Thomas & Anor (Joint Trustees In Bankruptcy of Stephen John Edmondson) v Edmondson

This is an appeal by Messrs Simon Thomas and Nicholas O’Reilly, the present Joint Trustees in Bankruptcy of the Respondent, Mr Edmondson, (“the Joint Trustees”) against an order of District Judge Jones made on 20^th November 2013 in the Slough County Court. Mr O’Reilly was substituted as Second Appellant in place of Ms Shelley Bullman by an order which I made on 17^th December 2013.

The District Judge made a declaration that the then Joint Trustees in Bankruptcy were not entitled to an Income Payments Order against Mr Edmondson pursuant to section 310 Insolvency Act 1986 and the Joint Trustees appeal on the basis that the District Judge erred in law in determining that the Court had no jurisdiction to make an income payments order under section 310 Insolvency Act 1986 (“an Income Payments Order”) in circumstances where the bankrupt had previously entered into an income payments agreement pursuant to section 310A of that Act, (“an Income Payments Agreement”).

The Respondent was made bankrupt on 21 August 2012, on the petition of HMRC. As a result of the bankruptcy order his tax code was changed to “NT”, meaning that income tax was not deducted from his earnings. On 7^th December 2012, the Respondent entered into an Income Payments Agreement pursuant to section 310A Insolvency Act 1986 with the Official Receiver by which he agreed to pay to the Official Receiver or any person appointed as trustee of his bankrupt estate the amount by which his take home pay was increased by virtue of this NT tax coding, by way of contribution to his bankruptcy. The Income Payments Agreement was expressed to continue until the end of the tax year, in other words, until 5 April 2013.

In fact, Mr Thomas and Ms Bullman had been appointed as the Respondent’s Trustees in bankruptcy on 6 December 2012. Ms Bullman was replaced by Mr O’Reilly as the Respondent’s Joint Trustee on 20^th November 2013. In May 2013 the then Joint Trustees sought to establish the Respondent’s income and expenditure for the purpose of finalising a further Income Payments Agreement. In subsequent correspondence the Respondent refused to agree a further Income Payments Agreement, contending that there was no surplus income available. As a result, on 19 August 2013 they applied in the Slough County Court for an Income Payments Order pursuant to section 310 Insolvency Act 1986 in the amount of £10,000 per month for the duration of three years from the date of the Order. It was this application which led to the Order which is the subject of this appeal.

As a result of District Judge Jones’ Order, the Joint Trustees have applied to amend their original application notice to include in the alternative, an application to vary the Income Payments Agreement reached on 7^th December 2012 and to do so out of time. The application is to be heard in the Slough County Court in May 2014.

I am not concerned with the details of the Income Payments Order or the variation of the Income Payments Agreement which are sought, nor with the question of the exercise of discretion in that regard. I am concerned purely with the question of statutory construction which arises from District Judge Jones’ order. Should sections 310 and 310A Insolvency Act 1986, upon their proper construction be read to mean that in the light of the fact that an Income Payments Agreement was made, there is no jurisdiction in the court to make an Income Payments Order in respect of the Respondent?

The relevant parts of sections 310 and 310A Insolvency Act 1986 in their present form are as follows:

“310.-Income payments orders.

(1)

The court may [...] make an order (“an income payments order”) claiming for the bankrupt’s estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.

(1A) An income payments order may be made only on an application instituted -

(a)

by the trustee, and

(b)

before the discharge of the bankrupt.

…

(6)

An income payments order must specify the period during which it is to have effect; and that period -

(a)

may end after the discharge of the bankrupt, but

(b)

may not end after the period of three years beginning with the date on which the order is made.

(6A) An income payments order may (subject to subsection (6)(b)) be varied on the application of the trustee or the bankrupt (whether before or after discharge).”

“310A Income payments agreement

(1)

In this section “income payments agreement” means a written agreement between a bankrupt and his trustee or between a bankrupt and the official receiver which provides -

(a)

that the bankrupt is to pay to the trustee or the official receiver an amount equal to a specified part or proportion of the bankrupt’s income for a specified period, or

(b)

that a third person is to pay to the trustee or the official receiver a specified proportion of money due to the bankrupt by wayof income for a specified period.

(2)

A provision of an income payments agreement of a kind specified in subsection (1)(a) or (b) may be enforced as if it were a provision of an income payments order.

…

(4)

The following provisions of section 310 shall apply to an income payments agreement as they apply to an income payments order -

(a)

subsection (5) (receipts to form part of estate), and

(b)

subsections (7) to (9) (meaning of income).

(5)

An income payments agreement must specify the period during which it is to have effect; and that period -

(a)

may end after the discharge of the bankrupt, but

(b)

may not end after the period of three years beginning with the date on which the agreement is made.

(6)

An income payments agreement may (subject to subsection (5)(b)) be varied -

(a)

by written agreementbetween the parties, or

(b)

by the court on an application made by the bankrupt, the trustee or the official receiver.

(7)

The court -

(a)

may not vary an income payments agreement so as to include provision of a kind which could not be included in an income payments order, and

(b)

shall grant an application to vary an income payments agreement if and to the extent that the court thinks variation necessary to avoid the effect mentioned in section 310(2).”

In summary, the Respondent contends that the Income Payments Order regime created by s.310 of the Insolvency Act, and the Income Payments Agreements regime created by s.310A of the Insolvency Act 1986, are parallel but mutually exclusive. It is said that the legislative intention is that income payments by a bankrupt should last for no more than 3 years and that if one can move between regimes, that intention would be flouted, causing anomaly. Thus, it is said that since the Respondent entered into the Income Payments Agreement, albeit for a period of only five months, for that reason the Court may not now make an Income Payments Order against him.

On the other hand, the Trustees in Bankruptcy’s position is that mutual exclusivity is not borne out by the wording of ss. 310 and 310A of Insolvency Act 1986. On the contrary, it is said that the wording is clear and the previous existence of an Income Payments Agreement is no bar to the exercise of discretion by the court to grant an order under section 310. Mr Comiskey on behalf of the Joint Trustees says that the wording of the relevant sections is straightforward and obvious and on a plain reading, the fact that a person has entered into an Income Payments Agreement does not operate to deprive the court of the jurisdiction it would otherwise have to make an Income Payments Order. Had that been the intention of the legislature, Mr Comiskey submits that it would have said so.

He referred me to an extract from the speech of Lord Reid in Pinner v Everett [1969] 1 WLR 1266 at 1273 which is referred to under the heading “The plain meaning rule” at section 195 in Bennion on Statutory Interpretation 6^th ed, in which his Lordship stated that it was only when the natural and ordinary meaning of the words in their context in the statute leads to a result which cannot reasonably be supposed to have been the intention of the legislature that it is proper to look for some other possible meaning. Mr Comiskey says that this is not the case here.

Secondly, Mr Comiskey submits that although section 310A was inserted into the Insolvency Act 1986 by section 260 Enterprise Act 2002 and at the same time, section 310 Insolvency Act 1986 was amended by section 259 of the 2002 Act, by express omission of the words “on the application of the trustees” from section 310(1), the insertion of a new section 310(1A) and the substitution of a new sub-section (6) and (6A) for the original sub-section (6), it is significant that no express amendment was made of the kind for which the Respondent argues by way of interpretation.

He says that as section 310 was not been amended expressly or indirectly by means of another statute in order to render the Income Payment Agreement and Income Payment Order regimes mutually exclusive, an amendment can only have come about impliedly and that is not the case here. In this regard, he referred me to extracts from the judgments of Bramwell and Brett LJJ in A-G v Lamplough (1878) 3 Ex D 214 at 227 and 229 and to the speech of Lord Neuberger in Boss Holdings Ltd v Grosvenor West End Properties Ltd [2008] 1 WLR 289 at [23] in which he stated:

“I have referred to, and relied on, the residence requirements in section 1(1) in its original form. In the Court of Appeal at para 25, Carnwath LJ said that he was inclined to think that no assistance could be gathered from provisions in the 1967 Act as originally enacted, because one should construe the 1967 Act in its current form. Consequently, he considered that no help in construing section 2(1) could be gathered from the residence requirement of every enfranchisement claim originally contained in section 1(1). I do not agree. In Suffolk County Council v. Mason [1979] AC 705, Lord Diplock said at 714E that certain "provisions … have since been amended by the Countryside Act 1968: but this cannot affect the construction of the Act of 1949 as it was originally enacted". There are earlier observations to similar effect from Bramwell and Brett LJJ at 227 and 229 in Attorney General v. Lamplough (1878) 3 Ex D 214. In my opinion, the legislature cannot have intended the meaning of a sub-section to change as a result of amendments to other provisions of the same statute, when no amendments were made to that sub-section, unless, of course, the effect of one of the amendments was, for instance, to change the definition of an expression used in the subsection.”

That was a case in which the court was required to construe the phrase “designed or adapted for living in” in the definition of “house” contained in the Leasehold Reform Act 1967.

As a result, Mr Comiskey says that section 310 must be construed in the same way after the amendment to that section and the introduction of section 310A brought about by the Enterprise Act 2002 as beforehand. He says that before the amendment, section 310 contained no limit upon the jurisdiction of the court to make an Income Payments Order based upon an Income Payments Agreement having been entered into (because the ability to make such agreements had yet to be enacted) and section 310(6) in its original form provided:

“(6)

An income payments order shall not be made after the discharge of the bankrupt, and if made before, shall not have effect after his discharge except -

(a)

in the case of a discharge under section 279(1)(a) (order of court), by virtue of a condition imposed by the court under section 280(2)(c) (income, etc. after discharge), or

(b)

in the case of a discharge under section 279(1)(b) (expiration of relevant period), by virtue of a provision of the order requiring it to continue in force for a period ending after the discharge but no later than 3 years after the making of the order.”

He says therefore, that under section 310 Insolvency Act 1986 in its original form it was possible to make Income Payments Orders for periods in excess of three years whilst the bankruptcy continued. It was only in relation to orders continuing in force after the discharge that the period was limited to three years from the making of the order. He pointed out that there was no time limit imposed under section 51 Bankruptcy Act 1914 in relation to similar payments orders. They came to an end on discharge, unless otherwise ordered. Under the 1914 Act the bankrupt had to apply for discharge and accordingly, the bankruptcy might continue for an indefinite period. Equally, section 7 Insolvency Act 1976 in summary, provided for semi-automatic discharge from bankruptcy after five years. Therefore, he submits that prior to the enactment of the Insolvency Act 1986 the court had power to make an Income Payments Order or an order of similar kind for an indeterminate period but which typically would be limited to the duration of the bankruptcy and after its enactment the position was the same, save that an order which continued after discharge could not be of more that 3 years duration.

He says that after section 310 was amended by the Enterprise Act 2002, the Court is required to specify the period during which an Income Payments Order is in force and puts a three year limit on that period but the Court would not be prevented from making another order if the bankrupt remained undischarged.

In contrast, Mr Briggs on behalf of the Respondent urges me to construe sections 310 and 310A Insolvency Act 1986 as amended and referred me to Inco Europe Ltd & Ors v First Choice Distribution (a firm) & Ors [1999] 1 All ER 820, a decision of the Court of Appeal in relation to the construction of section 18(1)(g) Supreme Court Act 1981 as amended by section 107(1) and Schedule 3 to the Arbitration Act 1996. In particular, he referred me to the judgment of Hobhouse LJ at 823c – e at which he held:

“In general terms, it is undoubtedly correct that the effect of an amendment to a statute should be ascertained by construing the amended statute. Thus, what is to be looked at is the amended statute itself as if it were a free-standing piece of legislation and its meaning and effect ascertained by an examination of the language of that statute.

However, in certain circumstances it may be necessary to look at the amending statute as well. This involves no infringement of the principles of statutory interpretation; indeed it is an affirmation of them. The expression of the relevant parliamentary intention is the amending Act. It is the amending Act which is the operative provision and which alters the law from that which it had been before. It is the expression of the parliamentary will as to what changes in the law Parliament wishes to make. . . . .”

He says that when one reads the amended provisions together it is clear that the plain meaning is not what the legislature intended and leads to anomaly, namely the possibility that the debtor might be subject to a repayment regime for more than three years. Accordingly, he says the Court should seek to find an interpretation other than the literal one. In this regard, he referred me to an extract from the judgment of Arden LJ in Price vDavis [2014] EWCA Civ 26 at [38] and [39] at which she held:

“38.

The court must of course give effect to the intention of Parliament. In this case, the literal meaning of section 260 is that it applies only to the original meeting and that a further meeting summoned by a nominee under section 262 has none of the consequences which the IA86 attaches to the original meeting summoned under section 257.

39.

However, where the effect of a literal interpretation of a statute is to create significant anomalies which the court is satisfied Parliament could not have intended, the court should seek to find an interpretation which avoids those anomalies.”

He says that if one is able to slip from the Income Payments Order to the Income Payments Agreement regime, a bankrupt might be required to pay over his income for an indefinite period before discharge rather than the maximum three years intended and that if the legislature had intended such a harsh regime to be imposed it would have said so. Furthermore, he submits that this anomaly cannot be resolved by reference to the discretion of the court as to whether to make an Income Payments Order where there has been an Income Payments Agreement and to determine its length.

He says that the three year limit was the intention of the legislation both before and after the amendments as a result of the Enterprise Act 2002. In this regard, he referred me to a Report of the Review Committee chaired by Sir Kenneth Cork entitled “Insolvency Law and Practice” and dated June 1982 in which Income Payments Orders were considered and it was stated that the debtor must not become “ a slave of his creditors”, that “the maximum period for an Income Payments Order in a Liquidation of Assets will be three years” and went on to state that “in the case of Bankruptcy, the Court will have power to extend an Income Payments Order beyond three years.” I should say at this stage, that it seems to me that the Report of the Review Committee does not support Mr Briggs’ submission and in any event, it contained a variety of proposals some of which did not find their way into the Insolvency Act 1986 and should be given little or no weight.

He also referred me to the White Paper of 2001 entitled “Productivity and Enterprise – Insolvency – A Second Chance” which foreshadowed the Enterprise Act 2002. Under the heading of “Bankruptcy Proposals” which included the proposal that bankrupts be discharged by a maximum of 12 months from the date of the bankruptcy order, at paragraph 1.20 which was subject to the side heading “Income Payments Orders” it stated as follows:

“Across the broad spectrum of civil debt enforcement the government is committed to Payments ensuring that those who can pay should pay. In order to ensure this happens - and against the background of a very much reduced period of bankruptcy - the Enterprise Bill will make it clear that bankrupts will be liable to make an affordable contribution from their income for up to three years from the date of the bankruptcy order regardless of whether they are discharged.”

In this regard, Mr Comiskey points out that in fact, the amendments to the Insolvency Act 1986 brought about by the Enterprise Act 2002 did not limit the length of any commitment to make payments to three years from the date of the bankruptcy order at all. He also says that paragraph 1.20 when read in the context of the proposed shorter bankruptcy period, does no more than reiterate that an obligation to make payments should not extend for more than 3 years after discharge, as before.

In addition, Mr Briggs referred me to the Explanatory Notes to the Enterprise Act 2002 itself. As Lord Steyn explained in his speech in R(S) v Chief Constable of S Yorkshire Police [2004] 1 WLR 2196 at 2199C:

“ . . . Explanatory notes are not endorsed by Parliament. On the other hand, in so far as they cast light on the setting of a statute, and the mischief at which it is aimed, they are admissible in aid of construction of the statute. . ”

The relevant Explanatory Notes in this case state:

“755.

The current income payments order regime is designed to ensure bankrupts make an affordable contribution towards their debt from their income for up to three years, but in most cases they cease on discharge (see section 310(6)). Against the background of a reduced period of bankruptcy for non-culpable bankrupts, income payments orders will now last for a term of up to three years from the date of the order, irrespective of discharge (see new section 310(6) inserted by section 259).

756.

Income payments orders are made by the courts on the application of the trustee in bankruptcy. In practice most are not usually contested. Income payments orders can be varied on the application of the trustee or the bankrupt.

757.

In order to remove the need for court involvement in non-contentious cases, section 260 introduces the concept of the income payments agreement by inserting a new Section 310A into the Insolvency Act 1986.

758.

Income payments agreements will provide a legally-binding written agreement between the bankrupt and the Official Receiver or trustee that requires the bankrupt (or a third party) to make specified payments to his trustee for a specified period. This will be enforceable as if it were an income payments order made by the court. Whilst in force, an income payments agreement may be varied on an application to the court by the bankrupt, trustee or the Official Receiver or by written agreement between the parties. A court may not vary an income payments agreement to include a provision that could not be included in an income payments order and must grant a variation if it takes the view that the variation is necessary to enable the bankrupt to retain sufficient funds to meet the reasonable domestic needs of the bankrupt and his or her family.

759.

An income payments agreement must specify the period in which it is to have effect and that period can apply after a bankrupt is discharged but cannot extend to a date more than three years after the date of the income payments agreement.”

With regard to the Explanatory Notes, Mr Comiskey says that they are of little or no assistance and they do not suggest that the jurisdiction to grant an Income Payments Order is in any way affected by an Income Payments Agreement having been entered into.

Lastly, Mr Briggs says that I should concentrate on the effect of being able to slip between the two regimes rather than purely upon the meaning of the words in section 310 as amended. He says that each regime operates separately for the same purpose and that one cannot “mix and match.” He says that the Joint Trustees should have applied to vary the Income Payments Agreement which was agreed with the Respondent rather than seek an order subsequently.

In my judgment, the learned District Judge erred in finding that the jurisdiction to grant an Income Payments Order under section 310 is ousted where there has been an Income Payments Agreement. It seems to me that the plain and ordinary meaning of section 310 is clear and that there is no reason to go beyond it. Furthermore, had the legislature intended that jurisdiction be limited in the way which is suggested, it seems to me that it would have said so at the time of the express amendments made by sections 259 and 260 of the Enterprise Act 2002.

My conclusion is supported by the extract from the speech of Lord Neuberger in Boss Holdings Ltd v Grosvenor West End Properties Ltd to which I have referred. In my judgment, the legislature cannot have intended the plain meaning of section 310 to change in the way contended for by the Respondent, as a result of the introduction of section 310A, coupled with specific amendments to section 310 itself which made no reference whatever to the jurisdiction to make an order under section 310 being affected by the existence of a previous agreement forged under section 310A. This is all the more so in this case given that section 310 was amended at the very same time as section 310A was introduced and section 310A makes reference to section 310. Of course, the amendment to section 310(6) did introduce a limit on the duration of an Income Payment Order, something to which I shall return.

To the extent that it survives Lord Neuberger’s decision in Boss Holdings Ltd, this conclusion is in my judgment reinforced by the dictum of Hobhouse LJ (as he then was) in Inco Europe Ltd & Ors v First Choice Distribution (a firm) & Ors. He stated that it is the amending Act which is the expression of the legislature’s intention. In this case, although Income Payment Agreements were introduced and section 310 was itself amended, no amendments were made to section 310 which would justify the interpretation put on it by the Respondent.

It follows therefore, that I do not accept Mr Briggs’ analysis that, in fact, sections 310 and 310A read together cause significant anomalies to arise which the court is satisfied the legislature could not have intended and which requires the court to seek to find an interpretation other than the literal one, as Arden LJ described in Price vDavis [2014] EWCA Civ 26. It seems to me that even if the Respondent is correct and it was Parliament’s intention that a bankrupt should not be required to pay part of his income to his trustee in bankruptcy for more than 3 years, the potential for an anomaly if there is jurisdiction to make an Income Payments Order despite an Income Payments Agreement having already been entered into is met by the existence of the discretion of the judge when exercising the jurisdiction whether to make the subsequent order and if so, the length of the order in question. As Mr Comiskey readily accepts, on such an occasion, the existence of an Income Payments Agreement and its length are factors which are relevant to take into consideration. This is consistent with a paragraph under the heading, “Anomaly avoidable by exercise of discretion” in section 315 of Bennion on Statutory Interpretation 6^th ed to which I was referred. The text goes on:

“A possible anomaly carries less weight” if there is interposed the discretion of some responsible person by the sensible exercise of which the risk may be obviated.”

The editor of Bennion went on to note:

“In a bankruptcy case both sides sought to support their arguments by citing anomalies which the opposite view would produce. That of the debtor however, depended on the possible making of orders discharging a person from bankruptcy subject to conditions subsequent. Thus it could be avoided by the careful exercise of the power to make such orders, although in practice these were rarely made.”

The footnote refers to Re, ex p Official Receiver vDebtor [1980] 1 WLR 263.

I should add that I do not accept that Mr Briggs is assisted to any great extent by the White Paper entitled “Insolvency – A Second Chance”. As Mr Comiskey pointed out, paragraph 1.20 makes reference to an obligation to contribute for a period of 3 years from the date of the bankruptcy order itself, something which is not reflected in either section 310 in its amended form or section 310A. I have already recorded my conclusion in relation to the Cork Report which I did not find of assistance.

In addition, I should add that although Explanatory Notes may cast light on the mischief at which it is aimed, I agree with Mr Comiskey that they do not assist the Respondent here. Although paragraphs 755 and 759 may suggest that it was intended that any obligation to contribute be limited to three years, the relevant Notes shed no light whatsoever upon whether it was intended that the Order and Agreement regimes should be mutually exclusive.

In any event, even if it is correct that as a result of section 310(6) in its amended form, the full duration of any obligation to make payments whether under an Income Payments Order or an Income Payments Agreement may not exceed three years, precluding the making of a second Order or Agreement before discharge where the first was for a full three year duration, something upon which I do not need to decide, in my judgment, that does not require an interpretation to be placed upon section 310 of the kind proposed on behalf of the Respondent. It is not necessary as a result, to construe section 310 to mean that where there has been an Income Payments Agreement there is no jurisdiction to make an order under section 310. As I have already said, the matter is cured by means of the discretion contained in section 310 as amended.