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||Neutral Citation Number:  EWCA Civ 813
||Case No: B5/2009/2220
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SALFORD COUNTY COURT
His Honour Judge Tetlow
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE MUMMERY
LORD JUSTICE WILSON
LORD JUSTICE ETHERTON
Case No: B5/2010/0725
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE OXFORD COUNTY COURT
His Honour Judge Charles Harris QC
||- and -
||A2 DOMINION HOMES LIMITED
Mr Jan Luba QC and Mr Ben McCormack (instructed by Glaisyers) for the Appellant (Sharples)
Mr Edward Bartley Jones QC (instructed by Whiteheads) for the Respondent (Places for People Homes Ltd)
Ms Kerry Bretherton (instructed by Turpin and Miller) for the Appellant (Godfrey)
Mr Jonathan Manning and Ms Victoria Osler (instructed by Owen White) for the Respondent (A2 Dominion Homes Ltd)
Hearing dates : 17th and 18th May 2011
HTML VERSION OF JUDGMENT
Crown Copyright ©
LORD JUSTICE ETHERTON :
- These two appeals raise common issues about the effect of a person's insolvency on the right of a landlord to obtain an order for possession of a dwelling let on an assured tenancy on the ground of rent arrears.
- In one appeal Christina Sharples, who was adjudged bankrupt on 14 May 2009, appeals the order of His Honour Judge Tetlow on 28 August 2009 in the Salford County Court dismissing Ms Sharples' appeal from an order for possession of her home, 27 Denbigh Place, Salford, M5 4BA ("Denbigh Place"), made by District Judge Hovington on 19 May 2009 on the ground of rent arrears.
- In the other appeal Stephen Godfrey, in respect of whom a Debt Relief Order ("DRO") was made on 27 April 2009, appeals the order of His Honour Judge Harris QC on 22 February 2010 in the Oxford County Court dismissing Mr Godfrey's appeal from a conditional suspended order for possession of Mr Godfrey's home, 40 Holford Road, Witney, Oxford, OX28 5NG ("Holford Road"), made by District Judge Gatter on 12 August 2009 on the ground of rent arrears.
- The central issue on the appeals is whether a bankruptcy order (as in the case of Ms Sharples) and a DRO (as in the case of Mr Godfrey) preclude the making of an order for possession of a dwelling let on an assured tenancy on the ground of rent arrears.
- These appeals highlight the very real difficulties arising from the huge increase in recent times in personal debt, particularly of tenants of modest means who occupy their homes under tenancies granted by social landlords. When such tenants are unable to pay their rent, the consequences are not only severe for them and their immediate families, if they face homelessness on re-possession, but also for their social landlords whose financial integrity is thereby undermined, putting at risk their role as providers of accommodation for those with limited incomes, and also for their non-defaulting tenants who may have to pay higher rents to compensate for the landlord's lost revenue. The appeals raise important issues of general principle about the interface between legislation governing the provision of such accommodation and its withdrawal from the defaulting tenant and insolvency legislation.
- Places For People Homes Limited ("PPHL") let Denbigh Place to Ms Sharples under an assured tenancy on 15 December 1997. She fell behind with her rent. When her rent was just over 8 weeks in arrear PPHL served on her a notice seeking possession. After further arrears accrued PPHL began proceedings for possession on 14 September 2005 in the Salford County Court on Grounds 8 (at least 8 weeks' rent unpaid), 10 (rent in arrears) and 11 (persistent delay in paying rent) in Schedule 2 of the Housing Act 1988 ("HA 1988").
- When the claim first came on for hearing, it was adjourned generally on terms of payment of the current rent and £28.85 per week in respect of the arrears. After the accrual of further arrears (which had mounted to £2,417.94 by 9 February 2009) the proceedings were reinstated and were listed for hearing on 19 May 2009. Shortly prior to that hearing, on 14 May 2009 Ms Sharples filed a bankruptcy petition in the Salford County Court and was adjudged bankrupt by order of District Judge Relph. The official receiver was appointed receiver and manager of her estate.
- The claim for possession was heard by DJ Hovington on 19 May 2009. Ms Sharples, who was represented by an adviser, Mr Holland, argued that, as the rent arrears were provable in Ms Sharples' bankruptcy, the court was prevented from making an order against her by virtue of section 285(3) of the Insolvency Act 1986 ("IA"). The District Judge found that Ground 8 was established. He refused to make an order for payment of the rent arrears (which by that date stood at £2,332.86) since they were a debt provable in the bankruptcy, but held that IA s.285(3) did not preclude the making of an order for possession. He made an order for possession to take effect on 30 June 2009.
- Ms Sharples' appeal came before Judge Tetlow on 28 August 2009. He dismissed the appeal for reasons which he gave in a judgment handed down on 15 September 2009. In short, he held that IA s.285(3)(a) does not preclude an order for possession of property subject to an assured tenancy on the ground of rent arrears.
- A2 Dominion Homes Limited ("DHL") is the landlord of Mr Godfrey under an assured tenancy of Holford Road granted to him on 17 April 2000. Mr Godfrey suffered a heart attack in 2006 and has not worked since then. He fell into arrears with his rent. On 28 January 2009 DHL issued possession proceedings on Ground 10 in Schedule 2 of HA 1988 in respect of arrears of rent, then amounting to £2,091.73. On 27 April 2009 the Insolvency Service approved a DRO, which included the rent arrears. The possession proceedings were heard by DJ Gatter on 12 August 2009. Mr Godfrey, who was represented by his solicitor, contended that the proceedings should be stayed in view of the DRO. The District Judge rejected that defence. She made an order for possession on or before 9 September 2009. She ordered that Mr Godfrey pay DHL rent arrears of £2,335.84 and £276.75 in respect of DHL's costs. She directed that the order was not to be enforced so long as Mr Godfrey paid DHL £5.00 per week in respect of the amount of rent arrears and costs.
- Judge Harris dismissed Mr Godfrey's appeal on 22 February 2010.
The legal framework
Termination of assured tenancies
- The court cannot make an order for possession of a dwelling-house let on an assured tenancy except on one or more of the grounds set out in Schedule 2 of HA 1988: HA 1988 s.7(1).
- Grounds 1 to 8, which are in Part 1 of Schedule 2, are mandatory grounds, that is to say, in respect of which the court must order possession: HA 1988 s.7(3). In such a case the court cannot postpone the date for giving up possession for longer than 14 days, save in a case of exceptional hardship, when up to 6 weeks may be allowed: Housing Act 1980 s.89(1).
- The other grounds for possession of an assured tenancy, which are set out in Part II of Schedule 2 of HA 1988, are discretionary; that is to say, if the court is satisfied that any of them is established, the court may make an order for possession if it considers it reasonable to do so: HA 1988 s.7(4). Even where that is the case, the court has power under HA 1988 s.9 to adjourn the proceedings, postpone the giving up of possession on terms, or to stay or suspend execution of any warrant. HA 1988 s.9(3) provides that on any such adjournment, stay, suspension or postponement, the court, unless it considers that to do so would cause exceptional hardship to the tenant or would be unreasonable, shall impose conditions with regard to payment by the tenant of arrears of rent (if any) and current rent and may impose such other conditions as it thinks fit.
- In Ms Sharples' case possession was initially sought, as I have said, on Grounds 8, 10 and 11, and the order for possession was made on Ground 8. In Mr Godfrey's case possession was sought and ordered on Ground 10. Ground 8 is a mandatory ground in Part 1 of Schedule 2 of HA 1988. Grounds 10 and 11 are discretionary grounds in Part II of Schedule 2. They are as follows:
Both at the date of the service of the notice under section 8 of this Act relating to the proceedings for possession and at the date of the hearing
(a) if rent is payable weekly or fortnightly, at least eight weeks rent is unpaid;
(b) if rent is payable monthly, at least two months rent is unpaid;
(c) if rent is payable quarterly, at least one quarter's rent is more than three months in arrears; and
(d) if rent is payable yearly, at least three months' rent is more than three months in arrears;
and for the purpose of this ground "rent" means rent lawfully due from the tenant.
Some rent lawfully due from the tenant—
(a) is unpaid on the date on which the proceedings for possession are begun; and
(b) except where subsection (1)(b) of section 8 of this Act applies, was in arrears at the date of the service of the notice under that section relating to those proceedings.
Whether or not any rent is in arrears on the date on which proceedings for possession are begun, the tenant has persistently delayed paying rent which has become lawfully due.
- An assured tenancy is not brought to an end by the making of the possession order itself, even an outright order. The tenancy will end only when possession is actually delivered up: Knowsley Housing Trust v White  1 AC 636, and now made clear by amendment of HA 1988 s.5(1) by the Housing and Regeneration Act 2008.
- On the making of a bankruptcy order the bankrupt is under a duty to deliver possession of his estate to the official receiver: IA s.291(1). The bankrupt's estate vests in the bankrupt's trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee: IA s.306.
- A bankrupt's estate is, broadly speaking, all property belonging to or vested in the bankrupt at the commencement of the bankruptcy: IA s.283(1)(a). IA s.436 provides that, unless the context otherwise requires, 'property' includes money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future, or vested or contingent, arising out of, or incidental to property.
- IA s.283(1), which, as stated above, describes what is comprised in a bankrupt's estate, is subject to certain additions and exclusions. Those exclusions include an assured tenancy and a secure tenancy: IA s.283(3A)(a) and (d). The bankrupt's trustee can, however, serve a notice under IA s.308A vesting an assured tenancy or a secure tenancy in himself as part of the bankrupt's estate.
- In Ms Sharples' case the issue is whether the making of a possession order in respect of dwelling let on an assured tenancy is precluded, following the making of a bankruptcy order against the tenant, by IA s.285(3)(a). Section 285 is as follows, so far as relevant:
"(1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.
(2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.
(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall –
(a) have any remedy against the property or person of the bankrupt in respect of that debt, or
(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.
This is subject to sections 346 (enforcement procedures) and 347 (limited right to distress).
(4) Subject as follows, subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.
(6) References in this section to the property or goods of the bankrupt are to any of his property or goods, whether or not comprised in his estate."
- DROs were introduced by the Tribunals, Courts and Enforcement Act 2007, which amended the IA with effect from 6 April 2009 by the insertion of a new Part 7A and Schedule 4ZA. The principal elements of the DRO regime were described recently in R(Payne and Cooper) v Secretary of State for Work and Pensions  EWHC 2162 (Admin),  BPIR 1389 (Cranston J) and on appeal Secretary of State for Work and Pensions v Payne and Cooper  EWCA Civ 1431,  BPIR 223. In that case Mummery LJ (who dissented in the result) drew attention in the following way to the policy behind this new insolvency regime:
 … [DROs] sit beside and complement bankruptcy. They form part of a legislative programme of debt-solution procedures, such as Debt Repayment Plans, Administration Orders and Individual Voluntary Arrangements, which provide a flexible choice of paths for the relief of those who are unable to pay their debts. The Consultation Paper produced by the Department for Constitutional Affairs in July 2004 ("A Choice of Paths - Better options to manage over-indebtedness and multiple debt") estimated that in 2002 net lending rose by almost £10bn per month and that adults in this country owed an average of £18,000 each. The Paper predicted that if, in the context of "the historically high levels of borrowing", there should be "an economic downturn….a far greater number of people would be at risk of financial difficulties."
 The scheme, structure and purpose of DROs broadly reflect the regime of bankruptcy orders … The main differences are that the DRO process does not require the intervention of the court and it is accessible to people who do not have the financial means to pay the higher fee for access to the bankruptcy procedure i.e. debtors who cannot afford to make themselves bankrupt. It is less elaborate … and on the basis of specified criteria as to assets, income and liabilities. Unlike bankruptcy there is no trustee in whom the assets of the debtor are vested for distribution to creditors. DROs are thus meant for those over-burdened with debt who have relatively low levels of liabilities, no assets in excess of £300 in value and no monthly surplus income over £50 with which to come to an arrangement with creditors …"
- For the purposes of the present appeals, it is sufficient to mention the following elements of the DRO regime.
- An individual who is unable to pay his debts may apply for a DRO in respect of his qualifying debts (IA s.251A(1)). A debt cannot be a qualifying debt unless it is for a liquidated sum (IA s.251A(2)). IA Schedule 4ZA lays down the following pre-conditions. The applicant must not have been the subject of a DRO within the previous 6 years (para 5); the applicant's debt must not exceed the prescribed amount (para 6), currently £15,000; the debtor's monthly surplus income must not exceed the prescribed amount (para 7), currently £50; and the value of the debtor's property must not exceed the prescribed amount (para 8), currently £300.
- The application is, via an "approved intermediary", to the official receiver (IA s.251B(1)). The application must include a list of the debts to which the debtor is subject at the date of the application (IA s.251B(2)).
- When a DRO is made it must include a list of the debts which the official receiver is satisfied were qualifying debts of the debtor at the application date, specifying the amount of the debt at that time and the creditor to whom it was then owed (IA s.251E(3)).
- A creditor specified in a DRO may object to the making of the order or the inclusion of the debt in the list of qualifying debts (IA s.251K). A person may also apply to the court if dissatisfied with the conduct of the official receiver (IA s.251M).
- When the DRO is made, IA s.251G imposes a moratorium, as follows:
"(1) A moratorium commences on the effective date for a debt relief order in relation to each qualifying debt specified in the order ("a specified qualifying debt").
(2) During the moratorium, the creditor to whom a specified qualifying debt is owed—
(a) has no remedy in respect of the debt, and
(b) may not—
(i) commence a creditor's petition in respect of the debt, or
(ii) otherwise commence any action or other legal proceedings against the debtor for the debt,
except with the permission of the court and on such terms as the court may impose.
(3) If on the effective date a creditor to whom a specified qualifying debt is owed has any such petition, action or other proceeding as mentioned in subsection (2)(b) pending in any court, the court may—
(a) stay the proceedings on the petition, action or other proceedings (as the case may be), or
(b) allow them to continue on such terms as the court thinks fit.
(4) In subsection (2)(a) and (b) references to the debt include a reference to any interest, penalty or other sum that becomes payable in relation to that debt after the application date.
(5) Nothing in this section affects the right of a secured creditor of the debtor to enforce his security."
- The moratorium period generally continues for one year, unless terminated early or extended in limited circumstances (IA s.251H). At the end of the period the debtor is discharged from all the qualifying debts (IA s.251I).
- Mr Jan Luba QC, for Ms Sharples, advanced two policy considerations underlying his analysis of IA s.285(3). The first is that section 285 is intended to protect the interest of one unsecured creditor against another, so that one such creditor does not gain an improper advantage over another. In Mr Luba's words, section 285 is intended to prevent the creditor getting through the back door what he would otherwise have to get through the front door (viz. by pari passu distribution of the bankrupt's estate to the unsecured creditors). The second is that the legislative policy is to enable a tenant under an assured tenancy or a secure tenancy to remain in their home. Such tenancies are excluded from the bankrupt's estate, but, by virtue of IA s.285(6), are nevertheless property to which section 285 applies.
- Mr Luba submitted that an interpretation of section 285 which enables the landlord of an assured tenancy, who is owed rent arrears provable in the tenant's bankruptcy, to obtain possession against the tenant on the grounds of those arrears would be contrary to both those policy considerations. He said that possession proceedings are the means by which a landlord forces a tenant to pay rent arrears whether the proceedings are brought on a mandatory or a discretionary ground. If the tenant pays, to avoid repossession by the landlord, the landlord gains an advantage over other unsecured creditors. If the tenant does not pay the arrears, and a possession order is executed, the tenant is obliged to give up the home which the legislature intended the tenant to be entitled to continue to occupy notwithstanding bankruptcy and the provable debt.
- Mr Luba submitted that IA s.285(3) is intended to prevent those consequences. Turning to the specific wording of sub-section 285(3)(a), he submitted that, since an assured tenancy can only be determined following an order for possession, a possession order is a "remedy" within the meaning of the sub-section. He said an assured tenancy is also plainly "property" within the meaning of the sub-section. He submitted that, where the ground for an order for possession is arrears of rent, and those arrears of rent are provable in the tenant's bankruptcy, then the order for possession is a remedy against the bankrupt tenant's property "in respect of that debt" within the sub-section. Mr Luba emphasised that the expression "in respect of" the debt is wider than "for" the debt.
- Mr Luba referred to Ackbar v C.F. Green & Co Ltd  QB 582, which concerned the statutory limitation period "in respect of" personal injuries in the proviso to section 2(1) of the Limitation Act 1939. He submitted that the test applied by Croom-Johnson J in that case (at pp. 587F and 588D) – "what the action all about?" – is also an appropriate test in the context of IA s.258(3)(a). He said that the answer to that question is clear in Ms Sharples' case: it is about a claim for possession in order to recover rent arrears, and is in substance a remedy against her property in respect of that debt. The claim for possession against Mrs Sharples could only be established by evidence of her rent arrears.
- Furthermore, Mr Luba submitted, the arrears of rent provable in a bankruptcy are not "lawfully due" within Grounds 8, 10 and 11 in Schedule 2 of HA 1988 since they are not due at all.
- Mr Luba also pointed out that, subject to the court's discretion to refuse leave under sub-section 285(3)(b), a tenant's bankruptcy would not prevent the landlord taking proceedings for arrears of rent falling due after the bankruptcy order and for possession based on those arrears. He envisaged that leave would inevitably be granted for such proceedings. In Ms Sharples' case, however, sub-section 285(3)(b) cannot assist PPHL because it only applies to proceedings commenced after the date of the bankruptcy order: the proceedings against Ms Sharples were on foot at the date of her bankruptcy order.
- Mr Luba said that Ms Sharples' situation is a good example of what a bankruptcy order and IA s.285 were intended to achieve. The possession proceedings against her were adjourned on terms that, if she did not pay the arrears, a possession order would be made against her on Ground 8. She began to pay the arrears, and reduced them to £11.59. Her arrears then steadily increased again until they reached £2,332.86. She was then made bankrupt on her own petition. From that moment the core debt represented by the rent arrears was frozen, and she was able to meet her ongoing rent obligations.
- Mr Luba rejected the Judge's view that the Judge's finding was in accordance with common sense since (the Judge explained), on Mr Luba's case, the landlord was obliged to permit a tenant to continue in occupation despite substantial rent arrears. Mr Luba countered that Parliament had the opportunity to provide that the landlord could take proceedings for possession of an assured tenancy, and even arrears of rent, notwithstanding the bankruptcy. It did not do so, even though it plainly had assured tenancies in mind when it expressly provided that an assured tenancy would not form part of the bankrupt's estate unless the trustee in bankruptcy called for it to be transferred. Other provisions in the IA, such as those concerning landlord's distraint upon the goods of a bankrupt tenant for rent arrears (IA ss.346 and 347), show that Parliament was well aware of the fact that the provisions of the IA would cut across the landlord and tenant relationship, and it was not overlooked or accidental that the landlord is unable to secure possession based on pre-bankruptcy arrears.
- Mr Luba also advanced a case based on section 3 of the Human Rights Act 1998 ("the HRA") (imposing a duty, so far as possible, to read and give effect to legislation in a way compatible with the European Convention on Human Rights ("the Convention")). The consequence, he said, of the Judge's interpretation and order is that a defendant can lose the right to remain in occupation of their home under an assured tenancy because of unmanageable debt, contrary to Article 8 of the Convention (right to respect for private and family life). He submitted that, accordingly, IA s.285(3) should be interpreted in the manner for which Ms Sharples contends in order to make it Convention compliant.
- In his skeleton argument for PPHL Mr Edward Bartley Jones QC, for PPHL, asked the court, by way of additional guidance, to confirm that :
(1) leave is not required under IA s.285(3)(b) for the commencement or continuation of possession proceedings based upon rent arrears accrued before bankruptcy (so long as there is no monetary claim to those rent arrears) ;
(2) possession proceedings in such circumstances should not be stayed under IA s.285(1) or (2) ;
(3) no leave is required to issue a warrant for possession where a bankruptcy order is in existence (whether or not the possession order antedates or postdates the making of the bankruptcy order).
- Mr Luba submitted that the answers to those points are as follows. He said, in relation to (1) that, in accordance with the policy considerations underlying IA s.285, and on the plain wording of sub-section 285(3)(b), if the arrears of rent are provable in the bankruptcy so that section 285(3) is engaged, leave is required even if he is wrong on the interpretation of IA s.285 (3)(a).
- In relation to (2) and (3) he submitted that the court has a wide discretion under IA s.285(1) and (2) to stay the proceedings, and this court should not lay down guidelines that would constrain the exercise of that discretion on the facts of any particular case.
Sharples: Respondent's Notice
- PPHL has served a respondent's notice seeking to uphold Judge Tetlow's order on different and additional grounds. There is no need for me to set them out here. Insofar as necessary, I will consider them when discussing the submissions made on behalf of Ms Sharples in support of her appeal.
- Ms Kerry Bretherton, on behalf of Mr Godfrey, adopted those submissions of Mr Luba which also support Mr Godfrey's case. She said that, if Ms Sharples is successful in her appeal, then Mr Godfrey's appeal must inevitably also succeed. Ms Bretherton emphasised, however, that Mr Godfrey's position under the DRO regime is even more compelling than that of Ms Sharples under the bankruptcy provisions of the IA; so that, even if Ms Sharples is unsuccessful in her appeal, Mr Godfrey should nevertheless succeed in his.
- She reinforced Mr Luba's submissions by contending that the primary aim of a suspended possession order is repayment of rent arrears, that order being discharged if the arrears are paid. She submitted that the whole, or primary purpose, of a DRO is defeated if a landlord is entitled to pursue a possession claim for arrears of rent, despite the rent arrears being included in the DRO. She submitted that, if the landlord wishes to pursue such a debt, that should be done by challenging the inclusion of the debt in the DRO.
- Drawing on the judgment of Toulson LJ in Payne and Cooper, she highlighted the following distinctions between DROs and bankruptcy. In broad terms, a creditor or an insolvent individual can petition for bankruptcy, under which the individual's assets (subject to certain exceptions, including an assured tenancy) are vested in the trustee for distribution between the creditors in a way that does not allow one creditor to gain an unfair advantage over another. Subject to certain specified exceptions, bankruptcy affects all creditors. By contrast, only a debtor with a maximum monthly disposable income of £50 can apply for a DRO; the total debt must not exceed £15,000; only the debtors subject to the DRO are affected; the object of the DRO is the relief of the debtor from the debt, and not the benefit of creditors, who will get nothing. Ms Bretherton submitted that those matters show that the legislative policy underlying DROs is the relief from debt of those with low incomes. Mr Godfrey's position is a good example of the policy underlying the arrangements. He fell into debt, not for some blameworthy reason, but because he stopped working after a heart attack.
- Ms Bretherton also pointed to differences in the language of the moratorium provisions in IA s.285 (for bankruptcy) and IA s.215G (for a DRO). Section 285(3)(a) prohibits a remedy against "the property or person of the bankrupt" in respect of the provable debt. She said that the reference to "person" is primarily a legacy from the old procedure for committal for debt, noting that there are still some instances of imprisonment for debt (such as for council tax). In support of Mr Luba's wide interpretation of the expression "in respect of" (in IA s.285(3)(a) and hence relevant to the meaning of the same expression in IA s.251G(2)), she said that shows the intended width of the restriction since it embraces indirect enforcement of a debt by pressure to avoid or limit imprisonment. In other words, the reference to "person" in IA s.285(3)(a) indicates an interpretation which extends the restriction to any indirect enforcement of payment of the arrears of rent. Ms Bretherton submitted that the words "in respect of" the debt are brief, simple and wide, and that all that is required by the expression "in respect of" is some connection with the debt. She further submitted that, if the words "the property or person of the bankrupt" in s. 285(3) are viewed as limiting in some way the restriction on remedy, it is notable that there is no similar qualification in IA s.251G(2). Section 251G(2)(a) simply restricts any "remedy in respect of the debt".
- Ms Bretherton also emphasised that an assured tenancy is a species of contract which is highly regulated, reflecting its social significance. She drew attention to the Ministry of Justice's Pre-Action Protocol for possession claims by social landlords and private registered providers of social housing based solely on claims for rent arrears ("the Pre-action Protocol"), which lays down good practice for avoiding re-possession for rent arrears and indicates sanctions if it is breached.
- Ms Bretherton emphasised that, unlike the order against Ms Sharples, the order against Mr Godfrey was made on a discretionary ground. The order against Mr Godfrey was a suspended possession order for arrears of rent. It was made conditional, as is usual, on payment of the arrears by specified instalments and payment of current rent. Drawing together the various strands of her argument, Ms Bretherton submitted that IA s.251G(2) prohibited the making of such an order, and the action against Mr Godfrey should have been dismissed for that reason. Alternatively, the possession order should not have been made because it was unreasonable since the arrears would be written off under the DRO. On any footing, the order should not have been made conditional on payment of arrears; it should have been made conditional only on payment of current rent.
- Finally, Ms Bretherton submitted that, where a DRO is made, the Court should (if it does not dismiss them under IA s.251G(2)) stay proceedings for possession for rent arrears pursuant to IA s.251G(3).
- Ms Bretherton did not need to address the order of DJ Gatter that Mr Godfrey pay DHL rent arrears of £2,335.84 since DHL does not seek to uphold that part of the order.
Godfrey: Respondent's notice
- DHL has served a respondent's notice seeking to uphold Judge Harris' order on different and additional grounds. As in Ms Sharples' appeal, there is no need for me to set them out here, and, insofar as necessary, I will consider them when discussing the submissions made on behalf of Mr Godfrey in support of his appeal.
- Notwithstanding the excellent submissions of Mr Luba and Ms Bretherton, I consider that the orders for possession were properly made, save in one respect in relation to Mr Godfrey.
Ms Sharples' appeal
- It is conceded by PPHL that Judge Tetlow was wrong to have held that Ms Sharples' assured tenancy was not her "property" within IA s.285. It is not necessary to say anything more about that aspect, but it does not resolve the appeal.
- I do not accept Mr Luba's fundamental submission (in which he was supported by Ms Bretherton) that the order for possession of Denbigh Place on the ground of arrears of rent was a "remedy … in respect of that debt" within IA s.285(3)(a). There is no case which conclusively decides the point one way or the other. The following three cases, which were mentioned in the skeleton arguments and in oral submissions, do, however, contain passages and reasoning which assist the resolution of the issue.
- In Ezekiel v Orakpo  1 QB 260, following a receiving order in bankruptcy, the plaintiff commenced an action for possession of shop premises let to the defendant on the ground that the defendant's lease was forfeited for non-payment of rent. The defendant pleaded that the proceedings were invalid and should be stayed, by virtue of the provisions of section 7(1) of the Bankruptcy 1914, which were as follows:
"On the making of a receiving order an official receiver shall be constituted receiver of the property of the debtor, and thereafter, except as directed by this Act, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the debtor in respect of the debt, or shall commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose."
That wording is similar to, although not identical to, the provisions now contained in IA s.285(3).
- The County Court judge held that the effect of section 7 of the 1914 Act was to deprive him of jurisdiction to deal with the plaintiff's money claims, but it did not affect the claim for forfeiture, and he made an order for possession. The Court of Appeal dismissed the defendant's appeal. The judgment of the Court was given by Shaw LJ. The reasoning was that an action for possession following the forfeiture of a lease was not within the section because it was not an action to enforce the debt which was owed. He said, at pages 267F to 268A:
"It is clear that the section intends to inhibit any form of remedy or action which is directly designed to enforce payment of the debt which is owed. What has first to be considered is whether an action in which an order for possession is sought where a lease has been forfeited for default in payment of rent, comes within the terms of section 7 (1) at all. If it does not, it is not necessary to get leave of the court under section 7 before commencing such an action. In our view, an action for possession following the forfeiture of a lease is not within the terms of the section, and this is so whatever the ground of forfeiture to which the lessor has recourse under the covenants in the lease. The nature of the action is the same in every case, namely, that the right and interest of the lessee to possession has been terminated before its natural expiry in pursuance of a contractual provision in his lease so that he becomes a trespasser if he continues in occupation of the premises. The obverse of this situation is that the lessor becomes entitled to possession on forfeiture of the lessee's interest. The action for re-entry is in the nature of an action in trespass. It is not a remedy against the property of the debtor in respect of a debt, notwithstanding that the occasion of the forfeiture is default in payment of the rent reserved by the lease. The consequence of forfeiture (subject to the power of the court to grant relief) is to determine the lessee's interest. It is not a remedy enforcing payment of the rent due and it is not within the ambit of section 7 (1)."
- As Mr Luba and Ms Bretherton rightly pointed out, Ezekiel was a case of an ordinary contractual tenancy, which, by the time the Court made an order for possession, had already been terminated by the landlord's forfeiture (by service of the writ for possession: Canas Property Co Ltd v KL Television Services Ltd  2 QB 433). By contrast, an assured tenancy only comes to an end when possession is delivered up: the difference was emphasised by Lord Neuberger in Knowsley at .
- In Razzaq v Pala  1 WLR 1336 Lightman J applied the reasoning in Ezekiel to forfeiture by peaceable re-entry by a landlord for arrears of rent. In that case, the plaintiff tenant was in arrears with his rent under a lease granted by the defendant landlords. A bankruptcy order was made against the plaintiff on 13 August 1992. The defendants, having become aware of that order, gave notice to the plaintiff of their intention to re-enter and forfeit for the arrears. They peaceably re-entered on 10 September. Following annulment of the bankruptcy on 28 October on the ground that the plaintiff's creditors had been paid in full, the plaintiff issued the proceedings claiming, among other things, that the forfeiture was void by reason of IA s.285(3) since it had taken place without the prior leave of the court. Lightman J dismissed an appeal from the master, who had held that the forfeiture was valid. The reasoning of Lightman J on whether the right of re-entry was a remedy for the purposes of section 285(3) is succinctly contained in the following passage in his judgment, at page 1343 E-H:
"The right of re-entry is often colloquially referred to as a remedy of the landlord: see e.g., In re A Debtor (No. 13A-10-1995)  1 WLR 1127, 1133. But the Court of Appeal in Ezekiel v Orakpo  QB 260 held, with reference to a provision to like effect in section 7(1) of the Bankruptcy Act 1914, that the right of re-entry, whether exercised by service of a writ claiming possession or by peaceable entry, does not constitute a remedy against the property or person of the bankrupt. The reasoning is that the exercise of the right of forfeiture does not remedy any preceding breach of covenant: it merely prevents its recurrence and affords relief to the landlord from being saddled with a defaulting tenant. If this is so, it is anomalous that under section 285(3) a landlord requires the leave of the court before he can commence proceedings for forfeiture, but is immune from any restraint on exercising his right of peaceable re-entry. This is the more so when regard is had to the disfavour with which the law looks upon peaceable re-entry: see Billson v Residential Apartments Ltd  1 AC 494, 536E. But that is not a sufficient basis on which I am free to give the word "remedy" a wider meaning than afforded in Ezekiel v Orakpo  QB 260."
- The reasoning in Ezekiel was also applied in Harlow District Council v Hall  EWCA Civ 156,  1 WLR 2116 to proceedings for possession of premises let by the claimant to the defendant on a secure tenancy within Part IV of the Housing Act 1985 ("HA 1985"). The case is of particular relevance since a secure tenancy, like an assured tenancy, is carefully regulated by statute, and cannot be terminated by the landlord by forfeiture in the same way as an ordinary contractual tenancy, and is excluded from the bankrupt's estate which vests in the trustee. On 12 January 2005 the claimant was granted an order for possession on or before 9 February 2005, execution of which was suspended on terms of payment of arrears, costs and current rent. On 10 February 2005 the defendant became bankrupt on his own petition, which included rent arrears owed to the claimant. The defendant applied to discharge the possession order on the ground that the arrears of rent and costs were debts provable in his bankruptcy and that the order for possession was therefore precluded by IA s.285(3)(a). The district judge refused the application. The county court judge dismissed the defendant's appeal. The Court of Appeal dismissed the defendant's further appeal.
- Sir Andrew Morritt C gave the lead judgment in the Court of Appeal, with which the other members of the court agreed. He observed () that the secure tenancy, if it continued, would not vest in the trustee in bankruptcy (by virtue of IA s.283(3A)(d)), with the consequence that the defendant would remain personally liable for rent accruing due after the date of the bankruptcy order. He also pointed out () that the fact that the defendant's liability for rent and costs under the suspended possession order became provable in his bankruptcy did not have the effect of "paying them off": the liability remained, although the means of its enforcement changed. The Chancellor considered () that the effect of the possession order was clear: for the purposes of HA 1985 s.82(2) the date on which the defendant was to give up possession of his property was 9 February 2005 whether or not the conditions for suspension of the order were observed. It followed that the secure tenancy had ended before the bankruptcy order was made on 10 February 2005. Consistently with Ezekiel, he therefore dismissed the appeal. He also said () that the result was consistent with the purpose of IA s.285, namely to preserve the estate of the bankrupt for the benefit of his unsecured creditors. He said that the benefit of a secure tenancy does not vest in the trustee in bankruptcy and so there was no property to preserve in that respect. He also said that the court would fix the sum to be paid in respect of the arrears and current use and occupation in a sum the bankrupt can pay out of current income which, in the absence of a notice under IA s.307 or an order under IA s.310, does not vest in the trustee either.
- The Chancellor then went on to consider whether the position would have been different if the bankruptcy order had been made before the date on which the tenant was ordered to give possession, say on 8 February 2005. He considered ( and ) that it would have made no difference in the outcome. He expressed his reasoning in  as follows:
" Plainly there are differences in the case of a secure tenancy because an order of the court is necessary to terminate it. But assuming an order to have been made sufficient to terminate the secure tenancy for the purposes of section 82(2) of the 1985 Act, then, as it seems to me, the subsequent continuance or enforcement of the order is to the same effect as a possession action following forfeiture of a lease, and, as in Exekiel v Orakpo, does not constitute a remedy enforcing the payment of the arrears of rent. And that is so, in my view, whether the bankruptcy order is made before or after the date on which possession of the dwelling house is to be given pursuant to the order."
- Chadwick LJ agreed () that the appeal should be dismissed for the reasons given by the Chancellor, but he went further than the Chancellor in his subsequent, non-binding, comments. Having considered (in ) the form of conditional suspended order made in Thompson v Elmbridge Borough Council  1 W.L.R. 1425, which Millett LJ described in Greenwich London Borough Council v Regan  28 HLR 469, 476, as having been treated as bringing to an end the tenancy only when the conditions were first breached, Chadwick LJ said :
"  … I share his [viz. the Chancellor's] view that the outcome would have been the same if the bankruptcy order had been made, say, on 8 February 2005. And I would take the same view if the possession order had been made in the Thompson form – so that the secure tenancy was to be treated as continuing under the possession order at the date when the bankruptcy order was in fact made (on 10 February 2005). The basis for that view is the decision of this Court in Ezekiel v Orakpo  QB 260 that proceedings for forfeiture on the grounds of non-payment of rent are not to be treated as "a remedy against the property of the debtor in respect of a debt" for the purposes of the provisions for the protection of the bankrupt and his estate now enacted in section 285 of the Insolvency Act 1986. Although the analogy between proceedings for forfeiture under the general law and proceedings for possession under Part IV of the Housing Act 1986 is not exact, the reasoning in Ezekiel is, to my mind, equally applicable to a case where possession of premises held under a secure tenancy is sought under the statute.
 It would, I think, be unfortunate if the outcome in cases of this nature turned on whether the bankruptcy order was made just before or just after the possession order; and equally unfortunate if the outcome turned on whether the possession order was made in the Thompson form or in the form in the present case. I am satisfied that that is not the position. "
- Sir Paul Kennedy agreed with both judgments.
- Those cases seem to me entirely consistent with, and indeed to support, the following general principles applicable to any consideration of the meaning of IA s.285(3)(a). First, the grant of a tenancy, including an assured tenancy, creates a property interest in the tenant which is an incumbrance on the landlord's title. An order for possession is a remedy which restores to the landlord full proprietary rights, including rights of occupation and letting, in respect the property. Secondly, the failure to pay rent is a breach of a contractual obligation. Neither forfeiture, nor a court order for possession, nor recovery of possession by the landlord, nor an order for bankruptcy, eliminates the personal indebtedness constituted by the rent arrears. Thirdly, it follows, as a matter of general principle, that an order for possession of property, whether let under an ordinary contractual tenancy or a secure tenancy or an assured tenancy, is not a remedy "in respect of" the debt represented by the rent arrears which gave the landlord an entitlement to the order for possession. Fourthly, for those reasons, for the purposes of IA s.285(3)(a) there is no analogy of any kind with the test to be applied in respect of the Limitation Acts, as expounded in Ackbar.
- As I have said, that analysis is supported by the cases to which I have referred. In Ezekiel the court said (at page 267F) that section 7 of the 1914 Act (the material provisions of which were identical to those now to be found in IA s.285(3)(a)) was intended to prohibit any form of remedy or action which was "directly" designed to enforce payment of the debt which was owed, and (at page 268F) that forfeiture is not a remedy enforcing payment of the rent due. Those observations seem to me clearly to undermine any argument for distinguishing Ezekiel on the ground that it concerned the termination of a contractual tenancy whereas the present appeals concern an assured tenancy, the termination of which is regulated by statute. They also undermine Ms Bretherton's argument – adopted by Mr Luba in his submissions in reply – that the reference to "person" in IA s.285(3)(a), being a legacy from the old procedure for committal for non-payment of debt, shows an intention to restrict any indirect enforcement of payment of rent arrears.
- Moreover, I do not agree with the submissions of Mr Luba and Ms Bretherton that the object of a claim for possession for arrears of rent and an order for possession made in those proceedings is to secure payment of the arrears. It is important to distinguish between motive, which may vary from claimant to claimant, and the object of the remedy for the purposes of interpreting IA s.285(3)(a). An order for possession is not obtained with a view to payment of arrears of rent at all. Its object is to restore to the landlord the right to full possession and enjoyment of the landlord's property. I do not consider that any assistance on the point is obtained from the terms of the Pre-action Protocol. Unlike committal for non-payment of a debt, such as council tax, a possession order is not a coercive procedure to achieve payment: cf. Smith v Braintree District Council  2 AC 215, 230G, 237F-G.
- That point was well expressed by Lightman J in Razzaq when he said (at page 1343F) that the right of forfeiture, whether by service of a writ or by peaceable re-entry, does not remedy any preceding breach of covenant, but merely prevents its recurrence and affords relief to the landlord from being saddled with a defaulting tenant. It is to be noted that, unlike the type of situation considered in Ezekiel, where the forfeiture had already taken place by the time the order for possession was made, the remedy of peaceable re-entry at one and the same time both brings the tenancy to an end and restores possession to the landlord. In that respect, there is a relevant comparison with the execution of an order for possession in respect of an assured tenancy.
- Harlow also supports the conclusion that the position is no different for secure and assured tenancies than for ordinary contractual tenancies. Ms Bretherton, in particular, submitted strongly to the contrary that Harlow can be of no assistance because it was concerned with a secure tenancy and the notion (which was then the law) that between the date specified in the order for possession of property let on a secure tenancy (or, on the Thompson form of order, the date of first breach of a conditional suspended possession order) and its execution the old tenancy had gone and the former tenant was merely a tolerated trespasser. She contrasted that with the position of an assured tenancy, which only comes to an end when possession is delivered up: Knowsley. Notwithstanding that difference, I consider that the observations of the Chancellor and especially Chadwick LJ are plainly relevant to these appeals. They were both of the view that the reasoning in Ezekiel would apply whether or not the date on which the court ordered the secure tenant to give up possession had occurred before the bankruptcy order, and, in the view of Chadwick LJ, whether or not the order actually required possession to be given on a specified date. If that is correct, as I consider it is on general principle, then it can make no difference that, at the date of the bankruptcy order, the proceedings had not yet reached the stage of an order for possession at all.
- Contrary to Mr Luba's submissions, I do not consider that any assistance on the proper interpretation of IA s.285(3)(a) is provided by IA s.346 and 347 concerning distraint for arrears of rent. Nor, in my view, is any assistance given by IA s.281 (effect of discharge from bankruptcy), IA s.284 (restrictions on disposition of property by the bankrupt) or IA s.345 (power of the court to make an order discharging obligations under a contract made by a person subsequently adjudged bankrupt) to which reference was made on behalf of one or other of the parties in the written and oral submissions. Nor, despite the submissions of Mr Luba and Ms Bretherton, can I see any scope for the terms of, or policy underlying, the Pre-action Protocol to influence the proper interpretation of the statutory language in IA s.285(3)(a): there has been no suggestion that the statutory provisions were crafted with that Protocol in mind.
- Mr Luba sought to gain support for his submissions on the meaning of IA s. 285(3)(a) by comparing its wording with the statutory language in IA s.251G(2)(b)(ii), and in particular the expression "for the debt" in the latter sub-section. I do not accept his submissions on this point. I deal with it in my discussion of Mr Godfrey's appeal in paragraphs  and  below.
- I do not accept Mr Luba's submission that PPHL's interpretation of IA s.285(3) would undermine the first broad policy consideration on which he relied (mentioned in  above), namely the prevention of one creditor obtaining an improper advantage over another. Firstly, Parliament has determined that assured tenancies do not form part of the bankrupt's estate. Accordingly, they are not available for realisation for the benefit of the general body of creditors. Secondly, if, as a result of the threat of proceedings for possession or the making of a possession order, a bankrupt assured tenant feels compelled to make payment of arrears, that does not disadvantage other creditors who prove in the bankruptcy. As the Chancellor observed in Harlow (), in the absence of a notice under IA s.307 or an order under IA s.310 the bankrupt's current income, out of which such arrears would be paid, does not form any part of the bankrupt estate available for distribution to the creditors proving in the bankruptcy.
- The second broad policy consideration advanced by Mr Luba (mentioned in  above), namely enabling a tenant to remain in occupation of their home, is a powerful one. The exclusion of assured tenancies from the bankrupt's estate may certainly be interpreted, as Mr Luba submitted, as a recognition by Parliament of the need to protect the rights of occupation of economically disadvantaged tenants. On the other hand, it may equally cogently be said to be a recognition that such tenancies, granted by social landlords and carefully regulated by statute to fulfil a special social need for affordable accommodation for persons and families of limited means, ought to be regulated only by the relevant housing legislation, particularly (in the case of assured tenancies) HA 1988. Those statutory provisions impose a carefully balanced regime, on the one hand protecting the interests of assured tenants, but on the other hand allowing social landlords to manage the scarce resource of social housing by obtaining possession in appropriate cases. It could be financially catastrophic for such landlords to be unable to recover possession from persistent non-payers and could threaten the availability of social housing to meet the great demand from the large number of people who are economically disadvantaged and seek suitable and affordable permanent accommodation.
- I do not accept Mr Luba's submission that section 3 of the HRA and Article 8 of the Convention bear on the interpretation of IA s.285(3)(a) and lead to the construction for which he contended. As Mr Bartley Jones observed, where Ground 8 is engaged proportionality is already relevant; and, in any event, there is no reason why bankrupt assured tenants who owe arrears of rent should, on Convention and HRA grounds, be placed in a more advantageous position as regards possession proceedings than other assured tenants who owe arrears of rent. I do not consider that Mr Luba's riposte, that IA s.285(3)(a) is concerned with people who have unmanageable debts, is an adequate answer to the point.
- For those reasons, I do not consider that IA s.285(3)(a) precludes the making of an order for possession under HA 1988 for arrears of rent.
Mr Godfrey's appeal
- As I have said, Ms Bretherton supported Mr Luba's submissions on the meaning of the expression "in respect of" in IA s.285(3)(a). I have rejected those submissions. I can see no good reason why the same expression should have a different, and in particular a wider, meaning in IA s.251G(2)(a). It follows from my analysis of that expression in IA s.285(3)(a) that I do not consider that the absence in section 251G(2)(a) of words comparable to "the person or property of the bankrupt" in section 285(3)(a) is of any significance to the outcome of Mr Godfrey's appeal. Nor do I consider that the application of the expression "in respect of" is any different in a case of a conditional suspended order for possession as compared with an outright order for possession.
- Ms Bretherton emphasised the contrast between the expressions "in respect of" a debt in IA s.251G(2)(a) and (b)(i), on the one hand, and "for" a debt in IA s.251G(2)(b)(ii), on the other hand. I accept that, in an appropriate context, the expression "in respect of" may carry a wider connotation than "for". I do not accept that is the case in section 251G(2) or that the point undermines the need to consider whether the particular remedy of an order for possession of property on the ground of arrears or rent is a remedy "in respect of" the arrears.
- Indeed, so far as concerns IA s.251G(2), the use of the different expressions seems to me to point to the very opposite of that for which Ms Bretherton contended. There is a powerful argument that "in respect of" in that subsection means the same as "for" in the same subsection. The expression "in respect of" in section 251G(2)(a) (no remedy "in respect of the debt" during the moratorium) and section 251G(2)(b)(i) (no commencement of a creditor's petition "in respect of the debt" during the moratorium) differs from the expression "for the debt" in section 251G(2)(b)(ii) (no commencement during the moratorium of any action or legal proceedings "for the debt") for purely linguistic or grammatical reasons rather than reasons of legal substance. There are two grounds for reaching that conclusion. First, that explanation is most clearly apparent from the wording of section 251G(2)(b) in which both expressions appear. It would plainly be wrong to refer to a creditor's petition "for" a debt. A bankruptcy petition is not "for" a debt. It is "for" a bankruptcy order against the debtor. A petition "in respect of" the debt is the correct way of referring to a petition based on the debt. Secondly, it makes no sense for the court to be able to permit the commencement of an action "for the debt" (narrow) (section 251G(2)(b)(ii)) if there is an absolute prohibition of a remedy "in respect of the debt" (with a wide ambit) (section 251G(2)(a)). The logical conclusion must be that "in respect of the debt" in section 251G(2)(a) means the same as "for the debt" in section 251G(2)(b)(ii).
- While I accept Ms Bretherton's broad policy point that the object of a DRO is the relief from debt of those with limited means and limited debts, I cannot see, in the light of my earlier discussion, that this leads to the conclusion that the words in IA s.251G(2) should be given an artificial meaning in order to preclude the recovery of possession by landlords. I cannot see that the Pre-action Protocol plays any more significant role in the interpretation of section 251G(2) than it does in the interpretation of IA s.285(3).
- Nor can I see any force in an argument advanced by Ms Bretherton that the meaning of section 251G(2) should be influenced by the fact that the making of an application for a DRO and the obtaining of the DRO involve certain duties and potential liabilities on the part of the applicant, including the provision of detailed information (IA s.251B), exposure to an inquiry by the court (IA s.251N), and exposure to criminal liability for making false representations or omissions (IA s.251O) or the concealment or falsification of documents (IA s.251P) or fraudulent disposal of property (IA s.251Q) or fraudulent dealing with property obtained on credit (IA s.251R) or engaging in business without disclosing the debtor's status (IA s.251S).
- For those reasons, I do not consider that IA s.251G(2)(a) precludes the making of an order for possession under HA1988 Act for arrears of rent.
- A further issue arises, however, in Mr Godfrey's appeal as a result of the order for possession being suspended on condition of payment of arrears of rent which were the subject of the DRO. In the case of a mandatory ground for possession in Part 1 of Schedule 2 to HA 1988, I cannot see that the DRO (or a bankruptcy order) affects the exercise of the court's powers to order possession. In the case of a discretionary ground based on rent arrears, however, the DRO does have relevance if the arrears are subject to it (as does a bankruptcy order if the arrears are provable in the bankruptcy). While such arrears do not preclude the making of a suspended order, I do not consider that it would be reasonable for the court to make the order conditional on their payment.
- There is plainly an argument that the mere fact of a DRO (or bankruptcy) should make no difference to the normal approach of making a suspended possession order conditional on payment of the arrears by instalments (pursuant to HA 1988 s.9(3)) since the instalments will be fixed by reference to what the tenant can afford out of current income. On the other hand, the DRO regime (and bankruptcy) is designed to restrict the recovery of debt and, when the process is complete, to eliminate it. In the case of a DRO, at the end of the moratorium (usually one year from the effective date for the order) the debtor is discharged from all the qualifying debts specified in the DRO (and, in the case of bankruptcy, the policy is for the debts to be recovered out of the assets in the bankrupt's estate and, when the bankrupt is discharged from the bankruptcy (usually one year from the commencement of the bankruptcy), the bankrupt is released from all the bankruptcy debts). It would be contrary to that policy for the same debt to be recovered by court order, even if the form of the order is by way of a condition for suspension of a possession order.
- I do not accept the submission of Ms Bretherton, on the one hand, that, if the court cannot suspend the possession order on condition of payment of arrears, there should be no possession order at all, or that of Mr Jonathan Manning, for DHL, on the other hand, that, if suspended orders conditional on payment of arrears are not possible, the court could make an outright order for possession. They both referred to Taj v Ali (2001) 33 HLR 26, in which it was held that a possession order should not be suspended on a condition involving the payment of arrears over an almost indefinite period. I do not consider there is anything in that case or any of the provisions of HA 1988 which leads to the extreme for which each counsel contended.
- A suspended order may, and indeed should, be made conditional on the payment of current rent. That does not in any way interfere with the policy of the insolvency legislation as regards past debt (which is subject to a DRO or provable in the bankruptcy), and enables the social landlord, through court order, to control for the future the management of its housing stock in the case of late payers.
- For those reasons, I consider that it was wrong for suspension of the possession order in respect of Holford Road to be made conditional upon payment of the rent arrears.
- So far as concerns the provisions for stay in section IA s.251G(3), the approach of the court in relation to possession claims by social landlords in respect of assured tenancies should be the same as for the stay provisions in IA s.285 (as to which see below); that is to say, normally the possession claim should be allowed to proceed and be dealt with in the usual way pursuant to the provisions of HA 1988 (but bearing in mind what I have said about suspended orders not being made conditional on payment of arrears within the DRO).
Additional questions on IA s.285
- I turn to the questions which were raised on the appeal about the meaning of IA s.285(3)(b) and the operation of the stay provisions of IA s.285(1) and (2). Those questions do not strictly arise on the appeals, but we were asked to take the opportunity to answer them in relation to proceedings for possession against an assured tenant on the ground of arrears of rent. We were urged by all counsel to do so in order to provide guidance and clarity for social landlords and their tenants and so save unnecessary litigation and costs.
- The first question is whether section 285(3)(b) is to be read as implicitly limited to legal proceedings against the bankrupt "in respect of the debt", that is to say qualified in the same way as section 285(3)(a). Mr Bartley Jones submitted that it should. He submitted that this is apparent from the interpretation of the equivalent provisions in section 7 of the 1914 Act in Ezekiel v Orakpo. I have not found this an easy question.
- As I have said earlier in this judgment, the Court of Appeal in Ezekiel considered (at page 267F) that it was clear that the section was intended "to inhibit any form of remedy or action which is directly designed to enforce payment of the debt which is owed", and that the section had no application to proceedings for possession for arrears of rent. In that case the receiving order had been made against the tenant before the proceedings for possession had been commenced. It follows that, under the 1914 Act, an action for possession for arrears of rent commenced after the commencement of the bankruptcy did not require the leave of the court.
- The wording of section 285(3) is, as I have said, similar but not identical to that in section 7(1) of the 1914 Act. So far as concerns section 285(3)(b), the changes are insignificant: the insertion of the words "before the discharge of the bankrupt", and "except" in place of "unless". For that reason, there is a powerful argument that the reasoning in Ezekiel ought to apply equally to section 285(3)(b).
- On the other hand, the effect of splitting what was formerly in section 7(1) of the 1914 Act between sub-section (3)(a) and sub-section (3)(b) in IA s.285 has left the literal wording in (3)(b) clear and unambiguous. It is not expressly limited to any particular type of action or legal proceedings. It is apparent from the passage I have quoted earlier from the judgment of Lightman J in Razzaq that he was of the view that it was not so limited and that commencement of proceedings for forfeiture after a bankruptcy order would require the leave of the court. There is a powerful argument in support of that literal approach. It is plain that the opportunity was taken, when section 285 was enacted, of clarifying areas of doubt. That explains, for example, the insertion of the words "before the discharge of the bankrupt" in IA s.285(3)(b) and the provision in section 285(6) that "property" in the section means the bankrupt's property, whether or not comprised in his estate. If it had been intended that section 285(3)(b) was to be limited, as PPHL contends, in the same way as section 285(3)(a), to legal proceedings against the bankrupt "in respect of that debt" (i.e the provable debt), it is surprising that this was not made clear at the same time as other perceived drafting deficiencies in the earlier statutory provisions were rectified.
- Mr Luba also advanced three policy reasons why section 285(3)(b) should not be limited in the way for which PPHL contends. He submitted that, if given a wide literal meaning, it would prevent one unsecured creditor obtaining an illegitimate advantage over another; it would recognise that the bankrupt has limited means; and it would provide, through the leave mechanism, an easy filter.
- In the end, having considered the finely balanced arguments, I have reached the conclusion that section 285(3)(b) should be interpreted in the manner for which PPHL contends, that is to say by limiting it to actions or legal proceedings against the bankrupt in respect of the provable debt. There is no indication in the drafting of section 285(3) that Parliament intended to make a substantive change from the almost identical wording in section 7(1) of the 1914 Act. Had it been intended to reverse the decision in Ezekiel, then it is reasonably to be expected that would have been made clear. Further, as Lightman J observed in Razzaq, to interpret section 285(3)(b) without that limitation produces anomalies. Not only is there no automatic stay under section 285(3) on proceedings already on foot against the bankrupt at the date of the bankruptcy order if those are proceedings otherwise than "in respect of" a provable debt, but, for the reasons I have given, the claimant is not precluded from enforcing a remedy other than in respect of any such debt. On a literal reading of section 285(3)(b), however, no proceedings for such a remedy could be commenced after the bankruptcy order without the leave of the court. The strictly literal interpretation of section 285(3)(b), as imposing a very wide-ranging automatic stay, also sits uneasily with the discretionary stay provisions in section 285(1), which expressly apply where "an individual has been adjudged bankrupt". Furthermore, the whole of section 285(3) is governed by its opening words, limiting its restrictions to creditors of the bankrupt who have a provable debt. There is no restriction in that sub-section on any kind of action or proceedings by other creditors. This suggests that, as the court considered in Ezekiel, there should be some link (however defined) between the restrictions in section 285(3) and the provable debt. Thus, the opening words of the sub-section define the relevant creditors as creditors "in respect of a debt provable in the bankruptcy"; s.285(3)(a) defines the prohibited remedy as one "in respect of that debt"; and so it is logical and consistent that the prohibited action or legal proceedings in 285(3)(b) should also be "in respect of that debt".
- I do not consider that Mr Luba's policy points are sufficiently cogent to lead to a different conclusion. The prevention of one unsecured creditor gaining an unfair advantage over another is not a valid point. As I have said, unsecured creditors are entitled to equal treatment in the distribution of the bankrupt's estate. IA s.285(3)(b) is not limited to proceedings in respect of assets in that estate. Furthermore, such equal treatment is in respect of provable debts, whereas, if read literally, section 285(3)(b) applies to all liabilities of the bankrupt, whether provable or not. Nor is Mr Luba's point about recognition of the limited assets of a bankrupt a good one. Section 285(3)(b) only restricts creditors with provable debts. It does not prevent actions by other creditors. As to Mr Luba's third point, the fact that the Court can grant leave in an appropriate case is entirely neutral.
- So far as concerns the stay provisions in IA ss.285(1) and (2), it follows logically from my earlier conclusions that, in the normal course, it should be left to the court hearing the possession claim in respect of an assured tenancy, and applying the provisions of HA 1988, to determine whether or not possession should be ordered, and if so, on what terms, in line with the usual policies underlying those provisions and what I have said earlier about suspended orders not being made conditional on payment of arrears provable in the bankruptcy.
- The principal points which I have made may be summarised as follows:
(1) an order for possession of property subject to a tenancy, including an assured tenancy, on the ground of arrears of rent, which are provable in the bankruptcy of the tenant, is not a "remedy ... in respect of that debt" within IA s. 285(3)(a);
(2) that is so, whether the order is an outright order for possession or is a conditional suspended possession order;
(3) IA s.285(3)(b) is implicitly limited to legal proceedings against the bankrupt "in respect of that debt"; that is to say, it is qualified in the same way as IA s.285(3)(a);
(4) accordingly, proceedings for an order for possession of property subject to a tenancy, including an assured tenancy, on the ground of rent arrears, in which no claim is made for arrears provable in the tenant's bankruptcy, are not subject to the automatic stay in IA s.285(3)(b);
(5) an order for possession of property subject to a tenancy, including an assured tenancy, on the ground of arrears of rent, which are the subject of the tenant's DRO, is not a "remedy in respect of the debt" within IA s. 251G(2)(a), whether the order is an outright order for possession or is a conditional suspended possession order;
(6) proceedings for possession of property subject to an assured tenancy on the ground of rent arrears, which are provable in the tenant's bankruptcy or are the subject of the tenant's DRO, should not normally be stayed under IA s. 285(1) or (2) or IA s. 251G(3);
(7) on the hearing of such proceedings, no order can be made for payment of such arrears; nor should a suspended order for possession be made conditional on payment of such arrears, but it should be made conditional on payment of any other arrears (i.e. those not provable in the bankruptcy or subject to the DRO) and current rent.
- For the reasons I have given, I would dismiss the appeal of Ms Sharples.
- As regards the appeal of Mr Godfrey, I would allow the appeal to the extent only of varying the order of DJ Gatter by (1) deleting the order for payment of the rent arrears, and (2) varying the condition of the suspended possession order that Mr Godfrey pay the rent arrears and costs by weekly instalments so as to confine the £5.00 weekly instalments to costs.
LORD JUSTICE WILSON
- I agree
LORD JUSTICE MUMMERY
- I also agree
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