Edginton v Sekhon & Anor

LORD JUSTICE LEWISON: On 24 July 2014, Deputy District Judge Caun heard a bankruptcy petition presented by Mr and Mrs Sekhon against their former solicitor, Mr Edginton. He set out the history of a long dispute between the parties and dealt with and rejected the arguments that Mr Edginton had presented in opposition to the making of a bankruptcy order.

Just as he was about to make the order, Mr Edginton made an unheralded application for an adjournment in order to pay the debt within a reasonable time. The judge refused the adjournment on the ground that it was too late and made the bankruptcy order. The question on this appeal is: was that a decision to which he was entitled to come?

The underlying dispute between the parties has a long history. Mr Edginton acted as Mr and Mrs Sekhon's solicitor until 2003. In the course of his retainer, professional fees became due, but he did not deliver a bill for some five years. Because of restrictions in the Solicitors Act 1974 on the recovery of fees and the provisions of the Limitation Act 1980, his entitlement to those fees became statute barred.

Mr Edginton's attempts to recover what he said he was owed led to many court applications. One such application resulted in an order for costs against Mr Edginton in the sum of £1,236 made on 20 July 2011. Mr Edginton did not pay that sum and so Mr and Mrs Sekhon served a statutory demand on 22 December 2011. Mr Edginton applied unsuccessfully to set it aside.

Accordingly, on 10 December 2013 Mr and Mrs Sekhon presented a bankruptcy petition. The petition debt was £1,236 plus the costs of the statutory demand, giving an aggregate of £1,570. The hearing of the petition was somewhat delayed, although not due to any fault on the part of Mr Edginton.

Mr Edginton's alleged entitlement to his professional fees was the main ground of his opposition to the bankruptcy petition itself, although his response to the petition also relied on two costs orders made in his favour which, he said, should be set off against the petition debt.

It is also right to note that in his response to the petition, Mr Edginton asserted that he had assets in excess of the petition debt and that he was not insolvent. However, that response did not go into any detail about his assets or his liabilities.

On the day of the hearing of the bankruptcy petition, Mr Edginton issued an application notice in which he alleged that Mr and Mrs Sekhon were estopped from relying on the costs order upon which the petition was based. His evidence in support of that application did not reveal any willingness or ability to pay the debt in the event that his legal arguments were rejected. Nor did he say in the course of argument before the judge that he was ready, willing and able to pay the debt in the event that his arguments were rejected.

In dealing with Mr Edginton's arguments based on two costs orders that had been made in his favour, the judge referred to the "catastrophic" effect that the making of a bankruptcy order would have on Mr Edginton. That effect is the result of section 15 of the Solicitors Act 1974 which automatically suspends a solicitor's practising certificate if he is adjudicated bankrupt.

However, the judge rejected Mr Edginton's argument because, in addition to the costs order on which the petition was founded, there were further costs orders in Mr and Mrs Sekhon's favour which overtopped the costs order made in Mr Edginton's favour. The judge thus concluded that the petition debt was owed, had not been paid and that there was no good reason for him to exercise a discretion not to make a bankruptcy order.

It was at that point that Mr Edginton interrupted the judge. The judge continued to deal with the technical matters of service and concluded that he was entitled to make the bankruptcy order. He continued:

Newey J held that the judge's decision was within the ambit of his discretion. Mr Edginton now brings this second appeal with the permission of Gloster LJ.

It is common ground that the conditions for making a bankruptcy order on a creditor's petition contained in section 27(1) of the Insolvency Act 1986 were satisfied. Accordingly, it follows that the judge had jurisdiction to make the order.

Procedure in insolvency proceedings is governed primarily by the Insolvency Rules 1986 ("the IR"). There is a general power to adjourn hearings; IR 7.10. However, since that rule is in chapter 1 of Part 7 of the IR, it does not apply to the hearing of bankruptcy petitions: see IR 7.1(c). Nevertheless, IR 6.29 envisages that a bankruptcy petition may be adjourned.

IR 7.51A provides that, with some exceptions, the CPR apply to insolvency proceedings with any necessary modifications, except so far as inconsistent with the IR. It seems to me, therefore, that in the case of a bankruptcy petition the jurisdiction to adjourn is now found in CPR Part 3.1(2)(b).

There are, however, differences between insolvency proceedings and an ordinary civil action. First, insolvency proceedings are class actions designed to secure distribution of an insolvent's assets pari passu between all his creditors. They are not merely a debt collection process. The primary purpose of the proceedings is to enable an independent person to ascertain and preserve the debtor's assets and to achieve that pari passu distribution.

Second, the presentation of a petition has the effect that any disposition of property made without the consent of the court by a person who is subsequently adjudicated bankrupt is void: see Insolvency Act 1986, section 284. Accordingly, delay in dealing with a petition is liable to have adverse consequences for creditors generally see Re: A Debtor (Number 72 of 1982) [1984] 1 WLR 1143 applied in Judd v Williams [1998] BPIR 88.

Against this background, the practice has evolved in relation to the grant of adjournments of bankruptcy petitions where the debtor asks for time to pay. The starting point is that if the petitioning creditor establishes that the statutory conditions are fulfilled, he is prima facie entitled to a bankruptcy order see Re: A Debtor (Number 452 of 1948) [1949] 1 All ER 652 and Re: A Debtor (Number 72 of 1982), both referred to in Judd v Williams.

The court, of course, has to power to adjourn the petition, but the practice is to do so only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time. There are many statements to this effect in the cases of which the following recent ones are representative.

A decision whether or not to grant an adjournment is, of course, a discretionary case management decision and consequently, the judge's exercise of his discretion in this case cannot be impugned on appeal except on the usual grounds for impeaching a judicial exercise of discretion.

Mr Attaras submits on Mr Edginton's behalf that the fact that the application for an adjournment was made at the very last minute is an irrelevant consideration and that by taking into account an irrelevant consideration, the judge's exercise of discretion is flawed. I do not agree.

Delay is inimical to all forms of litigation and especially so in a collective enforcement process such as insolvency. In my judgment, the judge was entitled to take into account the very late stage which the application was made. Even in ordinary civil litigation, late applications are frowned upon, as are applications for adjournments which delay the final resolution of the case.

Mr Edginton must have known that when the petition was listed for hearing, the expectation of Mr and Mrs Sekhon and indeed the court would be that it would be finally disposed of at that hearing. The costs order on which the petition is based had been made on 20 July 2011 and had thus remained unpaid for 3 years.

In addition, the modern litigation culture is to avoid surprise applications, so the fact that Mr Edginton's application came out of the blue was also relevant in the judge's exercise of his discretion.

During the course of his submissions to the judge, Mr Edginton could have said that in the event that the judge was against him on the substantive defence, he would ask for an adjournment in order to pay the petition debt and costs, but he did not. I do not consider that we should give any encouragement to tactical decisions of that sort.

Mr Attaras also submitted that in a case such as this where the petition debt is modest and the debtor is a solicitor, the longstanding practice I have described is wrong or at least is inapplicable. While I accept that some judges might allow a short adjournment without requiring evidence of the debtor's ability to pay, I do not consider that this court should cast any doubt on the validity of this longstanding practice.

Certainly, in my judgment, it cannot be said to be wrong to require evidence of ability to pay. Even in the case of a modest debt owed by a professional person, without knowing about the overall liabilities no court can be confident that the debt will, in fact, be paid within a reasonable time.

Mr Attaras goes on to argue that the overarching consideration in the present case was whether Mr Edginton was able to pay the petition debt within a reasonable time. That was undoubtedly a relevant consideration at a high level of generality, but the difficulty for Mr Edginton in the present case was that he had no formulated proposal about the time which he considered reasonable or the offer he proposed to make, let alone any evidence in support.

The argument is that the modest size of the petition debt was such that it was inconceivable that Mr Edginton would have been unable to pay it within a reasonable time, but without knowing anything about either his assets or his other liabilities, that is no more than speculation.

In fact, the statement of affairs subsequently produced by Mr Edginton's trustees in bankruptcy, although the figures are disputed by Mr Edginton, shows even on a best case outcome a substantial deficiency as regards unsecured creditors. In addition, as Mr Attaras accepted, any offer that Mr Edginton made would have had to include the costs of the petition.

As far as consequences of the bankruptcy order are concerned, it is clear that the judge had them in mind because he had referred to them in the course of his judgment a few minutes earlier.

Other judges might have exercise their discretion in favour of allowing Mr Edginton a short adjournment even in the absence of any formulated proposal or evidence, but in my judgment it is impossible to say that Deputy District Judge Caun was wrong in the way he exercised the discretion that had been entrusted to him and to him alone.

I would dismiss the appeal.

LORD JUSTICE UNDERHILL: I agree.

THE MASTER OF THE ROLLS: I also agree.