IF YOU’VE MADE THE DEFENDANT BANKRUPT – YOU CAN’T COMPLAIN WHEN YOU’VE GOT WHAT YOU ASKED FOR

The judgment of the Court of Appeal today in Michael Wilson & Partners Ltd v Sinclair & Ors [2021] EWCA Civ 505 contains an important lesson to litigators considering enforcing a judgment.  The claimant had made the defendant bankrupt whilst an appeal was pending in relation to a means of possible enforcement of the debt. That appeal was not allowed to continue.  It was not unjust for the claimant to be made to be reliant upon recovery made in the bankruptcy it had sought.

“Mr Wilson says that he hoped that the pressure of bankruptcy would have induced Mr Sinclair and Mr Emmott to settle, but it did not, and instead Mr Sinclair was made bankrupt, which is what MWP itself had petitioned the Court to do. As I have already said, MWP cannot in my judgment then complain of the effect that the bankruptcy had on its application for a TPDO, or that the pari passu principle which it had invoked was unfair.”

THE CASE

The claimant has a substantial judgment against the defendant.  The claimant sought to enforce that judgment by way of a third party debt order. That application was refused and the claimant appealed.  In the meantime however the defendant had been made bankrupt on the claimant’s petition.

THE ISSUE BEFORE THE COURT OF APPEAL

1. 1. Having heard argument from Mr Doctor, we decided (i) that the effect of these provisions made it impossible for MWP to pursue its appeal unless it could establish that it had a reasonable prospect of obtaining an order under s. 346(6) IA 1986 (which enables the Court to disapply the general rule under s. 346(1)); and (ii) that in the circumstances of this case MWP had no reasonable prospect of obtaining such an order. We therefore concluded that even if MWP were right on the point of law raised by the appeal it would not assist it, and that the appeal had become academic.

1. 1. Mr Doctor asked us to hear the appeal in any event as it potentially affected the question of costs. We have a discretion whether to permit an appeal to proceed that has become academic save as to costs. We decided in the exercise of that discretion that this was not an appropriate case to hear the appeal solely on the question of costs.

1. In those circumstances we did not proceed to hear the substantive appeal. In this judgment I give my reasons for agreeing to that decision.

THE REASONS FOR THE COURT OF APPEAL’S DECISION

There was no prospect of the claimant being able to keep the benefit of the third party debt order. There was, therefore, no substantive purpose in pursuing the appeal.

THE ARGUMENT ABOUT PURSUING THE APPEAL FOR COSTS

The Court also rejected the argument that the appeal should be heard because it would have an impact on costs.

1. 1. Mr Doctor submitted that we should proceed to hear the appeal anyway as it potentially affected the costs which MWP had been ordered to pay in the two lower Courts (and/or the costs of the appeal itself).

1. 1. The practice of this Court in relation to appeals that have become academic save as to costs was considered by Gross LJ in Hamnett v Essex CC [2017] EWCA Civ 6 at [35]-[37]. He summarised the position at [37] as follows:

“37.  Pulling the threads together, I do not, respectfully, read these authorities as suggesting any inflexible rule as regards proceeding with an appeal which has become academic between the parties. Instead, in such a case, they point to the court having a narrow discretion to proceed, to be exercised with caution – even when a point of public law of some general importance is involved. If the only extant issue goes to costs, the Court is likely to be still more cautious before deciding to hear the appeal.”

1. 1. We therefore have a discretion to allow the appeal to be argued solely for the purpose of costs. We decided not to exercise it. The factors which I took into account in agreeing to this decision were as follows. First, the legal point raised by the appeal, namely whether a loan repayable 30 days after demand is a “debt due or accruing due” within the meaning of CPR r 72.2(1)(a), is admittedly a relatively short point of law of some general importance, and I have already said that I agree with Popplewell LJ that it has a real prospect of success; but it would be necessary for us not only to hear this point, but also the question whether there was any sufficient basis for disturbing Master Kay’s exercise of his discretion. That turns very much on the facts of this particular case and raises points of detail that are of less general interest and likely to give rise to longer argument. When granting permission to appeal to the Judge, Males J said that the appeal on that ground was “just” sufficiently arguable to raise a prospect of success; and we do not have the benefit of HHJ Pelling’s views on the question as he did not consider it.

1. 1. Second, the costs concerned, although not minimal, are not very high, and compared with the much larger sums owed by MWP to Mr Emmott under the Award are not of great significance to the parties.

1. 1. Third, and to my mind decisively, the current situation is one of MWP’s own making as I have already explained. MWP chose to present and pursue the petition against Mr Sinclair to the point where it succeeded in having him made bankrupt. The consequences for the present TPDO proceedings were consequences that it brought on itself. Given the general principle that the Court will be cautious about permitting an appeal to be continued solely for the sake of costs, that seems to me to point firmly to not exercising the discretion in MWP’s favour.

1. 1. These were the reasons why I concurred in the decision not to hear the appeal.

AN ATTEMPT TO GET A SECOND BITE OF THE CHERRY

The court commented on the additional material put in after the draft judgment had been circulated.

Postscript

1. 1. We circulated our draft judgments in the above form in the usual way on 7 April 2021. On 14 April we received submissions from MWP inviting us not to hand down our judgments in final form but to reconvene the hearing of the appeal, or at least continue the interim TPDO for the time being. We have decided not to do so, and I explain here why.

1. 1. The jurisdiction of this Court to withdraw its draft judgments and proceed to hear further argument in an appeal is undoubted. But it is not a procedure to be encouraged. It is at the hearing of the appeal that a party is expected to deploy all its arguments. It is not in accordance with the overriding objective for a party to wait until it has seen from the Court’s draft judgment(s) why it is about to lose an appeal and then seek to advance further arguments. The hearing of an appeal is not, and should not be allowed to become, an iterative process.

1. 1. These are points of general application. In the case of the sprawling litigation with which this appeal is concerned, they are given particular force by the comments of Peter Jackson LJ in one of the other appeals to have reached this Court, Emmott v Michael Wilson & Partners Ltd [2019] EWCA Civ 219 at [70]:

“Any court in this jurisdiction that has to consider this dispute in future would do well to remember that the overriding objective in civil proceedings includes a duty on the court to save expense, deal with the case expeditiously and fairly, and allot to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; further, that the parties have a duty to help the court to achieve this. This pathological litigation has already consumed far too great a share of the court’s resources and if it continues judges will doubtless be astute to allow the parties only an appropriate allotment of court time.”

1. 1. Nevertheless, I accept that we should not reject MWP’s new material out of hand but should consider it to see whether it gives any reason to think that we would, or might, have reached a different decision had this material been before us. But having considered it, I see no reason to think that we would have done. In short it changes nothing.

1. 1. There are two relevant documents before us. One is a 23-page witness statement of Mr Wilson (supported by 395 pages of exhibits) intended to show why an application by MWP in Mr Sinclair’s bankruptcy under s. 346(6) IA 1986 would be successful. The other is a 24-page submission by MWP (not signed but I assume also written by Mr Wilson). Mr Wilson’s documents amply bear out the criticism made of him by HHJ Pelling who referred in his judgment to “the invariably prolix manner in which Mr Wilson of MWP chooses to present each application” (at [5]). But for all their length the points they make can be summarised quite shortly:

(1) MWP says that it was unfair to MWP for the Court to ask Mr Doctor to address the question whether MWP would have any reasonable prospect of success on an application under s. 346(6) IA 1986 without any prior warning.

There is nothing in this point. It was MWP who had Mr Sinclair made bankrupt on 9 March 2021. Even without any prompting from the Court, that should have caused MWP and its legal advisers (including Mr Wilson who is an English solicitor) to have given thought to whether it could pursue its appeal. Then on 25 March 2021 the Official Receiver e-mailed the Court (copying in Mr Wilson) drawing attention to s. 285(3)(a) IA 1986. The Court had in fact already itself researched the point and formed a provisional view that s. 285(3)(a) deprived it of jurisdiction to make a TPDO, and, again on 25 March 2021, e-mailed Mr Doctor to alert him to this and ask for his submissions why that was incorrect. The Court was of course under no obligation to give MWP any advance warning of its concerns, but did so in order to make the hearing more efficient. Mr Doctor’s submissions raised a number of points (see above) but among other things he relied on the possibility of an application under s. 346(6). It was for MWP, if it was going to rely on s. 346(6) as an answer to the s. 285(3)(a) point, to explain how it proposed to make out a case under s. 346(6), and there was nothing unfair in expecting Mr Doctor to address this in his submissions.

(2) MWP says that the relevant history of the litigation shows that both Mr Sinclair and Mr Emmott have behaved very badly, and that overall MWP is owed more than it owes under the Award.

This is set out in elaborate detail, both in MWP’s submissions and in Mr Wilson’s witness statement. Mr Wilson says that he has many judgments in MWP’s favour that demonstrate the abusive litigation behaviour of Mr Sinclair and Mr Emmott. I will assume this is so. I do not see the relevance of it to an application under s. 346(6). The question on such an application is whether the pari passu principle should be displaced. That is not an issue that turns on the behaviour of the bankrupt (Mr Sinclair) let alone that of the third party debtor (Mr Emmott) but on whether there is anything exceptional which justifies promoting the interests of one creditor (MWP) above the others. Nor does the overall state of account as between MWP and Mr Emmott affect the application under s. 346(6).

(3) MWP says that information about the assets and liabilities of Mr Sinclair shows he has few other creditors or easily realisable liabilities.

The information in fact shows that Mr Sinclair does indeed have other liabilities than to MWP. Although some of them are disputed, it includes £37,000 owed on credit cards which it is not suggested is disputed. Mr Wilson says that MWP is by far the largest creditor. That does not mean that it is the only creditor, and no reason has been given why the other creditors should have their rights to a pari passu distribution disturbed.

Mr Wilson says that none of Mr Sinclair’s assets (other than his claim against Mr Emmott) are readily available. That seems to me a reason why all his creditors should share in the realisation of that asset, not a reason why MWP alone should.

Mr Wilson says that the best way for Mr Sinclair’s claim against Mr Emmott to be realised is for it to be assigned to MWP so that it can be set off against the amounts remaining payable under the Award, and a trustee in bankruptcy might well conclude that that was so, and agree to a s. 346(6) application. I can see that a trustee might agree that the best way to realise the claim was to assign it to MWP, but I do not see why a trustee would agree to MWP having the sole benefit of such a claim to the exclusion of other creditors which is what a s. 346(6) application would mean. It is far more likely that a trustee would only agree to such an assignment on terms that an appropriate part of the value was made available to the other creditors. That does not need the trustee to consent to an application under s. 346(6), and indeed would be inconsistent with him doing so.

1. 1. In short, no good reason is advanced why it is unfair to MWP to allow the ordinary pari passu distribution to apply in Mr Sinclair’s bankruptcy. It was MWP itself which chose to invoke that principle by making him bankrupt, and for reasons given above that seems to me to point firmly to any application under s. 346(6) having no real prospect of success. The new material adds nothing on this point. Mr Wilson says that he hoped that the pressure of bankruptcy would have induced Mr Sinclair and Mr Emmott to settle, but it did not, and instead Mr Sinclair was made bankrupt, which is what MWP itself had petitioned the Court to do. As I have already said, MWP cannot in my judgment then complain of the effect that the bankruptcy had on its application for a TPDO, or that the pari passu principle which it had invoked was unfair.