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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Ram v Ram & Ors [2004] EWCA Civ 1452 (05 November 2004) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2004/1452.html Cite as: [2004] EWCA Civ 1452, [2005] 2 FLR 63 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
HH Judge Norris QC
BM02D01373
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE BUXTON
and
LORD JUSTICE CARNWATH
____________________
GITA RAM |
Appellant |
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- and - |
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(1) BASKINDER RAM (2) SOLINDER RAM (3) MONDER RAM And (4) MAURICE WILLIAM RUSSELL (trustee in bankruptcy of Baskinder Ram) |
Respondents |
____________________
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Avtar A. S. Khangure QC and Shakil Najib (instructed by Eaton, Ryan and Taylor) for the 4th Respondent
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Crown Copyright ©
Lord Justice Carnwath:
Background
i) to transfer to the wife the matrimonial home at 34 Longmeadow Close free of mortgage;ii) to pay her a lump sum of £150,000 within 56 days;
iii) to pay all arrears under the maintenance order dated 17 March 2003 (amounting to £44,000) and to pay ongoing maintenance at £2,000 per month until i) and ii) were implemented;
iv) to pay all her matrimonial costs (£66,000).
The order records that it was made “upon hearing” counsel for the wife and also Mr Martin Lee, solicitor for the trustee in bankruptcy. However, there is some dispute as to what (if any) part Mr Lee took in the proceedings. For reasons which will become apparent, we think it unnecessary to resolve the point.
The Insolvency Act 1986
“(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interest of persons who are victims of the transaction.”
“(a) require any property transferred as part of a transaction to be vested in any person, either absolutely or for the benefit of all the persons on whose behalf the application is treated as made;”
“The object of ss 423 to 425 being to remedy the avoidance of debts, the “and” between para (a) and (b) of 423(2) must be read conjunctively and not disjunctively. Any order under this section must seek, so far as practicable, both to restore the position to what it would have been if the transaction had not been entered into and to protect the victims of it. It is not a power to restore generally, but in such a way as to protect the victims' interests; in other words, by restoring assets to the debtor to make them available for execution by the victims. So the first question the judge must ask himself is what assets have been lost to the debtor. His order should, so far as practicable, restore that loss.”
Matrimonial proceedings and bankruptcy
“…whether the claims of creditors should be allowed to prevail, both procedurally and substantively, over those of a wife, or whether she should be at least 'level-pegging'.”
He invites the court to look at “creative solutions” to achieve a fair result.
“(1) … all claims by creditors are provable as debts against… the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding only in damages.
(2) The following are not provable:-
(a) in bankruptcy, … any obligation arising under an order made in family proceedings…”
Thus on the clear wording of the rules, the wife's claim in the matrimonial proceedings, even after the order made by Hedley J, was not a “provable debt” for the purposes of the bankruptcy.
“I cannot leave this case without saying something about the effect of r 12.3 of the Insolvency Rules 1986. Before those rules came into force orders for periodical payments were not provable in bankruptcy… whereas an order for a lump sum was provable…. That position is understandable. However r 12.3(2)(a), by making any obligation arising under an order made in family proceedings, ie including a lump sum order, not provable, has changed that position. Whether it was the intention of those who drafted the 1986 rules to bring about this change I know not. It may be that it was considered that as a debt arising from an order made in family proceedings is not released upon the discharge of the bankrupt (s 281(5) (a) of the 1986 Act) therefore it should not be provable. However there is no necessary or logical link between the provability of a debt and its release on discharge. In some cases there is such a link see, eg a fine imposed for an offence which is not provable under r 12.3(2)(a) and is not released on discharge under s 281(4). On the other hand a liability to pay damages in respect of personal injuries is a provable debt in bankruptcy, not being the subject of any exclusion under r 12.3, but is not released on discharge: s 281(5)(a). It seems, therefore, that any link between provability and release on discharge is a matter of policy and I can see good policy grounds for saying that a lump sum order made in family proceedings should (like damages for personal injuries) be both provable in bankruptcy and yet not be released on discharge.
I invite the Insolvency Rules Committee to consider whether a lump sum order made in family proceedings should be provable in bankruptcy as it was before the 1986 rules came into force. If it were provable, then that would be the appropriate route for the creditor to follow, since the procedure by way of judgment summons would then be barred by s 285(3) of the 1986 Act (see Smith v Braintree DC [1990] 2 AC 215). In the present case, the wife could have proved in the husband's bankruptcy and no doubt would have sought to encourage the trustee to take the steps open to him to discover what had happened to the husband's assets; there would have been no need for the present unhappy saga to have occurred.”
“Since the wife is unable to prove in the husband's bankruptcy, the position… is that the husband's trustee must use the £385,000 in paying the trustee's expenses and remuneration and, subject to that, he must distribute the money between the husband's creditors but excluding the wife. This would mean there would be a substantial surplus available to be returned to the husband. No doubt the wife could take steps to intercept the surplus. Even so, the result would be that the unsecured creditors would be paid in full, save for the wife. She would not receive the whole of the lump sum ordered by the judge. Indeed, far from even sharing equally with the husband's other creditors, she would rank behind them all. She would receive the crumbs from the husband's table left unconsumed by his other creditors. This is the consequence of r 12.3(2)(a) …”
He noted that an attack on the rule had been rejected in Woodley and added:
“I feel bound to say that the exclusion of an obligation to pay a lump sum arising under an order in family proceedings from proof as a debt in bankruptcy is a matter which would bear re-examination as a matter of urgency…”
The appellant's submissions
“This will in effect be held to the order of the court under the terms of the freezing order extended by Hedley J on 4.3.04. There will then be a further hearing before the High Court judge, or HHJ Hindley QC as the deputed s 9 judge, to determine how the 'pot' of £675K (less estate creditors) can be fairly divided between all s 423 'victims', which for these purposes includes both W and the bankruptcy creditors.
Thus a judge may decide for instance that—
(i) trustee be paid in full, and wife take the remainder; or
(ii) all parties recover pro rata; or
(iii) wife be paid in full, but trustee accepts a discount on account of his unaccountable delay and inertia since 1998, compared with wife enterprise and persistence in this litigation, for which she deserves some reward.”
“By vesting the property in the trustee, Judge Norris QC effectively shut the wife out from the fruits of her application, leaving her to fight for the crumbs. He did nothing that specifically protected her interests as a victim of this transaction. This was not a proper exercise of the s 423 discretion, which requires a balance to be struck….”
He relies on HM Customs & Excise v MCA [2002] EWCA Civ 1039, [2003] 2 WLR 210, as showing (in a different context) that there is no reason to give one statutory scheme precedence over the other.
i) Fair balance. Even accepting that the bankruptcy regime, and the trustee's actions under it, are an interference with the wife's rights under Article 1, it is necessary under Convention law to achieve a “fair balance” between the interests of creditors and the protection of the wife's fundamental rights. In this connection, Mr Duckworth submits:“…. delay by one party is an important factor in striking the balance: Beyeler v Italy App 33202/96, judgment 5.1.00 paras 115–120, where reference was made to the Italian government's failure to act “in good time, in an appropriate manner and with the utmost consistency” in exercising a legal right of pre-emption over a van Gogh painting. Here the trustee has acted with neither expedition nor consistency.”ii) Discrimination. He relies on Article 14 of the Convention which provides that the enjoyment of the convention rights, including property rights protected by Article 1, must be secured without discrimination –
“on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”
He submits that, insofar as the Judge's order accords priority to bankruptcy creditors over the wife's property rights, it discriminates unlawfully against her.
Discussion
Insolvency Act
“First, the first limb of S. 424(2) requires the court to restore the position to what it would have been if the transaction had not been entered into. Mr Duckworth's order does not restore the position; it modifies the position. It gives the wife property to pursue in her matrimonial claim which is protected from the bankruptcy regime which affects the remainder of the husband's property.
Secondly, the second limb of S. 423(2) requires the court to take into account the protecting of the interests of the persons who are victims. Those persons are the wife and the creditors. As between the wife and the creditors the section does not require the court to reward the virtuous but to protect victims.
Third, by making the order I propose I am putting the wife back in the position in which she would have been had the transaction not occurred, that is that she is able to make a claim against the surplus. Any other order, in particular that proposed by Mr Duckworth, would put her not in the same position but in a better position. She was at the time of the transaction, and is now, a person who may have a claim against the bankrupt. That is reflected by restoring the property to the trustee. The restoration of the property may lead to a surplus in the bankruptcy estate. It will, in any event, relieve pressure on the matrimonial home, which has hitherto been the trustee's prime target. In that way her claim is protected but to go further would do more than to restore or protect her interests but to advance them.”
The Convention
“It is contrary to ECHR Art 14 (Discrimination) and Protocol 1, Art 2 (Protection of Property) to construe s 423 in such a way as to give the trustee an automatic priority (No separate relief is however sought under this head)”
“shall not in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest”
Conclusion