Official Receiver v McKay [2009] EWCA Civ 467

[2009] EWCA Civ 467Case No A2/2006/1764
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRY[2006] EWHC 430 (Ch)
HIS HONOUR JUDGE NORRIS Q.C.
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 16 June 2009
Before
LORD JUSTICE MUMMERYLORD JUSTICE LLOYDSIR PAUL KENNEDY
Between
THE OFFICIAL RECEIVERRespondentMrs CHRISTINE McKAYAppellant
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7404 1424Official Shorthand Writers to the Court)
The Appellant appeared in person for in personRichard Ritchie (instructed by Treasury Solicitor) for RespondentHearing Hearing date: 7 May 2009
Judgment
[1]On 1 January 1994 a minor road traffic accident occurred, when a car driven by Mrs McKay, the appellant, ran into the back of the car of a Mrs Martin. The damage was slight, Mrs McKay was undoubtedly liable, both parties were insured, but Mrs McKay chose not to claim on her insurance policy. From that event a saga of litigation has ensued which has reached the Court of Appeal on at least six separate occasions.[2]Mrs McKay disputed the amount of the repair bills said to have been incurred by or on behalf of Mrs Martin, and she would not pay the amount claimed. Eventually county court proceedings in the name of Mrs Martin were commenced against Mrs McKay in October 1994. The claim was for £684.23, with costs bringing the total to £805.23. It came to trial in the Leicester County Court on 19 May 1999, before Mr Recorder Bright and in the absence of Mrs McKay. The order issued in respect of the hearing on that occasion recorded the judge’s refusal of an application for an adjournment on the part of Mrs McKay, gave judgment for £805.23 plus interest of £242.32, and ordered the defendant to pay the claimant’s costs from 5 August 1996, to be the subject of detailed assessment. Correctly, it seems, it should have been for £605.81 plus interest and costs but that minor discrepancy is not relevant to this appeal. Mrs McKay disputes liability, as she did throughout the proceedings. She goes so far as to say that the county court hearing did not take place, so that the order issued is a fraud and a forgery. In any event she did not pay despite the judgment.[3]The county court proceedings could have been dealt with by arbitration - the precursor of the small claims track. For a time they were due to be dealt with in that way, but Mrs McKay alleged fraud against the Plaintiff, and the reference to arbitration was therefore rescinded in 1996. Mrs McKay fought the case tooth and nail, including at least one unsuccessful appeal to the Court of Appeal. This led to the costs of the proceedings, including the appeal, being allowed in a total sum of £17,270.33. Mrs McKay takes the point that it is not to be supposed that Mrs Martin paid all these costs. No doubt that is true, and they were defrayed by her insurers, who appear to have been AXA Insurance. Mrs McKay has commented critically on inconsistencies in references as between Mrs Martin and AXA but nothing turns on any of that for present purposes.[4]On 18 April 2000, a statutory demand was prepared in the name of Mrs Martin demanding the payment of £18,591.81 under the judgment including the costs which I have mentioned. The statutory demand was served upon her on 26 April 2000. She did not apply to have it set aside, nor did she pay in response to it. On 5 June 2000 a bankruptcy petition was presented in the name of Mrs Martin in the Derby County Court. On 2 August 2000 a bankruptcy order was made on that petition.[5]Eventually a trustee in bankruptcy was appointed, a Mr Titley, whose appointment took effect on 26 July 2001. The Official Receiver’s initial report had disclosed no known assets and only one known liability, namely the petition debt. Later, in a report by the trustee in bankruptcy dated 15 January 2004, the trustee reported that no assets had been disclosed and still only the petition debt had been identified. The report said:
“The Petitioning Creditor withdrew their claim and agreed to discharge the costs and the expenses of the bankruptcy estate”
. The report recorded the receipt of £5,674.89 by way of remuneration for time spent, having been discharged out of third party funds. A final creditors’ meeting was to be held on 12 February 2004. When this appeal came on for hearing the documents in the appeal bundle did not include a proof of debt in respect of the petition debt in the name of Mrs Martin. However, during the hearing Mrs McKay produced that document so we now know that there was a proof of debt in the name of Mrs Martin for the petition debt of £18,591. It specified the bankruptcy petition itself as the document by which the debt could be substantiated. As regards how and when the debt was incurred, it said:
“judgment debt of cost of vehicle repairs together with interest and costs”
. It is signed by a solicitor who was with Messrs Beachcroft Wansbroughs, who had acted for the petitioning creditor and later in due course acted for the trustee. It is stamped as having been received on 29 June 2001.[6]Mrs McKay made a number of applications and appeals in the course of the bankruptcy proceedings. The appeal bundle includes an order of Hart J made on 15 October 2002 on appeals from orders of District Judge Butler of 20 August 2001 and Deputy District Judge Rogers 21 September 2001, both in the Derby County Court in the course of the bankruptcy. Mrs McKay attended the hearing before Hart J. The judge dismissed Mrs McKay’s appeals against those orders. His judgment has the neutral citation number [2002] EWHC 2825 (Ch) and is reported at [2004] BPIR 1272. The order dated 21 September 2001 had dismissed an application by Mrs McKay for an order annulling her bankruptcy under section 282(1)(a) of the Insolvency Act 1986.[7]Later, Mrs McKay applied for the removal of the trustee in bankruptcy. That, together with another application of hers, came on for hearing before His Honour Judge Norris QC, as he then was, on 24 February 2004. He dismissed that application. Her application for permission to appeal against that dismissal to the Court of Appeal was refused by Arden LJ: see [2004] BIPR 1282. In the course of the application to His Honour Judge Norris, Beachcroft Wansbroughs, by then acting for the trustee in bankruptcy, wrote to the judge on 13 February 2004. The primary evidence from the trustee’s point of view before the judge was to be the trustee’s report to which I have already referred, made on 15 January 2004. To supplement what was stated in that report, the solicitors gave a more descriptive account of what had happened in the course of the bankruptcy. In the course of that they said this:
“In 2003, AXA Insurance took a commercial decision not to pursue the recovery of the amount owing to them any further. They therefore withdrew their proof of debt that had been lodged in the bankruptcy and agreed to discharge the trustee’s costs and disbursements. Given that there was no other creditor, the trustee called the final meeting of creditors pursuant to section 331 of the Insolvency Act 1986 in order to obtain his release.”
The meeting had taken place by that date. No resolution was passed against the trustee being given his release and the court was duly notified, so that the trustee’s release eventually took place. As a result of that, the Official Receiver became the trustee in bankruptcy.[8]On 25 November 2004, the Official Receiver as trustee applied to the court for directions, supported by a report of that date. This report disclosed that, among other things, Mrs McKay’s discharge from bankruptcy had been suspended on 9 January 2003 on the grounds of her failure to co-operate with the trustee. The Official Receiver had suggested to Mrs McKay that she should apply to annul the bankruptcy under section 282(1)(b) of the 1986 Act but she would not do so. In those circumstances, with neither assets nor liabilities in the bankruptcy, the Official Receiver sought directions as to whether an annulment order under that provision ought to be made, and if not how the bankruptcy should proceed.[9]Ultimately, on this application, His Honour Judge Norris made an order on 24 February 2006 annulling the bankruptcy under section 282(1)(b). It is against that order that this appeal is brought by Mrs McKay. The hearing was attended by the Official Receiver’s representative, Mrs Tranter, but not by Mrs McKay. We have a transcript of the hearing and of the judge’s judgment. In the meantime the suspension of the period for discharge had been brought to an end on 30 June 2005 so that Mrs McKay’s discharge from bankruptcy took effect on 21 January 2006.[10]The judge’s judgment given on 24 February 2006 has the neutral citation number [2006] EWHC 430 (Ch). The judge recorded the history of the proceedings and the application, and the efforts to hold the hearing at a time and place convenient for Mrs McKay’s attendance. He also recorded that, although she was unable to attend for medical reasons, she had sent a number of letters to the court which the judge took into account. In those circumstances, he considered it right to proceed with the hearing despite her absence. He referred to the position in the bankruptcy, to section 282(1)(b) and to the trustee’s report. On the basis of that report he was satisfied that the conditions for an order under section 282(1)(b) existed. He also referred to Mrs McKay’s stated wish that the bankruptcy order should be annulled under section 282(1)(a), that is to say on the basis that it ought never to have been made. As to that, he mentioned the application which had been made under that provision before Deputy District Judge Rogers, whose refusal was appealed unsuccessfully to Mr Justice Hart. He also mentioned two other proceedings in which the county court proceedings against Mrs McKay had been considered. He said that annulling the bankruptcy order would not prevent Mrs McKay from pursuing her point about the earlier county court proceedings if she was otherwise able to do so. He referred also to an appeal or attempted appeal by Mrs McKay against orders of Mr Registrar Baister in the Bankruptcy Registry and against Mr Justice Hart’s order dismissing her appeal. As a matter of discretion he decided that he should order the annulment of the bankruptcy order under section 282(1)(b).[11]Mrs McKay received a copy of the judge’s order and a transcript of the hearing in the course of March 2006. She did not receive a transcript of his judgment until late May 2006. She sought to appeal fairly promptly after that although her appellants’ notice was not stamped in the Civil Appeals Office until early August 2006. Her application for permission to appeal came before me on the papers in November 2006. I granted her an extension of time for appealing. At that stage, I considered that none of the grounds in her appellant’s notice offered any prospect of success but that it seemed that she might have an arguable point on a related question which I identified. In the light of that she served a new appellant’s notice and I granted permission to appeal on that in relation to one single ground, namely that annulment under section 282(1)(b) is only possible when the bankruptcy debts have fact been paid in full, and is not possible when they have been released. This proposition is based on Re Keet [1905] 2 KB 666, a decision on a provision in the Bankruptcy Act 1883 with similar wording. Thus Mrs McKay is not able to argue on this appeal that there never was a debt or that it was not a proper basis for bankruptcy proceedings, that it was not validly established by a court order or any such point. The issue is only whether, given that there was only one debt in the bankruptcy and the claim was withdrawn, section 282(1)(b) was satisfied. I refused permission to appeal on all Mrs McKay’s other grounds of appeal, and she did not apply for an oral hearing of her application for permission to appeal on any of those grounds.[12]Mrs McKay has represented herself throughout all the proceedings that I have described including on this appeal. She is elderly and suffers unfortunate medical problems which have delayed the hearing of this appeal considerably, but she was able to and did attend the hearing of the appeal. Shortly before the hearing she suffered another misadventure, by way of a flood which caused damage to her papers. Her application for a further adjournment on that ground was rejected, and the court supplied her with a copy of the appeal bundle as it then stood. It seems to me that she was not at a serious disadvantage as regards the presentation of the appeal on the grounds open to her, by reason of the regrettable damage to her papers. She was able to present her arguments fully and clearly in the course of her oral submissions, amplifying what she had previously put to the court in writing. She is, if I may say so, intelligent and articulate, and has evidently come to know a great deal about the law of bankruptcy in the course of the last 9 years.[13]I should also mention that, after being given permission to appeal and having submitted her bundle for the appeal, Mrs McKay sent additional documentation to the court which she asked should be considered by the court in relation to her appeal. She was made aware of the possibility of applying for permission to use additional evidence on the appeal, but she did not at any stage comply with the formal requirements for such an application. Nevertheless, the court did take into account on the hearing of the appeal such of the material which she had submitted as appeared to be arguably relevant to the issue on the appeal. She also sent further such material to the court after the court had heard the appeal and reserved judgment on it, but we refused to take any of that material into account, on which Counsel for the Respondent had not had the opportunity to make submissions.[14]In addition, she notified the court, about a fortnight after the hearing of the appeal, that she wished to make an application for a re-hearing of the appeal or for the matter to be reconsidered in some other way. This appeared to be, in substance, a request to be allowed to argue the appeal on additional grounds and so, in effect, a challenge to the limited grant of permission which she obtained in December 2006. If she had wanted to challenge the limited basis on which she was given permission to appeal, she had the opportunity to do so following the order giving the limited grant. It is now far too late for her to seek to raise additional grounds of appeal. In those circumstances, her request to make such an application will not be considered separately, as it is long out of time.[15]It is fair to say that Mrs McKay found difficulty in addressing the court at the hearing of the appeal on a basis, even hypothetically, which she considers to be wrong in fact, that is to say on the footing that there was a valid debt. However, in the revised grounds of appeal in her second appellant’s notice she argued that the release of a debt by way of a withdrawal of a proof of debt does not satisfy section 282(1)(b) and that such a withdrawal does not constitute payment in full. She also referred to the withdrawal of the proof having been done without permission of the court and to the fact that the underlying debt still appears to exist in that the county court judgment, though not registered, is still shown as existing and the debt has not been satisfied. She also asserted that there is no clear evidence of the agreement for withdrawal of the proof that is said to have been reached between the creditor and the trustee. In the course of the hearing before us she elaborated on these various points, as well as alluding to others of her concerns about the whole course of events.[16]The Official Receiver is the only respondent to the appeal. A respondent’s notice was put in suggesting that, if for some reason the jurisdiction under section 282(1)(b) was not available, the court could achieve a similar result by rescinding the bankruptcy order under section 375 of the 1986 Act, as an alternative way of achieving the result of bringing to an end the bankruptcy, whose continued existence, it was submitted, served no useful purpose. Mr Ritchie appeared on behalf of the Official Receiver at the hearing and provided valuable assistance in making submissions to the court, including in respect of points which Mrs McKay might have been able to take if she had had legal representation, as to the true construction of section 282.[17]The appeal has to be considered on the basis that the bankruptcy order was properly made on a valid petition debt, that a proof of debt was put in in respect of that debt but that the proof has been withdrawn by agreement between the creditor and the trustee, and that the trustee in bankruptcy’s expenses have been paid so that there are no other liabilities in the bankruptcy, but that this is not the result of the debt having been paid in full. In that situation the question is whether it was open to the court to annul the bankruptcy order under section 282(1)(b), and if not what ought to be done to deal with the bankruptcy whose continuation is on the face of it now entirely pointless.[18]Section 282(1) is as follows:
“282(1) The court may annul a bankruptcy order if it at any time appears to the court (a) that, on any grounds existing at the time the order was made, the order ought not to have been made, or (b) that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court.” (a) that, on any grounds existing at the time the order was made, the order ought not to have been made, or (b) that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court.”
[19]The reference to the rules is principally to Rule 6.211 of the Insolvency Rules 1986. Omitting as irrelevant paragraph (4), this rule reads as follows:
“6.211(1) This rule applies with regard to the matters which must, in an application under section 282(1)(b), be proved to the satisfaction of the court. (2) Subject to the following paragraph, all bankruptcy debts which have been proved must have been paid in full. (3) If a debt is disputed, or a creditor who has proved can no longer be traced, the bankrupt must have given such security (in the form of money paid into court, or a bond entered into with approved sureties) as the court considers adequate to satisfy any sum that may subsequently be proved to be due to the creditor concerned and (if the court thinks fit) costs.”
[20]It is also relevant to observe that by rule 6.209, if an application has been made under this provision, and if there are known creditors who have not proved for their debts, the court may direct the trustee or the Official Receiver to notify such of those creditors as the court considers should be informed with a view to proving for their debts within 21 days and possibly advertising for other creditors. The existence, or not, of known creditors who have not proved is something that the trustee or Official Receiver must report on to the court under rule 6.207(2).[21]In the present case there never was more than one known creditor. No question arose of securing any debt. The expenses of the bankruptcy had been paid. So the question on which the court’s power to annul turned was whether the bankruptcy debts which had been proved had been paid in full.[22]As I have mentioned, a proof of debt was filed in the name of Mrs Martin, the petitioning creditor, in the sum of £18,591. Beachcroft Wansbroughs said in their letter of 13 February 2004 to Judge Norris that the petitioning creditor had withdrawn the proof of debt and agreed to discharge the trustee’s costs and disbursements. In a much later letter on 11 September 2006 the Official Receiver wrote to Mrs McKay saying, among other things:
“With regard to the amounts which were originally claimed in the bankruptcy petition it is not that these have been paid but that the claim to recover them in the bankruptcy has been withdrawn by withdrawal of the proof of debt in accordance with Insolvency Rule 6.106.”
[23]That rule is in the following terms:
“A creditor’s proof may at any time, by agreement between himself and the trustee, be withdrawn or varied as to the amount claimed.”
Rule 6.107 deals with expunging or varying a proof by court order, a power that has always existed. However, if the creditor and the trustee are agreed on the matter they can deal with it without recourse to the court under rule 6.106. That provision did not exist before the 1986 legislation, but Williams & Muir Hunter on Bankruptcy, 19th edition (published in 1979, the last edition before the 1986 legislation) states at page 536:
“A proof of debt filed with the trustee can be withdrawn by consent of the trustee, and also by leave of the court.”
Thus, rule 6.106 may only have made explicit a course of action which was always available in practice.[24]Mrs McKay argued that there is no clear evidence that there was such an agreement between the creditor and the trustee. Despite this, it seems to me that the court should proceed on the footing that there was such an agreement, not least because the Official Receiver and the trustee both asserted that there was, and because the original proof was filed for the full sum. The papers also include a form of proof, admittedly not signed, showing a nil debt, which, according to Mrs McKay’s annotations on it, was supplied to her by Beachcroft Wansbroughs; it is presumably a copy of their file copy. I infer that a document in this form was filed in substitution for the original proof after the agreement had been reached, and in order to give effect to it. It would have been the correct way to have proceeded if the creditor did wish to withdraw its claim in the bankruptcy and if the trustee in bankruptcy wished to be able to proceed on the basis that the claim in the bankruptcy had been withdrawn.[25]On that basis, the issue which arises on this appeal is this. Where a debt has once been the subject of a proof of debt, but the proof has been withdrawn, does the amount of the original proof count as one of the “debts which have been proved” for the purposes of Rule 6.211(2) so that, despite the fact that it has been withdrawn, it must be paid in full if section 282(1)(b) is to be used? It is not easy to see why that should be the case, but Mrs McKay obtains some assistance from two older cases decided under the Bankruptcy Act 1883. They are, first, In re Burnett ex parte theOfficial Receiver (1894) 1 Manson 89 and secondly Re Keet decided by Court of Appeal in 1905, which I have already mentioned.[26]The equivalent provision to section 282 at that time was section 35 of the Bankruptcy Act 1883. Subsection 35(1) was as follows:
“35(1) Where in the opinion of the Court a debtor ought not to have been adjudged bankrupt, or where it is proved to the satisfaction of the Court that the debts of the bankrupt are paid in full, the Court may, on the application of any person interested, by order, annul the adjudication.”
[27]That section is therefore very similar to the present section though it does not say in terms, as rule 6.211 now does, that the debts which require to be paid in full are the debts which have been proved. It is also necessary to be aware that, under the 1883 Act, although the provision for annulment was very similar to that which now exists, the provision for discharge of a bankrupt was very different. Under the present legislation discharge is normally simply a matter of time. Under the legislation as it stood at the time of the bankruptcy order in relation to Mrs McKay the period was three years; now it is one year. The only qualifications to that are, first, that the court can order that the running of the period be suspended, as it did in this case, and, secondly, that the court can impose bankruptcy restriction orders which restrict the freedom of operation of the debtor in question after the discharge of the bankruptcy. By contrast, under the 1883 Act discharge was a matter for the discretion of the court for which an application had to be made and it could only be allowed on stringent conditions which (after an amendment in 1890) included the condition that the assets should amount at least to 50% of the debts.[28]In the case of Burnett the debtor was adjudicated bankrupt with debts of £1,600. A friend of the bankrupt, W, bought up and took assignments of all the debts, paying £140 in all to the creditors. Another friend of the bankrupt paid £1,600 on behalf of the bankrupt to W for the debts and at his request W re-assigned them to the bankrupt. The bankrupt then applied to have the bankruptcy annulled. The court was told that all the creditors had withdrawn their proofs of debt. The County Court Judge made the annulment order sought but the trustee in bankruptcy appealed to the Divisional Court. The appeal was allowed, the court coming to the conclusion that the debts had not been paid in full in the sense required by the section. Vaughan Williams J said:
“It is to me perfectly obvious that the whole of these payments were made in the interests of, and on account of the bankrupt, and if we were to allow this transaction to go through and this adjudication be annulled the bankrupt would be really getting rid of his bankruptcy on the terms of paying a small composition to each of the creditors.”
[29]Wright J agreed and said that when the original creditors were paid by W they were certainly not paid in full. Part of the basis of that decision therefore seems to be that the arrangement was a device for securing what was in effect a discharge but in circumstances in which it could not have been obtained directly.[30]That is also a feature of the decision by the Court of Appeal in ReKeet. In that case the debtor was made bankrupt with liabilities of £9,630 and assets of £189. A dividend of 2d in the pound had been declared but not paid pending the proceedings. It seems that most of the creditors were minded to try to help the debtor to start again in business and all of them, other than a few whose debts amounted to £41, executed a deed whereby without any financial consideration they released the bankrupt from their debts and agreed to withdraw the proofs. The proofs to which the consents related had not, however, been expunged so they still remained on the record. The remaining creditors whose debts amounted to £41 were paid in full. Then the bankrupt applied to the court to annul his adjudication, proving payment in full of the £41 debts and the release of the other debts. The court made the order applied for. The Official Receiver, as trustee, appealed to the Divisional Court on the basis that section 35 had not been complied with but the two judges in the Divisional Court disagreed with each other and accordingly the appeal was dismissed. From that order the Official Receiver appealed to the Court of Appeal. The first judgment was given by Vaughan Williams LJ, as he was by then. One of the issues debated was what exactly was the meaning of the phrase “the debts of the bankrupt”. The court agreed that the phrase included all debts which had been proved. Vaughan Williams LJ said at page 74:
“The section is not very clear but I think that in practice it has always been construed as meaning that the condition of annulment is payment in full of all debts which have been admitted to proof unless the proof has been expunged on the ground that it never ought to have been admitted.”
He went on to say that therefore it mattered not that no application had been made to expunge the proofs despite the creditors’ agreement to that being done, because although they might have been expunged and removed from the file it would not have been on the basis that they never ought to have been admitted.[31]Romer LJ agreed and said “Without considering to what debts previously owing this section is referring, I think that it must at any rate, be meant to refer to and cover debts which have been proved, and rightly proved, in the bankruptcy”. Stirling LJ also agreed and said that “the debts referred to in the section include at least all debts which have been actually and properly proved in the bankruptcy”. He was also expressly influenced by the consideration that what was sought to be done was in effect obtaining an order for discharge in circumstances in which such an order could not be obtained under section 28 of the 1883 Act as it then stood.[32]Thus Re Keet is authority under the 1883 Act not only for the self evident proposition that the release of a debt is not the same as payment in full of that debt, but also for the proposition that the debts which had to be paid in full were those which had been proved in the bankruptcy, other than any which had been expunged on the grounds that the debt ought not to have been admitted to proof in the first place.[33]Under the present legislation, the provision specifies that the debts which require to be paid in full are those which have been proved. That is reinforced by the provision in rule 6.209 for giving notice to known creditors who have not yet proved their debts. The question in the present case is whether the decision in Re Keet that this applies to a debt which has been proved and has not been expunged still applies under the present legislation, and applies to a debt where the proof has been withdrawn by agreement under the rules.[34]As Mr Ritchie pointed out in his helpful submissions, the 1986 Act is a mixture of new law and re-enactment of old law. Provisions such as section 282 are in very similar terms to the preceding law but other provisions are very different and in many significant respects the legislative regime is altogether different. In Re Smith Ex parte Braintree District Council [1990] 2 AC 215 at 238 Lord Jauncey said that the 1986 Act was to be construed “as a piece of new legislation without regard to 19th Century authorities or similar provisions of repealed Bankruptcy Acts.” However, it is not always right to ignore previous authorities, as Hoffmann J said in Re a Debtor (No 784 of 1991) [1992] Ch 554 at 558:
“That approach to construction was approved by the House of Lords in In re Smith (A Bankrupt), Ex parte Braintree DistrictCouncil [1990] 2 A.C. 215, in which Lord Jauncey of Tullichettle said, at p. 238, that, in view of the changes in policy shown by the new Act, he felt justified in construing the provision of the Act of 1986 “as a piece of new legislation without regard to 19th century authorities or similar provisions of repealed Bankruptcy Acts.”
Those authorities show that, in approaching the language of the Act of 1986, one must pay particular attention to the purposes and policies of its own provisions and be wary of simply carrying over uncritically meanings which had been given to similar words in the earlier Act. It does not, however, mean that the language of the new Act comes to one entirely free of any of the intellectual freight which was carried by words and phrases in earlier bankruptcy or other legislation. Decisions of the court upon the meanings of phrases used in Acts of Parliament may come, in the course of time, to give them the quality of terms of art which Parliament may well be assumed to have intended them to bring with them when used in subsequent legislation. In section 265, for example, terms such as “domiciled,” “personally present,” “ordinarily resident,” have had attributed to them, both in the context of bankruptcy and in that of civil procedure generally, a wealth of refined construction which it is difficult to suppose Parliament did not intend equally to apply when those words were used in the Act of 1986. Is there any reason why that should not apply equally to the words “has carried on business?” There does not seem to me to be anything in the policy of the new Act which suggests that in this provision Parliament was intending to give those words a different meaning from those which they had been held to bear under the Act of 1914.”[35]It is therefore a question of considering both how similar the words are to those of previous legislation and whether there are policy reasons, having regard to the terms and policy of the present legislation, which should lead to the earlier construction being ignored and to taking a fresh view of the content of the relevant provision.[36]Mr Ritchie, for the assistance of the court, offered submissions both in favour of and against following Re Keet in relation to section 282(1)(b). In favour of following it, he suggested that the reasoning in the decision is equally applicable to the present provision and that it might not be easy to see why Parliament intended to give the same words a different meaning to that which they had under the previous legislation. Furthermore, although the policy of the 1986 Act was different in many respects, including the removal of the stigma of bankruptcy and the earlier and easier discharge and rehabilitation of the debtor, that by itself need not suggest that a different interpretation should be given to the provision as regards annulment. To adopt a different policy as regards discharge does not necessarily mean that one should adopt a different approach to annulment as well, which involves setting aside the bankruptcy altogether and putting the bankrupt in the position as if there had been no bankruptcy order. He also pointed out that Re Keet has been regarded as useful guidance in relation to the 1986 Act, although not on this particular point, in Re Robertson [1989] 1 WLR 1139. Otherwise, he suggested, annulment might be regarded as intended to apply to two cases in each of which the bankrupt ought not to have been bankrupt at all: where the bankruptcy order ought never to have been made in the first place and where the bankrupt demonstrates that he or she is not insolvent by paying all the debts in full.[37]As against that, in favour of taking a different line, he showed us that in Royal Bank of Scotland v Farley [1996] BPIR 638, the Court of Appeal had warned against an over-strict interpretation of section 282(1)(a), and the same ought to apply to section 282(1)(b). It might be seen as absurd that a bankrupt should be required to pay a debt in full, in order to be able to rely upon the section, if the creditor is not seeking payment in full or at all, as shown by the withdrawal of the proof. The exception in Re Keet which in terms is limited to debts which are not currently the subject of a proof because they never ought to have been admitted to a proof might be seen as unnecessarily narrow. While the present case is somewhat extreme, in the sense that there only ever was one proved debt, it would seem eccentric, given that the one debt is no longer the subject of a proof, to insist that it should be paid in full. Moreover since the section requires the debts to be paid in full to the extent required by the rules, since rule 6.211 refers to specifically to proved debts, and since the withdrawal of the proof arises under a provision of the same rules, namely rule 6.106, there is no obvious reason why, considering the matter at any given date, the court should insist that a debt which once had been proved but was no longer the subject of a proof, must be paid in full.[38]Looking at the matter more generally, the section could fairly be seen in the light of the changed policy of the legislation as regards discharge, since both in Re Burnett and in Re Keet the court was plainly influenced by the fear that, if arrangements of the kinds adopted in those cases could lead to an annulment order, the restrictive provisions then in force as regards discharge could be evaded. Now, discharge is quite separate from annulment and is achieved automatically after a period of years. By the time of the order for annulment Mrs McKay had herself been discharged from bankruptcy. Moreover, if there is reason in any given case to doubt whether the circumstances are such that it would be proper to make an order of annulment, the court retains a discretion as to whether to make any such order and can withhold the order on those grounds, even if the conditions for the application of the section are satisfied. Accordingly, even if Re Keet is not followed in terms of the requirements of the section as to what debts must be paid in full, the court retains its discretion to refuse an order for annulment if it considers that for some reason it is not appropriate to make such an order.[39]The point which has been debated before us and which is the subject of Mrs McKay’s appeal was not touched on in the judgment of Judge Norris. He was told that there was no claim in the bankruptcy, which was indeed the case, and that the only proof of debt ever submitted had been withdrawn. On that basis he was satisfied that the conditions set out in the section had been fulfilled and that, as a matter of discretion, it was appropriate to annul the bankruptcy. The point had not been taken before him that the former proof of debt required the original debt to be paid in full despite the withdrawal of the proof. Now that this point has been taken, the question for us is whether it was open to him to proceed as he did.[40]In my judgment it was. I can see no reason why the requirement to pay in full all proved debts under the 1986 legislation should be understood as requiring the payment in full of a debt which once had been proved but where the proof of debt has been either withdrawn by agreement between the creditor and the trustee under rule 6.106 or expunged by the court, for whatever reason, under rule 6.107. If the amount of a proof has been varied, whether upwards or downwards, by agreement under rule 6.106, the section could not properly be read so as to require payment of the original amount rather than the varied amount of the proof. By analogy, if the proof has been entirely withdrawn, or replaced with a proof showing a nil debt, the rules and the section should not be understood as requiring the amount of the former proof, by then withdrawn, to be paid.[41]If a creditor has, for whatever reason, thought it appropriate to withdraw his proof, and has done so by the legitimate and proper process of reaching an agreement with the trustee, I can see no reason why the policy of the legislation as regards annulment should insist on that creditor being paid an amount which he no longer seeks to recover in the bankruptcy. One of the oddities of the present case is that, although the proof was withdrawn, the underlying debt still exists and has not been released. However, there is presumably no prospect that the creditor will seek to recover the debt by any other means. If there were such a possibility it might be relevant to the process of bankruptcy, and it could be taken into account in relation to the court’s discretion under section 282. That, however, is not relevant to the ground of appeal in this case.[42]For this reason I hold that the debts which are required by the section and the rule to be paid in full are those for which a proof has been put in which is still subsisting, in the amount at which the proof stands at the relevant time. If the proof has been withdrawn or expunged under the rules, then the debt which had been the subject of that proof does not require to be paid. If the proof has been varied, whether by agreement or by the court, then it is the varied amount which must be paid in full. In this respect it seems to me that the 1986 legislative regime is self-sufficient and does not need to be read in the light of the decisions under the 1883 Act, influenced as those were by the apprehension that the procedure for annulment was being used improperly as a way of obtaining the equivalent of a discharge in circumstances in which a discharge could not have been obtained directly.[43]Mrs McKay submitted, fairly, that in this area, as in so many others, it is important that the process of the law should be clear and certain, and she submitted that if withdrawal of a proof of debt is to be sufficient to exclude the debt from the requirement that it be paid under the section, that would open the way to too much in the way of confusion and uncertainty. I disagree. The legislature thought fit to provide expressly in 1986 for withdrawal of a proof (or its variation) by agreement between the trustee and the creditor under rule 6.106, as an alternative to its being expunged or varied by court order under rule 6.107. The existence of both those provisions makes it clear that it is not necessary to have recourse to the court before a proof of debt can be withdrawn. If the creditor and the trustee both assert that the proof has been withdrawn by agreement then, it seems to me, there is no reason to require more in the way of evidence as to the current position. The trustee in his report to the court in 2004 and the Official Receiver in his report to the court in 2006 both asserted that there was no subsisting proved debt and there was no claim in the bankruptcy. It seems to me that that is quite sufficient as a basis for the court to proceed on the footing that the proof had been properly, validly and effectively withdrawn, and that there was therefore no subsisting proved debt which required to be paid in full in accordance with the section and the rules.[44]For those reasons I would dismiss this appeal and hold that it was open to Judge Norris to make the order for annulment under section 282(1)(b) despite the fact that there had at one time been a proof of debt in the sum of £18,591, that proof having been withdrawn by agreement between the creditor and the trustee and there being, therefore, at the time when the judge had to consider the matter, no subsisting proved debt in the bankruptcy. It is therefore unnecessary to consider the Respondent’s Notice.[45]At the conclusion of the hearing, Mr Ritchie stated that, if the appeal were dismissed, the Official Receiver would not seek an order for costs against Mrs McKay. Accordingly, I would dismiss the appeal and make no order as to the costs of the appeal.

Sir Paul Kennedy

[46]I agree.[47]I also agree.

Cited in 1 later judgment