1st Credit Finance v Carr

This is an appeal brought with permission granted by Mr Justice Henderson against the decision of District Judge Kesterton, sitting in bankruptcy in the Coventry County Court on 3^rd December 2012. It concerns a relatively small debt given the large number of court hearings that have been held in these proceedings.

There is a certain irony about this appeal in that the only effective interest of the appellant at this stage is in the costs of the Official Receiver of less than £3,000, for which the appellant is now liable given that the bankruptcy order obtained upon its petition was annulled. The other creditors have not sought to appeal and the appellant’s debt on which it petitioned has been discharged in full. This highlights some of the problems that can arise when a small debt leads to a bankruptcy and escalating costs.

The order of 3^rd December 2012, against which this appeal is brought, annulled the bankruptcy order previously made and it also dismissed the petition dated the 21^st June 2011 and vacated the registration of the petition in the Land Registry.

The respondent to the appeal, Mr Carr, has appeared in person. He is, if I may say so, an intelligent and articulate individual and he has been able to tell me the whole story, about which he clearly has strong feelings. Indeed, I had to cut him short on a few occasions when he went beyond what was strictly relevant for this appeal, but I have allowed him a greater liberty than would have been given to a lawyer representing him. It is also right to note that he had the assistance of the Citizens Advice Bureau in preparing his application to the court below, which led to the order that is now subject to appeal.

It is necessary to set out the somewhat involved chronology. The petition arose from a judgment debt of £1,288.50 by way of a liability for costs. That judgment order was made on the 6^th May 2008. Of that sum, only £200 was paid. After some years, a statutory demand dated 15^th April 2011 was issued for the balance, that is to say £1,088.50. There is some dispute as to whether it was properly served and whether it was preceded by any letters of demand, but that is not relevant as the petition debt is not now disputed. There was no application to set aside the statutory demand and in consequence, on 21^st June 2011, a petition was presented.

The matter first came before the Court on 13^th September 2011. At that hearing, District Judge Ridgeway adjourned the hearing of the petition to enable Mr Carr to see if he could raise funds to pay the debt, as he said that he had a considerable equity in the family home. The adjournment was for some 28 days.

On 12^th October 2011, the appellant’s solicitors wrote to Mr Carr enclosing the Court’s order and pointing out that the adjourned hearing of the bankruptcy petition would be on 24^th October. Their letter, which Mr Carr received, said:

“You will be aware from the previous hearing that the District Judge indicated that it may prove to be possible that the sums due and owing to our client to include costs, to be discharged by the taking of security to enable monthly instalments to then be met at an agreed rate.

Although our client would be prepared to examine this possibility, you will appreciate the position of equity will need to be established.”

The letter then referred to the registration of Mr Carr’s home, and various other mortgages or charges on that home, asking for details of the amounts of those charges or mortgage debts.

On 21^st October 2011, which was a Friday, Mr Carr telephoned the appellant’s solicitors. He asked to speak to the solicitor responsible for this case, who was a Mr Mackie, but Mr Mackie was not available. He therefore spoke to another solicitor in the firm. There is a note by that solicitor of this telephone call, which says that Mr Carr mentioned that he had just come out of hospital and that the bankruptcy petition was going to be heard on the Monday morning, 24^th October. Then it says this:

“He” (that is Mr Carr) “said that he would be in a position to pay the debt by way of instalment at a rate of £150 per month but said that he could possibly pay £200 per month. I said that this was unlikely to be acceptable to the Petitionong Creditor and that we currently had instructions to request a Bankruptcy Order to be made against him. I said that as the hearing was at 10.30am he should telephone Christopher Mackie of this firm who has conduct of the file and speak to him in good time before the hearing. I suggested that he telephone between 8 and 8.30 in the morning” (and that must be a reference to Monday morning) “to give him good time to speak to CM before attending the hearing.”

Mr Carr, in his submissions to me, has disputed the accuracy of that note. He says that he offered to pay the amount that would, he knew, bring the debt below the bankruptcy limit of £750. He says that he asked first to pay it with his bank card, but was told that the solicitors could not take payment by card and that he then asked for their bank details so that he could arrange for a bank transfer. He says that the person he was speaking to refused to give him those details. That, of course, is not reflected in the attendance note at all and indeed, as the amount that he had in mind was some £400 or £500 -- he does not suggest that he mentioned the figure in the conversation, but that was the figure in his mind -- it is somewhat inconsistent with what is recorded in the note, saying that he could possibly pay £200 per month. Mr Carr says that he also said in the telephone call that he had enough money in the bank to pay these sums. That was on the Friday. On Monday 24^th October, Mr Carr says that he tried to reach Mr Mackie first thing in the morning by telephone, but Mr Mackie was not available. There followed the attendance at Coventry County Court later in the morning.

The appellant’s solicitors were represented by agents and the individual attending was a Mr Nunn. There is a note from Mr Nunn of what transpired and there is also a note of the hearing that has been prepared by Mr Nunn, but was then corrected and signed by the Judge, Deputy District Judge Mitchell. Mr Nunn’s note says that he met Mr Carr before the hearing, as one would expect, and, that Mr Carr told him that he had been in hospital and released the week before. The note continues:

“He confirmed that he had brought no evidence to demonstrate affordability of any proposals, nor value of the property, nor the amount owed under the other charges of the property.”

That was a reference to the letter that had been sent on the 12^th October, to which I have referred and to which Mr Carr had not replied.

The hearing then took place and on the basis of the note -- corrected by the Judge -- what happened was that Mr Nunn told the Judge about the letter and that there had been no reply. Mr Nunn further told the Judge about the telephone call on the Friday evening with the proposal to pay £150 per month and the defendant saying that he had recently been in hospital. The note continues as follows:

“The Judge discussed with Mr Carr that on the previous occasion the matter was adjourned for the reasons detailed above [i.e. for the defendant to discuss with the creditor the possibility of settling the debt] and evidently Mr Carr had failed to take that opportunity. None of the details requested had been provided.

Mr Carr stated that no loan from his family (a previous possibility) would be available but he was in a position to pay £150 per month and that he could make a lump sum payment of £400.

“At this juncture I (Mr Nunn) invited the Judge to find there was again no evidence to support this proposal, as there was not on the previous occasion.

“The Judge indicated that there was no evidence of the availability of any monies and he was not satisfied that Mr Carr will be able to make satisfactory arrangements and that to adjourn the matter again would not be in the Defendant’s interest as costs would increase. The matter had been adjourned previously for the Defendant to take advice and discuss security, this was something that he had failed to do.

...there was, therefore, little point in adjourning again.”

The Judge then made the bankruptcy order.

At this hearing, Mr Carr disputes the accuracy of that note, although it was approved, as amended by the Judge. He says that when the Judge asked him how he could pay, he told the Judge that he had sufficient monies in his bank account. Indeed, as I understood him, he says that he told the Judge that he had some £8,000 in his bank account, but whether or not that figure was specified may not matter. He said that he could prove this if the Judge would adjourn for a short time so that he could go to his branch of Natwest Bank where he held his account, across the road, and get evidence in a statement. That, of course, does not appear in the note of the hearing and is -- I have to say -- inconsistent with the suggestion in the note that an adjournment had little point and would cause significant costs and that: “there was no evidence of the availability of any monies.” I note that that sentence was actually added in the Judge’s handwriting when he was correcting the note of the hearing that had been produced for him.

As I say, the bankruptcy order was therefore made. There was no appeal against that order, but on 2^nd December 2011, Mr Carr issued an application to annul the order. The grounds of his application to annul are not altogether clear. I bear in mind that he was acting in person, but he did have the help of a Citizens Advice Bureau in considering what grounds to put forward. His typed statement of grounds reads as follows:

“The reasons I believe that this order be annulled is:

“On 24^th October 2011 at the hearing, the Judge asked me about the £400 - £500 that was logged from a previous hearing in September that I may be able to raise.

“I told the court that I had collated the monies, but was having problems forwarding the monies to 1^st Credit’s solicitors Moorhead James.

“Contacting their offices the week prior to the hearing yet again I was unable to speak with Mr Chris Mackie, so I asked his colleague if I could have their bank details so that I could forward monies into their account. I was denied this request and believe that if they had only allowed me the bank info then the order would not have been made.

“I explained this to the Judge and I know that should they have accepted my payment the week prior to the hearing of £400 to £500 the balance would have been at most of with a bankruptcy order could not have been made.

That is a reference to the bankruptcy limit of £750, of which Mr Carr was clearly aware. The rest of the next paragraph is not relevant and he concludes:

“I do feel unfairly treated in all what happened and wish to appeal.”

It is clear from that last sentence that Mr Carr was treating the s.282 application to annul as effectively an appeal against the making of the bankruptcy order.

The next thing that happened was that on 12^th January 2012, the Official Receiver made his report to the court. He found that there were total debts to unsecured creditors of just under £19,000. He also found that based on the equity in the home, Mr Carr had assets of just over £48,000 and the Official Receiver’s costs were £1,750. He says in his report that Mr Carr had failed to attend appointments on three dates and had not complied with his obligations to the Official Receiver.

On 18^th January 2012, the application came before the Court and District Judge Cottrell adjourned it after hearing Mr Carr, because he was unclear on what basis the application was being made. But in between the making of the application and this first hearing, the petition debt was discharged in full. There is no approved note of the hearing before District Judge Cottrell, but there is a note, again by the advocate attending, which states that the Judge was told that the petition debt had been paid. It notes that Mr Carr was not quite clear whether he was appealing or quite the nature, formally, of his application, but essentially he was very unhappy and wished to challenge the fact that he had been made bankrupt.

The Official Receiver was represented at that hearing and his representative told the court that Mr Carr had missed appointments and had not conversed at all with the Official Receiver. The District Judge pointed out to Mr Carr that he must co-operate with the Official Receiver, but he said that he would adjourn so that Mr Carr could decide on what basis his application should be treated and he noted that a voluntary arrangement was also a possibility.

The matter was due to come back for hearing on the 28^th February, but at Mr Carr’s request that hearing was vacated. It did not come back in the end until the 3^rd August 2012. It is at that hearing that the order was made which is the subject of this appeal. Unfortunately, there is no transcript of the reasons of District Judge Kesterton in making the order because, as it turned out, there was a problem with the transcribing equipment in the County Court and attempts to obtain a transcript were unsuccessful.

However, there is a note of that hearing supplemented by an email relaying information from the Judge. The note records that the Judge said he would annul the bankruptcy on the ground that it should not have been made. The Judge explained that he had been told by Mr Carr that he had attempted to make payments towards the debt of £100 per month, with a lump sum of £500 prior to the order being made. While he accepted that the petitioner’s view of events may not accord with that of Mr Carr, he was taking a pragmatic approach as nothing was to be achieved by further adjourning the application. The Judge also said that the only realistic alternative was to adjourn the hearing and seek statements from all parties as to what was said regarding the offer to pay the lump sum of £500.

It appears, therefore, that the order of annulment was made pursuant to s.282(1)(a) of the Insolvency Act 1986:

“(1)

The court may annul a bankruptcy order if it at any time appears to the court -

(a)

that, on any grounds existing at the time the order was made, the order ought not to have been made...”

In the email to which I have referred, it is related that the Judge accepted Mr Carr’s evidence that he tried to pay the £500 by telephone, but was not provided with the facility to do so, and therefore considered that on that basis the bankruptcy order should not have been made. The problem with that ground for annulment is this: although it does not appear in the note of the hearing on 24^th October, to which I have referred and quoted from, Mr Carr is emphatic that he told District Judge Mitchell about that; in other words he told the Judge that he had offered to pay the £500 a few days before, but it was not possible to process that amount. Accepting Mr Carr’s account as correct, as did District Judge Kesterton, then it is clear that District Judge Mitchell did not regard that as sufficient grounds to resist the making of a bankruptcy order. It seems clear from his note that this was because there was no evidence before him that Mr Carr had the necessary funds. Thus, in effect, the grounds on which the annulment was ordered was a re-run of the grounds that Mr Carr said that he put forward before District Judge Mitchell, but which District Judge Mitchell had rejected in making the bankruptcy order.

It is well established that it is not open to a party at a further stage in the bankruptcy process to advance an argument and succeed upon a contention which has been fully argued but rejected earlier in the process by the competent Court. That follows from the judgment of Mr Justice Neuberger, as he then was, in Atherton v. Ogunlende [2003] BPIR 21. In that case, there was an application to annul under s.282(1)(a) and the issue had been previously raised on the application to set aside the statutory demand. But I see no difference as a matter of principle with a case where the argument had been run on the contested application for the bankruptcy order itself. That authority makes clear that in order to succeed there must be either some new ground or some new evidence that was not previously available.

There matters stood in effect, before the lunch adjournment today. Mr Carr told me this morning that in fact he had over £8,000 in his bank account and that he had told District Judge Mitchell that -- although there is no reflection of that in the note of that hearing. Then over the lunch adjournment, he finally went to his bank and when the court resumed after lunch, he produced an authorised copy of his bank statement for the relevant weeks showing that on 24^th October 2011, at the start of the day he had over £8,000 in his account and by the end of the day he had over £5,600 in his account. In other words, he did indeed have in his bank sufficient monies to pay a lump sum of £400 or £500, or even to discharge the whole debt.

Mr Carr said that it would be apparent that he had told all of this to the Judge if a transcript was ordered of the hearing on 24^th October, and he said that the attendance note of the solicitor of the telephone conversation on the previous Friday would be shown to be inaccurate if there were tape recordings of the phone call that could be transcribed. However, I do not think that it would be right or proportionate on a case of this nature to adjourn this hearing to order any transcripts.

The short point, in any event, is that this bank statement was not produced at the hearing on 24^th October. It was not produced with the application to annul the order made, which makes no reference to monies in the bank; and it was not even produced at the hearing of the annulment application. Indeed, it was not produced at the outset of the hearing of this appeal. It was produced, on any view, very late in the day. It is evidence that would have been available at the time. Nonetheless, I feel that had this been produced to the Judge on 24^th October 2011, having regard to what Judge Mitchell says in his judgment about the lack of evidence, something that, it seems to me, Mr Carr in reality does not dispute as he does not suggest that any evidence was produced -- the highest that he puts it is that he said that he could produce evidence -- then Judge Mitchell would probably not have made the bankruptcy order.

There was then a ground existing at the time that the order was made, such that if placed before the Judge it ought not to have been made. That section 282(1) power of annulment was therefore open to the Court at a later hearing. This is not, however, as I have said, the ground on which the bankruptcy order was annulled. It seems to me that the justice of the case, given this rather unusual sequence of events, is that the order made should be affirmed albeit on different grounds from that expressed by the Court below and that the appeal should therefore be dismissed. But the making of the bankruptcy order on 24^th October 2011, on the evidence that was then before the Court, cannot be faulted and in those circumstances I consider that the costs that have flowed from the making of that order should be paid by Mr Carr.

I recognise in this regard, as on all other points, his position as someone who is acting in person. But he is an intelligent man, as I have already observed. The hearing of the petition had been adjourned so that he could deal with the question of the bankruptcy debt. He had, at certain points at least, access to some assistance from the Citizens Advice Bureau and he had received a letter well in advance of 24^th October hearing making it clear that information as to how he would discharge the debt should be provided. He had not provided such information. Therefore I feel that it is appropriate that he should pay the resulting costs. Those will include the costs of the Official Receiver and the cost, if any, of the trustee in bankruptcy which should be very modest, given that the trustee was appointed, I think, less than a week before the bankruptcy order was annulled.

That will be the order I make on the appeal. I shall hear any application for the cost of the appeal itself.