Housiaux (t/a Harpers of Weybridge) v Customs & Excise

LORD JUSTICE CHADWICK: The appellant, Mr David Housiaux, carried on business as a retailer of electrical equipment under the trade name "Harpers of Weybridge". He was registered in respect of that business for the purposes of VAT. The registration address was 82, Church Street, Weybridge. That is the address of the shop from which the retail business was carried on. Following the disallowance of repayment claims in VAT returns which were made and the failure to make returns which should have been made and after a number of visits to the shop premises by Mrs Dempsey, an officer of Customs & Excise, assessments to VAT were raised. The particulars were set out in a letter dated 5th February 1999, sent to Mr Housiaux at 82 Church Street.

Payment was not made. In June 1999 a statutory demand was issued on behalf of the Commissioners for Customs & Excise. It claimed unpaid VAT and interest in the total amount of £19,422.88. The statutory demand was left at 82 Church Street on 18th June 1999 by a process server. He put it through the letterbox at about 5 pm. That followed an earlier letter seeking an appointment to serve the demand personally. The statutory demand was not complied with. On 22nd November 1999 Customs & Excise presented a bankruptcy petition in the High Court against Mr Housiaux. On 26th October 1999 the court made an order for substituted service of the petition. A bankruptcy order was made against Mr Housiaux on 15th December 1999 in his absence.

By application to the High Court made by notice dated 18th January 2000 Mr Housiaux applied for an order pursuant to section 375 of the Insolvency Act 1986 that the bankruptcy order of 15th December 1999 be rescinded on the ground that he was neither aware of the VAT debt nor of the bankruptcy proceedings. Alternatively, he sought an order under section 282(1)(b) of the Act, on the ground that he was in a position to pay or secure the bankruptcy debt and expenses. The application was supported by an affidavit which he swore on 18th January 2000.

Put shortly, his case on that application was that he accepted that the statutory demand and the bankruptcy petition had been left or served at 82 Church Street; that he accepted that they had been collected at those premises by his wife, Mrs Julia Housiaux; but that she had failed to tell him anything about them. He said he knew nothing about the debt, the statutory demand, the bankruptcy petition or the bankruptcy order until 13th January 2000 when he was telephoned by his solicitor, to whom his wife had taken the papers on that day. Her visit, it seems, was prompted by her knowledge that Mr Housiaux was about to issue a cheque for the purchase of a new van. As Mr Housiaux put it:

Following the order of 15th December 1999 in the High Court, the bankruptcy proceedings had been transferred to Croydon County Court. On 29th February 2000 that court made an order by consent that the bankruptcy order should be annulled pursuant to section 282(1)(a) of the Insolvency Act 1986 on the grounds that the order ought not to have been made. The bankruptcy petition was dismissed. The order provided that the Official Receiver's costs should be paid by Customs & Excise; but that Customs & Excise should have the right to recover those costs - in the sum of about £900 - as the court might direct. The costs of the bankruptcy petition and of the annulment application were reserved. The matter was to be relisted for determination of the question who should pay those costs. As I have said, the order was made by consent; but the recital that the parties had agreed terms was qualified by the words "without any admission of liability by the first respondent [Customs & Excise]." By a further consent order made in the Croydon County Court on 15th March 2000, it was ordered that Mrs Julia Housiaux be added as a respondent in relation to costs, pursuant to section 51 of the Supreme Court Act 1981 and CPR 48.2.

Eventually the question who should pay the costs of the bankruptcy petition and the annulment application came before District Judge Fink in Croydon on 31st July 2001. The District Judge made an order that the disputed costs should be paid by both Mr Housiaux and Mrs Housiaux. She assessed those costs at £4,817. In a judgment, of which we have her approved note, she set out her reasons. She explained that she had been persuaded on grounds of proportionality that she should not adjourn the hearing before her in order to resolve disputed questions of fact on oral evidence. No doubt she had in mind the provisions of rule 7.7 of the Insolvency Rules 1986 - which provides for evidence to be given by affidavit or statement unless the court otherwise directs. She thought that the convenient course was to dispose of what was, even then, a long outstanding matter on the basis of those facts which were self-evident. After setting out the history - substantially in the terms which I have already rehearsed - she went on to say this:

Mr Housiaux appealed to a judge of the High Court, as he was entitled to do, under section 375(2) of the Insolvency Act 1986 and rule 7.48(2) of the Rules. Although he is the only appellant named in the appellant's notice to the High Court - Mrs Housiaux being named as a respondent to that appeal - it appears that all parties and the judge were content to proceed on the basis that the appeal was an appeal by Mr and Mrs Housiaux jointly.

The grounds of the appeal to the High Court appear in the appellant's notice dated 24th August 2001:

That appeal came before Peter Smith J on 25th April 2002. As I have said, he treated the appeal as an appeal by both Mr and Mrs Housiaux. He dismissed the appeal and affirmed the order of the District Judge. He ordered that the appellants pay the costs of the appeal, which he assessed summarily at £5,095. The costs of the appeal were greater than the amount then at stake, £4,817 - given that the District Judge had made no separate order for the costs of the hearing on 31st July 2001. Peter Smith J reminded himself that, sitting as an appellate court, he ought not to interfere with the decision as to costs made by a judge in a lower court in the exercise of the discretion which she undoubtedly had unless she had exercised her discretion on a false basis. He went on to say this:

  Mr Housiaux sought permission to appeal to this court. The grounds of appeal, set out in section 7 of the appellant's notice filed on 15th May 2002, recognise that an appeal to this court would be a second appeal, to which the provisions of CPR 52.13 apply. The requirements of that rule are addressed in the appellant's notice in these terms: 

The application for permission to appeal was referred to Simon Brown LJ on the papers. He refused it. He expressed his reasons for refusing the application in trenchant terms:

Mr Housiaux was not deterred by that refusal. He renewed the application for permission to appeal at an oral hearing before Arden LJ on 25th September 2002. Her view differed from that of Simon Brown LJ. She granted permission to appeal and stayed, pending the appeal, both the costs order made by District Judge Fink on 31st July 2001 and the order for costs made by Peter Smith J. It is plain from her order, and from the transcript of the proceedings before her (with which we have been provided), that she was satisfied that the only application for permission to appeal which was before her was an application by Mr Housiaux. There was no application by Mrs Housiaux; and Mrs Housiaux was not granted permission to appeal. It was therefore a matter of some surprise when Mr Eggleton informed us, at the outset of his submissions, that he appeared for both appellants. That is not the position. There is no appeal by Mrs Housiaux before this court.

So it is that there is now, before three judges of this court, a second appeal against an order for costs in the sum of £4,818 made some 18 months ago in respect of bankruptcy proceedings which, but for the dispute about costs, would have been disposed of three years ago when the bankruptcy order was annulled by consent. It may well be questioned whether the time and resources which the courts have been required to allot to this matter can be reconciled with the overriding objective set out in CPR Part 1 - in particular CPR 1.1(2)(c) and (e). A fortiori, in the circumstances that the decision appears to have been taken -- for what reason we do not know -- that Mrs Housiaux would not appeal the order of Peter Smith J. She remains liable to pay some £10,000 whatever the result of Mr Housiaux's  appeal. It has not been explained to us why Mr Housiaux should choose to pursue an appeal against a debt for which his wife will remain liable in any event.

Following the grant of permission to appeal on 8th October 2002, the appellant lodged a further skeleton argument; replacing an earlier skeleton dated 10th July 2002. The purpose of the new skeleton is to address the grounds upon which permission to appeal was granted by Arden LJ. It seeks to do so under two main heads. First, the effect of the consent order of 29th February 2000; and, second, the failure of the District Judge to make findings of fact on matters which were disputed. It is said that the District Judge's failure to appreciate the statutory framework within which the bankruptcy order was made and subsequently annulled, independently or in combination with her failure to make the necessary findings of fact, led to a position in which her exercise of discretion under CPR 44.3 was flawed.

In order to do justice to those submissions, it is necessary to have in mind the relevant provisions of the bankruptcy code. A creditor may present a petition to the court seeking an order that his debtor be adjudged bankrupt if, but only if, the four conditions set out in section 267(2) of the Insolvency Act 1986 are met. In the present context the relevant provision is that in subsection (2)(c): that the debt is one which the debtor appears to be unable to pay. Section 268(1) provides an exclusive definition of the circumstances in which, for the purposes of section 267(2), a debtor is made to appear unable to pay a debt. Subsection (1)(a) of section 268 requires that the creditor should have served on the debtor a demand in the prescribed form requiring payment of the debt, and that, three weeks having elapsed after the service of the demand (called "a statutory demand"), it has neither been complied with nor set aside in accordance with the rules.

The power to make a bankruptcy order on a creditor's petition is conferred by section 271 of the Act. The section requires that the court shall not make an order unless satisfied that the debt in respect of which the petition was presented was a debt payable at the date of the petition and has been neither paid, nor secured, nor compounded for. Section 282(1) is in these terms:

Those provisions are supplemented by the Insolvency Rules 1986, made under section 412 of the Act. Rules 6.1 and 6.2 prescribe the content and form of a statutory demand and the information which it is to contain. Rule 6.3 contains requirements as to service. Subrule (1) of that rule provides that rule 6.11 is to have effect in relation to service of the statutory demand. Subrule (2) of rule 6.3 is in these terms:

So the rules provide - in conjunction with section 268 of the Act - that there must first be a statutory demand; and an opportunity to apply to set the statutory demand aside. If that application to set aside is successful, then no bankruptcy petition will follow. But if no application is made - or, if made, is unsuccessful - the debtor is not necessarily made bankrupt. It is still necessary for the creditor to present the petition; and for the court to determine on the petition whether the bankruptcy order should be made.

If the statutory demand has been served and no application to set aside has been made - or, if made, has been dismissed - the creditor may present a bankruptcy petition if, after 21 days, the debt remains unpaid. Rule 6.8(2)(a) requires that there shall be stated in the petition the date and manner of service of the statutory demand. Rule 6.11(1), to which reference is made in rule 6.3(1), provides that where, under section 268, the petition must have been proceeded by a statutory demand, there must be filed in court with the petition an affidavit or affidavits proving service of the demand. Subrule (3) applies where the statutory demand has been served personally. Subrule (4) applies where service has been acknowledged in writing by the debtor or by some person stating himself in the acknowledgment to be authorised to accept service on the debtor's behalf. Neither of those subrules is in point in the present case. Subrule 6.5 is in these terms:

On the hearing of the petition the court may make a bankruptcy order if satisfied that the statements in the petition are proved - see rule 6.25(1). That requires the court, on the hearing of the petition, to be satisfied that the statements in the petition as to the manner of service of the statutory demand are true - see rule 6.8(2)(a). Customs & Excise sought to comply with those requirements by the statement in paragraph 3 of the petition that:

The application made by Mr Housiaux in January 2000 was supported by the affidavit which he had sworn. At paragraph 4(b) of the affidavit he said this:

In her statement made on or about 27th January 2000 Mrs Housiaux referred to that meeting shortly. She put it in November 1998. She was not there; but she understood that Mrs Dempsey saw her husband that day. She said this:

There was further support for Mr Housiaux's case in a statement from Mr Gary Law, also made at the end of January 2000. He referred to the same meeting in these terms:

It was on that basis that Mr Housiaux applied for an order under section 275 of the 1986 Act rescinding the bankruptcy order or, alternatively, an order under section 282(1)(b) annulling the bankruptcy order on the ground that the debt had been paid or secured. There is nothing in that material which sought to support an application under section 282(1)(a); that is to say, that on grounds existing at the time the order was made the order ought not to have been made. Nevertheless the Croydon County Court felt able to make an order under section 282(1)(a) on 29th February 2000 by consent and without investigating the position.

In my view the order of 29th February 2000 ought not to have been made in the form in which it was made. It is plain from the recital that Customs & Excise were not admitting liability; and the provisions reserving questions of costs showed that they were not accepting the factual account in Mr Housiaux's affidavit, Mrs Housiaux's statement or Mr Law's statement. That was to be left for consideration at a future date. Even if those statements were correct, it is not clear why this was thought to be a case for an annulment order under section 282(1)(a) rather than an order rescinding the bankruptcy order under section 375. A court when asked to make an order under section 282(1)(a) of the Insolvency Act 1986 ought to satisfy itself, by such investigation of facts as it thinks necessary, that the bankruptcy order ought not to have been made. Bankruptcy is a class remedy. A court should not annul a bankruptcy order by consent and without investigation.

That is not to say that the petitioning creditor may not agree - quite properly - not to oppose an annulment of the bankruptcy order. But if he does so, he must make it clear that he does not challenge the factual basis - or identified parts of the factual basis - upon which the application for annulment is made. That was not this case; as the correspondence which preceded the making of the bankruptcy order makes plain.

It follows that I would hold that the appellant cannot rely on the order of 29th February 2000 as a basis for asserting either (i) that Customs & Excise were accepting the allegations in Mr Housiaux's affidavit of 18th January 2000, or (ii) that the court had made any determination in relation to those allegations. The position was that all those matters were in dispute. Mr Housiaux was anxious, understandably, to have the bankruptcy order removed so that he could continue his trade. Customs & Excise were content for that to happen, on the basis that they would be secured by a charge over his house for the amounts which they claimed. The proper course in those circumstances was to rescind the order on the basis that, had the creditor known of the petition, the petition debt would have been secured.

Determination as to the truth or otherwise of the allegations made in the affidavits and statements and their legal effect was left to the future. On 14th August 2000 Mrs Dempsey made a witness statement. She dealt with the visit to the shop in November 1998; and, at paragraphs 9 and 10 of that statement, with a subsequent visit on 1st December 1998 at paragraphs 12, 13 and 14. It is clear she puts the visit to which Mr Housiaux referred in his affidavit at the later date of 1st December; but nothing turns on that. As to the allegation that she was told that Mr Housiaux could be contacted at his Fareham address, she said this:

It was on that basis that the matter came before District Judge Fink. As I have said, she took the view that considerations of proportionality required that the matter should be dealt with that day. She rejected the alternative of an adjournment for what was said to be a further day or day and a half to enable witnesses to be cross-examined. It is important to have in mind that this was a dispute about less than £5,000. Accordingly, she directed herself, as I have indicated, that she should reach her decision on facts which were self-evident. She was entitled to take that view.

The District Judge cannot be criticised for taking the view that considerations of proportionality weighed against an adjournment for a lengthy oral hearing in a case of this nature. Having decided against an adjournment, she recognised that she could not make an order against a party who was relying on some material fact which she was not going to decide unless she assumed that fact in favour of the party against whom the order was to be made. Or she could take the view that the facts which were disputed made it impossible for her to reach any conclusion, so that the only order open to her was no order as to costs. Fairness required no less.

I do not understand those propositions to be in dispute. The District Judge made the order that she did for the two reasons which she gave in the passage to which I have referred. Her first reason was that the service of the statutory demand - by putting it through the letterbox - was a reasonable way of effecting service in the circumstances of this case. Mr Housiaux had held out to the VAT office that his business was being carried on at 82 Church Street and that Mrs Housiaux would be in charge of administrative matters at those premises. Secondly, assuming in his favour that he had told Mrs Dempsey in November or December 1998 that he could be contacted at his Stubbington Lane address, he had not told her that that was the place to which formal communications - such as demands for payment should be sent; nor that that was the place to which he wished to transfer his registered VAT office. It is, of course, not at all surprising that nothing was said about service in October 1998 because the bankruptcy proceedings were still some six months in the future.

The District Judge made an order against Mrs Housiaux for a different reason. She held that Mrs Housiaux's actions were responsible for the failure of Mr Housiaux to have knowledge of the statutory demand and the petition which had been left at or sent to 82 Church Street. It is plain that the District Judge took the view that Mrs Housiaux had acted irrationally or irresponsibly in failing to bring to her husband's attention documents which she knew were important; while, at the same time, encouraging Customs & Excise to think that those documents had been received and were being dealt with.

In my view, those were findings which the District Judge was entitled to make. On the basis of those findings she was entitled to reach the conclusion that the costs of the petition and its annulment should fall on Mr and Mrs Housiaux.

It is important to keep in mind the statutory obligations in respect of VAT that are imposed upon a trader. The obligations of the trader are to make returns and to keep records available for inspection. Those obligations include the provision of a registration address at which the trader can be contacted. A trader cannot be heard to say: "I never open my post at my registered VAT office" or "I do not have in place a system which brings to my attention the communications from Customs & Excise which are addressed to that office." It was Mr Housiaux's responsibility, in the circumstances of this case, to ensure that documents which were left at, or sent to, 82 Church Street came to his attention or were dealt with by someone under his authority. If he had delegated the authority to deal with those documents to Mrs Housiaux, then it was her responsibility to ensure that those documents were dealt with; or were brought to her husband's attention. At the least she was required to tell Customs & Excise that she had not done what they had been led by her to think that she would do.

When the matter came before Peter Smith J, there was additional evidence in the form of a statement made by Mr Lelliot, Mrs Dempsey's superior officer, dated 3rd April 2002. He referred to the telephone conversation with Mr Housiaux at the end of November or the beginning of December 1998. He said this:

I should make it plain that I do not find it necessary to decide whether the service of the statutory demand did or did not satisfy the requirements of rule 6.3. There is ground for criticism in relation to the statement in the petition that the residential address of the debtor was unknown. I put my decision on the basis that the purpose of the relevant rules is to bring to the attention of the debtor that he has an opportunity to challenge the debt by seeking to have the statutory demand set aside; and to bring to his attention the petition which follows a failure to challenge a statutory demand. In the present case the reason why Mr Housiaux did not become aware of the matters of which he should have become aware was not because there were formal defects in the service of the statutory demand, or in the petition. It was because his internal arrangements for dealing with communications from Customs & Excise sent to his VAT registered office failed. That failure was brought about by the lack of communication between Mr and Mrs Housiaux. They were living as man and wife; and it was reasonable, in the circumstances of this case for Customs & Excise to assume that they would communicate, about the administration of the business. Mr and Mrs Housiaux should not now be entitled to shelter behind insolvency rules which are intended to meet a real, and not a self-generated, failure to bring to the debtor's attention that which he needs to know.

Our attention was drawn to the decision of this court to which reference has already been made - Legal Services Commission v Leonard [2002] EWCA Civ 744, [2002] BPIR 994, decided on 1st May 2002. I note that Simon Brown LJ - when dealing on paper with the application for permission to appeal in this case - felt able to say that there was nothing in the Legal Services Commission case which touched upon the facts of this case. I take the same view. In that case, the Legal Services Commission had presented a bankruptcy petition at a time when execution on the petition debt was stayed. That was an abuse for which the Commission were penalised by being refused the costs of the petition. I respectfully endorse the observations of Arden LJ as to the nature of bankruptcy and the effects of the presentation of a bankruptcy petition; and I share her view that the court is entitled to expect that a public body will observe the standards required of other petitioning creditors in the bankruptcy court. But I do not take the view that this is a case in which the Customs & Excise can be criticised in relation to the steps which they sought to take to bring the statutory demand and the bankruptcy petition to the notice of Mr Housiaux.

For those reasons I would dismiss this appeal.

MR JUSTICE MORLAND: I agree.

LORD JUSTICE THORPE: I also agree.