Ferrera v Hardy

LORD JUSTICE FLOYD: This is an appeal by Mr Hardy from the decision of His Honour Judge Hodge QC, sitting as a judge of the Chancery Division on 2nd October 2013 and his consequent order. By his order the judge dismissed an appeal from the order of District Judge Wright dated 12th April 2013 which set aside in part a third party debt order, obtained by Mr Hardy against Liverpool City Council ("the Council"), in respect of a debt contended to be owed by the Council to Mr Ferrera.

Mr Hardy has the benefit of a judgment entered against Mr Ferrera on 20th November 2005 which remains unsatisfied. We do not have the details of what that judgment related to but in or about 2011 Mr Hardy became aware, in the process of examining Mr Ferrera as his judgment debtor, that money was being paid by the Council to Mr Ferrera. On 21st August 2011 Mr Hardy applied for a third party debt order, founded on his judgment debt and seeking to attach certain monies being paid by the Council to Mr Ferrera. An interim third party debt order was made on 28th February 2012 and on 29th May 2012 the Council was ordered to pay Mr Hardy the sum of £7,281.20.

The money being paid by the Council to Mr Ferrera was housing benefit due to tenants of a property in March Road, Liverpool, owned by private landlords ("the property"). The private landlords were members of the Adjani family, a father and two sons who were resident abroad. As is not uncommon, and pursuant to regulations to which I will have to refer, the Council had arranged to pay the housing benefit due to the tenants of the property to the landlord's agent in discharge or partial discharge of their rent.

Because the Adjanis were resident abroad they had appointed an agent to receive the rents who was resident in the UK. This was Mr Ferrera. Each of the three landlords wrote to the Council in early 2011 authorising payment of the rent to Mr Ferrera. Thus Mr DS Adjani wrote on 13th January 2011, stating that he had appointed Mr Ferrera his agent in all matters pertaining to the property. The letter also stated that Mr Ferrera would discharge all responsibilities/obligations on his behalf as well as ensuring that all payments were made to a particular account of the landlord. He followed this letter by a further explanatory letter dated 14th February 2011, confirming that all payments should be made into Mr Ferrera's account. Mr AG Adjani and Mr OC Adjani wrote in undated letters that they authorised all payments of rent to be made to the account of their agent Mr Ferrera, who had full authority to act on his behalf in any event of decision making.

In July 2012 the Council applied to set aside the third party debt order. The Council's application came before District Judge Wright on 12th April 2013. She directed that, save for a sum of £650 which she was satisfied was due to Mr Ferrera personally by way of his commission and therefore paid to Mr Hardy, the sums held by the Council should be paid to the landlord's current agent Mr Emmanual Ebikake. She did so on the basis that the sums in Mr Ferrera's hands would be akin to trust monies and it would be wrong to utilise trust monies to discharge Mr Ferrera's judgment debt.

Mr Hardy appealed to the judge. The judge heard arguments from Mr Hardy, Mr Ferrera and the landlord's current agent, Mr Emmanual Ebikake, all in person. A Ms King, who had made a witness statement on behalf of the Council, was also present but took a neutral position. She emphasised to the judge that, although the Council was paying the housing benefit to the landlord's agent, the tenant herself could have received these monies and paid them on to the landlords.

Having listened to the arguments the judge dismissed the appeal on the basis that the monies received by Mr Ferrera would be subject to a trust in favour of the landlords. Mr Hardy is dissatisfied with the judge's decision. With the permission of Lewison LJ permission was granted for a second appeal. On this appeal we heard from Mr Hardy in person. Mr Ferrera, the respondent, did not appear. One of the landlords attended the hearing but we permitted Mr Ebikake, the landlord's current agent, who told us he is a qualified a Nigerian lawyer, to speak on the landlord's behalf. No one appeared for the Council although we were sent an e-mail to excuse its attendance.

We are grateful to those who appeared for such assistance as they were able to give us in this case.

CPR part 72 provides so far as material as follows:

The note in the 2015 White Book at paragraph 27.2.16 suggests that only rarely can trust funds be attached to a third party debt order. I can see the force of that point. A trustee holds trust funds for the beneficiaries of the trust. He is not entitled, without placing himself in breach of trust, to pay those monies over to a third party in satisfaction of his personal debts.

However, an agent such as Mr Ferrera does not necessary hold money received on behalf of his principal on trust for that principal. It all depends on the circumstances. The principal may expressly appoint the agent on that basis, or it may be apparent from all the circumstances that this is what is to be inferred into the relationship between the principal and the agent. A highly relevant factor will be whether the agent was instructed to keep the moneys in an account separate and distinct from his own money. Of course there may be other relevant circumstances from which it is proper to infer the existence of a trust.

Although the argument in the courts below seems to have focused exclusively on the question of whether a trust was to be imposed on the relationship between the landlords and Mr Ferrera, there seems to me to be a logically prior question: namely whether the money held by the Council can be said, using the words of CPR 72.1(1) to be money which the Council owes to the judgment debtor, or using the words of 72.2(1)(a) whether there is a debt due or accruing due to the judgment debtor from the third party. If the Council does not owe Mr Ferrera the money, or there is no debt as between the Council and Mr Ferrera then there is no debt which falls within the rule and which the third party debt order can attach. In this context the rules must, as it seems to me, be referring to a civil debt enforceable by the judgment debtor.

A further point made in the White Book commentary at 72.2.1 is that a judgment creditor cannot by means of a third party debt order stand in a better position as regards the third party than did the judgment debtor. Again, this seems to me to self-evidently correct. A useful test must be whether the judgment debtor would be in a position to sue the third party for recovery of a debt.

On the face of it, the money held by the Council is the tenant's housing benefit. The tenant is of course free to instruct the Council to use the housing benefit to discharge any obligation of the tenant, including the obligation to pay the rent to the landlord. But these facts are not sufficient to create a relationship of debtor and creditor between the Council and the judgment debtor.

The person who is entitled to claim housing benefit is the tenant. Regulations 95 and 96 of the Housing Benefit Regulations 2006 provide as follows:

It is clear therefore that there are certain circumstances in which the local authority must pay the benefit direct to the landlords - see regulation 95. There are other circumstances in which the local authority has a discretion to do - see regulation 96. The mandatory provision includes the case where the tenant is in arrears with the rent for a period of 8 weeks - see regulation 95(1)(b). Regulation 95(2) makes it clear that what the local authority is doing is discharging the tenant's liability to the landlord for the rent. The regulation contains nothing to suggest the authority is discharging a debt of its own.

The discretionary provision in the regulations includes the case where the tenant has requested or consented to the payment or where such an arrangement is in the interests of the tenant or her family - see regulation 96(2).

We do not know for certain into which category - mandatory or discretionary - the present case falls, but it seems more likely than not that the payment fell under the Council's discretionary powers given Ms King's emphasis that the tenant herself could have received the monies and paid them onto the landlords herself. In those circumstances, it seems to me that the Council do not owe a debt to Mr Ferrera. The money which Mr Hardy seeks to attach is money which the Council intend to use to discharge a debt owed by the tenant, not by the Council. Mr Ferrera could not sue the Council for this money. If the Council had ceased to pay the housing benefit to Mr Ferrera, it would be to the tenant and not the local authority to whom the landlords would have to look for the arrears of rent. The Council do not owe a debt to Mr Ferrera.

In any event, I do not think the result would be any different if the case fell under the Council's mandatory powers. It would then be the Council's public law or statutory obligation to pay the housing benefit to the landlord but I doubt this is sufficient to create the necessarily relationship of a civil debtor and creditor which the rule requires.

That is sufficient reason to uphold the judge's order albeit on a different ground. There is no relevant debt of the Council to which a third party debt order could attach. It is therefore not necessary to consider whether this is a case in which it is appropriate to impose a trust on the relationship between the landlords and their agent, as both the judge and the District Judge were prepared to do. We know next to nothing about the details of that relationship. Mr Hardy submitted that the evidential burden of establishing the trust would be on those who sought to establish it. There was no evidence that the money was to be kept in a separate account or any other evidence from which an intention to create a trust could be inferred. Indeed it appeared that the money was to be paid into Mr Ferrera's personal account. Overall, he submitted, that there was no more than a duty to receive the monies, discharge obligations as necessary and render an account to the landlords. I need do more than record that Mr Hardy presented these submissions clearly and courteously but it is not, in the end, necessary for me to reach any conclusion on them.

It is also not necessary to express a view on other arguments advanced on behalf of the landlord. I would therefore dismiss the appeal.

LORD JUSTICE SALES: I agree.

LORD JUSTICE RICHARDS: I also agree. The court will therefore order the appeal to be dismissed.