Second application to annul bankruptcy order an abuse of process (Lambert v Forest of Dean District Council and others)

 

Jessica Brooke, barrister at Enterprise Chambers, examines the High Court's decision in Lambert v Forest of Dean District Council and others that a second application to annul a bankruptcy order, after the first application was struck out for failure to comply with an unless order, would be refused primarily as an abuse of process and secondly on its merits, even in circumstances where the bankruptcy order ought not to have been made.

Re Philip John Lambert Lambert v Forest of Dean District Council and others  [2019] EWHC 1763 (Ch), [2019] All ER (D) 106 (Jul)

What are the practical implications of the decision?

  • in the first part, the judge emphasised that, where a party has their case struck out for breach of an unless order and, instead of applying for relief from sanctions, subsequently issues fresh proceedings which are materially identical to the first action, the second set of proceedings will be an abuse of process and should be struck out. In seeking to bypass the relief from sanctions exercise, the party has failed to correctly use the court’s procedures  
  • the second part of the judgment confirmed that, where a bankruptcy order ought not to have been made and the court’s discretion to annul the bankruptcy is engaged, if sums are indisputably owed to the petitioner this will weigh heavily against the granting of an annulment

What was the background?

The applicant was made bankrupt on a petition presented by the first respondent local authority based upon liability orders obtained against him in respect of unpaid council tax and business rates.

The applicant applied to annul the bankruptcy order under section 282(1)(a) of the Insolvency Act 1986, which provides the court with a discretion to annul if the bankruptcy order ought not to have been made. The applicant argued that the petition debt was not owing and the correct procedures for service of the statutory demand and the bankruptcy petition had not been followed. He also issued applications seeking a stay of his bankruptcy and an injunction restraining his original trustee in bankruptcy and the first respondent from dealing with his assets.

The annulment application was struck out for failure to comply with an unless order in terms that the applicant pay various costs orders made against him following dismissal of the stay and injunction applications.

The applicant subsequently made a second application to annul the bankruptcy order, relying upon grounds identical to those relied upon in his first application. The second application was opposed by the first respondent on two bases:

  • firstly, it was an abuse of process  
  • secondly, it was said that the court should refuse to exercise its discretion to annul as the petition debt was indisputably owing, and also because the applicant had failed to co-operate with his new trustees in bankruptcy (the second and third respondents), and had sought to conceal assets from them

What did the court decide?

Abuse of process

The judge found that the second annulment application was an abuse of process and should be dismissed on this ground alone.

The applicant had been subjected to a sanction—namely the striking out of the first annulment application—and if he wished to seek relief from that sanction he should have made an application under CPR 3.9. In making the second annulment application, he had sought to bypass the relief from sanctions exercise. Had he made an application under CPR 3.9 in respect of the first annulment application, it would have been refused—the failure to comply with an unless order was serious, there was no good reason for the applicant not to have complied with the unless order and all the circumstances of the case militated against relief from sanctions.

The applicant had relied upon Johnson v Gore Wood & Co (a firm) [2001] 1 All ER 481, in which Lord Millet said that to deny a party the opportunity of litigating for the first time a question which had not previously been adjudicated upon was prima facie a denial of the party’s right of access to the court under Article 6 of the European Convention on Human Rights. The applicant also referred to cases decided before the Jackson reforms in which the court stayed further proceedings until obligations under earlier actions had been complied with, rather than striking them out.

The judge held that the changes to the CPR introduced following the Jackson reforms—with the emphasis on compliance with court orders—were relevant. While the first annulment application was not itself abusive, and the applicant was not seeking to relitigate issues which had been decided, or should have been included in earlier proceedings, the second annulment application was an abuse of process nonetheless. The applicant had failed to properly use the court’s procedures and apply for relief from sanctions promptly after the first annulment application was struck out. Further, it was not appropriate to stay the second application until the costs orders made against the applicant were paid as, due to applicant’s failure to co-operate with the second and third respondents and his failure to disclose the extent of his estate, there was doubt as to whether any funds used by him to satisfy those orders fell within the bankruptcy estate.

The court’s discretion to annul the bankruptcy

The judge then turned to consider the second annulment application on its merits, in case he was wrong to find that it was an abuse of process.

In order to narrow the issues, the first respondent did not challenge the applicant’s assertion that the statutory demand and petition had not been properly served. The judge found that his discretion was therefore engaged to annul the bankruptcy order, and there was, in the circumstances, a strong presumption in favour of annulment.

However, he declined to exercise his discretion to annul, firstly for the reason that the petition debt was indisputably owing, the liability orders on which the petition was founded being unassailable. As set out in R (on the application of Brighton and Hove City Council) v Brighton and Hove Justices [2004] EWHC 1800 (Admin), [2004] All ER (D) 546 (Jul), the test for setting aside liability orders is that:

  • there must be a genuine and arguable dispute to the defendant’s liability  
  • the order must have been made as a result of a substantial procedural error, defect or mishap  
  • the application to set aside must be made promptly

The judge found that it was inconceivable that an application to set aside the liability orders would be successful, for reasons including that the applicant had become aware of the orders some three years earlier. There was no evidence that the debts owing to the first respondent could be paid, and the judge was not satisfied that the applicant was solvent. Were the bankruptcy order to be annulled, it was very likely that the first respondent would present a further petition against the applicant and a further bankruptcy order would be inevitable.

It was also relevant that the applicant had failed to co-operate with the second and third respondents, and the judge held that it would not be right to further hamper the getting in of the estate for the benefit of creditors.

The second annulment application was therefore dismissed.

Jessica Brooke appeared for the first respondent local authority in this case.

Interviewed by Robert Matthews.

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

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