GOING BANKRUPT DID NOT RELEASE BANKRUPT FROM A JUDGMENT DEBT: JUDGE GIVES PERMISSION FOR ENFORCEMENT PROCEEDINGS TO CONTINUE DESPITE A SUBSTANTIAL DELAY

In  Jones & Pyle Developments Ltd v Rymell [2021] EWHC 385 (Ch) HHJ Paul Matthews found that a judgment debt was not released by bankruptcy. He also allowed enforcement proceedings to continue, despite a substantial delay.

THE CASE

The claimant obtained a judgment for £50,723.28 in 2013 following an action relating to the purchase of land from the defendant. The claimant established at trial that the defendant had made false representations during the conveyancing process as to the non-existence of a boundary dispute.   The defendant was made bankrupt later that year.

The claimant found that the defendant owned an interest in some property and sought to enforce it IN 2013.  An interim charging order was never made final because of the defendant’s bankruptcy.

DID THE BANKRUPTCY RELEASE THE DEFENDANT FROM THE DEBT?

The judge held that it did not.

Firstly the judge considered the provisions of the Insolvency Act.

1. 1. The normal rule, under section 281(1) of the Insolvency Act 1986, is that discharge from bankruptcy operates to release the debtor from all the bankruptcy debts. The claimant however maintains that the judgment debt survived the defendant’s bankruptcy, by virtue of section 281(3) of that Act. This provides that

“Discharge does not release the bankrupt from any bankruptcy debt which he incurred in respect of, or forbearance in respect of which was secured by means of, any fraud or fraudulent breach of trust to which he was a party.”

WAS THE JUDGMENT DEBT FOR “FRAUD”?

The judge held that the debt in this case survived the defendant’s discharge from bankruptcy.

1. 1. The first point to consider is whether the judgment debt survived the defendant’s discharge from bankruptcy. I have already set out section 281(3) of the 1986 Act. It is clear that “fraud” in that subsection refers to fraud in the sense of the tort of deceit at common law, as exemplified by Derry v Peek: see Mander v Evans [2003] 1 WLR 2378, [25].

1. 1. The judgment in the original claim of Mr Jarvis QC, sitting as a deputy judge of the High Court, stated at paragraph 5 that the claim brought was “brought by way both of fraudulent misrepresentation and negligent misrepresentation”. At paragraph 42, the deputy judge stated that he preferred the claimant’s evidence to the defendant’s evidence where they differed. Paragraph 43 the deputy judge assessed the oral evidence of the defendant and his wife by saying that they had “not been honest in giving their evidence in court”. At paragraph 62 the judge stated “that the representations were both false for the reasons which I have already given”.

1. 1. At paragraph 63, the deputy judge said:

“The question is then asked: ‘If the representations were untrue, were they made by the defendant knowingly or without belief in their truth or recklessly careless whether they were true or false?’ I have indicated that I find that the defendant actually knew that the representations were untrue. It seems to me therefore, going back to the Derry v Peek test which I set out earlier in this judgment, that those tests are satisfied. It seems to me the Derry v Peek test is satisfied in that the representations made in the form GE053 are satisfied in that the defendant knowingly made the false representation and, in addition, he did so without belief in its truth. In any event, I would have been satisfied that he made it recklessly careless whether it was true or false.”

1. 1. For present purposes, it is not necessary for me to go further than this, though in fact the judge went on to consider the question of negligent misrepresentation, and held {at paragraph 64) that the defendant (on whom the burden now rested) had failed to show that he was not negligent.

1. 1. In my judgment, the judgment debt in the present case was a debt of the defendant provable in his bankruptcy “which he incurred in respect of … fraud … to which he was a party”, within section 281(3) of the 1986 Act. That means that the defendant’s discharge from his bankruptcy in December 2014 did not discharge his liability for this debt. It was therefore open to the claimant to seek to enforce it against him thereafter. As I have already said, the former trustee in bankruptcy told the defendant’s wife that that “creditors bound by the bankruptcy can take no further action against [the defendant] or the property”. The problem was that this debt survived the bankruptcy, and therefore to that extent this was a creditor not “bound by the bankruptcy“.

1. In principle, therefore, the claimant was entitled thereafter to seek to enforce the judgment debt against the defendant.

COULD THE JUDGMENT BE ENFORCED AFTER A DELAY OF SIX YEARS?

The judge held that it could be:-

Time limit for enforcement of judgment

1. 1. The defendant raises a further point, which is that the limitation period for enforcement has run out. This might be thought (as perhaps the defendant thought) to be the case of an action, in the sense of “legal proceedings”, brought on the judgment. The limitation period for such an action is six years, by virtue of section 24 of the Limitation Act 1980. But it was held in National Westminster Bank v Powney [1991] Ch 339, CA, that an application to enforce an existing judgment debt by some form of execution was not an action bringing “a claim upon any judgment” within section 24. So it is not, strictly speaking, a limitation period which matters.

1. 1. In fact, the claimant’s original application of last September, which sought an order for the defendant to be examined on his means, was brought under CPR Part 71. The rules in that part do not however contain any time limit for such an order to be obtained. But in practice no one would ask for such an order unless it would be possible thereafter to issue execution on any assets thereby discovered. And that is what the claimant’s application notice of 8 January 2021 seeks to do.

1. 1. The time limit for issuing execution is contained in CPR rule 83.2(3)(a) (replacing RSC Order 46 rule 2(1)(a)). This provides (so far as material) that:

“(3) A relevant writ or warrant must not be issued without the permission of the court where—

(a) six years or more have elapsed since the date of the judgment or order …”

1. 1. In Patel v Singh [2003] EWCA Civ 1938, Peter Gibson LJ (with whom Sir Anthony Evans agreed) referred to National Westminster Bank v Powney [1991] Ch 339, and to Duer v Frazer [2001] 1 WLR 919 (a decision of Evans-Lombe J) , and said:

“21. … In my judgment, therefore, consistently with what this court said in Powney, the court must start from the position that the lapse of six years may, and will ordinarily, in itself justify refusing the judgment creditor permission to issue the writ of execution, unless the judgment creditor can justify the granting of permission by showing that the circumstances of his or her case takes it out of the ordinary. That may be done by showing the presence of something in relation to the judgment creditor’s own position, or, as Sir Anthony Evans suggested in the course of the argument, in relation to the judgment debtor’s position. Thus the judgment creditor might be able to point, for example, to the fact that for many years the judgment debtor was thought to have no money and so was not worth powder and shot but that, on the judgment creditor winning the lottery or having some other change of financial fortune, it has become worthwhile for the judgment creditor to seek to pursue the judgment debtor.”

1. 1. The defendant also referred to Good Challenger Navegante SA v Metalexportimport SA [2003] EWCA Civ 1668 and Society of Lloyd’s v Longtin [2005] EWHC 249. But these decisions also refer to Patel v Singh, and in my judgment add nothing to what is said there. In accordance with Patel v Singh, I therefore ask myself, what is there in the present case to take the case out of the ordinary?

1. 1. I find that there are in fact a number of matters. First of all, there is the fact that the defendant was bankrupt from 6 August 2013 until 16 December 2014. This is a period of some sixteen months. During that time, the claimant could not in practice execute the judgment.

1. 1. Secondly, there was the need for the trustee in bankruptcy to investigate the trust which had purportedly been created and which was relevant to the questions (i) what was the defendant’s interest in the residential property, and (ii) whether that interest was available to the creditors. That took some time too.

1. 1. Thirdly, the claimant makes the point that once the trustee in bankruptcy was appointed he was effectively isolated from the bankruptcy process, and did not know what was going on, and this lasted for some time after the bankruptcy came to an end. At the same time, he says, he was “completely debilitated” (but, for the reason given, I do not think I can place any reliance on that).

1. 1. Fourthly, the claimant says that the defendant knew well that the claimant during all this time was attempting to collect the judgment debt. It was not sleeping on its rights. In November 2016 it tried again to obtain a charging order. The defendant during this period simply relied on the discharge from bankruptcy. Yet he was told (in the 2016 application for a charging order) about the effect of section 281(3) of the 1986 Act.

1. 1. Fifthly, there are a number of documents in the bundle in which the defendant acknowledges the existence of the judgment debt during the enforcement period (though he incorrectly says that it has been discharged by the bankruptcy). If this were a case of seeking to bring a fresh claim on an existing judgment, these would amount to acknowledgements for the purpose of the Limitation Act. In my judgment I can take these into account in considering whether it would be just to give permission to enforce this judgment debt outside the six year period.

1. 1. Sixthly, it appears that, whereas previously the defendant had no assets with which to satisfy the debt, he is now of an age where he is able to access his pension policies, which did not form part of the bankrupt estate. So he could potentially pay the outstanding judgment debt (as Peter Gibson LJ suggested in Patel v Singh).

1. 1. On the other side, the defendant says that the claimant has delayed enforcement, and has not explained the delay. He complains that no letter was sent by the claimant asking for payment until May 2018. That is of course true, but the defendant was still in bankruptcy until the end of 2014, and it was August 2015 before the final report of the trustee was sent to the creditors (the final creditors’ meeting was held in October 2015). In my judgment, it was perfectly reasonable of the claimant to see what result of the bankruptcy was before proceeding to seek to enforce the undischarged judgment debt.

1. 1. An enforcement procedure was indeed attempted in November 2016, but withdrawn on finding out that the property which would be the subject of the charging order was apparently not beneficially owned by the defendant. The correspondence in 2018 in 2019 shows clearly that the claimant had not given up. The defendant does not allege that he would suffer any particular prejudice (apart from having to pay his just debts) if the court gave permission to the claimant to issue execution. I accept that he has obtained the wrong impression from the responses given by the former trustee in bankruptcy and by the Insolvency Service, but that is not a good reason to refuse permission if it would otherwise be given.

1. 1. Drawing the threads together, and considering the matter overall, in my judgment it would be demonstrably just for me to give permission for this judgment, of which the defendant has been acutely aware ever since it was granted, and which has survived his discharge from bankruptcy, to be enforced against him now.

Conclusion

1. The defendant’s application dated 15 November 2020 to set aside the order of 2 October 2020 is accordingly dismissed. The matter is remitted to the County Court at Yeovil to relist the questioning of the defendant on his means. The claimant’s application of 8 January 2021 to issue execution to enforce the 2013 judgment succeeds. I will deal with any consequential matters on paper in the first instance. Written submissions must be sent to me by email with copy to the other side by 4 PM on Tuesday 2 March 2021, and any submissions in reply must be sent to me by email with copy to the other side by 4 PM on Friday 5 March 2021.