Bulletins | June 19, 2023

Durkan & Anor v Jones (Re Nicholas Mark Jones)

The question for the court in Durkan & Anor v Jones (Re Nicholas Mark Jones) [2023] EWHC 1359 (Ch) was whether it had jurisdiction to make a bankruptcy order.

The petitioners were the liquidator of Long Compton Projects Limited, a company of which the debtor had been a director and which had been wound up by the court on a petition of HMRC, and the company itself. They were judgment creditors for some £1.2 million. They relied on the debtor’s having had, in the three years ending with the day of presentation of the petition, a place of residence and/or carried on business in the jurisdiction (see s 265(2)(b)(i) and (ii) Insolvency Act 1986). The debtor had emigrated to the USA in 2018. It was common ground he now resided there. He contested both bases on which jurisdiction was claimed, both in his notice of opposition and in his evidence.

Deputy ICC Judge Baister noted,

“A curious feature of this case is that the petitioners have elected not to cross-examine the debtor on his written evidence. An order of ICC Judge Prentis of 6 December 2022 records the parties’ having agreed that cross-examination was not required. This is unusual. The debtor flatly denies that he has had or has a place of residence in the jurisdiction or has carried on business here in the relevant period. [Counsel for the debtor] points out that, in the absence of cross-examination, his client’s evidence as to those (and other) matters should be accepted at face value, particularly since much of it stands unchallenged. In support of that he relies on Coyne and Hardy v DRC Distribution Ltd and Foster…and Wilkinson v Commissioners of Inland Revenue… In the former Rimer LJ said, at para 58:

‘As regards the need for oral evidence, [counsel for the appellants] reminded us that it is well-settled practice that if a court finds itself faced with conflicting statements on affidavit evidence, it is usually in no position to resolve them, and to make findings as to the disputed facts, without first having the benefit of the cross-examination of the witnesses. Nor will it ordinarily attempt to do so. The basic principle is that, until there has been such cross-examination, it is ordinarily not possible for the court to disbelieve the word of the witness in his affidavit and it will not do so. This is not an inflexible principle: it may in certain circumstances be open to the court to reject an untested piece of such evidence on the basis that it is manifestly incredible, either because it is inherently so or because it is shown to be so by other facts that are admitted or by reliable documents […]’”

The debtor had had a small interest in a family property called The Grange which he claimed to have relinquished; the property itself, he said, had been purchased primarily for his parents in law. It had been let out for a period of time to a couple who gave evidence for the petitioners. The petitioners contended the debtor could have resided there after the tenants left.

Reviewing some of the many authorities on the point (Re Brauch (A Debtor) Ex parte Britannic Securities & Investments Ltd, Lakatamia Shipping Co Ltd v Su and HRH Prince Hussam Bin Saud Bin Abdulaziz Al Saud v Mobile Telecommunications Company KSCP) thedeputy judge identified the following considerations relevant to the “place of residence” test:

(1) It was possible for a debtor to have a place of residence in the jurisdiction even though he was not in actual occupation during the relevant period.

(2) The shorter the period of actual occupation of premises, the more difficult it would be to hold it to be a “dwelling house” (the relevant term under the Bankruptcy Act 1914).

(3) It was doubtful whether a debtor had to have a legal or equitable interest in a place of residence to satisfy the test.

(4) The concepts “ordinarily resident” and “having a place of residence” (the former was not relied on in this case) are not totally separate, so similar factors may be relevant to both tests; but it does not follow that all factors that may be relevant to one will be relevant to the other.

(5) The phrase “has had a place of residence” should be given its natural meaning.

(6) Regard may be had to authorities on the interpretation of the expression, even if they arose in different statutory contexts.

(7) The nature of a person’s presence in and connection to a particular place is a relevant factor in determining residence.

(8) The test of “having a place of residence” requires an assessment of the quality of the debtor’s residence. It does not simply mean that the debtor has an entitlement of some sort to occupy a place that is capable of being described as a place of residence.

(9) The residence must be that of the debtor, and not someone else.

(10) The residence cannot merely be the residence of a third party that the debtor is temporarily occupying with the third party’s permission.

(11) In determining whether a debtor has had a place of residence in England and Wales, it is relevant to ask whether it was a “settled or usual place of abode or home” for the debtor.

(12) Residence connotes “some degree of permanency, some degree of continuity or some expectation of continuity.”

(13) The nature of a person’s presence may be a relevant factor: for example whether it was voluntary or not.

(14) It was not necessary to establish control of a property.

The deputy judge readily found on the facts that the place of residence ground had not been made out, holding that the evidence relied on by the petitioner was too thin. Of more interest is what he said about the “carrying on business” basis. He began:

“Whether someone is carrying on business gives rise primarily to a factual inquiry (Anglo Irish Bank Corporation Ltd v Flannery), although it is necessarily a mixed question of fact and law. The court must decide (a) what the debtor did; (b) when he did it; and (c) whether what he did amounted to carrying on business (see Masters v Barclays Bank plc).”

He noted that there was no definition, no “magic touchstone of what amounts to carrying on a business,” as Barling J put it in Charlton v Funding Circle Trustees Ltd & Anor. At best the authorities provided guidance in the form of examples of what had been held to amount to doing so. The term “business,” he noted, was similarly elusive, although counsel for the parties both relied on the judgment of Judge Berner in Ramsay v Revenue and Customs Commissioners, a tax case, in which Judge Berner said:

“[25] As [counsel for HMRC] pointed out, the word ‘business’ has been described, by Lord Diplock in Town Investments Ltd v Department of the Environment…as ‘an etymological chameleon; it suits its meaning to the context in which it is found.’ That case concerned whether a lease to a government ministry, where the premises were occupied by civil servants was a business tenancy within the meaning of then-applicable counter-inflation legislation. By reference to the mischief of those provisions, ‘business’ was construed broadly, so as to have no less wide a meaning than that applicable in covenants regarding the use of demised premises.

[26] That construction followed from Rolls v Miller…where Lindley LJ pointed out that the dictionary meanings of ‘business’, where the word means almost anything which is an occupation, as distinguished from a pleasure, or anything which is an occupation or duty which requires attention, were not of great assistance. The word must be construed according to its ordinary sense, having regard, in that context to the object of the covenant, and in this to the purpose of the legislation.”

With that in mind, the deputy ICC judge decided that, just as Roth J had said that the expression “place of residence” should be given its ordinary meaning, so too the expression “carrying on business” should be construed according to its ordinary sense, having regard to the context (cf the passage from Rolls v Miller cited by Judge Berner above).

He found the following to support the petitioners’ contention that the debtor had carried on business in the relevant period:

(1) The fact that debtor was named in the tenancy agreement under which The Grange had been let.

(2) There was strong evidence that the debtor had received the rental income from the tenants from August 2021.

(3) The fact that the debtor had commenced proceedings against the former tenants of The Grange for £42,714 of unpaid rent and damages for the period 1 March 2019 to February 2022, which the judge described as “The most important piece of evidence contradicting that of the debtor as to his involvement with The Grange tenancy.” He went on to say that the debtor could only be claiming as a landlord under the tenancy agreement.

He found that those matters enabled him to reject the debtor’s evidence in opposition, even in the absence of cross-examination, on the basis that it was manifestly incredible. He further found that those activities amounted to carrying on business for the purposes of jurisdiction and went on to make a bankruptcy order. He rejected arguments for the petitioners to the effect that the scale of the debtor’s activities meant they could not amount to doing business, and a contention that, if he were right, many foreign investors in property in this country would be laying themselves open to the English bankruptcy jurisdiction. Handing down judgment, he did, however, give the debtor permission to appeal.

It is notable that recent authorities have, for obvious reasons, turned on the older and now surviving jurisdictional tests rather than the debtor’s centre of main interests, which has been the focus of so much judicial attention in the last two decades. The lack of an easy, workable definition of terms such as “residence” and “business” is surprising, given the plethora of authority considering the meaning of those and similar expressions. Even on a appeal, however, it would seem unlikely that a single working definition of “carrying on business” will emerge. As the authorities so often say, each case turns very much on its facts.