Crammer v West Bromwich Building Society & Ors

This is a renewed application by Dr Yehuda Crammer for an extension of time and for permission to appeal against the dismissal of his application for the annulment or rescission of a bankruptcy order made against him on 28^th January 2004 by Lloyd J sitting as the Vice-Chancellor of the County Palatine of Lancaster.

At a hearing on 22^nd March 2010 HHJ Hodge QC dismissed Dr Crammer’s application and permission to appeal was refused by the Master of the Rolls on the papers on the grounds that the points taken in support of the application were either bad in themselves or were not open to Dr Crammer because they had been taken and rejected at earlier hearings.

Some of Dr Crammer’s criticisms of the judge relate to the way in which he conducted the proceedings. It is said, for example, that the judge was not prepared for the hearing: that the date given for the hearing meant that Dr Crammer was forced to prepare the case during Passover; and that his solicitor was not available to assist counsel at the hearing. But none of these points would justify the grant of permission to appeal unless they resulted in a hearing at which Dr Crammer was denied a proper opportunity to present his arguments. Having seen the skeleton argument prepared by Ms Lesley Anderson QC for that hearing, I am not satisfied that Dr Crammer was denied a fair hearing. Ms Anderson raised in a comprehensive way all the points which were reasonably open for her to take on behalf of Dr Crammer and she made no complaint about being unfairly hampered in her preparation for the hearing or in her ability properly to represent her client's interests. The case was listed and heard over the best part of a day and the judge had an opportunity fully to consider the arguments which were raised. But in any event the alleged lack of preparedness on the part of the judge also does not matter because the points of substance which the judge dismissed either stand or fall on their merits.

It was, I think, common ground before the judge that s.282(1)(a) of the Insolvency Act 1986 enables the court to annul a bankruptcy order on any grounds existing at the time when the order was made which show that the petition debt did not exist or that the order should not have been made. But this does not extend to any points which were raised in response to the statutory demand or at the hearing of the petition and were rejected. Only in exceptional circumstances will the court allow such points to be re-litigated on an application under s.282(1): see Turner v Royal Bank of Scotland [2000] BPIR 683.

It follows that if the bankrupt has grounds which would have been an effective answer to the petition and have not been adjudicated upon he is free to raise them on the annulment application even though he could conceivably have raised them earlier. The Court has to review the bankruptcy order in the light of the new material and if that shows that there is a bona fide dispute as to the existence of the pet it ion debt then annulment may follow. The power to annul an order under s.282(1)(a) is, however, discretionary and the court is not therefore bound to set aside the order if the creditor has acted reasonably and the debtor has failed to raise defences which were open to him at an earlier stage: see Owo-Samson v Barclays Bank plc 2003] EWCA Civ 714, at [35].

If therefore the debtor has already unsuccessfully appealed against the bankruptcy order on the grounds now being relied on in the annulment application the court will not (other than perhaps in exceptional cases) allow those points to be re-litigated on the s.282 application. If, on the other hand, they were open to the debtor on the appeal but were not taken the court is entitled to take this into account in deciding whether the order should be set aside.

Section 375(1) of the Insolvency Act allows the Court to review, rescind or vary a bankruptcy order but this power will not normally be exercised in favour of a bankrupt who is merely seeking to re-argue points already decided at the original bankruptcy hearing. The appropriate remedy for the bankrupt in such cases is to appeal against the making of the bankruptcy order. Therefore, as a matter of discretion and in principle, the review of the bankruptcy order on a s.375 application will be limited to new material and/or a material change of circumstances.

These principles are well established by the authorities referred to by the judge and were accepted by Ms Anderson as a correct statement of the law. Although Article 6 of the European Convention of Human Rights features in Dr Crammer's grounds of appeal, there is nothing in the application of the principles I have referred to which can possibly engage Article 6 or amount to an infringement of Dr Crammer's rights under it. The Court is entitled to protect its process from abuse by litigants who wish merely to re-open legal issues which have already been decided in the very same proceedings by a court of competent jurisdiction. Given that a refusal by the Court to set aside a statutory demand or the making of a bankruptcy order are both subject to a right of appeal, any challenge on Article 6 grounds to the principles on which the Court exercises its jurisdiction under ss.282 and 375 seems to me to be doomed to failure. An appeal would provide the bankrupt with a right to challenge not merely the grounds upon which the bankruptcy order had been made but also any procedural irregularity which it was contended denied him a fair hearing.

Against that background. I turn then to consider the matters that were in issue before Judge Hodge QC. The bankruptcy petition was based on a debt due to the West Bromwich Building Society. In October 1989 Dr Crammer granted a charge over a property at 34 Sedgley Park Road. Manchester to the Society to secure a mortgage loan of £423,500. Dr Crammer paid only one instalment of the mortgage and then defaulted. In August 1991 the Society obtained possession of the property and eventually sold it for £121,000. In March 1991 Dr Crammer's creditors approved an individual voluntary arrangement (IVA) but in June 1995 the supervisor himself petitioned for Dr Crammer’s bankruptcy. The application was not proceeded with and the petition was therefore dismissed. Then in January 1998 the Society recovered some £300,000 in an action against the surveyors who had valued the property for the Society at the time of the mortgage. This was credited to the mortgage account, although there is an issue as to how it was appropriated as between the arrears of principal and interest.

In December 2001 the Society served a statutory demand on Dr Crammer in the sum of £417,352.78. Dr Crammer successfully applied to have the demand set aside but, after a hearing on 23^rd October 2002, Neuberger J (as he then was) allowed the Society’s appeal and gave them leave to present a bankruptcy petition. The principal issue before the judge concerned the way in which the £300,000 had been appropriated by the Society against the arrears on the mortgage account. The £417,352.78 in the statutory demand was made up of the mortgage loan plus interest of £281,919.31 and other sums including what were described as arrears fees of £120,018.53. The District Judge set the statutory demand aside on the basis that the recovery of the loan and interest had become statute barred after 6 years. The subsequent decision of this Court in Bristol West Plc v Bartlett [2002] EWCA Civ 1181 that the limitation period in respect of capital (as opposed to interest) is 12 years led to an alternative argument that the proceeds of sale from the mortgaged property and the £300,000 in damages should ail have been appropriated in reduction of capital. This would have all but extinguished the amount of the mortgage loan leaving only the interest which was irrecoverable. Insofar as a small amount of capital remained payable. Dr Crammer should, it was said, have been given time to pay. It was also said that Dr Crammer had a genuine cross claim which exceeded what remained due.

Neuberger J rejected these arguments by holding that the Society was entitled to appropriate the recoveries against interest and rejected the existence of a genuine counterclaim based on the way in which the property was maintained and sold. Permission to appeal was refused by Chadwick LJ first on the papers and then subsequently at an oral hearing. At that hearing Dr Crammer was represented by Mr Mark Cawson QC who raised as one of the grounds of appeal an argument that the Society was still bound by the terms of the 1991 IVA. In his skeleton argument Mr Cawson referred to the difficulties Dr Crammer had in obtaining the necessary papers relating to the IVA but said that an affidavit would be provided as soon as possible. The other point raised on the application for permission to appeal was whether the start date for the 12-year limitation period was 20^th August 1992 (as had been assumed before Neuberger J) or was in fact an earlier date.

Chadwick LJ considered that the start date for the appropriation and the question of whether the debts subject to the IVA had been released were matters properly to be considered on the hearing of the bankruptcy petition. He therefore refused permission for what would have been a second appeal in relation to the statutory demand. The bankruptcy petition was then issued in December 2002 and listed for hearing in April 2003. In a skeleton argument prepared by Mr Cawson for the hearing the question of the IVA is dealt with. The IVA proposal was for a moratorium with a view to all creditors being paid in full with interest in the long-run. But this could not be achieved because the sale of the assets (including 34 Sedgley Park Road) did not raise sufficient monies. Mr Cawson's submission was that the Society was bound by the IVA in relation to the shortfall on its security whilst the arrangement continued. Although the IVA did not succeed according to its terms in that the creditors were not paid in full, there was no express provision in the arrangement which defined the events which constituted its failure. Although the supervisor could and did petition under s.264, it was not pursued. In these circumstances the IVA continued and, by necessary implication, the creditors were not entitled to take their own proceedings for the recovery of their debts.

The petition was not heard on 2^nd April 2003. Instead Dr Crammer applied on that day by counsel to HHJ Maddocks for an adjournment on the ground that the Society had failed to provide some further information which he had requested about the valuation of the mortgage property and the calculation of interest. The judge was also told that Dr Crammer would he unable to afford to instruct counsel on the hearing of the petition and that if an adjournment was refused he would have to act in person.

Although sympathetic. Judge Maddocks refused the adjournment and the hearing took place that afternoon before Lloyd J at which Dr Crammer appeared in person. The hearing extended into a second day during which Dr Crammer relied on Mr Cawson’s skeleton argument and obviously addressed the Vice-Chancellor at some length and in some detail.

Lloyd J gave two judgments. In his first judgment he dealt with a preliminary issue about the start date for limitation purposes of the right to recover capital. He held that the IVA proposal amounted to an acknowledgement of the mortgage debt. The point raised before Chadwick LJ about when the 12-year limitation period commenced therefore became irrelevant. The recovery of the principal was not statute barred.

In his second judgment Lloyd J dealt with the remaining points taken in opposition to the petition. These included complaints by Dr Crammer that he had not yet received all the information he needed from the Society (the point which Judge Maddocks had rejected) and other technical points about the form of the petition. But Lloyd J also addressed the substantive point about the IVA. The Vice-Chancellor recorded Dr Crammer's submission that the IVA continued indefinitely unless and until termination by a successful petition presented by the supervisor and then analysed the terms of the proposal. Having considered the points raised in Mr Cawson’s skeleton argument and by Dr Crammer, he held that the IVA did not continue indefinitely and that it was no longer in force.

The judge then went on to consider in some detail the arguments about appropriation (on the basis that the mortgage debt was not statute barred) and the viability of the counterclaim raised by Dr Crammer in relation to the maintenance and sale of the security. Having considered the further evidence put in by Dr Crammer since the matter was dealt with by Neuberger J, the judge rejected the contentions as being sufficient to extinguish the petition debt. Accordingly he made the bankruptcy order.

Dr Crammer then sought to appeal both that order and the earlier order of Judge Maddocks in respect of the adjournment. The grounds of appeal in respect of the bankruptcy order included both the appropriation issue and the status of the IVA but in his skeleton argument in support of the application for permission Mr Victor Joffe QC indicated that the challenge to Lloyd J's judgment about the IVA was no longer to be pursued.

Jacob LJ refused permission to appeal on a consideration of the papers on 29^th April 2005. On 27^th July 2005 Chadwick LJ and Etherton J considered the application for permission to appeal the orders of both Judge Maddocks and Lloyd J. Dr Crammer was unwell and unable to attend but his applications were dismissed.

The application to Judge Hodge was based on six grounds set out in a witness statement of Dr Crammer made on 7^th July 2009. They were:

“(1)

Prior to presenting the bankruptcy petition the petitioning creditor had been party to and was included within his own individual voluntary arrangement and was therefore bound by that arrangement which remained in force at the time of the making of the bankruptcy order.

(2)

The petitioning creditor was in breach of an order made in the Salford County Court on 27 October 2003 and which required it to provide further and better particulars and disclosure in relation to payment of £300,000 which was made to it and which it had failed to credit on the account.

(3)

Had the £300,000 been credited then there would have been no petition debt and there would have been a credit balance in my favour of approximately £95,000.

(4)

On 26^th January 2004 Judge Maddocks had erred in refusing to exercise his discretion to vacate the hearing of the petition and had left the applicant in the invidious position of having to conduct his own case without preparation or adequate disclosure from the petitioning creditor or representation. He says that he was ambushed into a three day hearing before Lloyd J sitting in the High Court in Liverpool rather than the Salford County Court.

(5)

On 28 January 2004 Lloyd J made the bankruptcy order without giving the applicant the opportunity of demonstrating that the petitioning creditor had no standing and/or that there was no petition debt. And finally,

(6)

The applicant has claimed that the conduct of each of the Judges was in breach of his Convention rights, and in particular Article 6 and Article 14, and he has made an application to the European Court of Human Rights to seek redress.”

Ms Anderson conceded that ground 6 added nothing. Ground I (the IVA) has already been considered by Lloyd J and subsequently abandoned in the Court of Appeal. The judge held that it was not open to Dr Crammer to raise it again on the annulment application. He was clearly right to do so. This was simply an attempt to re-litigate a point already decided in the bankruptcy proceedings. The position is made more acute by the abandonment of the point on (he application for permission to appeal but the position would have been the same even had the point been persisted with.

Grounds 2. 4 and 5 go to the fairness of the hearing before the Vice-Chancellor in terms of the evidence available and Dr Crammer's ability to deal with it. These complaints were raised before the Vice-Chancellor himself and as part of the application for permission to appeal. Judge Hodge therefore regarded them as having been disposed of previously in the bankruptcy proceedings. Again, I think he was right to do so.

The remaining ground concerns the appropriation. I have already dealt with Dr Crammer’s complaint that he was denied the evidence necessary to deal with this point. But the substantive issue was gone into in considerable detail by Lloyd J and Judge Hodge was right, in my view, to refuse to allow it to be re-opened on these applications.

In the final paragraph of his judgment the judge said this:

All of these were matters which the judge was. in my view, entitled to take into account in deciding whether to exercise the powers contained in ss.282 and 375 of the Insolvency Act. The reality of this application is that all the points of substance which Dr Crammer relies on to support his annulment application have already been considered and disposed of in the bankruptcy proceedings by Lloyd J. Permission to appeal against his order on grounds including the application issue has already been refused by this Court. Dr Crammer's attempt to attack the exercise of the judge's discretion therefore lacks any proper basis and is, in my judgment, bound to fail.

Dr Crammer took a further point that the bankruptcy order of 28^th January 2004 was somehow invalid because it contains as part of the order a direction that the petition should be transferred from the Salford County Court to the High Court in Liverpool. This, he says, was not a term of the original order. However, it is clear from Lloyd J’s judgment that the transfer direction was intended and I can see no basis upon which it can be said that the judge was either wrong to order the transfer or that this somehow removed the jurisdiction of the judge to make the bankruptcy order.

It is not therefore necessary to consider the merits of the application for an extension of time. I would refuse permission to appeal.

I agree.