Pier pressure—disclaiming onerous property in bankruptcy (Hunt v Withinshaw)

Pier pressure—disclaiming onerous property in bankruptcy (Hunt v Withinshaw)

Louis Doyle of Kings Chambers, considers the judgment in Hunt v Withinshaw and the clarification it provides on the effect of disclaimer of onerous property in bankruptcy and the court’s approach to vesting orders.

Original news

Hunt v Withinshaw (Former trustee in bankruptcy of Steven James Hunt) and another [2015] EWHC 3072 (Ch), [2015] All ER (D) 253 (Oct)

The present case concerned a pier, the freehold of which was owned by Mr Hunt until he was made bankrupt and the freehold vested in his trustee in bankruptcy. Among other things, the Chancery Division dismissed Mr Hunt's application for a vesting order, holding that it would not be appropriate in all the circumstances to make an order vesting in Mr Hunt the pier or any part of it.

What was the background to the application?

The procedural background to the case is rather involved, but its essential elements require consideration. There is something in the observation that, as a litigant in person, Mr Hunt was granted a degree of leeway that might not have been shown by the court to a professionally represented litigant.

Mr Hunt acquired the registered freehold title to Colwyn Bay Pier on 8 April 2004. He was made bankrupt on 17 July 2008. At the date of the bankruptcy order the pier included a small accommodation unit which the borough council (Conwy) accepted amounted to a dwelling house and the sole or principal residence of Mr Hunt for the purposes of section 283A of the Insolvency Act 1986 (IA 1986).

On 8 July 2011, or at least by 12 July 2011, Mr Hunt’s trustee applied for an order for possession and sale of the pier, so as to be within the three year period in which such an application must be made—with the consequence that the interest in the dwelling house did not re-vest in Mr Hunt on 16 July 2011. On 18 August 2011, the trustee signed a notice of disclaimer of the freehold interest in the pier and filed a copy of that notice with the court on 19 August 2011. Later on 19 August 2011, a district judge dismissed the trustee’s application for possession and sale 'upon the trustee having disclaimed his interest in the pier pursuant to s 315 of the Insolvency Act 1986'. The trustee sent a copy of the notice of disclaimer to Mr Hunt on 22 August 2011, which Mr Hunt received on 24 August 2011.

On 14 November 2011, Mr Hunt—and his mother, who claimed a beneficial interest in the pier—applied for vesting orders under IA 1986, s 320. On 27 March 2012, acting on the basis that the disclaimer by the trustee had caused the freehold in the pier to escheat to the Crown, such that the registered title was liable to be closed, the Crown Estate Commissioners, exercising powers under the Crown Estate Act 1961 and section 79(1) of the Land Registration Act 2002, created a new freehold interest in the pier in favour of the Welsh Government which was transferred on the same date to Conwy—the transfer being subject to all third party interests in the pier—including the right of any person to obtain a vesting order.

On 17 August 2012, the county court judge dismissed Mr Hunt’s application for a vesting order—as well as dismissing a host of other challenges to the validity of the trustee’s disclaimer—notwithstanding the vesting order application being predicated on the disclaimer being valid. Mr Hunt’s mother’s application was dismissed on 5 November 2012.

Mr Hunt appealed to the High Court. On 8 May 2013, Sir William Blackburne handed down judgment on the appeal which, save for remitting the trial of the vesting order application to the county court for re-trial on the footing that the county court judge had been in error in the factors he had considered in justifying the dismissal of Mr Hunt’s application, dismissed all of the points taken by Mr Hunt.

The judgment of Sir William Blackburne is reported at Hunt v Conwy County Borough Council [2014] 1 WLR 254, [2013] All ER (D) 101 (May). The key points made, among others, in that judgment were as follows:

  • first, it was not open to Mr Hunt to argue that the pier was not onerous property within IA 1986, s 315 (at para [35] 'I am also of the view that it was far too late, very many months later, when an application for a vesting order was before the court which assumed the validity of the disclaimer to seek to run an argument that, in truth, there was no valid disclaimer either because the property was not ‘onerous’ within the meaning of s 315 or because the trustee’s act in seeking to disclaim the property was in some other way open to challenge')
  • second, a failure by the trustee to serve a copy of the notice of disclaimer on the Chief Land Registrar did not invalidate the disclaimer
  • third, Mr Hunt could not argue that the whole of the pier was a 'dwelling house' within the definition of that phrase in IA 1986, s 385(1), Mr Hunt having argued that the walkways of the pier were akin to decking and the foreshore a garden
  • fourth, the court has power under IA 1986, s 320(3) to make a vesting order in relation to all of the disclaimed property or to a part of it

Some eight months later, on 13 January 2014, Mr Hunt issued a fresh application in the county court arguing that the trustee’s disclaimer had been invalid because the case came within IA 1986, s 318 (disclaimer of a dwelling house) with the result that there would not have been an effective disclaimer until a copy of the notice of disclaimer had been served on Mr Hunt. On that basis, Mr Hunt argued, the freehold interest in the pier had re-vested in him on 19 August 2011 when the application for possession and sale of the pier was dismissed by the district judge. That application was dismissed by the county court judge. Mr Hunt then set about an appeal. That appeal was dismissed on paper on 14 August 2014 by Peter Smith J. On 7 November 2014, Mr Hunt renewed his application for permission to appeal at an oral hearing before Peter Smith J. His submission was that he had not argued the s 318 point before Sir William Blackburne because he had not thought of it at that stage. Peter Smith J granted permission to appeal.

On 16 January 2015 Conwy applied to be joined as a respondent to the appeal—which had been brought by Mr Hunt only against the former trustee. On 20 January 2015, Peter Smith J ordered that Conwy was to be joined as a respondent to the appeal and that the issues directed for re-trial in the county court be transferred to the High Court and heard with the appeal.

The appeal, the remitted trial and a further application for summary judgment issued by Mr Hunt on 9 October 2015 came on for hearing before Morgan J on 13 October 2015.

What issues did the case raise before Morgan J?

Having dismissed out of hand Mr Hunt’s application for summary judgment against Conwy, Morgan J was faced with the merit of the appeal from the county court judge on the s 318 issue dismissed on 13 January 2014. Irrespective of the outcome of that application, the court then had to consider the factors relevant to the vesting order application.

What was the outcome?

Interestingly, on the s 318 point—had the dwelling house re-vested in Mr Hunt prior to the disclaimer becoming effective—Morgan J considered two leading textbook authorities and commentary by the Court of Appeal in Lee v Lee [2000] BCC 500, [2000] 1 FLR 92 (which had not decided the point) and found those sources to support Mr Hunt’s case. The judge did not, however, determine the point in Mr Hunt’s favour. The reason for that was that it was unnecessary to reach a determination given that the judge was not prepared to entertain the appeal in the light of the procedural background. There were three reasons for that—the fact that the point had not been taken when it ought to have been at the outset, the passage of time and the inconsistency as between the point taken on appeal and the subsisting application for a vesting order (at para [48] '…in those circumstances, it was plainly an abuse of process for Mr Hunt to bring a new application for a declaration on 10 December 2013 on a basis which was inconsistent with his own application for a vesting order and with the order he had obtained on 8 May 2013').

Accordingly, both the application and the appeal were dismissed as an abuse of the process of the court. It is also worth pointing out that the judge identified (at para [48]) that, even if Mr Hunt had applied as at 10 December 2013 to amend his application for a vesting order to include a claim that the disclaimer was effective, permission would most likely have been refused in view of the fact that the issue involved disputed matters of fact which had not been investigated at the trial in August 2012. The s 318 point required proof that the dwelling house was the bankrupt’s residence as at the date of the disclaimer, an issue of fact not tried or even in issue at the vesting order trial in August 2012.

As regards the vesting order application, and notwithstanding the judge acknowledging the view expressed by Sir William Blackburne to the effect that a vesting order will ordinarily be made in favour of an applicant where there is no competing interest to such an application, Morgan J dismissed Mr Hunt’s application. What is of particular note in considering the factors relevant to this case—aside from the worsening physical state of the pier which was, based on expert evidence adduced by Conwy, found to be close to inevitable collapse—was the absence of funds on Mr Hunt’s part to repair or renovate the pier and the council’s application for planning consent to demolish the pier as part of its wider waterfront development scheme. The judge considered (at para [79]) that public interest was a factor that could be taken into account, and in particular the fact that the pier could not be restored at reasonable expense and would be subject to controlled demolition if left in the hands of Conwy. The judge was also influenced by the fact that in cross-examination Mr Hunt had made it clear that he expected to bring fresh litigation against Conwy in the event that the pier or any part of it was vested in him.

Why is the case significant?

There are at least three reasons why this case matters.

  • first, the interplay between IA 1986, s 315 and IA 1986, s 318 remains unresolved, although the judgment does very much err in suggesting that Mr Hunt would have been right on his argument had he not raised it years down the line and in a way which, even for a litigant in person, entirely contradicted the rest of his case. At the same time, Morgan J identified that the re-vesting in Mr Hunt of the dwelling house only, some distance above the ground and on the seaward side of a seriously dilapidated pier, would be of no practical benefit anyway
  • second, the case includes a useful discussion of the limits of vesting orders in terms of imposing covenants such as easements on the Crown or the party against which a vesting order application is made. Although obiter, Morgan J’s view was that there was no such jurisdiction under IA 1986, s 320
  • third, the case gives some indication of the limits of the court’s willingness to be flexible when proceedings are brought by a litigant in person so as to maintain the integrity of procedural justice

Louis Doyle is a barrister at Kings Chambers, Manchester and 9 Stone Buildings, Lincoln’s Inn with a broad and specialist insolvency practice. He appeared at all stages of the Hunt proceedings on behalf of Conwy County Borough Council.

Interviewed by Barbara Bergin.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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The process of disclaimer by a liquidator or trustee in bankruptcy under sections 178 or 315 of the Insolvency Act 1986

Checklist and timeline for disclaimer

The effect of disclaimer by a liquidator or trustee in bankruptcy on property and third parties

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First published on LexisPSL Restructuring and Insolvency

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.