Ram v Ram & Ors

LORD JUSTICE THORPE: This is the husband's appeal against an order made by Hedley J in ancillary relief proceedings on 4 March 2004. The barest facts are that the husband and the wife have been a couple since 1986, although they did not marry until 1993. They purchased their matrimonial home at 34 Longmeadow Close in 1988. In 1990 the husband and his family bought a property at 11 Westfield Road, and there has been a degree of obscurity surrounding the respective interests of the husband, his brother Solinder and his father, since deceased on 3 February 1998. By his will the deceased purported to leave a quarter share in 11 Westfield Road to the husband and Solinder equally. The next significant event occurs approximately six months after the death of the husband's father. He is the subject of a bankruptcy order made on a petition filed I think at the behest of the Inland Revenue asserting unpaid tax debts.

The divorce proceedings commenced with the wife's petition of 20 May 2002 and financial proceedings began at once. The financial proceedings have been protracted, and one of the interlocutory orders was appealed to this court and was the subject of a judgment given on 19 March 2003. The proceedings demonstrate great folly on the part of both the principal parties. The wife seems to have been reluctant to recognise or accept the legal consequences of the prior bankruptcy proceedings. She has throughout been represented by Mr Peter Duckworth. He has conducted a campaign on the wife's behalf which took him into bankruptcy proceedings in the Chancery Division, which culminated in a judgment given by His Honour Judge Norris QC on I think 17 December 1993. He held that the wife had no interest in the matrimonial home, but granted her permission to appeal, recognising that in some senses she was the victim of the effect of section 423 of the Insolvency Act 1986. That appeal was determined by this court on 5 November 2004. Carnwath LJ gave the judgment of the court, which upheld the conclusion of Judge Norris and dismissed the wife's appeal.

The husband's folly has lain in his machinations in the ancillary relief; failing to cooperate responsibly in the process, failing to make full and frank disclosure of his assets, and thereby incurring strong criticism by the judges of the trial court and criticism in the prior judgment of this court.

Mr Duckworth has characterised this strategy as a strategy intended to defeat the wife's claims. He has specified the significant points of the strategy as failing to turn up at any of the court hearings in ancillary relief since the first, swearing a defective Form E, failing to disclose an important interest in his late father's estate, and resisting disclosure of documents relating to that interest. So the prospects of the ancillary relief proceedings compromising must have seemed extremely remote. The case was fixed for a three-day hearing before Hedley J commencing on 3 March. Hedley J certainly prepared himself for a contest, carefully reading the papers in advance of the fixture. However, he knew that the husband's public funding certificate had been withdrawn shortly before the fixture, and he was anticipating an application by the husband for an adjournment when the case was called. However, the wife's solicitors had written on 1 March an open letter in which they said:

On the morrow it is possible to discern what happened since we have a full transcript of the proceedings. Page 1 shows Mr Duckworth bringing the judge up to date. He said:

As well as Mr Duckworth, the husband's trustee in bankruptcy was also before the court in the shape of Mr Lee, his solicitor. At page 13 of the transcript the judge invited Mr Lee to state what was his role. Mr Lee made it plain that he was initially alarmed at the provision within the compromise that the wife was to receive 34 Longmeadow Close free of mortgage, when of course that property was vested in the trustee in bankruptcy. The judge reassured Mr Lee that the term agreed was expressly subject to any other charges and that that must include the trustee in bankruptcy's interest. The judge said:

The exchanges between Mr Duckworth and the judge towards the end of the day make it plain that the judge was not allowing the husband any opportunity to be heard in relation to the rigid programme of enforcement, other than allowing him a conventional liberty to apply in relation to implementation and a liberty to be heard as to the quantum of the wife's costs.

That latter acknowledgment reflected the fact that, whereas the compromise in the correspondence obliged the husband to pay the wife's solicitor's indemnity costs, they had not been assessed and the judge was going further in assessing them in the sum of approximately £66,000. So, in recognition that to that extent he had exercised a discretion that was not within the four corners of the compromise, the judge allowed the husband an opportunity to apply, but not otherwise. The exchanges between the judge and Mr Duckworth (between pages 24 and 30) make it plain that Mr Duckworth was going to make some amendments and embellishments to his draft order which was already on his word processor, and that he would bring the polished draft back to the judge on the following day for perfection.

On 4 March we see from the full transcript that Mr Duckworth at once presents to the judge his overnight handiwork and almost at once he addressed the judge:

In precisely that same mode the husband's solicitor and his counsel, Mr Stenhouse, appeared before the judge on 4 March. The judge at the outset of the proceedings noticed Mr Stenhouse's presence and said:

The judge also heard from Mr Lee again when he said that his client, the trustee, wished to know what was meant by paragraph 1 of the order that required the transfer of 34 Longmeadow Close forthwith to the wife. When Mr Lee posited that Barclays, the mortgagee, might evict her for arrears and the property would then be sold and converted into cash, the judge reassured him, saying:

The judge dealt individually and in turn with Mr Stenhouse's submission in relation to each of the paragraphs which were more enforcement than compromise. The order of 3 March I will return to, but I complete the chronology by recording that on 20 April an application was received in this court for permission to appeal. I believe that that application was in time, pursuant to extension granted by Hedley J and, when the papers were referred to me, I made an order for an oral hearing on notice with appeal to follow if permission granted. I am not clear why it has taken so long for the oral hearing to be listed.

Because of that delay there have been further and unnecessary proceedings in the trial court. On 7 July the wife issued an application for an order that the property at 11 Westfield Road be delivered up to her within 14 days with vacant possession and that her solicitors be given the conduct of the sale. That attracted a cross-application from the husband's brother, Solinder, in which he sought the discharge of the order for sale of 11 Westfield Road made by Hadley LJ. The grounds were that he had not been notified of any application for the order for sale and that there were pending appeals concerning the order for sale and the petitioner's interest. It seems to me unfortunate that there should have been a contested hearing before Her Honour Judge Hindley QC on 11 October to determine those cross-applications. After all, the hearing of the husband's application in this court had been fixed for 16 November, and equally it was known that the wife's appeal from the order of Judge Norris was to be heard on 5 November. Nonetheless the judge proceeded on 11 November. She made robust orders designed to support and implement the judgment of Hedley J. She granted the wife the relief sought by her application of 7 July and dismissed her brother-in-law's application of 9 September.

However the reliance on the essential foundation, namely the order of Hedley J, seems to me to be one that could not safely be made, given that there had been an order made on paper setting up a relatively full-scale appeal to this court.

The only other observation that I would like to make derives from the chronology. It is that all this complexity and considerable wastage of family and public funds might have been avoided if there had been a timely dispatch of the bankruptcy proceedings. After all, the bankruptcy proceedings had been on foot for a period of almost four years before the initiation of the matrimonial proceedings; the bankruptcy petition, 28 May 1998; the wife's divorce petition, 20 May 2002. If the bankruptcy proceedings had brought to a prompt conclusion before the initiation of the divorce proceedings, then the jurisdiction of the court and the discretionary range of the judge in ancillary relief would have been plainly established.

I turn now to the order which we review. In a clear and helpful submission Mr Sharp QC has distinguished between those paragraphs which are properly expressive of the compromise and those which are plainly part and parcel of the rigid scheme of enforcement. The prelude to the order contains four recitals, the fourth of which reads:

Coming to the order itself, it was the essential task of the court to draw an order by consent. Not only is this order not stated to be a consent order, but it is preceded by the writing of a penal notice. Nothing could more clearly demonstrate the point at which these proceedings ran off the rails. If the husband was to be faced with the imposition of a rigid regime of enforcement supported by a penal notice, that could only be legitimately achieved in separate proceedings on notice giving him the proper opportunity to be heard.

The paragraphs that are essentially expressive of the compromise in correspondence are paragraphs 1, 3, 4 and 6. In relation to them, Mr Sharp only essentially takes objection to the requirements that the paragraph 1 transfer of 23 Longmeadow Close and the paragraph 6 requirement to pay all the wife's costs should each be expressed to be forthwith. There was no such provision in the compromise and the introduction of a time element was no doubt dictated by the impermissible introduction of the penal notice. The paragraphs which are most stringently criticised by Mr Sharp are paragraphs 2 and 5, which read as follows:

Now, any comparison of the agreed terms with the order said to express them reveals at once that the order for sale of 11 Westfield Road was completely uncontemplated and, in any event, it was a property in which neither the wife nor the husband had any current interest, the husband's interest in the property being vested in his trustee. Equally, the terms of compromise had expressly excluded the possibility of any periodical payments order. It was characteristically a clean break compromise.

The following provisions of the order are not so much a matter of concern to Mr Sharp in that paragraph 9 granted to the husband's brothers, Solinder and Monder, a right of application on notice in the event that they or either of them wished to make representations as to the order for sale of 11 Westfield Road. The subsequent application of 9 September determined by Judge Hindley was just such an application. Paragraph 10 joins Solinder as a party for the purposes of determining whether he should be jointly liable for the wife's costs. That provision has some present legitimacy in that Mr Starcevic, who appears for Solinder today, tells us that there is an imminent two-day fixture to determine whether or not Solinder has any such obligation. Equally, the order went on to provide that there should be a hearing before Her Honour Judge Hindley to determine whether applications for wasted costs orders made against the husband's solicitors were still available to the wife for pursuit or whether she had lost her right of pursuit as an implied term of the compromise.

Finally, the judge provided in paragraph 12 that there should be an extension of a freezing injunction that had been granted on 12 November 2003 until the trial of the applications. The extension was granted until compliance with the orders contained in paragraph 1-6.

Mr Sharp's attack on this order falls into two distinct compartments. The first compartment is one of fairness. He emphasises the unwarranted, and on the transcript as it now stands inexplicable, extension of the purpose and goal of the appearance before the judge on 3 March. How on earth did the listing amplify from a simple standing out to enable the solicitors to obtain a signed consent order into a full-scale programme of implementation and enforcement? The criticism is, in my view, unanswerable.

Mr Duckworth, who might have been here to answer it, has taken a realistic view that the consequence of her failed appeal on 5 November is that the wife has now no subsisting interest in the appeal. She is not in a position to pay lawyers to appear before the court, and Mr Duckworth has simply filed a position statement in which he makes only two observations on the husband's appeal. He says, first, that since the husband has no subsisting interest in Westfield Road he has no standing to oppose or to appeal any order for sale or possession of that property. That seems to me to be a completely unpersuasive submission. If one product of the events of 3 March has been an order in relation to Westfield Road, it is manifest that that product has been achieved without proper regard to the husband's rights in any process of fair trial. Equally vain is Mr Duckworth's second submission that because the husband is in breach of orders for maintenance pending suit he should be denied a hearing on the application of the rule in Hadkinson v Hadkinson [1952] Probate 285.

The arrears of periodical payments were, after all, the subject of one of the terms of compromise. There was no bar to the husband's appearance in the court below, and the suggestion that he should be denied a hearing in this court on the grounds that he is in contempt is simply imaginative unreality. So Mr Sharp has demonstrated conclusively, to my mind, that there was an impermissible extension of the purpose of the listing on 3 and 4 March, and any provision within the order that is not simply expressive of the compromise achieved in the exchange of letters must be struck out.

Mr Sharp has an equally impressive submission which relates only to paragraph 2 of the order. That paragraph purports to be an order made under section 24A of the Matrimonial Causes Act 1973. There are two subparagraphs of the order that need to be cited. Subparagraph (1) provides:

Let me deal first with the procedural point derived from subparagraph (6). Solinder and Moner fall within the range of subparagraph (6). They are persons not a party to the marriage, having a beneficial interest in Westfield Road. Accordingly, in my judgment, the procedural provisions of subparagraph (6) had to be carefully observed. The judge did not have the power to make an order under section 24A in relation to 11 Westfield Road without having given both Solinder and Monder an opportunity to make representations with respect to the order; and any such representations had to be included among the circumstances to which the court had to have regard. It was simply not compliant with subparagraph (6) to say, as the judge said in paragraph 9 of his order, that they had a liberty to apply on 48 hours' notice.

I turn now to what is perhaps an even more substantial point. The court's power under section 24A(1) is a power restricted to property in which either or both of the parties has or have a beneficial interest either in possession or reversion. Plainly the wife had no interest of any sort in 11 Westfield Road. The presentation to the judge that the husband had a beneficial interest in possession or reversion simply ignored the effect and consequence of the outstanding bankruptcy order. The reality was that the interest vested in the trustee and the extent of the husband's potential interest had to await the completion of the process of insolvency and the determination of whether or not there was any surplus. Such an interest could not properly be described as a present beneficial interest either in possession or reversion. Mr Sharp has produced an erudite skeleton argument in which he has referred to a number of 19th Century authorities, some of which he suggests are conflicting. He says that they should all be reviewed and some condemned by this court. However, both my Lady and my Lord are much more learned in this field of law than I am and my Lady will say more on this topic in due course. In particular she will refer to modern authority which makes it plain that it is unnecessary to pursue the resolution of the conflict which Mr Sharp suggests exists amongst the earlier authorities. So it is plain to me that Mr Sharp succeeds on both his grounds that the order made by Hedley J on 3 March must be substantially reduced in extent so that it contains no more than the first three opening recitals, the plain label that it is a consent order, the provision of paragraph 1 deleting the words "forthwith"; paragraph 3 deleting the last line in brackets; paragraphs 4 and 6 deleting the word "forthwith". Paragraphs 7 and 8 may stand. Paragraph 9 falls because it is consequential upon the impermissible paragraph 2. There can be no harm in leaving paragraph 10, since the inquiry into Solinder's costs liability is still pending. It seems to me that only slight amendment is required for paragraph 12.

Accordingly I would grant permission and allow the appeal to the extent indicated.

In relation to Mr Starcevic's separate applications he has two in number. First, he has an application which has been given the Court of Appeal reference 2247. That is an application not issued until 25 October, and it seeks an extension of time and permission to appeal the root order of Hedley J. I well understand that once Judge Hindley had perhaps unfortunately determined the cross-applications in advance of the appeal hearings the brothers, Solinder and Monder, had to move this court in relation to the possession order. Their second notice, which has been given the designation 2248, attacks the order of Judge Hindley and is overwhelmingly obviously merited. It follows as night follows day that Judge Hindley's order cannot stand if Hedley J's order has fallen.

Accordingly, on application 2248 I would grant permission, allow the appeal and set aside the order of Judge Hindley in its entirety. However, I am not satisfied in the exercise of a broad discretion that it would be appropriate to grant an extension of time to cover the large interval between the hearing of March and the recent application to this court. Obviously it would have been open to Solinder and Monder to have sought to appear and to support the permission application of their brother when issued in April. Had they done so there might have been a similar limited grant such as was made by my order of 20 May; but directions would have been given to ensure that there was no duplication of representation. As it is, it would have been perfectly open to the brothers to have laid down a marker that they too challenged the court's jurisdiction in relation to 11 Westfield Road and sought to reserve their position pending the outcome of their brother's appeal. So for those reasons I would not grant any extension in relation to the application 2247.

LADY JUSTICE ARDEN: I agree with the orders that my Lord proposes, and I would like to add some reasons why I have come to the same conclusion as my Lord on the jurisdiction issue.

Mr Ram was adjudicated a bankrupt on 17 September 1998. He was discharged from his bankruptcy pursuant to section 280 of the Insolvency Act 1986 in September 2001. In 1996 prior to becoming bankrupt, Mr Ram transferred his quarter share in 11 Westfield Road, Edgebaston, to his father. However, the respondent to this appeal, Mrs Ram, commenced proceedings to set aside that transfer pursuant to section 43 of the Insolvency Act 1986. On 18 February 2004 His Honour Judge Norris QC held that the transfer should be set aside under section 423, but directed that the property should be re-vested in the trustee in bankruptcy of Mr Ram. An appeal against that part of the order was dismissed by this court, (Potter, Buxton and Carnwath LJJJ) on 5 November 2004.

Accordingly, when this matter came before the judge the position was that Mr Ram's share in the property, which had been transferred to his father, was vested in the trustee in bankruptcy and it so remains. Moreover, during the course of the bankruptcy, Mr Ram's father died. Mr Ram's father's share in the property was divided among his three sons. Accordingly, at the time the matter came before the judge the trustee in bankruptcy held a three-eighths share in the property, that being the aggregate of the two shares which I have mentioned to which Mr Ram would, but for his bankruptcy and but for the transfer to his father, would have been entitled.

The bankruptcy has now been in progress for many years. There is little information about the assets and liabilities. In the recent appeal in this court the unpaid liabilities of Mr Ram in respect of his debts and the costs charges and expenses of the bankruptcy were said to be about £411,000. The assets available for the payment of debts and costs were estimated in that appeal to be between £500,000 and £675,000. Those assets include a share in a house (or the house itself) in which Mrs Ram now lives. That is the property referred to in paragraph 1 of the judge's order. The arrears also included the share to which I have referred to above in 11 Westfield Road. On the basis of those figures, Mrs Ram anticipates that there will be a surplus in the bankruptcy.

The trustee in bankruptcy has not put in evidence. Mr Shakil Najib has attended the appeal in order to assist the court if called upon. He has informed the court that only about £6,000 has in fact been paid to creditors and that large amounts remain outstanding for the Inland Revenue and Customs and Excise in respect of unpaid tax and value added tax, statutory interests and penalties. Mr Najib, however, accepts that there may be a small surplus in due course. There are a number of uncertainties including the size of Mrs Ram's beneficial interest in the matrimonial home and the amount of the proceeds of sale of 11 Westfield Road; in other words this bankruptcy is nowhere near its conclusion.

I now turn to section 24A of the Matrimonial Causes Act 1973. Subsection (1) provides:

An order of the court under section 24A(1) can extend not simply to the party's interest when the order is made, but to the interest which she will have when the limited interest comes to an end. When section 24A refers to "a beneficial interest in property in reversion" it is, in my judgment, referring to a present entitlement to a future interest. The words "has or have" in the concluding part of section 24A(1) makes it clear that a person must actually have an interest in the relevant property, whether that interest is in possession or is an interest which is only "in reversion".

So far as assets held by a trustee in bankruptcy following a person's bankruptcy are concerned, the bankrupt, or if there has been a discharge, the former bankrupt, has no present entitlement to anything until a surplus is established. When the bankruptcy order is made the assets are vested in the trustee in bankruptcy under section 306 of the Insolvency Act 1986. This provides:

Because of the statutory vesting under section 306(1) it cannot be said that a bankrupt retains the beneficial interest which he had immediately before the bankruptcy. Moreover, the automatic discharge does not affect this position. Thus section 281 of the Insolvency Act 1986 provides:

Can it, however, be said that the bankrupt thereafter retains a beneficial interest in the property because there may be a surplus at the end of the day because the property in question may not need to be sold? The judge thought that a bankrupt does retain such an interest. In paragraph 17 of his judgment, he said:

The right of a bankrupt to receive the surplus of his estate is conferred by section 330(5) of the Insolvency Act 1986. This states:

In my judgment, a mere contingent interest of this nature is not within section 24A(1). However, it is not necessary to go this far as it is, in my judgment, clear that the interest of a bankrupt in a surplus is not an interest in property at all until the surplus has been finally determined. This can be seen most conveniently from the decision of the House of Lords in Ayerst (Inspector ofTaxes) v C & K (ConStruction) Ltd [1976] AC 167. This establishes that a company is not the beneficial owner of its asset once it enters liquidation. There are many similarities between the system of corporate and personal insolvency which makes this authority a relevant one even in relation to personal insolvency. The leading speech was given by Lord Diplock, with whom the remainder of the House agreed. He summarised the statutory scheme of the liquidation at page 176:

In my judgment, it was an essential part of Lord Diplock's reasoning that the beneficial ownership of property of a bankrupt is neither in the bankrupt nor in the creditor of the bankruptcy while the assets still remain unadministered. No interest in that property can accrue until it can be said with certainty what the creditors are entitled to receive. Assuming that the bankruptcy is being properly administered, that will rarely be until immediately prior to distribution. Lord Diplock does not specifically deal with the position of the bankrupt himself. However, as Mr Petar Starcevic, for the brothers submits, it would be touching on absurdity if you could say that a bankrupt has an interest in the surplus while the creditors have no such interest.

A large number of earlier cases are included in the bundle of authorities but, in my judgment, any doubt on the position has been resolved by Ayerst. Until the surplus in Mr Ram's bankruptcy is finally ascertained it cannot be said that he has any beneficial interest in the property. He therefore had no beneficial interest in 11 Westfield Road on 4 March 2004, whether in possession or in reversion. Accordingly, the judge had no jurisdiction on that date to make any order under section 24A(1) on the basis of that interest on that date.

The judge thought that he was preserving the interest of the trustee in bankruptcy. He said, in the course of submissions, to Mr Lee, representing the trustee, that everyone understands that the transfer of the matrimonial home would have to be subject to the interests of the trustee. Moreover, it is clear from paragraph 2 of his order that the judge was seeking to preserve the interest of the trustee.

I appreciate also that the judge wished to avoid duplication of efforts by the bankruptcy court in the Family Division. However, the question on section 24A(1) is not a mere technical point. The point goes to jurisdiction. There was no inherent jurisdiction to order a sale: see R vRushmoor Borough Council ex parte Barratt [1987] 1 All E 253 at 256. Moreover, it is clearly right that the trustee in bankruptcy should have sole control of the conduct of the sale so long as creditors remain unpaid. The learned judge was not sitting in bankruptcy. Applications under the Insolvency Act are assigned to the Chancery Division.

There is one final point that I would like to make. It concerns the form of the order, on which I have some concern. The order directed Mr Ram to take certain actions "forthwith". The order had a penal notice attached to it. Under the Civil Procedure Rules, if an order requires a person to do something, the time when he is to do that thing must be specified. This is clear from the Practice Direction on Judgments and Orders Supplementing Part 40 at paragraph 8. Paragraph 8.1 reads:

Moreover, since this order had a penal notice attached to it, the time for compliance with the judge's order should have been stated to run from service of the order upon Mr Ram.

With those observations, I agree with the order my Lord has proposed.

LORD JUSTICE NEUBERGER: I agree with the judgments given by my Lord Thorpe LJ and Lady Justice Arden, and I agree with the orders proposed by my Lord, Thorpe LJ.

LORD JUSTICE THORPE: I wish to add a short footnote to my judgment. I would not want my judgment to be read as critical of either Mr Duckworth, Hedley J or Judge Hindley.

It is important to emphasise that the letter from the husband's solicitors agreeing the four essential terms of the proposed consent order, a letter from which I have already cited, included this inflammatory passage: