Everitt v Budhram & Anor [2009] EWHC 1219 (Ch)

[2009] EWHC 1219 (Ch)Case No CH/2009/APP 135
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Wednesday, 20th May 2009
Before
MR JUSTICE HENDERSON
Between
CLIVE EVERITTAppellant(1) DAVID BUDHRAMRespondents(2) MARILYN BUDHRAMRespondent
Digital Transcription by Marten Walsh Cherer Ltd.,6 th Floor, 12-14 New Fetter Lane, London EC4A 1AG.Telephone No: 020 7936 6000 Fax No: 020 7427 0093 DX: 410 LDEEmail: info@martenwalshcherer.comWebsite: www.martenwalshcherer.com
Mr James Davies (instructed by Messrs Darbys LLP, Oxford)appeared for Appellant.Mr Philip Newman appeared for Second Respondent.
Judgment
[1]This is an appeal by Mr Clive Everitt, who is the Trustee in Bankruptcy of Mr David Budhram and his wife, Mrs Marilyn Budhram, against the decision of Deputy District Judge Somerville in the Oxford County Court on 19th February 2009. On that occasion, the Judge refused the Trustee’s application for an order for sale as against the Second Respondent, Mrs Budhram, and ordered instead that her beneficial interest in the property where she and her husband live at 109 Crescent Road, Oxford should stand charged with what he described as the “professional and legal costs of the Trustee in Bankruptcy”. He further directed that those costs were to be assessed or agreed within three months of the date of service of the order. He then granted permission to either party to appeal against the order which he had made.[2]Pursuant to that permission, the Trustee has appealed and now contends that the decision of the learned Deputy District Judge was wrong in two respects. Firstly, it is said that he erred in law; and, secondly, that there were in addition two serious procedural irregularities which had the result that his decision was unjust.[3]This is a bankruptcy which already has a rather long and convoluted history. The background is helpfully set out in the Skeleton Argument of Counsel for the Trustee, Mr James Davies, who has appeared before me today, as he did at the hearing below, and he has also prepared a chronology. With the assistance of that material, I will briefly refer to the main events which have occurred.[4]As I have already said, the Budhrams are husband and wife. They were made bankrupt on 20th July 2006. The petitioning creditor was Oxford City Council and the petition debt of some £13,130 related to unpaid council tax. No application has ever been made to annul the bankruptcy, nor was the bankruptcy order itself appealed, although at various times it was intimated that an application might be made for an annulment. However, nothing ever came of those suggestions. The petition debt was in fact paid relatively quickly on 29th September 2006 and the petition costs were paid a couple of months later on 16th November 2006. Meanwhile, Mr Everitt had been appointed Trustee on 16th October 2006.[5]There followed a number of attempts by Mr Everitt to interview the Budhrams. Those attempts to a large extent proved unsuccessful. On 14th March 2007, he applied for an order for private examination of both of the Budhrams under section 366 of the Insolvency Act, and in June of that year warrants for their arrest were issued, all attempts to deal with the matter on an amicable basis having again met with no success.[6]Eventually, Mr Budhram did attend for an interview on 4th January 2008, but on both occasions when the bailiffs sought to enforce the arrest warrant in relation to Mrs Budhram, she was taken to hospital having suffered some form of severe panic attack. She actually claimed to have suffered heart attacks on those occasions. In any event, following numerous adjournments, which I need not chronicle, the section 366 application in respect of Mrs Budhram was eventually fixed for hearing on 19th February 2009.[7]Meanwhile, because of the lack of co-operation received from the two bankrupts, Mr Everitt had applied for suspension of the automatic discharge from bankruptcy which would otherwise have taken effect on 11th June 2007. Orders to that effect were made on 19th July 2007.[8]On 24th June 2008, the Trustee applied for an order for sale of the property. The property is the Respondents’ home, and (as far as is known) the only substantial asset in the two bankrupt estates. The application was initially listed to be heard on 15th August 2008, but that hearing was adjourned on medical grounds and was relisted for 15th October.[9]The application was supported by a witness statement of the Trustee, in which he set out some of the relevant history and referred to the fact that the property was subject to a mortgage in respect of which some £114,500 was outstanding. He said he had commissioned a walk-by valuation of the property in August 2007, which valued the property at £390,000. He accepted that the property market had declined somewhat between that date and the date of his witness statement, which was June 2008, but said that, as of that date, there was likely to be equity of at least £250,000 in the property. He then referred to the failure to co-operate of the Budhrams either with himself or, before his appointment, the Official Receiver, and went on to say that, as a result of a postal redirection order which he had been able to obtain, he had managed to ascertain that there were assets in the names of both of the Budhrams which had not been disclosed to him as the Trustee.[10]In the case of Mrs Budhram, there was evidence that she held a number of accounts with the National Westminster Bank. From one of those accounts, he had identified payments to two firms of bailiffs and substantial cash withdrawals made after the bankruptcy order. In addition, there were ongoing payments to two mortgage companies in relation to properties of which he was not aware. He also said he had become aware of a number of joint bank accounts in the name of both of the Budhrams and of some jointly owned shares in Rolls Royce held by them.[11]In addition, he referred to conversations he had had with Oxford City Council, as a result of which it appeared that the Budhrams had disposed of a number of properties after the petition debt began to accrue. He also referred to correspondence with the Inland Revenue, from which he had become aware that they were, or had been, in receipt of rental income from one or more properties. In the light of that evidence, it is easy to see why the Trustee was anxious to interview the Budhrams and to obtain proper and reliable information about their assets, even though, as I have said, the petitioning creditor had itself been paid off in respect of the petition debt and costs.[12]Exhibited to Mr Everitt’s witness statement were financial statements as at 28th May 2008, showing the amounts that would be required to satisfy the creditors of whom he then had knowledge. In the case of Mrs Budhram, the creditors at that date amounted to £26,641, the most substantial one being Oxford City Council in respect of further arrears of council tax going back as far as 1994. There were, however, also other creditors, the most substantial being Lloyds TSB with a debt of £9,373. The amount of those creditors plus statutory interest to date came to just under £31,000. On top of that, there were very substantial costs, fees and expenses totalling no less than £73,719, of which nearly half, £35,250, consisted of trustee remuneration calculated on an hourly basis and including a provision for realisation of the property and further work in reaching agreement with creditors and distributing the funds. The other fees included such matters as the DTI fees, petition costs, various legal fees and costs of realisation on the future sale of the property.[13]On the basis of those figures, and on the basis of the equity that was then available in the property, it appeared that, upon a sale of the property, there should be enough money not only to pay the costs of the bankruptcy but also to pay off the creditors who were then known about.[14]Reverting now to the progress of the application for an order for sale of the property, the matter came before the Court on 15th October 2008, when the Court invited the Official Solicitor to represent Mr Budhram, on the ground that he appeared to lack capacity to conduct proceedings himself. To anticipate, it is common ground that he does indeed suffer from mental impairment, which makes him unable to represent himself. On the same date, Mrs Budhram was also directed to file and serve a medical report dealing with her condition and prognosis. Meanwhile, the application for an order for sale and the outstanding section 366 examination were listed for final determination on 19th February 2009.[15]Early in that month, the Official Solicitor indicated that he would be unable to represent Mr Budhram unless the Trustee gave an undertaking in relation to his costs. On 11th February, he wrote a letter explaining why that was the case and pointing out that, in such a situation, it would be normal for the Trustee to arrange for representation, because that in effect was the only way in which the Trustee could continue proceedings which he would otherwise be unable to prosecute. The letter also argued that the matter was in any event not particularly urgent, because Oxford City Council’s original debt had been paid off, and it was suggested that the failure of the Budhrams to surrender to the bankruptcy and co-operate with the Trustee might reflect their medical condition rather than any intention on their part to avoid performing their statutory duty.[16]Around the same time, contact was made with the Trustee by a firm of solicitors, Messrs E M Ball & Co, who said that they were acting on behalf of Mrs Budhram but were encountering difficulty in taking instructions. It was through them that a further medical report was submitted from a Dr Robert Armstrong, who had examined both of the Budhrams. Since that is the principal medical evidence now before the Court, I will refer to it in a little more detail.[17]Dr Armstrong is a primary care physician at Oxford Executive Healthcare. He gives details of the dates of birth of the two Budhrams and, in relation to Mrs Budhram, who was born in December 1941, confirms that she suffers from a number of significant medical conditions. She has a history of heart problems and, in the 1990s, underwent coronary artery bypass grafting. Since then, she has continued to exhibit certain cardiac symptoms and also suffers from maturity onset type 2 diabetes. In relation to Mr Budhram, who is some nine years older than his wife, having been born in 1932, he also suffers from significant medical conditions and from maturity onset type 2 diabetes, but, in addition, he suffered a stroke in 1999, which has resulted in severe physical and mental repercussions. In an update to the report, Dr Armstrong said that he had visited the Budhrams at their home address and the situation of both of them was either the same or slightly worse than it had been when he had first examined them in December 2007. He concluded:
“It is clear that both Mr and Mrs Budhram suffer from chronic medical conditions which are unlikely to improve in the future. Both of them are significantly affected in terms of mobility and ability to cope without support. In my opinion, both are likely to be adversely affected by stressful situations such as a Court hearing. Indeed, Mr Budhram may not be able to understand the situation. Mrs Budhram’s cardiac status is also likely to deteriorate with stress.”
[18]In the light of that material, an adjournment was sought on medical grounds for three months, in the hope that Mrs Budhram’s condition might improve. The Trustee did not consent to that request and, accordingly, a formal application was made on her behalf for the hearing on 19th February to be adjourned, both on the grounds of Mrs Budhram’s medical condition and because E M Ball & Co had only recently been engaged and had not had time to take proper instructions. That application for an adjournment was heard by Deputy District Judge Somerville on 18th February. On that occasion, Mrs Budhram did not attend in person, but she was represented by Counsel, Mr Philip Newman, who has also appeared for her today. I should record that he has appeared today on direct instructions and pro bono, and I express the Court’s appreciation for his public spiritedness in assisting the Court in this manner.[19]The application for an adjournment was, however, refused by the Deputy District Judge. In later written reasons, he summarised his reasons for refusing the adjournment as follows. He said that there had already been a long history of adjournments, with the result that the matter was not being progressed. He took the view that, in the face of the escalating costs incurred by the Trustee and the declining equity in the Budhrams’ property, it would be in the interests of all parties that the issues should be resolved without further delay. He also said it seemed to him that Mrs Budhram, at least, had failed to engage with the judicial process, one aspect of that being that various firms of solicitors had been instructed from time to time to act for her, but those instructions had subsequently been withdrawn.[20]When he refused the adjournment, permission to appeal was sought, which he also refused. I understand that an attempt was made to appeal to a Circuit Judge later that day, but no Judge was available, with the result that no appeal was in fact brought before the substantive hearings on the 19th, which took place the following day.[21]On 19th February, neither of the Budhrams attended the hearing nor were they represented. So far as E M Ball & Co were concerned, the position was that they had been unable to obtain funding. Indeed, I do not believe they had ever formally come on the record. In any event, the position was that both of the bankrupts were unrepresented. However, one of their sons, Mr Joshua Budhram, did attend Court and handed in a letter addressed to the Judge. That letter was in due course handed unopened to the Judge and, as will appear, he considered it before coming to his conclusions.[22]There were a number of matters to be dealt with at the hearing. First, there was the position of the First Respondent, Mr Budhram. In relation to him, the Trustee simply sought a stay of further proceedings, on the footing that he clearly lacked capacity and, in the light of the Official Solicitor’s view that proceedings could not continue against him until such time as he was represented, it was clearly appropriate that there should be a stay of further proceedings in the meantime. The Judge acceded to that application, and he also acceded to a second application, which was to adjourn generally the section 366 examination of Mrs Budhram. The reason for that was the problems which had been encountered in the past with the execution of arrest warrants. No doubt the Judge also paid attention to the medical evidence of Dr Armstrong, which would have made it plain that there was nothing artificial about the stress which she had undoubtedly suffered on those occasions.[23]However, that left the application for sale of the property. Counsel for the Trustee made it clear that he wished the Court to continue to deal with that application, even though the application in relation to Mr Budhram was stayed, because, as he submitted, it would at least clear away some of the problems in the case if the matter were finally resolved as between the Trustee and Mrs Budhram. It was of course the case that the proceedings had already been on foot for at least eight months, and there had been every opportunity for Mrs Budhram to put in evidence had she wished to do so. In any event, the application proceeded but the result was, as I have already said, that an order for sale was not made, and instead the Judge made the direction to which I have already referred, namely that Mrs Budhram’s interest in the property should stand charged with the professional and legal costs of the Trustee, those costs to be assessed or agreed within three months.[24]I have before me a transcript of the hearing which took place on 19th February, from which it appears that the main ground relied upon by the Judge for refusing to make an order for sale was an adverse view which he took about the conduct of Oxford City Council in choosing to pursue the Budhrams by means of bankruptcy proceedings rather than obtaining a judgment and then obtaining a charging order. Having already announced that he was not going to accede to the request to order a sale of the property, he then said:
“I always believe in being fairly transparent about these matters. I think it is no coincidence that there are in my list this morning several other applications by Darbys, and indeed other solicitors, to seek to enforce council tax by way of bankruptcy proceedings. I always have reservations about using bankruptcy proceedings as a means of debt collection. It seems to me sitting here today that if Oxford City Council had gone down the usual route of debt collection by issuing a summons, obtaining a judgment and obtaining a charging order, we would be exactly in the same position then that we are now today. The difference is the huge costs that have been incurred by reason of the Oxford City Council choosing to use insolvency proceedings rather than the usual CPR.”
He went on to say that Mrs Budhram was not present before him and he had to consider her interests in the matter:
“It seems to me that one of her very legitimate concerns would be the costs which have been incurred in this case and whether they have been reasonably incurred.”
In the light of that, he said he was minded to make an order providing for the Trustee’s legal costs to be assessed in the absence of agreement.[25]Counsel for the Trustee then submitted that the Judge’s approach to the matter was wrong because it effectively sought to go behind the making of the bankruptcy order in 2006. That order, as I have said, had never been annulled, set aside or challenged. Counsel also submitted that the costs which had been run up had to a large extent resulted from Mrs Budhram’s conduct, but in any event that was not a relevant factor which would justify the Court in going behind the bankruptcy order which had been made some three years earlier in 2006.[26]At the end of the hearing, the learned Judge indicated that he would make some short written reasons available to explain his decision in more detail, and he duly did so in a document dated 2nd March 2009. In that document, he explained, first of all, why he had refused the application for an adjournment on the previous day. I have already referred to the reasons which he gave for doing that. He then referred to the letter which had been handed in to him by Mr Joshua Budhram and said he had considered its contents. He also referred to the letter from the Official Solicitor dated 12th February expressing concern about the way in which the Trustee had dealt with the matter, saying that this reflected his own concern and, in his view, tried to inject some reality into the protracted proceedings. He said he had given the contents of that letter due weight and explained that he was going to adjourn the proceedings for Mrs Budhram’s section 366 examination generally because, as was by then common ground, nobody wished to see her imprisoned.[27]The Judge then turned to the application for sale of the property and recorded that Counsel still sought an order for sale against Mrs Budhram. He said he was not satisfied that it was appropriate to make the order asked for, his particular concern being whether this litigation (a term which he used in the broadest sense to include the bankruptcy proceedings and all of the subsequent applications) had been conducted fairly and for the benefit of the creditors. He referred to the fact that the petition debt and costs had been paid as long ago as September and October 2006, to the financial statements exhibited to the Trustee’s witness statement, and to the costs run up by the Trustee, which totalled, in the case of the two bankrupts taken together, some £75,000. He expressed his real concern that this was disproportionate. He then continued as follows:
“Both respondents are elderly. David now lacks capacity. Marilyn suffers from serious ill health. These proceedings have been extremely stressful for them, that stress exceeding that usually incurred by litigants involving, as they have, threats to Marilyn’s liberty.”
I interpose to say that that is evidently a reference to the attempts to enforce her attendance at the section 366 proceedings by means of arrest. He continued:
“On the other hand the applicant is and was entitled to use the judicial process to enforce a debt which was never, so far as I can see, seriously disputed.”
I interpose again to say that the “applicant” referred to in that passage must mean the petitioning creditor, Oxford City Council, and the Judge was there recognising, correctly, as it seems to me, that the Council did indeed have a choice how to enforce its right to recover unpaid council tax and was perfectly at liberty to commence bankruptcy proceedings for that purpose. He then continued:
“I find that the circumstances of this case are “exceptional” within the meaning of [and then there is a reference to what was clearly intended to be subsection (3) of section 335A of the Insolvency Act 1986].”
He explained that it was for those reasons that he had refused the application for sale. He said his intention had been to put the Trustee in the same position as a judgment creditor who had obtained a charging order absolute over Mrs Budhram’s equitable interest in the property.[28]That is the decision against which the Trustee now appeals. The grounds of appeal are set out in the appellant’s notice and they include, as I have already indicated, both substantive grounds and procedural grounds. It is convenient to begin with the first two grounds, the first of which is that the Judge erred in law in taking into account as relevant to the exercise of his discretion the fact that the bankruptcy proceedings had in his view been an inappropriate method for Oxford City Council to seek to recover its debt. The second ground is that the Judge also erred in seeking to place the Trustee in the same position as the holder of a charging order, and in taking the view that the Council could have achieved the same result by going down that route instead of by instituting bankruptcy proceedings.[29]On behalf of the Trustee, Counsel submits that the circumstances of the making of the original bankruptcy order are not a relevant consideration for the purposes of deciding whether or not a sale of the property should take place. The relevant matters are those set out in section 335A of the Insolvency Act. While section 335A(2)(c) does indeed refer to “all the circumstances of the case other than the needs of the bankrupt”, Counsel submits that this cannot extend to the circumstances leading up to the making of the original bankruptcy order itself. If that were correct, the Court would be able to go behind an order of the Court which had never been appealed, set aside or annulled. That cannot be correct, because it would place a trustee in bankruptcy in a very difficult position. His function as trustee is to administer the estate for the benefit of the creditors as a whole, and it would be very odd if he were to be prejudiced in fulfilling that statutory duty by reference to matters which related to the conduct of the original petitioning creditor in seeking to invoke the bankruptcy jurisdiction in the first place. The petitioning creditor had a choice to pursue bankruptcy proceedings rather than other methods of enforcement, as was apparently acknowledged by the Judge in paragraph 8 of his written reasons.[30]In my judgment these submissions are well founded. Indeed, Counsel for Mrs Budhram, did not contend the contrary. He restricted his submission to saying that, if those considerations were taken into account by the Judge, he was wrong to do so. But he did invite me to consider whether they were referred to only by way of background, and not as something that went to the exercise of the Judge’s discretion and the formation of his view that exceptional circumstances were present. It seems to me, however, particularly having regard to the transcript of the hearing, that this was a central feature of the Judge’s reasoning and it coloured his whole approach to the matter. I do not think I can sideline it as something that he regarded merely as background. I am satisfied, therefore, that he did err in law in dealing with the matter in this way.[31]However, that is only the first of the grounds upon which his decision is criticised by the Trustee. The second ground attacks the Judge’s reasoning as an inappropriate attempt to put the Trustee in the same position as the holder of a charging order against the property.[32]Again, it seems to me that that is a valid criticism. In my view, it was wrong in principle for the Judge to seek to replicate in the law of bankruptcy something which would have occurred had a different procedural route been adopted and had a charging order been obtained. The statutory scheme in relation to bankruptcy is that the assets of a bankrupt have to be realised and distributed pari passu among all his creditors. For that purpose, the bankrupt’s property normally has to be sold; and it was for that purpose that the application for sale was made and came before the Court. It is not a satisfactory response to such an application to seek to put the Trustee in the same position as he would have been were he an unsatisfied judgment creditor. That is to confuse two entirely separate methods for the recovery of debts in a way which, if it were to be permitted, would subvert the whole statutory scheme of the law of bankruptcy.[33]I need not spend much longer on that aspect of the matter. It is enough to point out some of the obvious difficulties in the solution which the Judge adopted. In relation to Mrs Budhram’s half share in the property, he said it was to stand charged with the professional and legal costs of her Trustee, but he said nothing about how any application for sale pursuant to such a charge was to be dealt with and, if so, whether it was to be dealt with on the same footing as an application for sale by a trustee in bankruptcy or in some analogous manner which would apply to a charging order outside bankruptcy. He also made no reference to the interests of the creditors and to the payment of their debts. On the face of it, their debts are not included at all in the charge which he directed. Indeed, their interests appear to have been largely, if not completely, overlooked by him, although under section 335A, in a situation such as this where the application for sale is made after the end of one year from the vesting of the bankrupt’s estate in the trustee, the Court is directed to assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations.[34]With all respect to the Judge, he seems to me to have approached the matter the wrong way around by concentrating principally on the costs of the Trustee, which in his view were excessive, and in losing sight of the interests of the creditors, possibly because the petitioning creditor’s debt had been paid off at an early stage. That, however, overlooks the evidence before him of other creditors totalling, in the case of Mrs Budhram, some £26,000, and also the very real possibility that there may be other significant creditors given the lack of disclosure by the Budhrams and the evidence of undisclosed assets to which I have already referred. In any event, I am satisfied that here, too, the Judge erred in his approach.[35]The third ground of appeal is that he was wrong to take account of the needs of Mrs Budhram in paragraph 8 of his written reasons. This submission raises a question about the meaning of “needs” in section 335A. By subsection (2) of that section, it is provided that:
“On such an application [that is to say an application by the Trustee under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 for an order for the sale of land subject to the bankruptcy] the court shall make such order as it thinks just and reasonable having regard to – (a) the interests of the bankrupt's creditors; (b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt's spouse or former spouse – (i) the conduct of the spouse or former spouse, so far as contributing to the bankruptcy, (ii) the needs and financial resources of the spouse or former spouse, and (iii) the needs of any children; and (c) all the circumstances of the case other than the needs of the bankrupt.”
Subsection (3) then provides that after one year the Court is directed to assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations. (a) the interests of the bankrupt's creditors; (b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the bankrupt's spouse or former spouse – (i) the conduct of the spouse or former spouse, so far as contributing to the bankruptcy, (ii) the needs and financial resources of the spouse or former spouse, and (iii) the needs of any children; and (c) all the circumstances of the case other than the needs of the bankrupt.”[36]Counsel for the Trustee submits that the reference to the “needs of the bankrupt” must be broadly construed and refer to needs of every kind, including not only financial needs but also medical needs and needs of any other description, such as emotional, psychological or mental needs. He submits that this wide construction must be what Parliament intended because, immediately before that, there is a reference to “the needs of any children” as one of the matters that the Court should have regard to. He submits, in my view correctly, that the needs of children must be given a very broad interpretation and refer to needs of any kind, and is certainly not confined to needs of a financial nature. Further support for that approach is found in the preceding subparagraph, with its reference to “the needs and financial resources of the spouse” of the bankrupt. Again, he submits, and again I would agree, that “needs” should there be given a wide interpretation, and appears to be at least potentially distinct from financial needs or resources, which are the subject of separate express mention. It is true that the reference is to “financial resources” rather than financial needs, but nevertheless the point is still one of some force.[37]Curiously enough, there seems to be no authority, so far as the researches of Counsel have been able to uncover, on the meaning of the word “needs” in this subsection. However, I consider that Counsel for the Trustee is substantially correct in his submission and that the needs of the bankrupt in paragraph (c) should be broadly interpreted, just as the same word should be broadly interpreted in subparagraphs (b)(ii) and (iii). Accordingly, the Court must disregard not only the financial needs of the bankrupt but also, relevantly for present purposes, the medical and psychological needs of the bankrupt as well.[38]If that is right, it follows that the learned Judge, here again, fell into error, because in paragraph 8 of his written reasons he plainly had regard to the medical condition not only of Mr Budhram but also of Mrs Budhram. I have already quoted the relevant passage, and I need not repeat it. It is easy to understand how he fell into error, because one might naturally expect to view the position of a husband and wife living together as a unit. However, the Court cannot ignore the statutory language.[39]The next ground of appeal relates to the way in which the Judge dealt with the costs of the Trustee and, more generally, his view that the whole application was a cost-driven exercise which had not been conducted fairly or properly for the benefit of the creditors.[40]Counsel relied on authority to the effect that a sale of property should still be regarded as being in the interests of the creditors even where the result will be that all of the proceeds are in fact used in meeting the expenses of the bankruptcy. That proposition is established by the decision of Lightman J in the case of Re Karia [2006] BPIR 1226: see in particular paragraph 8 of the judgment, where the learned Judge said that, even if, contrary to his view on the facts, there would in fact be no net sum realised for creditors, that would nevertheless not preclude application of the section. He said:
“It is well established that for the purpose of weighing the interest of creditors, the creditors have an interest in an order for sale being made, even if the whole of the net proceeds would go towards the expense of the bankruptcy. The fact that they will be swallowed up in paying those expenses is not an exceptional circumstance justifying the displacement of the assumption [in subsection (3)].”
[41]That view was reflected in the helpful summary of the relevant principles given by Lawrence Collins J in Dean v Stout [2005] EWHC 3315 (Ch), [2005] BPIR 1113: see in particular paragraph 11, where he said:
“ ... for the purposes of weighing the interests of the creditors, the creditors have an interest in the order for sale being made, even if the whole of the net proceeds will go towards the expenses of the bankruptcy ...”
Although he did not cite Re Karia, it is fairly clear that that is the authority which the learned Judge had in mind at that point of his summary.[42]It appears to me that, here again, there is force in the submission that Counsel for the Trustee is making, quite apart from the fact that, on the evidence before the Judge, it was in any event not at all clear that there would be no benefit to the creditors from the sale. On the contrary, on the figures as they stood in May 2008, the situation appeared to be one where a sale would realise sufficient equity to pay the creditors in full and not merely to pay the expenses of the bankruptcy. So, if that is a factor which weighed with the Judge (and having read his reasons and the transcript, I cannot escape the impression that it was), then in my respectful opinion he erred in taking it into account.[43]I now turn to the procedural grounds of appeal, the first of which is that the Judge erred in having regard to the letter which was handed to him by the bankrupts’ son, Mr Joshua Budhram. It is common ground that the Trustee had not seen this letter, nor was it seen by Counsel for the Trustee. That is not surprising, because it was addressed to the Court and was understood to contain a complaint about the way in which the Judge had dealt with the adjournment application on the previous day. In the course of the hearing, part of the letter was read out by the Judge, but that part related only to the position of Mr Budhram and did not, on the face of it, have any relevance to the application for sale. However, the letter also contained a further paragraph which was not read out by the Judge and which, therefore, the Trustee and his legal representatives had no means of knowing about or replying to in the course of the hearing. The relevant passage expressed concern about the “heavy-handed, insensitive and costly way” in which the bankruptcy had been handled by the Trustee. It also referred to an alleged significant payment by a third party which had been held by the Trustee’s solicitors and which would have been sufficient to discharge, if not all of the debts, then a substantial proportion of them. The letter went on to criticise the Trustee for handling the case in such a way that costs had been run up excessively, and continued:
“My mother wishes the circumstances of the bankruptcy to be considered as well as the Trustee’s conduct. She considers that the sale of her family home is a very serious step and should be considered in the context of what costs have been run up by the Trustee in the conduct of this case and the failure to use the third party payment for, as far as she can tell, no good reason.”
[44]Counsel for the Trustee submits that the above passage, highly critical as it was of the conduct of the Trustee, is not material that the Judge should have taken into account without giving the Trustee and his representatives an opportunity to comment upon it and make submissions in reply, or if necessary to apply for an adjournment for that purpose.[45]It is clear that the letter was taken into account by the Judge, because he says as much in his written reasons: see paragraph 4. Furthermore, the critical comments made in the letter appear to be reflected in some of his subsequent reasoning. I am unable to escape the conclusion that this was a procedural defect, and one that may have had a significant impact on the way in which he dealt with the matter. It is elementary that a Court should not make adverse findings on the basis of material which only one side has been able to see and without the party criticised being able to respond to it. It is an aspect of the basic principle audi alteram partem, which has formed part of the law for many centuries and the importance of which should not be whittled away.[46]Mr Newman, wisely, did not seek to argue the contrary. He accepted that there was substance in the point, and that, if the Judge had paid serious regard to the letter, that was an irregularity which might in itself justify the setting aside of his decision.[47]The final ground of appeal relates to the order made by the Judge for an assessment of the Trustee’s remuneration as distinct from the legal costs of the proceedings. This part of the Judge’s order is a little confusing, but there cannot be any real doubt that he meant to order an assessment not only of the Trustee’s legal costs of the proceedings but also of his remuneration, that being what he meant when he referred to the “professional costs of the Trustee”.[48]The difficulty with this is that no application for a review or assessment of the Trustee’s professional costs had been made. It is another matter that the Judge decided very much upon his own initiative. Because no such application had been made, his attention was not drawn to the procedure which is set out in the Practice Statement relating to the Fixing and Approval of the Remuneration of Appointees, issued by Chief Registrar Baister on 15th July 2004. That Statement sets out a detailed code for dealing with applications by people who may be permitted under the Insolvency Act to question the remuneration of a trustee in bankruptcy, or various other categories of appointee, on the basis that it is excessive. The procedure laid down provides for the matter to be considered in the first instance by a District Judge in the appropriate County Court, who can then either deal with it on a summary basis or give appropriate directions for it to be determined, if appropriate with the assistance of an assessor or a costs judge. The Practice Statement goes on to give detailed guidance about the material which should be provided by a trustee in support of a claim for remuneration.[49]The effect of the Judge’s order is that the whole of this procedure was bypassed by the making of an immediate order for an assessment. No consideration appears to have been given to the possibility of dealing with the matter on a summary basis. The Judge seems to have assumed in advance that the case was one which would have to go to assessment, no doubt because he thought the prospects of agreement being reached in this particular case were remote given the history which I have already recounted.[50]Here, too, I think there is substance in the ground of appeal and the Judge was premature in making an order in these terms at this stage. His order would involve substantial extra expense being incurred in an assessment, when following the procedure laid down in the Practice Statement would not only enable the matter to be dealt with in an orderly fashion, after the Trustee had had proper notice of the allegations, but might also result in a much simpler outcome than a full blown assessment.[51]For all of these reasons, I have come to the conclusion that the approach of the Judge was flawed both in matters of substance and in matters of procedure. It follows, therefore, that his decision cannot stand and I must now decide for myself whether there are exceptional circumstances which would justify the Court in doing anything other than making an immediate order for sale of the property.[52]It was suggested to me by Mr Newman that a preferable course might be for me to remit the matter, rather than deciding here and now how to deal with it. However, I am reluctant to follow that course in view of the length of time for which this matter has been outstanding, the very significant costs which have already been incurred, and the difficulties which have encountered in bringing any aspect of these proceedings to a conclusion. For reasons of proportionality, if nothing else, I think I should do my best sitting here today to reach a conclusion on whether there are exceptional circumstances in this case and, if so, how they should be reflected in the order that is made on the Trustee’s application for sale of the property.[53]It is clear, in my view, that exceptional circumstances in section 335A(3) cannot include the needs of the bankrupt herself, because consideration of her needs is precluded by subsection (2)(c). However, there is no reason why I should not have regard to the needs of Mr Budhram. Indeed, that is one of the matters to which the Court is required to have regard in subsection (2)(b)(ii). It is true that Mr Budhram is himself a bankrupt and, if the application that were being considered related to his estate, it could not be legitimate to have regard to his needs. But the fact is that I am now dealing with the application against his wife and, in that context, I see no reason why I should not have regard to his needs in his personal capacity rather than as another bankrupt.[54]Viewed from that perspective, the medical evidence, and in particular the report of Dr Armstrong, does, in my judgment, show that this is far from being a usual case in terms of the difficulties faced by Mr Budhram not only mentally but also physically. He lacks capacity, he has not yet been able to obtain representation and, in addition, he suffers from severe physical ailments, including the after effects of a stroke and diabetes. Moreover, it is Dr Armstrong’s view that those conditions are unlikely to improve in the future.[55]The existing case law establishes that the kinds of circumstances which may properly be regarded by the Court as exceptional in this context include medical or mental conditions of a co-owner of property, the co-owner in question being the co-owner other than the relevant bankrupt. This was expressly recognised by Lawrence Collins J in Dean v Stout, where he said in paragraph 7 of his judgment:
“... typically the exceptional circumstances in the modern cases relate to the personal circumstances of one of the joint owners, such as a medical or mental condition.”
He went on to say in paragraph 8:
“... the categories of exceptional circumstances are not to be categorised or defined and the court makes a value judgment after looking at all the circumstances.”
However, the circumstances must be in the true sense exceptional and outside what Nourse LJ referred to as “the usual melancholy consequences of debt and improvidence”: see Re Citro [1991] Ch 142 at 159 to 160.[56]Following that guidance, I think I can properly regard the medical and mental condition of Mr Budhram as being an exceptional circumstance which falls outside the usual run of consequences of an order for sale, distressing though those consequences often undoubtedly are. It is fully in line with the approach taken by the Court in cases of this nature to regard such circumstances as exceptional and, if that is right, as I think it is in this case, I then need to go on to consider what effect, if any, they should have on the order for sale.[57]The order for sale is one to which the Trustee is, in principle, undoubtedly entitled in the interests of the creditors, and it would be quite wrong, in my view, to postpone it for any long period. However, it is right to have regard to the exceptional circumstances involving Mr Budhram to a limited extent by imposing a suspension on the order for sale so that it does not take effect until the expiry of an appropriate period. To make such an order will in fact go little further than what the Trustee is in any event asking for, which is an order for sale but subject to a term that the order for possession should not be enforced unless and until a similar order has been obtained against Mr Budhram. That can only happen after he has obtained legal representation and an order has been obtained against him at a hearing; and, of course, at such a hearing there will be an opportunity for evidence to be adduced on his behalf and for the question of exceptional circumstances to be considered from his perspective. It is only if all that happens, and an order for sale is still made together with an order for possession, that it is suggested that the order now to be made against Mrs Budhram should become effective. However, there is obviously no certainty as to how long that process will take. It may take a very considerable time. Indeed, it may never happen at all; but, equally, if representation is quickly arranged, it could take place within a matter of a few months.[58]The view which I have formed is that there should be a minimum period within which the Budhrams can be sure that the order for sale will not be enforced against them, and that the appropriate form of suspension is one which will direct that no sale take place until the earlier of two events, the first of those events being the expiry of a fixed period and the second being the expiry of three months from the obtaining of an order for possession against Mr Budhram. That only leaves the issue of how long the fixed period, that is to say the first of those two alternatives, should be. I expressed in the course of argument my own inclination towards picking a period of one year as appropriate. Perhaps unsurprisingly, Counsel for Mrs Budhram suggested that the period should be six months longer than that, that is to say 18 months, while Counsel for the Trustee suggested that it should be six months shorter, that is to say six months from today’s date.[59]Having considered the matter, I am inclined to stick with my original thoughts, which are that a period of one year is appropriate. It is important to have finality in this matter, and I do not wish to be either too generous or too severe. If I am too generous, there is a risk that the matter will continue to drag along without anyone taking any serious steps to deal with it. Equally, if I am too severe, I will not give sufficient recognition to the exceptional circumstances which I have found to exist.[60]I express the hope that the Budhrams, with the assistance of their son and whatever legal representation can be obtained for Mr Budhram, will now concentrate on doing what they should have done a long time ago, namely to co-operate with the Trustee, to give disclosure of all of their assets in a full and frank manner, to put forward any sensible suggestions they can (perhaps with the benefit of third party funds) for dealing with the not very substantial creditors who are still unpaid, and to agree, or in default of agreement to put in motion the appropriate machinery for resolving, the questions of costs and remuneration. These matters will have to be dealt with sooner or later, and the longer they are postponed, the more it is all going to cost, and the less satisfactory the end result will be. The period of one year which I have fixed should, in my judgment, give enough time for the matter to be resolved and, if it cannot be resolved, then the interests of the creditors must prevail and the sale of the property must go ahead.[61]So far as Mr Budhram is concerned, I take the view that, by the time that an order for sale has been made against him, followed by an order for possession, there will already have been ample opportunity for the Court to consider the position fully on his behalf, including the question whether there are exceptional circumstances which would justify postponement of the order for sale. By the stage of an order for possession against him, all those obstacles will have been overcome. I therefore see no reason why the second of the alternative periods of suspension of the order which I am making in relation to Mrs Budhram should extend beyond three months after possession has been ordered against Mr Budhram.

Further legal argument

[62]To a very large extent, no criticism is made of the costs which are claimed. The only points taken by Counsel for Mrs Budhram relate to the amount of time spent by the three representatives of the Trustee’s solicitors in relation to correspondence, preparation and drafting and so forth. The number of hours involved does certainly appear to be fairly high, but, as counsel for the Trustee rightly says, this is not a straightforward case and it has not been made any easier by the very considerable difficulties encountered in dealing with the Respondents.[63]The total bill for this application, including counsel’s fees for the earlier hearing as well as for this hearing and including work still to be carried out as a result of today’s hearing, comes to a total (including VAT) of £14,280.18. That total does not seem to me to be disproportionate or unreasonable given the complicated history of this matter and the number of hearings which have already taken place. In the circumstances, I see no reason not to summarily assess the costs in the amount claimed, and I will therefore do so. - - - - - - - - - - - - - - - - - - - - -

Cited in 2 later judgments