Alawiye & Anor v Mahmood (t/a Amsons) & Anor

Does it suffice to meet the conditions in which an Interim Third Party Debt Order may be made against a bank that, whilst the judgment creditor-applicant avers that such third party owes money to the judgment debtor, he proves only a lesser circumstance, namely that the judgment debtor earlier had an account which was then in credit at that bank.

That lesser circumstance was proved in the case at hand because the judgment debtor had earlier drawn a cheque in the judgment creditor’s favour on the account named in the application and the cheque had been honoured on presentation. Master Bowles in a short reasoned judgment has ruled that the lesser circumstance does not suffice and has dismissed the judgment creditor’s application for an interim order against National Westminster Bank plc. Unusually, other Masters have informally indicated to the Appellant that they have been and are, in general, willing to make orders where only the lesser circumstance is proven. Acknowledging the importance of the issue and the divergence of views upon it, Master Bowles gave permission to appeal. The judgment creditor now appeals against Master Bowles’ Order of the 1^st November 2005 and, having lodged a comprehensive and well-structured Skeleton Argument, asks for the question to be ruled upon without an oral hearing.

As the issue raised is one of general interest and frequent application I have considered whether I ought to procure some form of representation in order to receive a balanced argument. However, I cannot think that there is any body which could be taken generally to represent some or all judgment debtors and to call upon the particular judgment debtor who is involved in this case to argue would be likely to lead only to his moving elsewhere any account that he might have at NatWest. As for inviting a representative of banks and building societies to appear or, perhaps, an amicus, that, as it seems to me, would unfairly inflict yet more delay on the judgment creditor-appellant and given (as it seems from the responses of other Masters) that Third Party Debt Orders have frequently been made on proof only of the lesser circumstance but without any bank or judgment creditor having so far raised the issue and given also that I have been able to arrive at a clear conclusion without further illumination, I have thought it right to proceed to judgment here and now.

There is, if I may respectfully say so, a deal to be said for Master Bowles’ view. The form by which a judgment creditor seeks a third party debt order is mandatory; Part 72.3 PD 1.1 (“Must be made ….. in”). The prescribed form is Practice Form N 349. The claimant thus has to state he believes that the facts that he states are true. Those facts thus to be verified include that the third party “Owes money to (or holds money to the credit of) the judgment debtor”. The Claimants’ sources and grounds of information for the correctness of his knowledge or belief that the third party does owe money to or hold money to the credit of the judgment debtor are required to be stated. The prescribed form of Interim Third Party Debt Order, Form N84, pre-supposes that it has “appeared” from the judgment creditor’s application that “there is a debt due or accruing due by the Third Party to the Judgment Debtor”. Master Bowles in his judgment takes the entirely reasonable view that one cannot infer either the present existence of a bank account or that it is still in credit merely from the facts that it earlier existed and was earlier in credit. Accordingly (as I believe his reasoning continues) to assert, on no sounder or more fully explained basis than that an earlier known cheque from the judgment debtor drawn on a particular bank account was paid, that that banker still owes money to the judgment debtor is unavoidably to speculate, and PD 72.3-1.3 specifically states that speculative applications will not be granted.

Were the question to be one of nothing other than the true construction of the rules and practice directions that argument could perhaps succeed but, in my judgment, the question is not one only of construction. There are powerful considerations against a strict construction carrying the day. They are these:-

It is in the nature of things that in very many cases the judgment creditor will not have knowledge in any detailed way of who owes what sums to the judgment debtor. In particular is that so in relation to the debts to the judgment debtor from his own banker, matters habitually (and, usually, contractually) kept secret by way of a banker’s duty of confidentiality. Thus the law has long recognised that a relatively relaxed or informal assertion that the third party owes money to the judgment debtor should suffice; relaxed, that is, relative to the strictness with which other material facts are expected or required to be proved. By way of example, although Form 25 in Appendix B to the RSC of 1883 required the judgment creditor to swear that the third party was indebted to the judgment debtor and even to the debt being “In the sum of £ …… or thereabouts”, it was held that the amount of the debt need not be stated – Lucy –v- Wood [1884] WN 58 and see the Annual Practice 1888-9 pages 648 and 957. Field J. observed at page 58:-

“……. inasmuch as the judgment creditor must rely on any information that he can get from the judgment debtor, it would be an absolute denial of justice if he could not get his order without swearing to the amount of the debt.”

At page 220 Kay L.J. observed, as to an affidavit of information and belief sufficing:-

“I do not understand how anyone can be asked to swear to the existence of such a debt except in this way.”

Given the speed at which bank accounts can nowadays be closed or merged or have the credits therein transferred or reduced, often literally at the touch of a button, to insist, where the third party is a banker, upon cogent evidence of the judgment debtor’s account being in credit as at the very day of the application for the Interim Order or any later day would, again, prevent a good number of applications by requiring a level of proof to which remarkably few judgment creditors could aspire. In the case before me the gap in time between the earlier honouring of the cheque in the identified account and the making of the application for an Interim Order is of some 14 months but, logically, had the gap been only of a month or a week, Master Bowles’ view, strictly applied, would still bar the judgment creditor; whilst it is, perhaps, a little more speculative to say that an honoured cheque 6 months before makes it “appear” that the bank still owes money to the judgment debtor than does an honoured cheque one month before, it is still speculative so to conclude in the latter case. Where would the line be drawn, or, as would be impossible in almost all bank cases, would cogent evidence in every case be required of the debt as at the very date of the application? So to require would be virtually to repeal Third Party recovery in the very area in which it is most useful and most used.

Whilst on the subject of speculation, I would add that in a sense Master Bowles’ argument proves too much. It has to be remembered that what is required at the interim stage is not whether a particular identified account is in credit or not but whether overall the banker is a debtor to the judgment debtor – see the Notes to Form N84 and see De Pass supra. Thus even convincing proof from the judgment creditor that a particular account is in credit does not, as the judgment debtor may have other and overdrawn accounts, of itself prove that overall the bank owes money to the judgment debtor. The logic of the Learned Master’s reasoning, were no speculation to be permitted at all, would bar the making of an Interim Order even where the identified account was proven to be in credit.

It is not as if adopting a relaxed view as to what evidence suffices opens any floodgates. It behoves a judgment creditor to be as sure as he can of the existence of the debt from the third party to the judgment debtor because if, upon the making of an Interim Order, it transpires that there is no debt after all, then the judgment creditor will be at a great risk of finding himself liable to pay the third party’s costs – see Field J. in Lucy –v- Wood supra; Wintle –v- Williams (1858) 3 H & N 288; 27 LJ Excheq. 311. Moreover, special statutory provision is made for the recovery by banks and building societies of their expenses incurred in complying with third party debt requirements – see Supreme Court Act 1981 s. 40A (1) and s. 40A (18). If the judgment debtor’s bank account is in sufficient credit the bank can recover its expenses from it; to the extent that the account does not exist or is insufficient, the bank as I have said, has a good prospect of recovering from the judgment creditor. Thus whatever the facts, there is no need for particular tenderness towards banks and building societies in relation to any trouble or expense in their relatively simple task of saying whether or not they owe money to the judgment debtor, especially where, as here, the judgment creditor facilitates the task by identifying the account believed still to exist and to be in credit.

It would be remarkable, were Master Bowles’ view to be the correct one, that no authority is to be found refusing a garnishee order or a third debt order at the interim stage on the sole ground that there was no evidence that an (identified) account, earlier plainly in existence and in credit, was not adequately proven still to exist and still to be in credit. Given the indicated practice of some other Chancery Masters to make interim third party debt orders on evidence such as here adduced by the judgment creditor, I would have expected the question to have been raised and to have been ruled upon much earlier, yet no such case has been mentioned by the Learned Master, none is referred to in the Skeleton and my own research has disclosed nothing. This, of course, is very far from conclusive but it does tend to suggest that Chancery practice, recognising the point so forcefully put by Lord Esher supra, has been to take a relaxed view of inference and sufficiency at the interim stage.

It is notable, too, that the fairly extensive list of headings of information which have to be included within the modern form of Application Notice, whilst specifying particular information to be given where the third party is a bank or building society, does not require a statement of such reasons as the judgment creditor has for believing that any account at that bank which earlier existed or was earlier in credit still exists and must be taken still to be in credit. Information that there is a debt to the judgment debtor is required to be included (but as a matter of knowledge and belief only) under PD 72.3-1.2 (7) (b) – but one could reasonably expect information as to the account being in credit being specified in 1.2 (6) had it been required.

That the stage I am dealing with is only an interim stage – CPR 72.4 – has to be kept in mind. It could be said that the whole point of there being an interim stage is to flush out whether there is, indeed, a present debt from the third party to the judgment debtor and to establish its amount whilst then procuring, if it is found to exist, that it is preserved.

In its caution against speculative applications PD 72.3-1.3, whilst stating that where the judgment debtor is a bank or building society it will only grant an interim order “If the judgment creditor’s Application Notice contains evidence to substantiate his belief that the judgment debtor has an account with the bank or building society in question” does not go on to say “and that the same is in credit”. That would have been so easy a requirement in so obvious a place to add it that the absence of any such provision has, in my view, some weight.

Nor is it without weight that, if strict evidence were to be insisted upon, the remedial alternative suggested by the Learned Master is so cumbersome and expensive. Master Bowles suggests an application for an oral examination under CPR 71.2 coupled with a post-judgment freezing order. That would be very likely to involve representation and expense on both the judgment creditor’s and the judgment debtor’s part and, as, ex hypothesi, the judgment debtor is a person not honouring his obligations, the risk of further and possibly irrecoverable debts being incurred by the judgment creditor. Moreover the need for a post-judgment freezing order would be likely to lead to the judgment creditor having to prove some risk of dissipation were the debt left unprotected, which would place a new and heavy burden on the judgment creditor, one he might not be able to discharge. One would therefore be avoiding the risk of the third party not being, after all, a debtor to the judgment debtor (and hence risk that third party being unnecessarily but only for a relatively short time subject to an interim order, an order which carries no opprobrium and as to the costs of which the third party would have remedies) but at the price, disproportionate as it seems to me, of the judgment creditor having to launch not only, if it transpires after oral examination that the third party is a debtor to the judgment debtor, an application for a third party interim debt order but also other antecedent expensive and time consuming proceedings, ones involving the judgment debtor. The judgment creditors in their skeleton argument rightly draw attention to the provisions in the overriding objective as to expeditious hearings and the avoidance of unnecessary expense and delay – CPR 1.1.2.

In my judgment, having regard to the matters in the immediately preceding paragraph, whatever the real weight of the argument based on a strict construction of the rules, forms and practice directions, there is an overwhelming argument that (in the absence of any contrary indication) the Court can and should accept, as sufficient for the purposes of an interim order, evidence in which the judgment creditor is not able to say more than that an account at the third party bank or building society previously existed and was previously in credit.

Accordingly, for the reasons I have given, the appeal here succeeds. I set aside the Learned Master’s Order of the 1^st November 2005 and remit the matter to the Master’s corridor (as it used to be called) in order that a Master should make such order under CPR rule 72.4 (2), as, subject to the guidance afforded by this judgment, he sees fit. I do not myself make the Order as it is an order requiring the fixing of a date for a hearing in order that there should be consideration of whether a final third party debt order should be made. It is best that it is left to a Master to fix that date.

Although this question does not arise in the case put before me, it may be helpful were I to express a view, necessarily obiter, on the correct position where the judgment creditor’s beliefs relate not, as here, to a judgment debtor’s account earlier in credit but to one which, at the time of which the judgment creditor speaks, was overdrawn. The same reasoning that points out that even an account earlier in credit may no longer be so establishes also that one earlier in debt may be later in credit. Many of the considerations to which I have referred in paragraph 5 above apply also to the case of an account earlier in debt. I remind myself - see paragraph 5 (iii) above - that even where the judgment creditor identifies a particular account the question is not whether this or that account is in credit but whether, overall, the banker owes money to the judgment debtor. Thus an account, earlier overdrawn, does not of itself preclude there being a debt to the judgment debtor from the Third Party. I would thus not think it wrong for a Master to make an Interim Order where such indications as there are of the existence of a bank account suggest it was earlier in debit, at least where there is nothing to indicate that, overall, the bank is not a debtor to the judgment debtor. However, in such a case the Master could hardly be criticised for requiring some additional information that would tend to suggest at least that the judgment debtor was not without means.

When NatWest receives such Interim Order as is made, it should be told by the Judgment Creditors’ Solicitors that, unusually, the making of the Interim Order has been the subject of a judgment on appeal and they should be sent a copy of it. They should be told that, in the unusual circumstances, they may apply for permission to appeal against the Interim Order if either the circumstances of this particular case lead them to wish to do so or because the effect of my conclusions on bankers or building societies generally leads them to wish to challenge or qualify those conclusions.

Costs of the appeal (to be the subject of a detailed assessment if not agreed with the judgment debtor) to be the Judgment Creditors’ costs in the application – CPR 72.2 (v) (b).