Thornhill (David) (Trustee in Bankruptcy of Clive William Atherton) v (1) Atherton (Clive William) (2) Atherton (Linda Margaret) (3) Myerson (Geoffrey)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE WARD,LORD JUSTICE WALLER,Mr Justice Lloyd,MR JUSTICE LLOYD,LORD JUSTICE JONATHAN PARKER
Judgment Date20 Dec 2004
Neutral Citation[2004] EWCA Civ 1152,[2004] EWCA Civ 1858
Docket NumberA2/2004/0895,A2/2004/0895(A)

[2004] EWCA Civ 1152

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MANCHESTER DISTRICT REGISTRY

(IN BANKRUPTCY)

(HIS HONOUR JUDGE RAYNOR QC

(sitting as a deputy High Court judge))

Royal Courts of Justice

Strand

London, WC2

Before:

Lord Justice Ward

A2/2004/0895

David Thornton
(Trustee In Bankruptcy of Clive William Atherton)
Applicant/Respondent
and
(1) Clive William Atherton
First Respondent/applicant
and
(2) Linda Margaret Atherton
(3) Geoffrey Myerson
Respondents

MR ROY BURGESS (instructed by Messrs Rochmans Landau, London W1W 8HJ) appeared on behalf of the Applicant

The Respondents did not appear and were not represented

LORD JUSTICE WARD
1

This is a renewed application for permission to appeal the orders made by His Honour Judge Raynor QC on 7th April 2004. By that order the judge annulled a bankruptcy order made on 1st June 2000 pursuant to section 282(1) (a) of the Insolvency Act 1986, but he secondly ordered that the order should not be perfected until Mr Atherton had satisfied his liability under the provisions of paragraph 1(a) of the other order the judge made on that day. Order 1(a) was that to the extent that the same shall not have been recovered by the trustee in bankruptcy, Mr Atherton had to pay the proper costs and disbursements incurred by the trustee consequent upon the bankruptcy order up to the date thereof, subject to assessment et cetera.

2

I confess I find the whole circumstances of this bankruptcy quite extraordinary. The petition was presented after an unsatisfied statutory demand made by Mr Ogunlende, now in Nigeria, the petitioning creditor, but strangely no longer it seems a party in the proceedings. He gave as the particulars of his debt that he had taken the assignment on the very same day it may be, looking at page 66 of one of the bundles before me, of a debt of £23,500:

"… being one half of the total moneys advanced by Linda Margaret Atherton [Mr Atherton's wife or former wife] to the Bradford and Bingley Building Society… in January 1996 in respect of the outstanding payments of interest and capital due to the building society in connection with their Mortgage and Charge over property known as Longton Hall Barn, Chapel Lane, Longton, Preston, Lancashire.

2. Together with interest at the statutory rate, calculated as at the date hereof in the sum of £6,000.00…"

3

As I understand it, and I confess to understanding it imperfectly, attempts were made to set that statutory notice aside on the basis that in the ancillary relief proceedings pending between husband and wife, it could be demonstrated that the wife would owe the husband more than the £23,000 or the £29,000 that she had assigned to Mr Ogunlende. But attempts to do that failed on appeal to Neuberger J (as he then was) and permission to appeal was refused by Arden LJ.

4

For reasons which appear to me, I confess, to be inexplicable, nobody, neither Mr Atherton himself nor those representing him (and at this stage that may not include Mr Burgess) thought to ask themselves how could he possibly in fact owe that money, when on 12th October 1995 the court had made an order that upon the petitioner, Mrs Atherton, undertaking to use £30,000 then in court and a further sum of £15,000 she was soon to acquire for the purposes of redeeming the Bradford and Bingley mortgage, the property at Longton Hall Barn was to be transferred to a Mr and Mrs Walton, in return for their giving up properties at Pope Walk and Victoria Mansions and paying the £15,000 I have mentioned. In the light of that arrangement, there was no conceivable debt enforceable by Mrs Atherton against Mr Atherton, but nobody had bothered to enquire into the proceedings between husband and wife, still outstanding in the Blackpool County Court. It was not until years later by which time the huge sum of £200,000 of costs had been incurred by the trustee, that the penny dropped, somewhere along the line, and the warning bells rang in someone's ears and the truth emerged. Confronted with the truth, Judge Raynor had no difficulty whatever, in a judgment given on 20th February, in deciding, pursuant to section 282(1) (a), that this was a bankruptcy order that should never, ever have been made and should therefore have been annulled.

5

The question arose, however, as to what should happen about the trustee's costs in the order, as I think I have it correct, of about £200,000. Not surprisingly, the trustee wanted to be paid. I am no expert in bankruptcy and I know Jonathan Parker LJ is and he has refused permission to appeal, so here is a fool entering where the angels fear to tread. But this fool does not quite understand why ordinarily and as a matter of first approach the person to pay the costs of a petition which is annulled because it should never have been granted in the first place should not be the petitioning creditor. I am comforted to find that Neuberger J (as he then was) thought so too as reported in Butterworth v Soutter [2000] BPIR 582, where he observed that, reading from the headnote:

"… if the annulment application was made under s 282(1) (a) Insolvency Act 1986 the starting point in respect of liability for the trustee in bankruptcy's costs would be that the petitioning creditor should pay the same…"

6

The judge seemed to think that it was right that Mr Atherton should pay those costs. He may have been persuaded to that view because he had had to investigate in the course of the hearing before him in February why on earth it was that these facts had not been brought to light before. He seems to have said at page 7 of his judgment that Mr Atherton:

"… may not have appreciated the significance (as regards the bankruptcy dispute) of the wife's application under Barry or the undertakings given and the Order made thereunder. However, the lawyers acting for him (and thereafter) should have obtained inspection of the divorce Court file given the arguments they were running and had that been done the bankruptcy court would not have been misled."

7

He was of the view that that was the fault either of Mr Atherton or his lawyers, the views he expressed in his judgment and in the discussions which followed it.

8

These are the aspects which trouble me. First, if the petition is annulled on the basis that it should never have been made, it seems to me to be arguably inconsistent and perhaps therefore wrong in principle to continue the bankruptcy order by insisting that the order annulling it be not drawn. Surely, the moment the court decides it should never have been made at all, it should then be annulled and annulled with immediate effect. If that caused the trustee difficulties, should not resort have been made to section 282(4) (b) so that the property revert to the bankrupt, but on such terms as the court may direct.

9

The second point is that the failure to consider the consequences of continuing the bankruptcy order until the costs were paid is that the bankrupt has no practical and realistic ability to discharge the costs order because he is not the master of his own assets and it is a Catch 22 position.

10

My other anxieties relate to the way in which the wasted costs order was conducted by the trustee against the solicitors and the fact that Mr Atherton did not formally waive privilege, even though in the hearing before the judge in February a fax had been put before the court which went, I would have thought, a long way towards doing so. Mr Burgess found himself in an embarrassing position. I say little more about that. But he took a view, rightly or wrongly, that he could not advise Mr Atherton to waive privilege. Mr Atherton now seeks to admit fresh evidence and to put in evidence not only that he wishes to waive privilege, but to put in a fax communication in which he gave instructions for the file to be examined. There may be difficulties about that because of Ladd v Marshall, but it only highlights my anxiety that something may have gone seriously wrong.

11

In view of the fact that Neuberger J said that there was no authority on how to deal with costs in a case under section 282(1) (a), it seems to me that it is right that the court should in the exceptional circumstances of this case have regard to whether or not it is right to order the "innocent" bankrupt to pay all of the trustee's costs when, on the judge's findings made in February, he was probably less culpable than his solicitors were in not bringing the matter to the light of the court earlier than had been the case. The interplay between the separate application by trustee against solicitor for costs and the use of the findings made in that separate dispute, to which technically, as I understand it, the bankrupt was not a party, may give other causes for concern. It may be that the evidence upon which the judge should have made his costs order was limited to that found in February, not that supplemented by findings in different wasted costs proceedings in April.

12

All in all, I think this is a mess which needs to be sorted out by the Court of Appeal and therefore I give permission to appeal.

ORDER: Application for permission to appeal granted; case to be listed before three Lords Justices, at least one of whom should be experienced in bankruptcy work with a time estimate of half a day; stay of the bankruptcy extended until the hearing of the appeal, but liberty given to any party to apply on notice to discharge or vary this part of the stay.

(Order not part of approved judgment)

[2004] EWCA Civ 1858

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM CHANCERY DIVISION

...

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4 cases
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    • United Kingdom
    • Chancery Division
    • 23 November 2012
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    • Chancery Division
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    ...large when the court makes an order annulling the bankruptcy.” Similar conclusions were reached by this court in Thornhill v Atherton [2004] EWCA Civ 1858 at [39], albeit in a case where the judge had directed that the perfection of the annulment order should be deferred. At [41] it was in......
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