Hickling v Baker [2007] EWCA Civ 287

[2007] EWCA Civ 287Case Nos: 2007/0570 and 0571
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE PUMFREY (appeal 0570)
AND MR JUSTICE LINDSAY (appeal 0571)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 4 April 2007
Before
SIR ANTHONY CLARKE, MASTER OF THE ROLLSLORD JUSTICE RIXLORD JUSTICE LLOYD
Between
NEIL FRANCIS HICKLINGApplicantTIMOTHY DARREN BAKERRespondentNEIL FRANCIS HICKLING Applicant below; Respondent to appeal- and –TIMOTHY DARREN BAKER Respondent below; Appellant
Stephen Moverley Smith Q.C. and David Herbert(instructed by Challinors) for AppellantJonathan Crow Q.C., Raquel Agnello and Thomas Robinson(instructed by Stephenson Harwood) for RespondentHearing Hearing date: 20 March 2007
Judgment
[1]This is the judgment of the court, giving the reasons for the orders we made on hearing urgent appeals on 20 March from an order made by Mr Justice Pumfrey, on 23 February 2007, by which the Appellant, Mr Baker, was committed to prison under section 364 of the Insolvency Act 1986, and from a further order made by Mr Justice Lindsay on 14 March 2007, by which time the Appellant was in custody under the earlier order. (We will refer to these orders respectively as the first and the second order.) The court allowed the appeal against the first order, ordering Mr Baker to be released from custody, and dealt with other matters that had arisen in the course of the hearing, but did not then have time to give its reasons.[2]Mr Baker is an undischarged bankrupt. The Respondent is his trustee in bankruptcy. The bankruptcy order was made on 27 June 2005. In the ordinary way Mr Baker would have been discharged from bankruptcy a year later. However, on 7 November 2005, under section 279(3) of the Insolvency Act, the court ordered the suspension of the discharge of the bankruptcy on the ground that Mr Baker had not co-operated with his trustee in bankruptcy. According to the Respondent, Mr Baker has continued in his failure and refusal to co-operate. A number of orders were made for the search of premises, and seizure of assets found there, but the Respondent contends that Mr Baker remains intransigent and determined not to give accurate information about his assets. Accordingly the Respondent invoked the powers of the court under section 364 in the hope that this would lead to fuller and more accurate disclosure from Mr Baker.[3]The provisions of section 364 are as follows:
“364 Power of arrest (1) In the cases specified in the next subsection the court may cause a warrant to be issued to a constable or prescribed officer of the court— (a) for the arrest of a debtor to whom a bankruptcy petition relates or of an undischarged bankrupt, or of a discharged bankrupt whose estate is still being administered under Chapter IV of this Part, and (b) for the seizure of any books, papers, records, money or goods in the possession of a person arrested under the warrant, and may authorise a person arrested under such a warrant to be kept in custody, and anything seized under such a warrant to be held, in accordance with the rules, until such time as the court may order. (2) The powers conferred by subsection (1) are exercisable in relation to a debtor or undischarged or discharged bankrupt if, at any time after the presentation of the bankruptcy petition relating to him or the making of the bankruptcy order against him, it appears to the court— (a) that there are reasonable grounds for believing that he has absconded, or is about to abscond, with a view to avoiding or delaying the payment of any of his debts or his appearance to a bankruptcy petition or to avoiding, delaying or disrupting any proceedings in bankruptcy against him or any examination of his affairs, or (b) that he is about to remove his goods with a view to preventing or delaying possession being taken of them by the official receiver or the trustee of his estate, or (c) that there are reasonable grounds for believing that he has concealed or destroyed, or is about to conceal or destroy, any of his goods or any books, papers or records which might be of use to his creditors in the course of his bankruptcy or in connection with the administration of his estate, or (d) that he has, without the leave of the official receiver or the trustee of his estate, removed any goods in his possession which exceed in value such sum as may be prescribed for the purposes of this paragraph, or (e) that he has failed, without reasonable excuse, to attend any examination ordered by the court.”
[4]The first order was made on the grounds set out in section 364(2)(c). The application was made without notice. It was supported by two witness statements made by Mr Hickling, and one other witness statement. Mr Hickling’s second witness statement contained material which the trustee in bankruptcy did not wish the bankrupt to see at that stage. Therefore, although Mr Justice Pumfrey saw that material, he was asked to, and did, make an order precluding its inspection by anyone, including the bankrupt, without further order of the court.[5]So far as committal was concerned, his order was made in what he had been told was the normal form. It recited that the court was of the opinion “that the bankrupt has concealed or destroyed or is about to conceal or destroy, any of his goods or any books papers or records which might be of use to his creditors in the course of his bankruptcy or in connection with the administration of his estate”. It provided, in its operative part, that Mr Baker “do stand committed to HM Prison Brixton until such time as the Court may order”.[6]The warrant which was issued pursuant to this order was eventually executed on 5 March. Mr Baker was arrested in the morning of that day, and the house where he was found was then searched and various items were seized under the same warrant. He did not at that time have solicitors acting for him (solicitors previously instructed in relation to various proceedings in the bankruptcy had ceased to act) and it was not until 12 March that his present solicitors saw him. On the next day they applied to Lindsay J for an order for disclosure of the evidence which had been withheld pursuant to Pumfrey J’s order. The second order, refusing that application, was made by that judge on 14 March.[7]Mr Baker is entitled as of right to appeal against the committal order. He requires permission to appeal from Lindsay J’s order.[8]On Mr Baker’s behalf, Mr Moverley Smith Q.C. argues that the original committal order was wrong, because(1) the order was made on an application without notice,(2) it was not justified on the evidence, so far as that evidence has been disclosed,(3) it was based in part on evidence which the court saw but which Mr Baker is not allowed to see,(4) the order was unlimited in time, without any provision for Mr Baker to be brought before the court for a hearing attended by both parties, leaving it up to him to take the initiative of applying to the court, and(5) it did not identify the obligation to secure fulfilment of which justified making the order. He also submitted that Lindsay J was wrong not to order disclosure of the withheld evidence, sight of which was reasonably necessary in aid of Mr Baker’s application to be discharged from custody. He relied not only on principles of English law as to committal but also on article 5 of the European Convention on Human Rights.[9]At first sight, it does seem remarkable that an application to commit could be made on the basis of evidence which the court sees but does not allow the respondent to see. Mr Crow Q.C., for the trustee in bankruptcy, showed us the decision of Lightman J in Re Murjani (a bankrupt) [1996] 1 W.L.R. 1498, which shows that under the Insolvency Act 1986 it may be legitimate for an office-holder to show evidence to the court which is not allowed to be seen by the respondent to the application. That case only concerned an order for an oral examination, not a committal order. Mr Crow submitted that, logically, the same principle might apply in any case where a trustee in bankruptcy invokes the enforcement powers under the Insolvency Act 1986. Mr Moverley Smith said that, if his client was released pursuant to the appeal against the first order, he would not pursue the appeal against the second order. That position may have been encouraged by the fact that the trustee in bankruptcy said that he would not object to the information being released after 28 March.[10]In those circumstances, having come to the view, as we did, that Mr Baker ought to be released on the first appeal, we did not need to address the different issues which arise on the second appeal.[11]Section 364 is part of the armoury of enforcement procedures available to the court under the Insolvency Act 1986 where the bankrupt or others will not disclose what the trustee in bankruptcy considers to be relevant information. Under section 333 the bankrupt is obliged to:
“(a) give to the trustee such information as to his affairs; (b) attend on the trustee at such times and (c) do all such other things, as the trustee may for the purposes of carrying out his functions under any of this Group of Parts reasonably require.”
[12]Many bankrupts are unwilling, to say the least, to comply in full, or even at all, with those obligations. Various enforcement methods are provided for by the Act. One is section 366 which allows the bankrupt and various others to be summoned by the court to appear before it to be examined. Implicitly this is in order that the person summoned can be required to provide information in his or her possession which is relevant to the bankrupt, his assets and liabilities and his dealings, or other matters relevant to the bankruptcy. Another is section 365 which allows the court to order the seizure of any property comprised in the bankrupt’s estate which is in the possession of the bankrupt or some other person bound to deliver it up. Section 364 is provided as a more extreme sanction, for the seizure of the person of the bankrupt as well as of assets in his possession. It is the statutory successor to section 23 of the Bankruptcy Act 1914. Section 333(4) also provides a different sanction, in that failure without reasonable excuse to comply with any obligation under the section is a contempt of court and liable to be punished accordingly; section 363(4) makes similar provision where the obligation is one imposed by a court order under section 363(2). In addition, sections 350 to 362 create a number of criminal offences in connection with a bankruptcy.[13]According to Mr Crow, section 364 was designed to cope with extreme cases, and he submitted that this is just such a case.[14]In circumstances which we will mention, we do not have a witness statement from Mr Baker which responds to the trustee in bankruptcy’s contentions. There may, therefore, be answers to the trustee’s allegations, but if there are we do not know what they are. It is not necessary to go into those allegations on the facts in detail. It is sufficient to identify some of the more salient and striking points.[15]Mr Hickling’s first witness statement asserts that Mr Baker has assets, and runs a business, but that he refuses to admit that he is running any such business, and he is said to have given inconsistent statements on these points in different contexts. In particular it is said that Mr Baker runs a business called UCAT and that his denials of this are wrong. He has been caught out not disclosing valuable assets. His business is said to include advising people how to put their assets beyond the reach of trustees in bankruptcy or liquidators. He has initiated an application in the bankruptcy to lift the suspension of the period for his discharge, but is in default in respect of the court’s directions that he file evidence, as he is also on an application by the trustee in bankruptcy about the ownership of the UCAT business. In November 2006 Mr Baker stood trial in the Crown Court on charges of blackmail and attempting to pervert the course of justice; he was acquitted of the first and convicted of the second. In the course of the trial he produced documents in relation to interests in Cyprus whereas he had denied to the trustee in bankruptcy that he had any such documents. He has still not produced those documents to the trustee.[16]In his answers to the preliminary questionnaire in the bankruptcy, Mr Baker said that he had no assets, including cash or jewellery. Despite this statement, on the execution of a search and seizure order an expensive Breitling watch was found (in a dirty linen basket) which is shown as belonging to Mr Baker on his household insurance policy and there valued at £8,000. It turned out also that money is held in an escrow account in Cyprus (the equivalent of approximately £148,000, according to the evidence) which belongs to Mr Baker. In July 2006 he wrote to a lawyer in Cyprus, informing him, falsely, that he was no longer bankrupt, and asking the lawyer to take steps in his behalf to recover the money. He also had a regular savings plan with Scottish Widows.[17]As for his occupation, he claimed that he was unemployed, but that he worked occasionally for his father refurbishing marble. His father has denied this to the trustee in bankruptcy. The trustee considers that he is, or has been, continuing to carry on business himself, undertaking work on behalf of various companies and individuals relating to their tax affairs. He asserted that Rachael Baker, his wife, had her own recruitment business. There are or have been two companies, called UCAT Ltd and UCAT Recruitment Ltd, and apparently also an unincorporated business UCAT Recruitment. The shares in UCAT Ltd belong to a Cypriot company called C.C. Carter (Recruiting and Resourcing) Ltd, of which Mr Baker is the shareholder. He is also the shareholder of B.B.D. Brother Associates Ltd which is the company secretary of UCAT Ltd. Mrs Baker claims to be carrying on a recruitment business as UCAT Recruitment, and that Mr Baker has no interest in this. The trustee in bankruptcy started proceedings for declarations as to the ownership of UCAT Recruitment Ltd and the trading name UCAT Recruitment. After these proceedings were served, UCAT Recruitment was placed in members’ voluntary liquidation, with a declaration of solvency signed by Mrs Baker’s brother Adam Smith (whose status in relation to the company is unclear) asserting that there are no assets or liabilities. Mr Baker is in default under the court’s directions that he file evidence in answer to the trustee’s application.[18]Mr Baker signed an agreement dated 11 May 2006 in the name of UCAT Recruitment Ltd to take a tenancy of serviced offices in Bewdley. Enquiries at those premises in October 2006 revealed that Mr Baker went to the premises regularly to collect post, and that when calls were made to the premises for Mr Baker or for UCAT Recruitment, the staff would call Mr Baker on his mobile phone so that he could deal with the call. On further enquiry in February 2007, the trustee in bankruptcy was told that, though the rent was paid up to date, Mr Baker had not been seen for about 3 months and there had been no post for him for the last 2 months.[19]In addition to this business, it appeared from headed writing paper obtained under a search and seizure order that he had another business called “td baker independent offshore tax advisors”, with a website address. On interview in July 2006 Mr Baker said this was an old website which was no longer active. However the address given on the headed paper for this business was the serviced office premises in Bewdley for which the tenancy agreement was taken in May 2006. After the interview in July 2006 the website was changed so as to be accessible only with a password. Since then it has been closed down.[20]Mr Baker has also been evasive about where he lives, and on what basis. Documents obtained under a search and seizure order related to a property called the Malt House, Worfield near Bridgnorth which was on the market in 2006 at an asking price of £925,000. In August 2006 this property was registered in the name of Mr Paul Harry Smith, Mrs Baker’s father, with a price paid shown as £880,000, and a mortgage held by GMAC-RFC Ltd. Mr and Mrs Baker appeared to have taken life and critical illness insurance with a sum insured of £500,000, and to have ordered fitted furniture for this property, and made a planning application for modifications to it. The mortgagee disclosed documents relating to the mortgage application, which represented that Mr Paul Harry Smith was employed by UCAT Recruitment at £200,000 per annum and a bonus of £50,000. UCAT Recruitment responded to an enquiry with a letter signed by Andrew Smith (Mrs Baker’s brother) stating that Paul Harry Smith worked for UCAT Recruitment on a permanent basis as a valued employee. Enquiry by the mortgagee as to the source of the funds to be used for the deposit showed £250,000 paid into the bank account of UCAT Recruitment Ltd. Mr Paul Harry Smith told the trustee in bankruptcy that his only business was that of a market trader dealing in furniture. The trustee in bankruptcy believes that The Malt House belongs to Mr Baker, or to Mr and Mrs Baker. He has claimed it as after-acquired property.[21]Mr Baker claimed to be living at Shifnal Manor, Shifnal, near Telford, which is let. In the criminal proceedings he said he moved there at about the end of 2005 or the beginning of 2006. Warrants of search and seizure were executed over Shifnal Manor in July and December 2006. It was in the course of the first of these that the Breitling watch was found, and on the second a laptop computer was found, hidden under a dog basket.[22]Mr Baker issued an application on 13 October 2006 for the suspension of his discharge to be lifted. The trustee in bankruptcy and the Official Receiver made a report to the court, to the effect that Mr Baker was still not co-operating. On 8 December 2006 Mr Baker was ordered to serve and file evidence in response by 2 February, the application then to be listed for three days with all witnesses being available for cross-examination. Mr Baker’s solicitors asked for an additional week for the evidence, so as to coincide with the timetable for evidence in the application concerning the ownership of UCAT Recruitment. Nothing was forthcoming in that time, and by 15 February 2007 the solicitors said they were without instructions.[23]At the end of Mr Hickling’s first witness statement, he said:
“I do not believe the Bankrupt has told me what he is doing and he has not divulged information or produced documents records and papers relating to his assets or delivered up all of his assets to me. I think that the only way I shall find out about the affairs of the Bankrupt is if he is committed to prison and is required to answer questions and provide the relevant information to the satisfaction of this Honourable Court.”
[24]In the course of that witness statement there are some references to interests and activity abroad, including the interests in Cyprus, and a property which Mr Baker said he had previously owned, but no longer did, in Spain. The application was not said to be made on the basis that Mr Baker is likely to abscond, which is a separate ground under section 364(2)(a). Whether that was an aspect of the presentation of the case in the second witness statement, withheld from Mr Baker, we do not know. We have seen a redacted version of Miss Agnello’s skeleton argument for the application, which also does not refer to a risk of absconding. On the face of it, therefore, as the matter appears to us, the application was only made on the basis that Mr Baker is and has been thoroughly evasive, and needs to be made to disclose information properly in response to the trustee in bankruptcy’s enquiries.[25]Pumfrey J did not deliver a judgment as such on the application, but we have a redacted transcript of the hearing before him. Some four or five passages from the interchange between Miss Agnello and the judge have been edited out. We can see that the judge had read all the witness statements, and only a few of the exhibits. He considered the test applying under section 364(2)(c), and concluded that he could be satisfied that there were reasonable grounds for believing that Mr Baker had concealed relevant matters. He recognised that the jurisdiction was extremely drastic, and the issues of proportionality had to be considered. Miss Agnello addressed that by reference, in particular, to material from Mr Baker’s website where he spoke of devising ways for clients whereby assets can be “legally protected”, and tax and VAT liabilities can be largely saved. On that basis, as someone who holds himself out as able to help clients to put assets beyond the reach of their creditors, it might be thought that he could be assumed to be determined to do it himself. At pages 22 to 23 of the transcript, the judge said this:
“I am satisfied that the requirements of the statute are satisfied, that is to say I am satisfied that it appears that there are reasonable grounds for believing that he has at least concealed and will conceal in the future any goods, any books and papers and any records to which you are entitled unless you have collateral means of identifying and obtaining them. … In other words if you can get them through another route he will let you have them but he will not volunteer anything. That is sufficient to satisfy section 364(2)(c). And moreover, I am satisfied that the size of the potential claims in this estate, together with the consistent story of evasion, is sufficient to render drastic steps at this stage entirely appropriate and proportionate to the issues.”
We have quoted the terms of the recital to the order at paragraph [5] above. They go further than what the judge said, since he referred in the passage just quoted to concealment, but not to destruction.[26]He then looked at the warrant, for which there is a prescribed form (Form 7.7 in Schedule 4 to the Insolvency Rules 1986). The prescribed form, which was no doubt followed, instructs the tipstaff to arrest the person in question, and to deliver him to the relevant prison (in this case Brixton). It continues:
“This shall be reported to the court and its directions sought.”
It also instructs the governor of the prison to receive the person arrested “and keep him in custody to await the direction or order of the court”. That is consistent with rule 7.22 which provides for the person arrested to be delivered into the custody of the relevant governor “who shall keep him in custody until such time as the court otherwise orders and shall produce him before the court as it may from time to time direct.”[27]The judge asked what would happen as regards notification of the arrest. He conferred with the associate and then said that he was given to understand that “the practice is that the bankrupt will apply via the Governor to return to court with a view to offering a more thorough compliance with the requirements of the statute than hitherto he has managed or, alternatively, I suppose, an application to set aside the warrant”. On that basis he made the order in the terms which we have set out at paragraph [5] above, together with the order for non-disclosure of the second witness statement, and consequential orders, and he signed the warrant.[28]Mr Baker was arrested pursuant to this warrant on the morning of 5 March 2007 at Shifnal Manor. A witness statement by the trustee in bankruptcy’s solicitor who was present there shortly after the arrest, and who searched the property thereafter, shows that Mr and Mrs Baker appeared to be on the point of leaving for Spain, and taking almost all of their possessions with them, though Mr Baker asserted that they were only going for a four week holiday. Mr Baker also gave other answers to questions about assets which the trustee in bankruptcy and his solicitors considered they had good reason to regard as incorrect and evasive.[29]Mr Hickling also made a witness statement after the arrest, describing a number of items found in the course of the search, including referring to a reported attempt by Mrs Baker to hide a laptop computer in her clothing, which turned out to belong to Mr Baker. He also referred to the question of informing the court of the arrest. He said he had been told that it was for the tipstaff to report this fact, and that this had been done by the tipstaff, who informed the bankruptcy court of the arrest of the bankrupt and his delivery to Brixton prison.[30]These two witness statements were made in response to the application by Mr Baker which came before Lindsay J, for the disclosure of the evidence and other material withheld at the time of the first order, made with a view to a later application for the discharge of Mr Baker from custody. Mr Hickling, in his witness statement, opposed the release of the withheld material before 28 March, and asked that, if that withheld material was to be disclosed, he be allowed to have the opportunity to question Mr Baker before he is released from prison, on the basis that, if released, he would either abscond or would dispose of documents and records or other assets. He set out a list of matters which he sought as a condition of release: i) The production and delivery up of all Mr Baker’s business records, papers and documents; ii) Disclosure of all passwords for email addresses of, or used by, Mr Baker; iii) Disclosure and production of all Mr Baker’s papers relating to past and current dealings, whether encompassed in his current business activities or not; iv) Disclosure and production of all documents and papers relating to UCAT, including any business conducted under a trading name including UCAT, or by a corporate entity which includes that as part of its name; v) Delivery up of any computers currently used by Mr Baker and any passwords necessary for access to such computers; vi) Delivery up of his blackberry and all passwords needed for access to it; vii) Delivery up of his passport.[31]As the skeleton argument for the trustee in bankruptcy for the application before Lindsay J recognised, merely ordering Mr Baker to attend for questioning would not by itself solve the problem. He had attended on several occasions, and had never refused or failed to attend. The trustee in bankruptcy considered that he had lied in his answers to questioning.[32]The application first came before Lindsay J on 13 March without the trustee in bankruptcy being represented, and without his additional evidence. The application was supported by a brief witness statement made by Mr Baker’s solicitor. He has made no witness statement himself in relation to these matters. The judge made an order for release of the withheld material, but allowed the trustee in bankruptcy to apply to discharge or vary the order. That the trustee did, which led to a hearing with both parties represented on the following day. The judge referred to his concerns about the process which had been followed, in relation to the Human Rights Act 1998. He was also, however, concerned to see how the bankruptcy could be taken forward. There was no application to him for the release of Mr Baker, and no appeal at that time against the first order. Even so he considered whether he ought to order Mr Baker’s release, but decided that he should not do so. He declined to order the release of the withheld material at that time. He directed that the judge who was to hear the eventual application for Mr Baker to be released should do so on the basis of the open material only. He also gave directions for the trustee in bankruptcy’s solicitors to redact the transcript of the hearing before Pumfrey J and the skeleton argument used for that hearing, and to supply them to Mr Baker’s solicitors.[33]After that hearing, Mr Baker’s solicitors launched the two appeals which came before us. We have summarised above (at paragraph [8]) the essential grounds for the appeal.[34]Mr Crow, in powerful submissions ably supported by Miss Agnello, suggested that Mr Baker is reluctant to put in evidence dealing with the trustee’s substantive allegations. He submitted that this appeal is a further attempt on his part to avoid facing up to the substance of the case, by taking a point of law rather than dealing with factual allegations. He contended that the appeal was premature, in that Lindsay J clearly envisaged a hearing of an application for Mr Baker to be released from custody at which evidence would be heard as to whether the arrest was justified on the facts; he argued that this was an appropriate course, in the exercise of that judge’s discretion, and that the proceedings at first instance ought to be allowed to run their course, leaving it to a judge to decide, after hearing and testing any evidence that Mr Baker might be able to adduce, whether the arrest was justified and, if it was, whether, and if so on what basis, Mr Baker should remain in custody or alternatively be released. The appeal, he suggested, was another ploy to stall the bankruptcy and to frustrate the trustee in bankruptcy’s proper attempts to get at the truth. The right course, according to him, was to allow the proceedings at first instance to continue, on an expedited basis, with Mr Baker remaining in custody, and leave it to the trial judge to decide, first, whether anything had gone wrong and, if so, what should be done to put it right.[35]There is a good deal of force in those points. If it had not been for the special importance which the law has always, rightly, attached to issues concerning the liberty of the subject, underscored now by article 5, and for the points of principle taken under article 5 in relation to the first order, it may have been right to accept Mr Crow’s point that the proceedings below should have been allowed to run their course. However, it does not seem to us that it was premature for Mr Baker to appeal on at least some of the grounds taken on the impact of the Human Rights Act 1998 and otherwise as to the exercise of the court’s powers under section 364.[36]It is not argued that section 364 itself is incompatible with article 5. What is said on Mr Baker’s behalf is that the drastic power conferred by that section must be exercised in a manner which conforms with this article, both as regards the circumstances in which the order is made and as regards the terms of the order.[37]Article 5 is in the following terms:
“1. Everyone has the right to liberty and security of person. No one shall be deprived of his liberty save in the following cases and in accordance with a procedure prescribed by law: (a) the lawful detention of a person after conviction by a competent court; (b) the lawful arrest or detention of a person for non-compliance with the lawful order of a court or in order to secure the fulfilment of any obligation prescribed by law; (c) the lawful arrest or detention of a person effected for the purpose of bringing him before the competent legal authority on reasonable suspicion of having committed an offence or when it is reasonably considered necessary to prevent his committing an offence or fleeing after having done so; (d) the detention of a minor by lawful order for the purpose of educational supervision or his lawful detention for the purpose of bringing him before the competent legal authority; (e) the lawful detention of persons for the prevention of the spreading of infectious diseases, of persons of unsound mind, alcoholics or drug addicts, or vagrants; (f) the lawful arrest or detention of a person to prevent his effecting an unauthorized entry into the country or of a person against whom action is being taken with a view to deportation or extradition. 2. Everyone who is arrested shall be informed promptly, in a language which he understands, of his reasons for his arrest and the charge against him. 3. Everyone arrested or detained in accordance with the provisions of paragraph 1(c) of this article shall be brought promptly before a judge or other officer authorized by law to exercise judicial power and shall be entitled to trial within a reasonable time or to release pending trial. Release may be conditioned by guarantees to appear for trial. 4. Everyone who is deprived of his liberty by arrest or detention shall be entitled to take proceedings by which the lawfulness of his detention shall be decided speedily by a court and his release ordered if the detention is not lawful. 5. Everyone who has been the victim of arrest or detention in contravention of the provisions of this article shall have an enforceable right to compensation.”
[38]The following issues arise: i) Can Mr Baker’s detention be justified as being within article 5(1)(b)? ii) Is it consistent with article 5 and otherwise lawful for an application under section 364 and an order for arrest to be made without the person to be arrested having notice of the hearing? iii) If so, did the evidence before Pumfrey J justify proceeding without prior notice to Mr Baker? iv) Do requirements comparable to those of article 5(3) apply in the case of an arrest under section 364? v) Should the order specify the particular obligations relied on under article 5(1)(b), to secure the fulfilment of which the arrest is said to be intended? vi) Is it consistent with article 5 for such an application to be made in reliance on evidence which is not disclosed to the person arrested even after the arrest?[39]The first of those questions goes to the very heart of the court’s power under section 364. In contrast with a committal for contempt of court, which is covered by article 5(1)(a), the point of section 364 is not to punish the person in question but to prevent him from evading his obligations, or to encourage him to put right any evasion that he may already have effected, for example by revealing the location of items which have been concealed. That is capable of being justified under article 5(1)(b). It has not been argued by Mr Moverley Smith that section 364 is in itself incompatible with article 5, and it seems to us that such an argument would certainly fail. As mentioned above, the question is as to the manner of the exercise of the power given by section 364.[40]Logically the next question is whether it was compatible with article 5, or otherwise lawful, for the application under section 364 to be made without notice. This has to be considered in the context that, if a person is imprisoned under that section, it is not done on the basis that that person has been found to have committed a contempt or any criminal act, and the order for committal is not a determinate sentence such as might be appropriate in the case of a proved contempt. It could not be necessary to give notice of an application under section 364 where the grounds relied on were, for example, those in sub-section (2)(a), which deal with the threat of absconding. In such a case, to give notice would be likely to provoke departure. In our judgment, notice to the respondent of an application under section 364 is not an essential prerequisite where reliance is placed on sub-section (2)(c) any more than it is where the person in question is likely to abscond, so that sub-section (2)(a) is relevant, or has failed to attend for examination, so as to involve sub-section (2)(e).[41]On the basis that an order can be made under section 364 on an application without notice, the next question is whether the evidence in the present case, as it stood before Pumfrey J, justified proceeding in that way. Even in the context of the Insolvency Act and the processes available to enforce compliance by bankrupts with their obligations, the normal practice ought to be for an application to be made on notice, and any exception to that practice which is not authorised by a statutory provision (such as exists for orders for examination under section 366) must be justified by evidence.[42]In the course of the hearing before us reference was made to the general requirement of notice of applications, and to the particular provision in paragraph 3.4 of the Practice Direction supplementing Part 25 of the CPR (not, of course, applicable to these insolvency proceedings) which requires that, where an application is made without notice to the respondent, the evidence must set out why notice was not given. The evidence disclosed to Mr Baker does not include any passage directed specifically to that issue. It seems to us that evidence in support of an application under section 364 ought to address that point. In a case where the justification for proceeding without notice is not self-explanatory, as it might very well be in a case under sub-section (2)(a), (b) or (e), the evidence ought to deal specifically with the question why the applicant invites the court to consider that the order can properly, and should, be made without the respondent having had notice of the application.[43]In the present case the evidence disclosed to Mr Baker shows clearly why he is regarded by the trustee in bankruptcy as being intransigent, persistent and determined in his refusal to co-operate and to fulfil his obligations under section 333. It does not in terms show why he should be regarded as someone who, on being given notice of an application under section 364, would take immediate steps to frustrate the process. Thus, it was not clear whether the application was on the basis that the arrest would secure co-operation which had not previously been forthcoming or specifically to prevent concealment in the future. The passage from Mr Hickling’s witness statement quoted above (paragraph [23]) suggests the former. As it turned out, the judge was only satisfied that there had been concealment which would continue into the future (see paragraph [25] above). Of course, when the warrant was served, the trustee in bankruptcy came into possession of evidence which would certainly have justified proceeding without notice, that is to say his apparent intention to abscond.[44]Leaving aside, for the moment, the separate question of the withholding of part of the evidence, therefore, the evidence which is put before the court as the basis for an application under section 364 made without notice should specifically address the reason why it is appropriate for the application to be heard without notice having been given. Even if it were permissible to withhold some of the evidence, it must be possible to disclose openly, at least in summary, the reasons for proceeding without notice. The open evidence before Pumfrey J did not satisfy that requirement. On that evidence, the judge ought not to have considered the application without Mr Baker having had notice of it.[45]If it had been right to hear the application without notice having been given to Mr Baker, the absence of such notice would have had a considerable bearing on the question of the terms in which any order for committal should be made, which is the next question. Article 5(3) does not apply to this case, because the arrest is not under article 5(1)(c). However, the requirement that the person arrested be brought promptly before a court, imposed by article 5(3) in cases to which it does apply, points to the need for a similar process in this kind of case as well. If a coercive order is made without notice in ordinary civil litigation, it is right that the case should come back to court at an early opportunity after service of the order on the respondent for a hearing at which both sides are represented. Likewise, in the case of an order under section 364 made without notice, the person arrested ought to be brought before the court promptly after his arrest for a hearing at which both parties are represented. At that hearing the party arrested would have the opportunity to make representations as to the propriety of the order, and the court would be able to consider, among other things, whether the objective of the trustee in bankruptcy can be met, even on a temporary basis, by interim protection other than continued arrest. If the person in question is to remain in custody for the time being, directions can be given as to what is to happen either pending an application for discharge or with a view to ensuring that the obligations under the bankruptcy are properly fulfilled.[46]The terms of the warrant are not sufficient to meet this point, even though they ensure that the court is told of the arrest. Although the person arrested can apply for discharge, it is inappropriate to impose on him the need to take the initiative in this respect. What Pumfrey J reported as having been given to him as a statement of the current practice leaves it to the person arrested to apply via the governor of the prison for his discharge. That would be a proper approach if there had been a hearing on notice, at which the person in question would have become aware of the issues and the basis for the application, and could have been told of the courses of action open to him. Where, as in this case, the person in question is arrested without any prior warning then, even though article 5(3) does not apply to an arrest justified under article 5(1)(b), in our judgment it is necessary, by analogy, that the order should itself require that, once arrested, the person in question be brought to court for a hearing at which the trustee in bankruptcy would also be represented.[47]The first order in this case included no provision of that kind. It was made in what has no doubt been the standard form for many years. It ought to have required that Mr Baker, once arrested and in the custody of the governor of Brixton Prison, be produced to the judge hearing the Applications List in the Chancery Division, for directions to be given in the matter.[48]If that had been required as a term of the first order, the judge before whom the matter then came would, no doubt, have been told something of what Lindsay J was told on 14 March, including of Mr Baker’s apparent intention to abscond. If Mr Baker had been released at that time, it would be likely to have been have been on terms that his passport be held in a secure way such that he did not have access to it unless and until the court so ordered. The trustee in bankruptcy might have invited the court to deal with others of the seven matters set out at paragraph [30] above as well. It is not possible to say what directions the court would have given.[49]Thus, the first order was not in terms which are appropriate having regard to article 5 and to the fact that the order was made without notice. This was a further reason why Mr Baker’s appeal against the first order was allowed and he was released. If he had been brought to court immediately after his arrest, the court would almost certainly have required the deposit of his passport. It is right to say that some arrangement of that kind was offered before Lindsay J on 14 March; there may have been a practical difficulty at that time, but there was none at the time of the hearing before us, and such an undertaking was volunteered to us by Mr Moverley Smith in the course of argument. It seemed right to allow the trustee in bankruptcy to require Mr Baker to attend for a further examination, before the court, and (in case the additional powers of a High Court judge were required) before a judge rather than a registrar. We therefore made an order to that effect under section 366.[50]Mr Moverley Smith also submitted that the order ought to specify the particular obligation, the fulfilment of which was said to be the justification for the arrest in terms of article 5(1)(b). We do not accept that argument. Of course the nature of the case has to be made clear to the arrested person, and to that end any order under section 364 should (as this one did) include a recital showing the basis on which the court was satisfied that it could make the order. It is unfortunate that there was a discrepancy between the order made in this case and the judge’s actual reasoning (see paragraph [25] above). That apart, we do not consider that article 5 requires more, even in terms of article 5(2), than that the order should recite the basis on which the arrest was ordered under section 364(2).[51]Since Mr Moverley Smith did not press for the immediate release of the withheld material, which he was to be able to get after 28 March in any event and did not, in the event, need in order to secure his client’s release, it became unnecessary to rule on the sixth question identified at paragraph [38] above, which is that which arose on the second appeal. Accordingly, though we gave permission to appeal against the second order, we made no substantive order on that appeal.[52]Nevertheless, the proposition that an order for committal could be made on the basis of evidence some of which the person arrested was not to be allowed to see being rather startling, to say the least, we wish to make some comments on the point. We have mentioned above (paragraph [99]) Mr Crow’s reliance on the case of Re Murjani. That case was concerned with an order for an examination under section 366. Lightman J followed a long line of decisions most recently reviewed by the Court of Appeal, in relation to a liquidation, in Re British & Commonwealth Holdings plc (Nos. 1 and 2) [1992] Ch 342. All of those cases concerned proceedings for an order for an examination under section 236 of the 1986 Act, in relation to a liquidation, or section 366 as regards a bankruptcy, or under the statutory ancestors of those provisions. Such proceedings are now governed by particular rules in Part 9 of the Insolvency Rules 1986. These provide specifically that the application may be made ex parte: rule 9.2(4). It does not have to be supported by evidence as such, but by a brief statement of the grounds on which it is made: rule 9.2(1). That statement is not to be open to inspection without an order of the court by the respondent to the application: rule 9.5(3). The justification for that confidentiality is explained in Re British & Commonwealth Holdings plc, in which the existence of rule 9.5(3) was part of the reasoning of the court.[53]In relation to an application for an examination, therefore, there is a statutory exception to the general rule which is that all evidence used on an application without notice must be disclosed to the person against whom the order is made on that application. That principle was stated by Sir John Donaldson MR in WEA Records Ltd v. Visions Channel 4 Ltd [1983] 1 W.L.R. 721, at 724 as follows:
“I cannot at the moment visualise any circumstances in which it would be right to give a judge information in an ex parte application which cannot at a later stage be revealed to the party affected as a result of the application.”
[54]As the judgments in Re British & Commonwealth Holdings plc show, there are particular reasons why it should be open to an office-holder to make a case for an order for an examination on the basis of information which is not to be disclosed to the person to be examined, or not without a specific order of the court. An order for an examination does, of course, expose the person examined to an intrusive process, particularly if that person is a third party to the insolvency, and even more so if it is a person against whom the office-holder may wish to bring proceedings (as was the case in Re British & Commonwealth Holdings plc). However, an order for committal is a good deal more intrusive in its nature. A non-statutory exception to the normal rule of disclosure in such a case would need to be justified on strong grounds.[55]Accordingly, though it is unnecessary to decide the point, and we do not do so, for our part we would require a good deal of persuasion to hold that the principle recognised in Re British & Commonwealth Holdings plc extends beyond an application under sections 236 or 366, so as to be available in relation to an application under section 364.[56]Thus the reasons why we allowed the appeal against the first order ought to be discharged, and Mr Baker be released, were these. i) First, although it is compatible with article 5 for an application under section 364 to be made without notice to the person in question, first, the evidence before the court must make out a good case for proceeding without notice, and the evidence in this case did not do so. ii) Secondly, it is necessary that any order made in those circumstances should itself provide for the person, once arrested, to be brought before the court for a hearing at which both parties will be present or represented, which the first order did not provide. It may be that such a hearing would have to be adjourned, and that custody will have to continue in the meantime, but we regard it as essential that such a hearing should take place at an early stage, as a matter provided for in the order. It is not sufficient to leave it to the initiative of the person arrested.[57]It is unnecessary, for the disposition of this appeal, to be prescriptive as to how quickly the person arrested should be brought before the court. However, we offer some observations below as to some relevant considerations in this respect.[58]Since the hearing of the appeal we have become aware of passages in the Technical Manual issued by the Insolvency Service by way of guidance as to the best practice to be followed by official receivers, which make recommendations as to the way in which the powers of the court under section 364 can best be used. This contains some material which may be helpful in this context.[59]Chapter 13 of the Technical Manual deals with the enforcement of the duty to co-operate, among other things, and paragraphs 13.67 to 13.81 with the power of arrest. For the most part the guidance in those paragraphs which deals with arrest under section 364 is concerned with default in attendance at an examination, i.e. sub-section (2)(e). At paragraph 13.76 the comment is made that, because of possible concerns under the Human Rights Act 1998, it may be better for the warrant to provide that the person in question be delivered immediately to the court rather than to the prison, once arrested, so that the examination can commence or be resumed, and the question of undertakings for future attendance can be dealt with while the warrant is still in force. It is also said that, if the warrant does require committal to prison, the official receiver should immediately ensure that the court is notified of the arrest and should apply for orders appointing a time and place to proceed with the examination. It is suggested that the person in question should not ordinarily remain in prison for more than 48 hours before being produced to the court, though it does note the possibility that the arrested person may be required to be interviewed before being released from prison, and that this would be likely to require him to remain in custody for more than 48 hours. That guidance, therefore, proceeds on the basis, which we consider to be correct, that a prompt hearing after the arrest is necessary, and that it should not be left to the arrested person to take the initiative in relation to such a hearing.[60]It would be best for the arrested person to be brought before the court either immediately (before being taken to prison) or no later than the next sitting day of the relevant court. We can see that there may be practical difficulties and that the person may not have solicitors to represent him by then; the hearing may not be fully effective, and it may not be possible at once to work out a suitable alternative to detention in custody. Nevertheless it seems to us necessary that some such hearing should take place at an early opportunity, even if it may not always provide an immediately effective occasion for a review of the committal order.[61]In summary, in relation to the issues identified in paragraph [38] above, we would say this: i) In principle, arrest under an order made under section 364 can be justified under article 5(1)(b). ii) Article 5 does not require that notice of an application for a committal order under section 364 be given to the person to be arrested in all cases. iii) However, if the application is made without notice the evidence in support of the application must make it clear why this is said to be justified as an exception to the normal rule. In the present case the evidence did not satisfy this requirement. That was one reason why it was right to allow the appeal against the first order. iv) Moreover, if the order is made on an application without notice, it is necessary that the order should provide that, once the arrest has been effected, the person arrested be brought before the court at an early opportunity. Quite how early that will be will depend on the particular facts of the case. A hearing on the day of the arrest may not be possible, especially if time is taken up with a search of premises as well under the same warrant. But there should be a hearing on a court sitting day as soon as possible after the arrest. The failure of the first order to make any provision of this kind is the other reason why the appeal against the first order was allowed. v) The order did not have to specify any particular obligation whose fulfilment was intended to be secured, in terms of article 5(1)(b); it is sufficient for the basis on which the order was made to be recited in the order. vi) We do not need to decide the sixth point, but we have serious doubts as to whether the withholding of evidence could ever be justified on an application under section 364, even though it is an established practice for applications under section 366, and under section 236, the equivalent provision in the case of corporate insolvency.