Skeete v Pick & Anor

The appellant, Mr Skeete, was adjudicated bankrupt in 2005. The first respondent, Mr Pick, a partner in Grant Thornton, is his trustee in bankruptcy. The second respondent, Mrs Mighton (whose maiden name was Alleyne) is a former cohabitee of the appellant. They lived together at the property which features in this application and appeal. They had a child together and left that property in 1991 when she separated from Mr Skeete.

At that time the appellant and the second respondent, Mrs Mighton, were the joint legal owners of the property in question, which is at 30 Elmore Road, Luton. Indeed, they are still the joint legal owners of that property.

On 25 May 1989, they entered into a declaration of trust executed under Deed, which recited the purchase and transfer into their joint names of the property on 9 May 1989 and provided that the parties should hold the property, the proceeds of sale and income from them, on trust for themselves as beneficial tenants in common as to two-thirds thereof for Mr Skeete and one-third thereof for Miss Alleyne (as she then was), provided that before that division took place the amount paid by Mr Skeete towards the purchase price, being £26,000, should first be repaid to him.

When they separated in 1991 the appellant paid to Mrs Mighton (as I will call her from now on) the sum of £3,500, for which there is a written receipt. The receipt does not record what the money was for, but the appellant says that it was paid pursuant to an agreement under which he bought out her interest in the property for £3,500, the value of the house being much lower in those days. I am told by counsel who appears for her today that she disputes that and assigns a quite different reason to the payment. There is some later documentation and, although I am not in any position to adjudicate on that dispute, which would require evidence and full investigation, it appears to me that there is a good arguable case that the appellant is correct and that Mrs Mighton's interest was bought out at that time.

There are also documents which concern the possibility of a transfer of the formal legal interest back, in other words, a cancellation of her legal ownership, but that does not appear to have followed through for various reasons. I do not however express anything in the way of a definitive conclusion on the point, and I have not been invited to do so.

Unusually, perhaps, this is a solvent bankruptcy, in the sense that there is undoubtedly an excess of assets over debts plus bankruptcy fees. The sole asset that we have looked at in this hearing is the house in Luton which is estimated to be worth £165,000 or £166,000. The unsecured debts and fees are put presently at between about £80,000 and £85,000. I was given a figure of £80,000 but it is a sum which will undoubtedly have increased in the meantime, having regard inter alia to the costs involved in this appeal. The mortgage debt secured on the house is just under £50,000, £49,600, so if one takes £85,000 and adds to that the mortgage debt of £50,000, one arrives at a figure of about £135,000 producing a surplus in the region of £30,000.

The application was made by the trustee in bankruptcy to the District Judge in the Luton County Court for possession and sale of the property, and also for a declaration of the beneficial interest. The order made by Deputy District Judge Simpson on 5 December on the hearing of that application provides as follows:

The order for possession was stayed by Evans-Lombe J in March of this year pending the hearing of this appeal, and permission to appeal was also granted by Evans-Lombe J. It may be that the appeal notice was lodged outside the time fixed by the rules, but it has been indicated by counsel that no point is taken in relation to that.

The grounds of the appeal are effectively set out in the statement of case and skeleton argument prepared by the appellant, which is attached to the form of notice of appeal which I have in my bundle (although there may be another one). Essentially, it asks for relief in relation to four matters, although there are some ancillary questions which would follow on. Two of them I can deal with straightaway. It is said in the document I just referred to that "The appellant asks that a ceiling be placed on the applicant's fees pending payment of the bankruptcy debts and costs. The applicant's costs are disproportionate to the amount of the debt due." That is not a matter that was addressed below or in respect of which the district judge made any order, and so there is nothing to appeal.

Item 10 reads:

The order was apparently agreed in advance of the hearing by the trustee in bankruptcy and Mrs Mighton who was represented by counsel. I understand that a few changes were made in the order as proposed by the trustee in bankruptcy and he dropped a claim for costs against Mrs Mighton. So that was effectively a consent order in the true sense of the word, though it was not in fact recited to be such in the order.

According to a note made by Mrs Mighton's counsel, certain variations were made in response to what Mr Skeete said at the hearing. She (counsel to Mrs Mighton) prepared a note of the hearing, of which there was no tape recording, compiled from her recollection of the hearing as at 30 March 2007. She also sets out the changes which were made by the judge to the order proposed by the trustee. I presume this must also be based on a note taken at the time, because it is hard to see how she could have necessarily recalled the entirety of these details.

That note says, amongst other things, that the trustee's representative sought an order in the terms of a draft produced by the trustee and given to the court. The court was informed that Mrs Mighton had agreed to the terms of the trustee's order and the trustee had agreed to delete the clauses by which he had sought costs against her. It was submitted on behalf of Mrs Mighton that this concluded the question of the beneficial shares in the property. The judge went through the draft order asking Mr Skeete to state his position in relation to each part. The judge then made changes to the order to the extent that Mr Skeete objected, or wanted variations to it which the court accepted. Mr Skeete made objections in two areas, first that the appropriate sale price should be £166,000 in accordance with his estate agent's advice and not an open sale price. Pausing there, we see that in fact the judge acceded to that request and inserted that it should be not less than £166,000. Second, Mr Skeete also desired that he should be given further time so he could arrange a mortgage so that he could buy the property himself. He indicated his belief that he could obtain a mortgage. The counsel for Mrs Mighton submitted it was unlikely that an undischarged bankrupt could obtain a mortgage.

The note also reflects various changes to clause 2, which were made as a result of Mr Skeete's areas of objection so that the sale was no longer to be forthwith but within 56 days. A provision providing for a warrant of possession was deleted and there was another change in clause 3, when the figure of £166,000 as a minimum was inserted. There was also a small change to clause 6.

There is also a document in the bundle in which the solicitors for the trustee say that they recall that it was stated at court that there was a dispute as to the extent of Mrs Mighton's interest.

I heard from Mr Skeete today, but it seems to me that he did not have any clear recollection of what happened. It appears to me probable that he was taken through the items one by one. He tells me that what he was concerned about was the speed with which he was going to be evicted from the property (and indeed he succeeded in having that changed from forthwith to 56 days) and that he had not focused very much on the question of beneficial interest.

The appeal sought relief effectively on four heads, two of which I have already dealt with because they were not addressed in the order below at all, and I say nothing more about them. Apart from that, his appeal is directed against the first clause of the order, that is the declaration as to the beneficial interests, and the second is in relation to the order for possession. I will deal with the second of those first of all.

In relation to that he says that, since the hearing before the Deputy District Judge, he has obtained a remortgage offer of £130,000 and that that is a change in circumstance and a matter which was not available to be considered by the District Judge below, where, though the question of a remortgage was mooted, he did not have an offer and scepticism was being urged upon the judge. He suggests that he should be allowed to raise money by a remortgage of the property in order to discharge the debts, since otherwise he would be driven into, effectively, a forced sale and off the housing ladder.

If remortgage did indeed offer a practical means of obtaining the discharge of his obligations, it is likely that the trustee in bankruptcy, and indeed the second respondent, would agree. But analysis of the figures shows that there are difficulties. As I have said before, it would be realistic to take £85,000 as being the amount of the unsecured debts and the bankruptcy fees, and a further £50,000 in way of debts secured to the bank on the property. So those figures are themselves more than the £130,000 which would be raised by the remortgage, without taking into account such items as the fees and so forth which would be deducted from the advance monies. If it was truly £80,000 and £50,000 and the advance was £130,000 it would be just on the cusp, but I think there is no reason to believe, looking at the matter realistically, that that is the case. I assume also that the mortgage debt has increased in the meantime by way of interest.

In these circumstances I think whatever the jurisdictional position may be, it is not unreasonable for the trustee in bankruptcy not to permit the appellant to go down that remortgage route. I have also ignored the question of the potential interest of Mrs Mighton, because the calculations I have done so far assume that the entire beneficial interest was indeed vested in the appellant. I have said that I think there is a good arguable case for that, but that does not mean it is indeed the case. The only way of dealing with this would be if it were possible to bring some £30,000, which is the amount effectively which would be in dispute between them, into court to await the determination of an issue as to where the true beneficial ownership lay. There simply is not room for that in the figures that I have set out. I think that this remortgage proposal is not practicable on the figures and provides not even the starting point for an argument that the possession order should be set aside. The appeal against that part of the order will be dismissed.

That brings me on to the second area of the order which is challenged, and that is clause 1, which is the declaration which I read out earlier and effectively is a repetition of the terms of the declaration of trust, ie, £26,000 to the appellant or, as it will be here the trustee in bankruptcy, which would, assuming the sale of the house achieves £166,000 and the existing mortgage of £50,000 is deducted, bring the proceeds down to £116,000. £26,000 would go up front to what was the appellant, currently the trustee, reducing it to £90,000. There would be a division, two-thirds/one-third, which is 60/30, so that under the declaration of trust the interest of Mrs Mighton would be £30,000.

If, however, she does not have that interest and the entire sum moves to the trustee in bankruptcy, he would end up with a surplus of £30,000 to be accounted for to the appellant (I am taking figures in round terms). That is why I say there would have to be provision for £30,000 after the proceeds of remortgage, pending the determination of whether or not the interest was as stated in the declaration of trust, or whether Mrs Mighton's interest had been cancelled in 1991 by its sale to the appellant for £3,500 as he contends.

Whether or not Mrs Mighton should get the £30,000 or whether it should move into the estate subsequently by way of surplus to the appellant, has effectively been foreclosed by this declaration. It is for that reason that this aspect of the case has caused me some degree of concern.

The approach of the trustee in bankruptcy was set out in his witness statement at paragraphs 13 through to 15. Under paragraph 13, he exhibits a letter from Shirley Mighton, who is obviously related to Mrs Mighton and who wrote various letters over the years on her behalf. He refers to a letter in July 2001 which as the trustee says, seems to confirm that Mrs Mighton took no further interest in the property. Then in paragraph 14 he refers to advice from his solicitor that:

If I go back to the start of paragraph 15, he recites his solicitor's opinion that the 2001 letter indicates, probably, that the second respondent had agreed to accept £3,500 for her share of the property and accepted payment of that sum for that purpose. Then he goes on to say, "Whilst that is probably the case the fact is that there was no transfer of the property at that stage into Mr Skeete's sole name and under those circumstances I am advised the trust deed remains applicable."

Despite valiant attempts on behalf of Mr McCulloch for the trustee in bankruptcy, I read that as saying, and saying fairly clearly, that the basis of the advice that the trust deed remains applicable was that there had been no transfer of the property at that stage into Mr Skeete's sole name. If that was the advice, which the witness statement appears to be saying, neither counsel before me suggests that it was legally correct: there could have been the sale of her beneficial interest, even though she had not been removed as joint legal owner. It was on the basis of that advice, which appears to have been itself erroneously based, that the trustee sought the declaration in the terms of the trust deed.

It is true to say that he made clear to the court below that Mr Skeete might have something else to say on the subject and that he, the trustee, would naturally abide by whatever the declaration was, but the reason why he made the application in the form in which he made it, was the solicitor's advice.

Plainly, as Mr McCulloch says, if the trustee had formed a view in relation to the factual appreciation of the case and balanced that against the costs of proceeding, that would be one thing, but that is not the basis on which he appears to have taken his decision, in effect, to exclude from the estate this £30,000, which may indeed be vested in it, by conceding that Mrs Mighton was entitled and the estate was not. This course was adopted despite the fact that he, the trustee in bankruptcy, would not as such, at the end of the day, be affected and that the person who would suffer, and probably to the tune of 100 per cent, was the appellant.

The witness statement draws attention to the fact that Mr Skeete might wish to make representations to the court himself regarding the equitable interest. I do not know whether that part of the trustee in bankruptcy's evidence was drawn to the attention of the Deputy District Judge. I would think it more likely that it was not. The solicitor for the second respondent (in an extract from the letter which I have just read out) says that the court was told there was a dispute, but I have no reason to believe that the underlying facts were drawn to the District Judge's attention. I am really unable to form any proper view as to why matters proceeded as they did. I find it difficult to conceive that, if Mr Skeete had appreciated that his non-objection to that part of the order meant that he might be potentially sacrificing £30,000, that he would not have said so, and he may not have realised the implications of what was being done.

I well appreciate that there were questions of how the determination of that dispute would be financed, but at that moment in time sitting in the courtroom with the District Judge, all Mr Skeete had to say if he appreciated what the consequences were, was that there was indeed a dispute and that he had sought out Mrs Mighton. None of that appears to have happened.

It was said by counsel for the second respondent that it was a consent order. But when I asked him whether he meant consent order in the strict sense, I do not think he continued with the submission. Mere non-objection when the court asks a party whether he objects to a particular form of order, is not a consent order which is agreement in advance that the court should make such an order. I have been very concerned as to what my powers were in such circumstances, that is to say where a point simply was not taken because of perhaps misunderstanding, lack of legal acumen, or whatever and whether or not some kind of procedural injustice may have arisen.

I asked what should have happened if Mr Skeete had spoken. Counsel for the second respondent told me that the District Judge should have proposed that Mr Skeete should make an application under section 303 to control the action of the trustee in bankruptcy in making the application in that form. She might in the interests of procedural efficiency have treated that as having been done, but it would obviously also have been necessary for some order to be made as to case management.

The position is complicated by submissions made to me in part by the counsel for the second respondent and in part by counsel for the trustee in bankruptcy. While I am grateful for the latter's contribution in drawing my attention to relevant authorities and statutory provision, I could not help wondering on some occasions why he was so strenuously arguing the point, given that, if anything, his client could only gain in the sense that if any part of this £30,000 went to make up a deficiency it would be in his client's interest and otherwise it was a matter which, in any practical sense, did not concern him.

The point that has been made is this. As is trite law, the entire interest, legal and beneficial, of the bankrupt, Mr Skeete in the Luton property vested with the bankruptcy order in the first respondent, his trustee in bankruptcy, so that he has no interest and the declaration therefore did not concern him at all. The declaration was merely concerned with the relationship between the trustee, the owner of this property and of Mrs Mighton who, on her case, may be a co-beneficiary and may have a beneficial interest and on Mr Skeete's case may not. Accordingly, it would not have mattered if Mr Skeete had opposed the declaration before the District Judge. He had no locus to do so. The submission was softened up by saying that of course the District Judge could ask Mr Skeete for his evidence and so on and so forth, though I did not quite understand how this married up with the submission that it was entirely for the trustee in bankruptcy to decide how he dealt with the estate and whether he considered that it was not worth pursing proceedings to defend or to recover an arguable portion of it. If that second submission were correct, then the District Judge could not have any reference to that because it would be for the trustee in bankruptcy to adduce whatever evidence he wanted and to take whatever view he wanted. However, the submission is that Mr Skeete had no locus and, technically, I think that is correct.

It follows, says counsel, that Mr Skeete was not as such affected by the declaration since he had no proprietary interest in the property and had nothing to appeal, and that the declaration simply does not bind Mr Skeete because it ultimately has nothing to do with him and it is sheer accident that he happened to be party to proceedings in which not only was possession being claimed against him, but declaratory relief was also claimed. Although he was formally party in the same proceedings, that part of the relief was not directed against him. As I say, I consider that this is correct, though highly technical indeed given that the person interested in the surplus, if there be one, is in fact Mr Skeete.

That begs a whole series of questions, obviously, about funding and I know not what would have happened before the District Judge if this had been raised at that time. However, I do think that what happened below was unsatisfactory in the extreme. Firstly because it appears to me that the trustee in bankruptcy’s reason for applying for the declaration in the form in which he did was based on erroneous advice. Secondly, as I say, I have difficulty in conceiving that Mr Skeete could have fully understood the implications of what was happening when he was referred to item one of the draft order.

However, I think the submission correct that he is not in a position to appeal and indeed was not in a position to oppose the order below. Where does that leave us? Counsel helpfully drew my attention to what they say the remedy would have been. They say that he could have made an application under section 303 for the court to direct the trustee not to concede the third interest after £26,000 to Mrs Mighton. No doubt there would then have been a discussion as to how any such dispute was going to be financed.

Of course such an application would be now of no assistance unless the declaratory order is set aside, as to what counsel draw my attention also to section 375 of the 1986 Act which enables the court to review, rescind or vary its order at any time. Counsel thus submitted that if Mr Skeete's case has substance and he can justify delay, the court is not without jurisdiction to deal with the matter, presumably by a conjoined application under section 375 for a rescission or variation of the declaration and an application directing the trustee in bankruptcy as to how he ought to deal with this matter.

The net result is that, if Mr Skeete thinks it appropriate to pursue this matter further, there is apparently jurisdiction in the court to deal with it in the manner I have just described based on what I have heard from counsel. That is no indication on my part as to the order that the court should make if such conjoined application is indeed made.

In the net result the appeal will be dismissed.