BANKRUPTCY PETITION NOT SERVED PROPERLY: BANKRUPTCY NOT ANNULLED

There may well be a disturbance in the Force if there is not a service of the claim form case every few weeks.  In Ardawa v Uppal & Anor [2019] EWHC 456 (Ch) Mr Justice Roth held that a judge could not retrospectively make an order for substituted service of a bankruptcy petition.   However, despite the proceedings not being properly served, the bankruptcy was not set aside.

THE CASE

The claimant served a statutory demand on the defendant seeking payment of costs in ancillary relief proceedings.  The demand was served by putting it through a letter box.  However, the defendant did not live at the house in question, he had moved out.  A bankruptcy petition was issued based on failure to comply with the notice. That notice was not served.  The process server stated he could not find an address for service. However whilst all this was going on the claimant and the defendant were in regular contact in relation to child care arrangements.  Eventually the process server placed the petition through the letter box of the house where the statutory demand had been served.

THE DEFENDANT’S CASE

The defendant’s case was, inter alia, that a bankruptcy petition has to be served personally.  Here service took place through a letter box.  Three weeks later the court made an order for substituted service. In essence to ratify the method of service that was adopted.

THE COURT HAD NO JURISDICTION TO MAKE AN ORDER FOR SUBSTITUTED SERVICE

    1. Unlike a statutory demand, for a bankruptcy petition the primary obligation is to effect personal service; substituted service requires a court order to that effect: rule 6.14 IR. Here, the order for substituted service was made only on 17 February 2016, over three weeks after the petition was posted through the letter-box.
    2. Mr Tunkel submitted that the Court has no jurisdiction to make a retrospective order for substituted service, and relied on the decision to that effect of Registrar Briggs in Gate Gourmet. As Mr Kwok for the Respondent pointed out, Gate Gourmet was strictly obiter on this point, since the Registrar had decided that personal service had been effected, a decision which was upheld on appeal by Mr Recorder Murray sitting as a deputy High Court judge (and who did not therefore address the issue of substituted service): [2016] EWHC 74 (Ch). However, I agree with Registrar Briggs’ conclusion and reject Mr Kwok’s submission that he was wrong. In the first place, the wording of rule 6.14(2) suggests that an order may only be prospective: “the court … may order substituted service to be effected in such manner as it thinks just” (my emphasis). That is supported by the structure of PDIP para 13.2.4 addressing the steps that will justify making an order for substituted service of a petition. Para 13.2.4(2)(c) requires the appointment letter for personal service of a petition to warn the debtor that if he fails to keep the appointment “application will be made to the court for an order for substituted service either by advertisement, or in such other manner as the court may think fit.” That was indeed almost exactly the wording in the letter that Mr Power put through the letter box on 26 January 2016. That sits ill with the proposition that putting the petition through the letter box on the date of that appointment without any order of the court could subsequently become the substituted service authorised by the court. Secondly, in Gate Gourmet, Registrar Briggs contrasted the wording of rule 6.14 IR with the provision for substituted service of a claim form in CPR rule 6.15, where sub-rule (2) provides:
On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service.
Part 6 of the CPR does not apply to the service of a bankruptcy petition: rule 12A.16(2) IR. Therefore, the retrospective order of District Judge Hickman could not be made under CPR rule 6.15, and the lack of an equivalent provision in the applicable rule for service in the Insolvency Rules is striking.
    1. Mr Kwok argued in the alternative that the court had a general power to authorise substituted service under CPR rule 3.1(2)(m), which provides that the court may:
“take any other step or make any other order for the purpose of managing the case and furthering the overriding objective, …”
    1. Assuming that CPR Part 3 is applicable to bankruptcy proceedings, I reject as wholly untenable the suggestion that this provision can be applied to give some general authorisation to the court as regards service of proceedings that is supplementary to the specific prescriptions regarding service in the rules. CPR rule 3.1(2) begins with the proviso, “Except where these Rules provide otherwise….” The CPR does contain Rules providing for service in Part 6, so sub-rule 3.1(2)(m) does not give power to the court to circumvent the requirements regarding service laid down in the CPR. Just because Part 6 does not apply to service of a bankruptcy petition, which is covered by specific and express provision in the Insolvency Rules, in my view that cannot in consequence permit rule 3.1(2)(m) to be used to circumvent the requirements regarding service in rule 6.14 IR.
    2. Nor can I accept Mr Kwok’s further suggestion that there is nonetheless power to authorise substituted service under the inherent jurisdiction of the court. The authority on which he relied, Langley v NW Water Authority [1991] 1 WLR 697, concerned the court’s power to issue a practice direction concerning the service of medical evidence in the County Court and is far removed from the issue in the present case. Moreover, in his judgment in that case Lord Donaldson MR said, at 702C:
“Although there is no statutory authority for making local practice directions, none is needed because every court has inherent jurisdiction to regulate its own procedures, save insofar as any such direction is inconsistent with statute law or statutory rules of court” [my emphasis].
Here, there is statutory provision in the Insolvency Rules governing service of a bankruptcy petition and, as I have interpreted them, they do not permit a retrospective order for substituted service. In those circumstances the residual power of the court’s inherent jurisdiction does not enable the court to make an order inconsistent with the rules.
  1. It follows that the court did not have jurisdiction to make the order on 17 February 2016 authorising substituted service of the petition. Although I was told that it was cited in argument, the District Judge does not discuss Gate Gourmet or the terms of rule 6.14 IR in her judgment, and I find that her conclusion that the court was entitled to make the order for substituted service is wrong.
  2. By his amended Application, the Applicant sought to set aside Judge Hickman’s order for substituted service. Mr Kwok pointed out that this was a late amendment, advanced some 18 months after the original Application. However, in June 2016 when the Applicant first applied to annul the bankruptcy order, he was acting in person and I do not think it would be right to hold against him the fact that he failed to appreciate that he should also apply to annul the order for substituted service. Knowing that the Appellant was seeking to annul the bankruptcy order, the Respondent, who has been represented throughout, was in no way prejudiced by the subsequent addition of an application to set aside the order concerning service of the petition.
  3. The question of setting aside Judge Hickman’s order does not rest purely on lack of jurisdiction. The court made that order on the basis of the witness statement from Mr Power, who said that having made inquiries he was not “aware of any mobile or land line telephone numbers or email address on which I am able to make any contact with the Debtor.” The most obvious source from which the process server would make inquiries is of course the solicitors instructing him on behalf of the debtor. I obviously do not know what passed between Mr Power and the Respondent’s solicitors, but it is not in dispute that the Respondent had both a mobile telephone number and an email address of the Appellant; indeed, she was in regular contact with him by text message at this time concerning arrangements regarding the children. I make no personal criticism of Mr Power, but I regard this passage in what is a short witness statement as very misleading. Moreover, on a matter as serious as a bankruptcy petition, I think it would have been appropriate to tell the court that the Respondent had another postal address that he had given for service of documents in County Court proceedings concerning financial relief, the more especially as those were the proceedings in which the bankruptcy debt had arisen. That address was of course 32 Bland Street. If District Judge Hickman had been given full and correct information, I consider that he may well – to put it at its lowest – have directed that an attempt be made to contact the Debtor by telephone and/or that a copy of the petition should also be sent by email. Very possibly he would also have directed that a copy of the petition be sent to 32 Bland Street.
  4. Having regard to the fact that it was made without jurisdiction and on the basis of misleading information, I have no doubt that the order of District Judge Hickman authorising substituted service should be set aside. The consequence, it seems to me, is that considered as of today, the petition was not duly served on the Appellant. I do not see that rule 6.14(3) IR leads to a different conclusion: the petition cannot be “deemed duly served” when that relies on a court order that is no longer effective.

 

THE COURT DID NOT ANNUL THE BANKRUPTCY ORDER

What is surprising is that, despite these findings, the court did not annul the bankruptcy order.

  1. he key issue in this case is whether the bankruptcy order should be annulled under sect 282(1)(a). Two questions arise. First, is the power to annul under that provision engaged at all? Secondly, if it is, should the court annul the petition in the circumstances of this case, given that the power under sect 282(1)(a) is discretionary?
  2. Mr Kwok submitted that here no grounds existed to annul at the time the bankruptcy order was made. That is because as at 6 April 2016, when the court made the bankruptcy order, the order for substituted service stood, and rule 6.14(3) IR provides, as set out above, that substituted service of a petition carried out in accordance with an order is deemed good service.
  3. I do not accept that argument. If the court had been told on 6 April 2016 that the substituted service of the petition had been authorised by a retrospective order for substituted service which the court had had no jurisdiction to make, and which had been obtained on the basis of misleading information, I regard it as almost inconceivable that the court would nonetheless have made a bankruptcy order against the Appellant. The grounds to impugn the basis of substituted service all existed at the time the bankruptcy order was made and were not dependent on there being a formal order setting aside the prior order for substituted service. The situation in Yang, where the Court of Appeal held that sect 282(1)(a) could not apply when the liability orders establishing the debt were expressly deemed by the relevant regulations to fulfil the requirements of sect 267 IA, seems to me very different.
  4. That takes me to the question of discretion. The District Judge held, at para 27 of her judgment, that if there was a procedural irregularity, she would in her discretion decline to annul the petition. However, she explained that in reaching that decision one factor that she took into account was that the Appellant was properly deemed served; and she also appears to have left out of account, since it is nowhere mentioned, the fact that misleading evidence was presented on the part of the Respondent to the court on 17 February 2016. In the circumstances, I consider that her exercise of discretion cannot stand, and it falls to me to exercise the court’s discretion afresh.
  5. The facts that the order for substituted service was improperly made and the misleading aspect of the witness evidence relied on by the Respondent to obtain that order undoubtedly are factors counting in favour of annulment. On the other hand, there are several very significant factors pointing the other way, including those on which the District Judge did, very properly, rely. This was an undisputed debt, arising from orders in court proceedings between these parties, which the Appellant had failed to pay. It is undisputed that he has the means to pay that debt, and while he states, unsurprisingly, in these proceedings that he will do so if the bankruptcy is annulled, his evidence gives no explanation as to why he had failed to do so before these proceedings commenced. The Appellant was, on the factual findings that I have upheld, aware of both the statutory demand and the petition itself at the time, and untruthful in his evidence regarding his place of residence. All the indications are that he was deliberately seeking to evade service. Taking all this into account, I reach the same conclusion as the District Judge. This is not a case where it is appropriate for the court to annul the bankruptcy order.