What is meant by ‘ordinarily resident’ in bankruptcy proceedings? (Re Khan)

Joseph Wigley, barrister at 4 Stone Buildings, examines the case Re Khan; Reynold Porter Chamberlain LLP v Khan where the court had to determine whether it had jurisdiction to make a bankruptcy order against a Pakistani citizen who contended that he was not ‘ordinarily resident’ in the UK for the purposes of the Insolvency Act 1986 (IA 1986).

Original news

Re Khan; Reynold Porter Chamberlain LLP v Khan [2016] Lexis Citation 9, [2016] All ER (D) 92 (Feb)

The Bankruptcy High Court considered the meaning of ‘ordinarily resident’ and ruled that it had jurisdiction to make a bankruptcy order against the respondent debtor, a member of the Pakistan Senate, notwithstanding that it accepted his evidence that he usually resided in Pakistan. The time he spent in the UK, where his children were schooled, where he owned properties and had business interests, evidenced a degree of permanence. It followed that he had a place of residence in England and Wales in the period mentioned in IA 1986, s 265.

What was the background to the hearing?

Between August and October 2012, RPC, a firm of solicitors based in the City of London, rendered legal services to Senator Wakar Ahmed Khan (the debtor), a citizen of the Republic of Pakistan who holds diverse business and industrial interests within Pakistan, in connection with proceedings in the Commercial Court brought by Deutsche Bank (Suisse) SA in July 2011.

The debtor, who had previously instructed at least three other firms of solicitors, failed to make any payment in respect of a number of invoices issued by RPC. In August 2014, RPC obtained default judgment in respect of the sums owing. No application was made by the debtor to set aside or otherwise challenge this judgment.

Since obtaining judgment, RPC took enforcement steps. After the debtor had variously avoided and refused to accept service, a statutory demand was served upon the debtor in compliance with rule 6.3 of the the Insolvency Rules 1986, SI 1986/1925 (IR 1986) and paragraph 13 of the Practice Direction on Insolvency Proceedings. Upon the statutory demand not having been complied with, nor any application having been made to set it aside, on 11 March 2015, RPC presented a bankruptcy petition. The petition was served on the debtor out of the jurisdiction and by substituted service pursuant to IR 1986, r 6.14(3).

What were the legal issues Chief Registrar Mr Baister had to decide?

The question to be decided was whether the court had jurisdiction to make a bankruptcy order against the debtor. In order to do so, Chief Registrar Mr Baister had to consider whether the petition had been validly presented, in particular, whether it had been presented contrary to the terms of IA 1986, s 265 which provides that:

(1) A bankruptcy petition shall not be presented to the court under section 254(1)(a) or (b) unless the debtor—

(a) is domiciled in England and Wales,

(b) is personally present in England and Wales on the day on which the petition is presented, or

(c) it any time in the period of 3 years ending with that day—

(i) has been ordinarily resident, or has had a place of residence, in England and Wales, or

(ii) ...

RPC relied upon IA 1986, s 265(1)(c)(i).

At the substantive hearing of the petition on Wednesday 27 January 2016 (technically the second hearing), the only ground of opposition ultimately relied upon by the debtor was that he had not been ordinarily resident nor had a place of residence in England and Wales at any time in the three years preceding the date of presentation of the petition and, therefore, that IA 1986, s 265(1)(c) was not satisfied.

Chief Registrar Mr Baister, therefore, had to consider the meaning of ‘ordinarily resident’ and ‘having a place of residence’ by reference to the authorities and then to apply those terms to the facts of the case.

What were the main legal arguments put forward?

It was argued on behalf of RPC that the following guiding principles arise from the judgment of HHJ Howarth in Skjeveslend v Geveran Trading [2002] EWHC 2898 (Ch), [2003] All ER (D) 61 (May):

  • the expression ‘ordinarily resident’ should not be treated as a term of art in a legal sense but should be given its ordinary natural meaning
  • the question is a mixed question of fact and law, or more properly, fact and degree
  • for a person to be ordinarily resident at a property, his residence there must have some degree of permanence
  • where you are saying that a person has a place of residence, you are looking at a de facto situation, not necessarily matters of legal right
  • a person can have more than one residence and, indeed, can have more than one usual residence
  • in contrast to the position with regard to taxation, for insolvency purposes, a person can be ordinarily resident in more than one country, one of which is England, and
  • a court has to look at the cumulative effect of all the evidence

In line with these guiding principles, it was contended on behalf of RPC in support of its claim for jurisdiction that within the three years ending 11 March 2015, the debtor:

  • had a place of residence in London, and
  • was habitually resident in London

In making such contentions, RPC relied upon evidence that, among other things:

  • the debtor’s family resided permanently in London
  • the debtor’s sons attended schools in London
  • the debtor frequently and regularly visited England and Wales
  • the debtor was habitually resident in London at least during the period in which he retained the services of RPC during the Deutsche Bank proceedings
  • the debtor owned a number of properties in London within the three years ending 11 March 2015
  • the debtor and his family resided in an apartment at The Knightsbridge Apartments, 199 Knightsbridge, London, SW7 1RH that was repossessed on 23 July 2013

In opposition, the debtor submitted that the court had no jurisdiction and gave evidence that he usually resided in Lahore, given his political and professional interests in Pakistan. The debtor also gave evidence that he had been coming to the UK for 40 years for business and family holidays and that London was where his children were being educated.

The debtor also pointed out that in earlier proceedings, in support of its application to serve him out of the jurisdiction, RPC had contended that he was domiciled in Pakistan and held no presence or habitual residence within the UK. RPC explained the apparent disparity by reference to the belief in May 2014 that the debtor had been in Pakistan at that time, but contended that different considerations applied in respect of the petition.

What did Chief Registrar Mr Baister decide, and why?

Having considered the authorities including Skjevesland, In Re Norris, ex parte Reynolds (1888) 5 Morr. 111 and Re Brauch (a debtor) [1978] 1 All ER 1004, Chief Registrar Mr Baister set out the following principles which he considered relevant to being ‘ordinarily resident’ (or its predecessor ‘ordinarily resided’):

  • the expression is not to be treated as a term of art in a legal sense
  • ordinary residence is a question of fact and degree
  • such residence must have a degree of permanence; the person concerned must intend to and actually reside for a substantial period of time; casual visits will not suffice [although Chief Registrar Mr Baister questioned the relevance of intention]—it must be of some duration (two or three days do not suffice)
  • staying at an hotel is probably not sufficient to amount to residence for the statutory purpose—but where a person has exclusive use of lodgings and pays for them he does reside
  • a person may have more than one usual residence and may even be ordinarily resident in more than one country
  • it is not necessary to be able to specify the places at which the debtor is said to have ordinarily resided, although inability to do so may be a circumstance which tells against ordinary residence
  • ordinary residence does not necessarily require the person residing to be the landlord or tenant under any lease or tenancy agreement
  • ordinarily residing may include residing with family members
  • care is needed as to the weight to be attached to documentary evidence such as parking permits and letterheads, but documentary evidence does have a role to play especially if it gives an address for official purposes, eg for a firearms certificate or as an address for service
  • having access to a key kept at premises may be a significant factor
  • the purpose of a visit or visits to the jurisdiction may be relevant
  • it is important to distinguish between using a residence as such and using it to carry on corporate activity
  • being capable of being telephoned at premises may be a factor, and
  • the cumulative effect of the evidence, which means both the oral and documentary evidence, is important

As to having a place of residence, Chief Registrar Mr Baister considered the following principles to be of relevance:

  • having a place of residence is a de facto situation rather than a matter of legal right
  • a moral claim to premises may be sufficient
  • the person concerned may well have to phone to make arrangements to occupy because others use the premises as well as him but this is no obstacle to a finding of having a place of residence
  • it is possible to have a dwelling house without being in occupation in the relevant period but the greater the occupation the more likely the finding; but not perhaps if the relevant property has been abandoned, and
  • living in a place with one’s family as a tenant in rooms makes those rooms a dwelling house

While Chief Registrar Mr Baister accepted the debtor’s evidence was that he usually resided in Lahore given his political and professional interests in Pakistan, he went on to explain that that did not preclude his being usually resident in England and Wales as well. Chief Registrar Mr Baister considered that it was clear from the weight of the largely unchallenged evidence that on the balance of probabilities the debtor had been ordinarily resident in England and Wales in the period of three years ending on the day of presentation of the petition. He went on to observe that there was no inconsistency in, on the one hand, seeking to serve in the manner most likely to bring proceedings to a defendant’s attention at a given time, and on the other, asserting a case on jurisdiction that rested on different considerations obtaining at a different and/or over longer period of time.

Chief Registrar Mr Baister also held that the debtor had a place of residence in England and Wales in the period mentioned in IA 1986, s 265. Accordingly, a bankruptcy order would be made.

To what extent is the judgment helpful in clarifying the law in this area?

The judgment of Chief Registrar Mr Baister provides a useful survey of the relevant authorities and sheds light on the different but connected considerations to be taken into account in assessing whether a debtor is ‘ordinarily resident’ or whether a debtor has ‘a place of residence’ in the jurisdiction.

What practical lessons can those advising take away from this case?

It is important to advise clients, particularly those who seek to bring proceedings in this jurisdiction, who may consider themselves ordinarily to reside in another jurisdiction, that such residence does not preclude the court considering that that person may have more than one usual residence and may even be ordinarily resident in more than one country, thereby satisfying the requirements of IA 1986, s 265.

Interviewed by Susan Ghaiwal.

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

Further Reading

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Personal insolvency and centre of main interests

How to present a bankruptcy petition and the documents you need to complete

Issuing bankruptcy petitions—where to issue, the fee to pay and the documents to file

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First published on LexisPSL Restructuring and Insolvency

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