the result that her undivided one half share as a tenant in common devolved as part of her estate.
18.- (1) Where a receiving order is made
against a debtor, then, if the creditors at the first meeting or any adjournment thereof by ordinary resolution resolve that the debtor be adjudged bankrupt, or pass no resolution, or if the creditors do not meet, or if a composition or scheme is not approved in pursuance of this Act within fourteen days after the conclusion of the examination of the debtor or such further time as the court may allow, the court shall adjudge the debtor bankrupt; and thereupon the property of the bankrupt shall become divisible among his creditors and shall vest in a trustee.
37.- (1) The bankruptcy of a debtor, whether
it takes place on the debtor's own petition or upon that of a creditor or creditors shall be deemed to have relation back to, and to commence at the time of the act of bankruptcy being committed on which a receiving order is made against him, or, if the bankrupt is proved to have committed more acts of bankruptcy than one, to have relation back to, and to commence at the time of the first of the acts of bankruptcy proved to have been committed by the bankrupt within three months next preceding the date of the presentation of the bankruptcy petition; but no bankruptcy petition, receiving order or adjudication shall be rendered invalid by reason of any act of bankruptcy anterior to the debt of the petitioning creditor.
(2) Where a receiving order is made against a
judgment debtor in pursuance of section one hundred and seven of this Act, the bankruptcy of the debtor shall be deemed to have relation back to, and to commence at, the time of the order, or if the bankrupt is proved to have committed any previous act of bankruptcy, then to have relation back to, and to commence at the time of the first of the acts of bankruptcy proved to have been committed by the debtor within three months next preceding the date of the order.
38.- The property of the bankrupt divisible
amongst his creditors, and in this Act referred to as the property of bankrupt, shall not comprise the following particulars…
But it shall comprise the following particulars:-
(a)All such property as may belong to or be vested in the bankrupt at the commencement of the bankruptcy, or may be acquired by or devolve on him before his discharge;
53.- (1) Until a trustee is appointed, the
official receiver shall be the trustee for the purposes of this Act and, immediately on a debtor being adjudged bankrupt, the property of the bankrupt shall vest in the trustee.
(2) On the appointment of a trustee, the property shall forthwith pass to and vest in the trustee appointed.
The Appellants rely on the words in Section 37 which I have emphasised and on the sidenote to that Section which reads:
"Relation back of trustee's title".
The Vice-Chancellor treated the question as raising a novel point of statutory construction which appeared to be free from authority. He held that:
"…the effect of Section 38(a) is not tovest title in the trustee retrospectively in the sense that under the Act he is deemed to have had title at the commencement of the bankruptcy: the effect of Section 38(a) is to vest in the trustee, when adjudication occurs, title to property which is identified by reference to the property which belonged to the bankrupt at the commencement of the bankruptcy. The consequence of this may be, and in some cases will be, to divest a third party of title to property which since the commencement of the bankruptcy he has acquired from the bankrupt. That divesting occurs when the adjudication order is made, not before" (my emphasis).
The Appellants accept that passage as an accurate analysis of what would be the effect of Section 38(a) taken in conjunction with the definition of the commencement of the bankruptcy in Section 37. But they criticise it as giving no effect at all to the doctrine of relation back for which Section 37 also provided. Although the Vice-Chancellor referred to Section 37, it played no part in his reasoning. He must tacitly have accepted the submission of Counsel for the trustee, repeated before us, that this dealt with the title of the trustee and not with the time of vesting; that its purpose was to give the trustee on adjudication title to all property belonging to the bankrupt at any time between the act of bankruptcy and the adjudication ("the period of relation back"); and that it merely identified the property which was to vest in the trustee on adjudication and rendered voidable all transactions entered into by the bankrupt after the act of bankruptcy.
Before us Counsel for the trustee supported the judgment of the Vice-Chancellor and submitted that the bankrupt's property did not vest in the trustee until adjudication with the result that a joint tenancy was not severed by the act of bankruptcy of one of the joint tenants. On this view of Section 37, the creditors would stand to gain by the death of the solvent joint tenant during the period of relation back but be at risk of loss by the death of the bankrupt during that period. But Counsel also sought to support the Vice-Chancellor's decision on a narrower ground. He argued that the purpose of the doctrine of relation back was to defeat dealings by the bankrupt after the act of bankruptcy and submitted that its effect should be similarly limited. Accordingly, he said, the doctrine gave the trustee the right to elect to treat the property of the bankrupt as having vested in him at the date of the act of bankruptcy in order to enable him to claim property for the benefit of the creditors, but it gave no corresponding right to other parties who could not rely on the relation back of the trustee's title in order to deprive him of property which would otherwise have accrued to the bankrupt. On this view of Section 37 the creditors would still stand to gain by the death of the solvent joint tenant between the date of the act of bankruptcy and the adjudication but would no longer be at risk of loss by the death of the bankrupt during that period.
The Doctrine of Relation Bank
The act of bankruptcy and the relation back of the trustee's title were fundamental principles of the law of bankruptcy from the time of Queen Elizabeth until they were abolished by the Insolvency Act 1986. The Act of 1571 declared that a trader who committed an act of bankruptcy should be "reputed, deemed, and taken for a bankrupt". It empowered the Lord Chancellor, upon complaint in writing "against any such person or persons being bankrupt as is before defined ", to appoint commissioners with power to seize the body, goods and effects of the bankrupt and to sell and assign all his goods and effects, and provided that every such sale and assignment should be "good and effectual in the law, to all intents, constructions and purposes" against the debtor and all other persons claiming "by from or under him by any act or acts...
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