Grant & Anor v Baker

This is an appeal by the joint trustees in bankruptcy (“the Trustees”) of Mr Ronald Charles Henry Baker (“Mr Baker”) from part of an order made on 8 October 2015 (“the Order”) by District Judge Foss sitting in the County Court at Chelmsford. The appeal is brought with permission granted by Newey J on 26 November 2015.

The Order was made in proceedings brought by the Trustees for the sale of Mr Baker’s home at 132 Thaxted Road, Saffron Walden, Essex (“the Property”), which is jointly owned by him and his wife, Deborah Baker (“Mrs Baker”). The Order declared that the Trustees were entitled to one half of the beneficial interest in the Property, and Mrs Baker to the other half. Directions were given for the sale of the Property with vacant possession, and for division of the net proceeds of sale between the Trustees and Mrs Baker. By paragraph 8 of the Order, however, the sale was postponed “until such time as Samantha Baker no longer resides at the Property”.

Samantha, who was born on 28 April 1986 and is now aged 30, is the oldest of the Bakers’ three children. She was born with a condition known as global developmental delay, and also suffers from dyspraxia and obsessive compulsive disorder (“OCD”). According to Mr Baker’s evidence, which the district judge clearly accepted, Samantha has the mental age of an 8 or 9 year old child, and is incapable of living on her own. She has difficulty with mobility, finding it hard to get up and down stairs, and feels unsteady on uneven ground. There is no prospect of her condition ever improving, and she is never going to be able to live alone. She also needs a lot of supervision.

The Bakers have always cared for Samantha at home, and in about 2007 they moved from a three bedroomed flat in Hackney to the Property, which is a bungalow with four bedrooms, because its layout, and the absence of stairs, were well suited to Samantha’s needs. A further advantage of the move was that it provided her with a bigger bedroom.

The Bakers also have two sons, Tom and Joe, who at the date of the hearing last October were aged 26 and 22. Tom works full time as a drainage engineer, earning about £900 per month net. Joe had recently secured a job as a teaching assistant for the disabled, earning about £9.00 per hour and working about seven hours a day, but on a zero hours contract. Tom and Joe both still live at home, but the judge found that “they clearly are independent” and able to live without parental support.

At the hearing before the district judge, the Trustees were represented by counsel, Ms Louise Bowmaker, who has also appeared for them on the appeal. The respondents, Mr and Mrs Baker, appeared in person. On the appeal, Mr Baker has again appeared in person, but Mrs Baker has had the benefit of representation by Mr Edward Rowntree, instructed shortly before the hearing by the Bar Pro Bono Unit. I express my gratitude to Mr Rowntree for his clear, helpful and realistic submissions on his client’s behalf.

The postponement of the sale of the Property in paragraph 8 of the Order is unlimited in point of time. No sale is to take place for so long as Samantha continues to reside at the Property. There is no evidence that her life expectancy is lower than normal, so the effect of the Order is that the sale could be postponed for many years, or even decades. Furthermore, Mr Baker’s share in the Property is the only asset of any value in the bankruptcy, so unless and until the Property is sold the Trustees will have no funds with which to discharge their own costs or make a distribution to the only known creditor, the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”). I was told that, after the judge had delivered her oral judgment, counsel asked her to impose a time limit on the postponement of sale, but she declined to do so and also refused permission to appeal from the Order.

The appeal is confined to paragraph 8 of the Order. In their appellant’s notice, the Trustees ask that paragraph 8 be set aside, or alternatively varied so as to include a “long stop” postponement of no more than 12 months. The grounds of appeal, settled by Ms Bowmaker, say that the judge erred in making certain findings of fact, and in any event erred in the exercise of her discretion, both in making the order which she did and in refusing to include a long stop date after which the Property would have to be sold. These contentions were developed by Ms Bowmaker in her skeleton argument and oral submissions.

The written evidence before the judge consisted of a short witness statement of one of the Trustees, Mr Stephen Grant, and a statement from Mr Baker dated 31 August 2015. Mr Baker also gave oral evidence at the hearing, which extended to a number of matters not covered in his statement. He was cross-examined by Ms Bowmaker, particularly in relation to alternative housing options (such as purchasing another property, renting in the private sector, or approaching the local authority for housing assistance) about which he had said nothing in his statement. I have not been provided with a transcript of the oral evidence, so for matters not contained in the two witness statements I have to take the facts as they were found by the judge in her careful and sensitive judgment.

Mr Baker has at all material times been a self-employed taxi driver. His wife of 30 years, Mrs Baker, was until recently a carer looking after elderly people, earning between £900 and £1,100 net per month, which the district judge estimated would give her a maximum gross annual income of about £15,000. At the time of the hearing, however, she was unemployed and in receipt of sickness benefit, having recently undergone an operation which meant that she was no longer able to work in her previous job, because she was unable to lift heavy weights. At the age of 48, the judge thought she might well be able to get another job somewhere else, but her only experience since the children were born has been as a carer, so her work experience is limited. Mr Rowntree told me, on instructions from his client, that she has not yet been able to return to work, and in particular is still unable to perform heavy lifting (such as carrying people).

Mr Baker’s bankruptcy came about in circumstances with which the judge evidently had a good deal of sympathy. It appears that he had employed an accountant to deal with his tax returns, but at a meeting with HMRC in 2011 it transpired that the accountant had failed to take into consideration the private use by Mr Baker of his taxi and fuel. HMRC then reopened his accounts for the previous five years, and eventually Mr Baker received a bill for £25,000. It was impossible for the Bakers to raise a sum of this magnitude, and although they tried to remortgage the Property this could not be done because of Mr Baker’s self-employed status. Mrs Baker was offered a personal loan of £10,000 by their bank, and this amount was offered to HMRC, but they refused to accept it. Meanwhile, the accountant died and Mr Baker started using the services of a specialist firm of accountants for the taxi industry. He was advised that his previous accountant had not been doing his books correctly, and further substantial tax liabilities would be incurred. Eventually, Mr Baker was made bankrupt, on the petition of HMRC, on 20 November 2013. Mr Baker emphasised in his written evidence, and there is no reason to doubt, that he and his family have always paid their way, and he had always filed tax returns. In his brief oral submissions to me, he said that apart from the debt owed to HMRC he had never had another debt in his life. It seems that the possibility of suing his former accountant for negligence has never been properly investigated, either by Mr Baker or by the Trustees (in whom the cause of action, if any, would have vested).

In his initial report dated 7 January 2014, the Official Receiver recorded that there was an estimated deficiency in the bankruptcy of £26,279.50, that being the difference between the £52,808 then estimated to be due to HMRC and the estimated realisable value of Mr Baker’s share in the Property of £26,528.50. The report also recorded that Mr Baker had agreed to make monthly payments of £76 under an income payments agreement, beginning on 3 February 2014.

In due course, the Trustees were appointed on 8 January 2014. On 23 January 2014, the Trustees wrote separately to Mr and Mrs Baker, giving them formal notice pursuant to Rule 6.237 of the Insolvency Rules 1986 that the Property fell within section 283A of the Insolvency Act 1986. The letters gave a clear explanation of the legal and factual position in relation to the Property, and the various ways in which its value might be realised.

A little over a year later, the Trustees wrote again to Mr Baker on 26 February and 19 March 2015, saying that steps must now be taken to realise his interest in the Property for the benefit of the bankrupt estate, and enquiring whether he, Mrs Baker or a third party wished to make an offer to purchase that interest. Mr Baker replied by email on 2 April 2015, saying that he would be unable to find any purchaser, and, as Mrs Baker would refuse to sell, “the matter will have to be dealt with by the courts”. This led to the Trustees’ application in the County Court at Chelmsford for an order for possession and sale of the Property, which came before the judge for an effective hearing on 8 October 2015.

Meanwhile, the Trustees prepared an annual progress report for the year ending 7 January 2015. This confirmed that there was only one unsecured creditor in the bankruptcy, namely HMRC, whose claim had been received in the sum of £51,499.39, some £1,300 less than the amount estimated by the Official Receiver. It stated that Mr Baker had co-operated throughout the bankruptcy administration, and had received his automatic discharge on 20 November 2014. The only receipts to date were his monthly repayments of £76, totalling £836. This figure was subsequently increased to £150 per month from April 2015, and some payments were made at the increased rate, but I was informed that they have now ceased through Mr Baker’s inability to keep them up. Like many other taxi drivers, his trade has suffered from competition with Uber.

As to the value of the Property, the Trustees obtained two valuations in December 2013 and February 2014 from local estate agents. Averaged and updated to 12 May 2015, they indicated a value of the Property of £350,000. There was an outstanding mortgage of just under £278,000 as at 31 March 2015, so the Trustees estimated the equity to be in the region of £72,000. In her judgment, the judge pointed out that this estimate made no allowance for costs of sale. Taking them to be 3%, i.e. £10,500, the actual equity would be in the region of £61,500, to be divided equally between Mr and Mrs Baker. Accordingly, if the Property were to be sold, Mrs Baker would be “likely to walk away with about £30,000” (paragraph 4 of the judgment).

Finally, I should say a little more about Samantha’s condition. Mr Baker exhibited to his statement a letter dated 7 August 2015 from Samantha’s general practitioner, Dr Jenni Lindford, which I should quote in full:

“I am writing to confirm that this 29 year old lady has a global developmental delay, and dyspraxia. Her mobility is affected and requires orthotics in her shoes, and care with walking/stairs. She has been seen by physiotherapy for on-going care.

She lives in a bungalow with her parents which enables her easier access to the toilet and bedroom, as well as the rest of the house.

She lives in a commutable distance from her college, which she very much enjoys, and benefits from.

The fear of moving home has been detrimental on her mental well-being and has caused her a lot of distress. Her life requires routine, and her home has been adapted to meet her requirements, therefore moving from her home of 8 years would have a real negative impact on her well-being.”

Although Dr Lindford referred to the Property as having been “adapted” to meet Samantha’s requirements, it is common ground that there is no evidence of actual adaptations of a structural nature having been made to the Property. What Dr Lindford meant to say, I am sure, is that the Property was well suited to meet Samantha’s requirements, and had indeed been chosen for that purpose.

The “college” to which Dr Lindford referred is in fact a day centre run by the Papworth Trust, under the name “Opportunities Without Limits” or “OWL”. A letter from Suzanne Moore, the Project Lead at Papworth Trust, also exhibited to Mr Baker’s statement, said this:

“Samantha continues to need additional support in different areas whilst she is at OWL.

Samantha needs encouragement to achieve tasks and additional emotional support when things appear to get too much for her. Samantha benefits from 1:1 learning support as she can become easily distracted and lose focus on what is being said. This could be a risk if Samantha has not listened to instructions.

Samantha also needs support with mobility at times and can be unsteady on her feet and will often need assistance to travel up and down stairs and on uneven surfaces.

Samantha benefits from the social interaction she gets from coming to OWL and has grown in confidence and with additional learning support continues to develop in confidence and progressing with work-based skills and independent travel skills.”

The judge quoted both these letters in full in paragraph 8 of her judgment, and clearly had their contents well in mind when forming her assessment of Samantha’s needs.

There was no medical evidence before the judge about Samantha’s OCD, but Mr Baker referred to it in his statement as follows:

“Sam also suffers with OCD and finds great comfort in routine. Her bedroom is her sanctuary and it would stress her greatly knowing she would have to leave her home. We would find it very difficult to rent as we feel Sam needs the security of a permanent home and not a place that we could be forced out of with just two months notice.”

Section 283A of the Insolvency Act 1986 provides (so far as material) as follows:

“(1)

This section applies where property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of –

(a)

the bankrupt,

(b)

the bankrupt’s spouse …

(2)

At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall –

(a)

cease to be comprised in the bankrupt’s estate, and

(b)

vest in the bankrupt (without conveyance, assignment or transfer).

(3)

Subsection (2) shall not apply if during the period mentioned in that subsection –

(a)

the trustee realises the interest mentioned in subsection (1),

(b)

the trustee applies for an order for sale in respect of the dwelling-house,

(c)

the trustee applies for an order for possession of the dwelling-house,

…”

As a result of these provisions, introduced by section 261 of the Enterprise Act 2002, a trustee in bankruptcy must take action within three years of the date of the bankruptcy if he wishes to realise the bankrupt’s interest in his home. In the absence of such action, the bankrupt’s interest revests in him automatically at the expiry of the period. In general terms, the mischief which this section was designed to remedy was “the practice adopted by certain trustees of not realising family homes immediately but allowing the matter to lie dormant, only acting many years after discharge where the value of the property had increased due to inflation” (Sealy & Milman, Annotated Guide to the Insolvency Legislation, 18^th edition, vol. 1, p 357).

By virtue of section 335A of the 1986 Act, inserted into the bankruptcy legislation by section 25(1) of the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA 1996”):

“(1)

Any application by a trustee of a bankrupt’s estate under section 14 of [TOLATA 1996] (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2)

On such an application the court shall make such order as it thinks just and reasonable having regard to –

(a)

the interests of the bankrupt’s creditors;

(b)

where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt’s spouse … -

(i)

the conduct of the spouse …, so far as contributing to the bankruptcy,

(ii)

the needs and financial resources of the spouse …, and

(iii)

the needs of any children; and

(c)

all the circumstances of the case other than the needs of the bankrupt.

(3)Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt’s estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.”

Section 14(1) of TOLATA 1996 states that:

“Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section.”

Section 15 then sets out the matters to which the court is to have regard in determining an application for an order under section 14, but by virtue of subsection (4) section 15 “does not apply to an application if section 335A of the Insolvency Act 1986 … applies to it”. In the present case, the application by the Trustees was made after expiry of the one year period mentioned in section 335A(3). Accordingly, in exercising its powers under section 14 of TOLATA 1996 the court:

To state the obvious, the interests of the bankrupt’s creditors will normally require that the property be sold so that the bankrupt’s share in it can be realised for their benefit. Moreover, by virtue of section 335A(2)(c), the needs of the bankrupt himself are to be disregarded. It follows that any successful defence to an application for sale brought after expiry of the one year period will normally depend on establishing that the circumstances of the case are exceptional, leaving aside the needs of the bankrupt. If this condition is satisfied, the court must then make such order as it thinks just and reasonable having regard to all the matters specified in subsection (2). In making that assessment, the interests of the bankrupt’s creditors must still be taken into account, by virtue of paragraph (a), but the appropriate weight to attach to them will be in the discretion of the court.

The principles which the court should follow when considering whether the circumstances of the case are exceptional were conveniently summarised by Lawrence Collins J (as he then was) in Dean v Stout [2005] EWHC 3315 (Ch), [2005] BPIR 1113, at [6] to [11]:

“6.

The principles which can be derived from the authorities may be summarised as follows. First, the presence of exceptional circumstances is a necessary condition to displace the presumption that the interests of the creditors outweigh all other considerations, but the presence of exceptional circumstances does not debar the court from making an order for sale.

7.

Secondly, typically the exceptional circumstances in the modern cases relate to the personal circumstances of one of the joint owners, such as a medical or mental condition.

8.Thirdly, the categories of exceptional circumstances are not to be categorised or defined and the court makes a value judgment after looking at all the circumstances.

9.

Fourthly, the circumstances must be exceptional and this expression was intended to apply the same test as the pre-Insolvency Act 1986 decisions on bankruptcy (see In re Citro (Domenico) (a bankrupt) [1991] (Ch) 142, [1991] 1 FLR 71 at 159/160 and 84 respectively), that is to say exceptional or special circumstances which are outside the usual “melancholy consequences of debt and improvidence” (in the words of Nourse LJ) or (in the words of Bingham LJ) “compelling reasons not found in the ordinary run of cases”.

10.

Fifthly, it is not uncommon for a wife with children to be faced with eviction in circumstances where the realisation of her beneficial interest will not produce enough to buy a comparable home in the same neighbour or, indeed, elsewhere. Such circumstances, while engendering a natural sympathy, cannot be described as exceptional, and it was in that context that Nourse LJ referred to the “melancholy consequences of debt and improvidence” with which every civilised society has been familiar (see 157 and 82 respectively).

11.

Sixthly, for the purposes of weighing the interests of the creditors, the creditors have an interest in the order for sale being made, even if the whole of the net proceeds will go towards the expenses of the bankruptcy, and the fact that they will be swallowed up in paying those expenses is not an exceptional circumstance justifying the displacement of the presumption that the interests of the creditors outweigh all other considerations.”

In Claughton v Charalambous [1998] BPIR 558, Jonathan Parker J said at 562H:

“What is required of the court in applying s335A(3) is, in effect, a value judgment. The court must look at all the circumstances and conclude whether or not they are exceptional. That process leaves, it seems to me, very little scope for the interference by an appellate court.

No doubt there may be cases where an appellate court can and should interfere. For example, where there is an error of law appearing on the face of the judgment, or where the conclusion which the court below has reached is so plainly wrong as to raise the inference that in reaching that conclusion the court somehow misdirected itself in law.”

The facts of Claughton v Charalambous show that, in an appropriate case, the exceptional circumstances may be such as to justify a postponement of any order for sale until the bankrupt’s spouse either dies or vacates the property. In that case, however, Mrs Charalambous (the bankrupt’s wife) had a 50% beneficial interest in the property, and the medical evidence established that she was in very poor health, suffering from chronic renal failure and chronic osteoarthritis. She could walk only with great difficulty and with the aid of a Zimmer frame, and she needed a wheelchair. She was about 60 years old, and evidently had a reduced life expectancy, although how reduced does not appear from the judgment: see 562A-D.

Re Bremner [1999] BPIR 185 is another case where an indefinite suspension of an order for sale was directed, but the circumstances were such that the postponement was likely to be measured in months rather than years. The bankrupt, Mr Bremner, was aged 79, and had recently been diagnosed with an inoperable cancer. His life expectancy was probably no more than six months, he was housebound, and his wife (aged 74) was his only carer. She had no beneficial interest in the property, but had a right of occupation while the marriage subsisted. The bankruptcy dated back to 1991, and the evidence was that on an immediate sale of the property there should be enough money to pay all the creditors in full, with some (but not all) of the statutory interest to which they were entitled. Mr Jonathan Sumption QC (as he then was), sitting as a deputy judge of the High Court, held that the circumstances of the case were exceptional, and that the needs of Mrs Bremner (as distinct from those of Mr Bremner, which had to be disregarded) should be recognised by deferring a sale of the property until three months after her husband’s impending death. The judge added, at 188E:

“I should make it clear that I would not necessarily have reached the same decision if Mr Bremner had been younger or less ill, or if his life expectancy had been longer than, in fact, it appears to be.”

There is no definition of the word “needs” in section 335A, but it should clearly be given a broad interpretation, and is certainly not confined to needs of a financial nature: see Everitt v Budhram [2009] EWHC 1219 (Ch), [2010] Ch 170, at [36] per Henderson J. It is also clear, I think, that “the needs of any children” in section 335A(2)(b)(iii) are not confined to their needs while under the age of 18, and can therefore include the needs, broadly defined, of an adult child such as Samantha. The contrary was, in my view rightly, not argued by Ms Bowmaker for the Trustees.

After setting out the facts and the relevant legislation, the judge directed herself (in paragraph 9 of her judgment) that what she really had to consider was the position of Mrs Baker, and the effect of a sale on Mrs Baker and Samantha. She added that, since the application had been made after expiry of the one year period in section 335A(3):

“In essence the interests of the creditors – in this case HMRC – should outweigh all of the interests of Mrs Baker and the children unless those circumstances are exceptional. Effectively what I have to determine is, are Samantha’s and Mrs Baker’s circumstances exceptional?”

The judge then referred to some of the case law on what amounts to exceptional circumstances, including Dean v Stout and Turner v Avis [2008] BPIR 1143. In paragraph 12 of her judgment, she referred briefly to the facts of Re Bremner and Claughton v Charalambous, although without naming them, as examples of cases where the sale was postponed until after a person’s death.

The judge continued:

“13.

The question I have to ask myself is, first of all, is this an exceptional circumstance? Secondly, should the sale be postponed as a result and, if so, for how long? In this case we have a disabled child. Although she is 29 years old and an adult she clearly is incapable of having independent life and has lived all of her life with her parents. It is correct that 8 years ago Mr and Mrs Baker and the family did move from Hackney to their current property in Saffron Walden. They moved from a three bedroomed flat to a four bedroomed bungalow. Mr Baker, in his evidence, confirmed to me that they bought the bungalow because of Samantha’s disabilities. It meant that she could have a bigger bedroom and her bedroom was next to the toilet and bathroom. That would make her mobility much better … This was to give Samantha security, to provide her with a bigger bedroom, more space for herself and although there was some period of adaptation this was a positive move for Samantha.

14.

I have to consider whether Mrs Baker, with Mr Baker to a certain extent, is in a position to be able to purchase another property if this property is to be sold. I have heard evidence that at the moment she is not working. Mr and Mrs Baker have previously sought to re-mortgage in order to clear this debt and were refused. Mrs Baker has been able to secure an unsecured loan of £10,000 but no more … Clearly at the moment, whilst she has no employment whatsoever, I cannot see that she would be in a position to obtain a mortgage. I also accept the fact that as Mr Baker is not only self-employed but also a discharged bankrupt it is unlikely that he would be in a position to obtain a mortgage.”

The judge then referred to material provided by the Trustees which indicated that it would be possible to buy a three bedroomed bungalow in a village close to the Papworth Trust for £275,000. She was satisfied that Mrs Baker would be unable to raise a sum of that magnitude by way of mortgage, and it was unrealistic to suggest that Joe and Tom would be able to assist for that purpose. She added:

“In any event, it would be inappropriate in my view for Tom and Joe to be tied to a mortgage for their parents’ property when they have their own lives to lead in the future.”

The judge then turned to what she described as the other option, namely the rental market. As to this, she said in paragraph 16 of her judgment:

“[Ms Bowmaker] has indicated that a three bedroomed bungalow in the area that is appropriate for this family would be about £1,300 per calendar month. Mr Baker confirmed that his current mortgage payment is £1,060 per calendar month. It was suggested that the equity from the sale of the property due to Mrs Baker could be used to make up a shortfall but that is quite short term thinking in my view because any shortfall is easily going to be eaten up and it will be gone. How does Mrs Baker then meet the cost of renting after that? There is a question, therefore, as [to] whether or not that is affordable. Having said that, Mr Baker’s main concern is the temporary nature of rented accommodation in the private sector. It is correct that he could negotiate a 12 month assured shorthold tenancy but once that year is up it is also correct that the landlord need only serve a s.21 notice and he would have to vacate within a period of two months, possibly longer if he makes them apply for a possession order, but that just increases costs and is not the reasonable position to take. His concern with regards to the temporary nature of rented accommodation is the effect on Samantha.”

The judge then considered whether the local authority (Uttlesford District Council) might be able to house the family. Mr Baker’s evidence was that he had approached the local authority a few years ago, and was told that they would make sure that Samantha always had a place to live, but would not be in a position to provide Mr and Mrs Baker with accommodation for themselves. The judge said that in her view this was probably correct, given that Mr Baker was working, and on a sale of the Property Mrs Baker would receive half of the proceeds. Moreover, it would not be satisfactory for Samantha to be rehoused separately from her parents. Accordingly, if the Property were to be sold, Mrs Baker and Samantha would have to resort to the private rented sector for accommodation. The judge continued (at the end of paragraph 17):

“My concern is that that does provide Samantha with accommodation but on a temporary basis and it cannot be considered in any way as permanent because of the possibility of being asked to leave or to give up possession at very short notice. As a result of Samantha’s disabilities and the effect upon her of moving, Dr Lindford clearly indicates that moving home would have a real negative impact on her well-being. I do consider that these are exceptional circumstances.”

Having concluded that the circumstances were exceptional, the judge then turned to the exercise of her discretion. I will quote the final three paragraphs of her judgment in full:

“18.

The next question I have to consider is weighing up the creditors’ right of realising the share of the property against the rights of Mrs Baker and Samantha of living in that property. It is clear from the evidence that I have set out in the statement of Mr Grant, one of the trustees, that if the property is to be sold then it is highly likely that the only creditor – HMRC – would receive a dividend, although it is not certain exactly how much would be received. As I say, given the figures before me the equity available to the trustees by way of Mr Baker’s share of this property, is more likely to be in the region of £30,000 than £36,000 on the basis that the costs of sale have not been taken into consideration and they will of course have to be paid. I understand that costs [i.e. of the bankruptcy] certainly do not exceed £30,000 at this stage and therefore there would be some dividend to the creditors. However, even if there were no dividend to the creditors that would not necessarily mean that I should not make an order for sale. If I do not make an order for sale or if that sale is postponed then the creditors will need to wait for their dividend.

19.

What I have to do, in my view, is weigh up the interests of the creditors against the interests of Mrs Baker and her daughter. As I have indicated, I do find that these are exceptional circumstances. It is in the interest of the creditors for there to be an order for sale and the trustees have indicated that it would be appropriate only for a few months of time to be given to Mr and Mrs Baker to find alternative accommodation. In my view, given that the only option available to Mr and Mrs Baker is that of the private rented sector and because that would then put Samantha in a situation where she is not guaranteed a home for the rest of her life, that would be too detrimental to Samantha Baker and therefore her mother to make an order for sale without a postponement.

20.

Given Samantha’s condition, the order that I will make is that the property should be sold but that sale should be postponed until Samantha Baker is no longer residing in that property or no longer requires that property as a home.”

As I have already said, the judge then rejected a submission by counsel for the Trustees that a longstop date should be specified. Her order also made no provision for the Trustees to return to the court if there were a material change of circumstances while Samantha still resided at the Property.

I propose to deal with this part of the appeal briefly, because in my view the judge was clearly entitled to find that the circumstances of the present case are indeed exceptional, thereby displacing the presumption that the interests of Mr Baker’s creditors are to outweigh all other considerations. The judge’s conclusion on this point involved a value judgment, which as Jonathan Parker J said in Claughton v Charalambous leaves very little scope for interference by an appellate court. It seems to me that she considered the evidence carefully and conscientiously, and the value judgment which she formed was an entirely legitimate one.

Ms Bowmaker focused her argument on this part of the case on the medical evidence, submitting that it fell short of what would be needed to demonstrate an adverse impact on Samantha, if she were no longer able to live at the Property, which went beyond the normal melancholy consequences of a forced sale. She submitted that the medical evidence was scanty in both quantity and quality, and that no proper consideration had been given to the likely impact on Samantha of living in private rented accommodation. She pointed out that Samantha and her family had moved from London to Saffron Walden eight years previously, and after a period of adaptation this had been, in the judge’s words, “a positive move for Samantha”. If Samantha had to move house again, the move would doubtless be painful for her in the short term, but in due course she could be expected to settle down into a new routine. In so far as the judge took into account Samantha’s OCD, this was not the subject of any medical evidence at all, and should therefore carry little if any weight.

There is force in some of these points, but they do not persuade me that the judge was wrong to characterise the circumstances as exceptional. Her assessment had to be formed on the evidence as a whole, including the oral evidence of which I do not have a transcript. The medical evidence from Dr Lindford may have been relatively short and informal, but it included clear statements that the fear of moving home had been detrimental to Samantha’s mental well-being, and had caused her a lot of distress. Her life requires routine, and the Property is well suited to her needs. Accordingly, a move from her home of the last eight years “would have a real negative impact on her well-being”. I was informed, in this connection, that Dr Lindford has been Samantha’s general practitioner for a considerable time and has seen her frequently. With the benefit of this evidence, and that from the Papworth Trust, combined with Mr Baker’s own evidence of his daughter’s condition and the problems of caring for her throughout her life, the judge in my view had ample grounds for concluding that the circumstances were exceptional. A medical or mental condition of one of the joint owners is a paradigm example of circumstances which the court may properly recognise as exceptional, and I can see no reason in principle why the same should not apply where the medical or mental condition is that of a child for whom the joint owners care in their home.

The real question, therefore, is whether, having found the circumstances of the case to be exceptional, the judge then correctly exercised her discretion by ordering an indefinite postponement of the sale of the Property while Samantha continued to live there.

Both counsel rightly reminded me of the approach which an appellate court should adopt when reviewing the exercise of a discretion by the judge of first instance. In A. E. I. Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, Lord Woolf MR, at 1523, endorsed an earlier description of the conventional approach in the following terms:

“Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”

Also frequently cited in this connection are the observations of Lord Fraser of Tullybelton in G. v G. (Minors: Custody Appeal) [1985] 1 WLR 647 at 652, where he emphasised the point:

“that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the [appellate court] might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.”

The judge directed herself, in paragraphs 18 and 19 of her judgment, that she needed to weigh up the interests of the only creditors, HMRC, against the interests of Mrs Baker and Samantha. This was true as far as it went, but in my view paid insufficient attention to the requirement in section 335A(2)(c) to have regard to “all the circumstances of the case other than the needs of the bankrupt”. The circumstances of the case include the statutory scheme of the bankruptcy legislation, at the heart of which is the vesting of the bankrupt’s property in his trustee, with the object that the trustee should then realise the property and distribute the net proceeds among the unsecured creditors on a pari passu basis. Moreover, the clear effect of section 283A of the 1986 Act is that there is a limited period of three years within which the trustee must either take steps towards realisation of the bankrupt’s interest in his home, or forfeit that interest as part of the bankrupt’s estate. If, as in the present case, the trustee does take action within the requisite period, it seems to me that the court should then exercise its powers under section 335A with the object of enabling the bankrupt’s interest in the property to be realised and made available for distribution among his creditors. Only in that way can the underlying purpose of the bankruptcy legislation be achieved.

Furthermore, since the vesting of the bankrupt’s property in the trustee is central to the operation of the statutory scheme, and since the trustee’s reasonable costs are payable in priority to any distribution to creditors, it must follow that the statutory scheme requires the property to be realised even if the proceeds may be swallowed up in meeting the trustee’s reasonable costs, with nothing left for the unsecured creditors. This must, I think, be the explanation for the well-established principle that an order for sale should normally be made even if the whole of the net proceeds will be exhausted in paying the expenses of the bankruptcy. The judge clearly had this principle in mind when she said, in paragraph 18, that “even if there were no dividend to the creditors that would not necessarily mean that I should not make an order for sale”. I respectfully consider, however, that she may have blunted the force of the principle by expressing it in these qualified and negative terms. More importantly, I think she also failed to give appropriate weight to the fundamental point that an indefinite suspension of the order for sale, for a period that could be measured in decades, is incompatible with the underlying purpose of the bankruptcy code. In all save the most truly exceptional circumstances, that purpose must require realisation within a much shorter time frame, normally to be measured in months rather than years.

In reaching her conclusion, the judge thought it would be unreasonable to order a sale while Samantha continued to live in the Property, because the only available alternative accommodation would be in the private rented sector, and this would not guarantee Samantha a settled home for the rest of her life. In my respectful view, this reasoning is open to criticism on a number of grounds.

In the first place, the judge was in my view unduly influenced by the perceived lack of security for Samantha if she and her parents had to move into private rented accommodation. The judge thought that such accommodation could not “be considered in any way as permanent because of the possibility of being asked to leave or to give up possession at very short notice” (paragraph 17 of the judgment). But millions of people in England live in the private rented sector, and I see no reason to doubt that the Bakers would be model tenants of the kind that most landlords (including, in particular, buy-to-let landlords) would be very happy to retain on a medium to long term basis, even if technically they held under an assured shorthold tenancy terminable on two months’ notice. Furthermore, what matters from Samantha’s perspective is the practical reality of settled residence in a suitable property, rather than the precise legal relationship by which such residence is provided.

Secondly, I think the judge was wrong to dismiss as “quite short term thinking” (in paragraph 16) the suggestion that Mrs Baker’s share of the equity from a sale of the Property could be used to make up a shortfall in paying the rent for a suitable replacement. The evidence adduced by the Trustees indicated that the rent for a suitable three bedroomed bungalow in the area would be about £1,300 per month, or some £240 more than Mr Baker’s current monthly mortgage payments of £1,060. This is a comparatively small gap, particularly bearing in mind that a two bedroomed bungalow should suffice given the independence of the Bakers’ two sons. If Mrs Baker’s share of the equity in the Property were about £30,000, it should be enough to meet a rental shortfall of this approximate size for at least a decade. Furthermore, Mrs Baker is now aged 48, and there must be a reasonable prospect that she will again be able to find paid employment, if not in the same job as before. I therefore agree with counsel for the Trustees that the judge erred in principle in holding, in effect, that it would not be right for Mrs Baker’s share of the net sale proceeds of the Property to be put towards securing alternative accommodation for the family.

Thirdly, Samantha’s ultimately positive experience of moving from London to the Property eight years ago shows that the prospect of a further move, sensitively handled, cannot be dismissed as something which it would be unreasonable to inflict upon her. There is no suggestion that her condition has worsened over the last eight years, and the medical evidence of Dr Lindford says only that a move would “have a real negative impact on her well-being”, without addressing the question how serious that impact would be, or for how long it would last. Far more detailed and cogent medical evidence would have been needed, in my judgment, to justify a postponement of the sale of the Property for more than a relatively short period.

Fourthly, the judge was in my view wrong not to consider any alternative to indefinite postponement of the sale. As I have already explained, such a postponement, on the facts of the present case, cannot be reconciled with the statutory scheme and purpose of the bankruptcy legislation. The need for the Property to be sold within a reasonable period is therefore a nettle which has to be grasped, and since there is no evidence that Samantha’s condition is likely to improve, her interests do not require a postponement for longer than it will take to find suitable alternative rented accommodation, and plan the move in a way which will cause her the least distress.

Taking all these matters into consideration, I can see no escape from the conclusion that the judge erred significantly in the exercise of her discretion. The conclusion which she reached fell well outside the “middle ground” within which views may legitimately differ. It is therefore necessary for this court to exercise the discretion afresh, and form its own view on the appropriate period of suspension. It is material to remember, in this connection, that the hearing before me took place two and a half years after Mr Baker was made bankrupt on 20 November 2013, and nearly a year after the Trustees issued their application for sale of the Property. This is a relatively simple bankruptcy, with only one unsecured creditor. Meanwhile, the Trustees’ own costs continue to grow, and while the Property remains unsold they are unable to complete their task.

In my judgment, the longest further postponement that it could be reasonable to impose is one of approximately 12 months, to the end of July 2017. This would allow ample time for a suitable replacement property to be found on the rental market, and for the move to be prepared with Samantha’s welfare and best interests at heart. It should also allow time for consideration of any claim which Mr Baker might in principle be able to bring against the estate of his former accountant, and for any proposals arising from such a claim to be put to the Trustees. To allow a further year may be thought generous, but in my view it strikes an appropriate balance in the circumstances of the present case between the interests of the unsecured creditor (which, as a government department, will not suffer significantly from the further delay in payment) and the reasonable needs of Samantha and Mrs Baker, which have to be evaluated consistently with the underlying purpose of the bankruptcy. That is therefore the order which I propose to make.

For the reasons which I have given, the Trustees’ appeal will be allowed.