News | December 7, 2021

Gostelow & Anor v Hussain & Ors – Use of application notices in bankruptcy

Gostelow & Anor v Hussain & Ors [2021] EWHC 3276 (Ch) deals with a number of issues concerning applications by a trustee in bankruptcy to sell property occupied by the bankrupt (or former bankrupt) and his family. It is of some interest in the light of the recent decisions of HHJ Cawson QC and Chief ICC Judge Briggs on the use of applications and claim forms referred to below.

The trustees’ application for possession and sale did not go well before the deputy district judge in the county court in Brighton: he made a declaration as to the trustees’ interest in the property but dismissed the rest of the application on the basis that it had been made by application notice under the Insolvency (England and Wales) Rules 2016 when it should have been made by a claim form, so the court had no jurisdiction. Peter Knox QC (sitting as a deputy High Court judge), hearing the appeal, was robust in overturning that decision, noting the contradiction inherent in the course the deputy district judge had taken (by granting any relief at all).

The first issue before him was, he said, the question “[D]oes the 1986 Act provide that an ‘application’ under s. 335A is to be made…under the procedures set out in the 2016 Rules? In my judgment, it plainly does.” He explained:

“This is because s. 412 of the 1986 Act provides that the Lord Chancellor, ‘may …. in the case of rules that affect procedure, with the concurrence of the Lord Chief Justice, make rules for the purpose of giving effect to Parts 7A to 11 of the 1986 Act’. S. 335A of the 1986 Act is in Part 9 of the 1986 Act, and therefore the rules made by the Lord Chancellor with the Lord Chief Justice’s concurrence are evidently intended to apply to s. 335A. Those rules were initially the Insolvency Rules 1986, and they are now the 2016 Rules, as made clear in their preamble…”

He went on to consider r 1.35, which deals with the standard content and authentication of applications to the court under Parts 1 to 11 of the Insolvency Act, saying:

“[I]t is plain from all this that (a) the purpose of the 2016 Rules is to ‘give effect’ to Parts 7A to 11 of the 1986 Act by providing rules of procedure for those Parts; (b) amongst those rules of procedure is rule 1.35, which explains how to bring an ‘application’ under those Parts (subject only to the express exceptions mentioned); and therefore (c) rule 1.35 explains how one is to bring an application under s. 335A of the 1986 Act.”

His view was thus that an application should be used, and there was no requirement to proceed by claim form. Various matters fortified him in his view:

“(a) This is the natural reading of the material wording itself of s. 335A, i.e. ‘Any application ….. shall be made to the court having jurisdiction in relation to the bankruptcy’. Theoretically, one could read this as saying no more than that if (for example) the bankruptcy has been transferred to Brighton County Court, then the application must be made to that court, albeit by way of claim form under the CPR, but it is difficult to see why the statute should have intended such a curious reading.(b) It makes good sense that the court’s attention should be drawn at the point of issuing the proceedings under s. 335A to the fact that the application is one against a bankrupt, as provided for by the specific rules in rule 1.35 (see in particular subparagraphs (d) (e) and (f)), so that the court can immediately identify that the claim relates to a bankrupt, and so that it can be added to the court file relating to him to ensure that all questions relating to the bankruptcy are contained and can be found in one court file, rather than in a number of different ones.

(c) If the judge’s conclusion were correct, then it would appear to follow that applications under the analogous provisions in s. 336 and 337 of the 1986 Act (which provide for making orders under s. 33 of the Family Law Act 1996 where non-bankrupt spouses or members of the bankrupt’s family are in occupation) should be made not by way of application under the 2016 Rules, but under the procedures appropriate for one under s. 33 of the Family Law Act. However, there is no authority to this effect, and it is difficult to see why this should have been intended.

(d) Last but not least, both Mr Justice Warren, in Pickard and another v. Constable [2018] BPIR 149 (at paragraph 2), and Lord Justice Nugee in Bell v. Ide [2021] 1 WLR 1078 (at paragraph 37) appear to have taken it as read that an application under s. 335A is to be made by way of application under the 2016 Rules. It is implausible that two such experienced judges would have done so if there were any doubt as to the correctness of this proposition.”

On that ground alone, then, he allowed the appeal. Referring to Re Taunton Logs Ltd [2020] EWHC 3480 (Ch), he also said that, if he had found the proceedings defective, he would have cured the defect, as HHJ Carson had in that case. Curiously, though, there is no reference in his judgment to the subsequent judgment of Chief ICC Judge Briggs in Manolete Partners Plc v Hayward and Barrett Holdings Ltd & Or [2021] EWHC 1481 (Ch) in which he examined the circumstances in which a claim form had to be used and when an application was the proper way of bringing a matter before the insolvency court. There is no tension between the outcome of this appeal and the conclusion reached by Chief Judge Briggs, but the case serves to underline the confusion that appears to have arisen about the use of a claim form or an application in insolvency proceedings and the need for reform.

The remaining issues before the court were less controversial. Peter Knox QC accepted that the bankrupt’s discharge had had no effect on the subject matter of the case and that there had been no exceptional circumstances militating against the making of orders in favour of the trustee. He heard the application afresh and ordered possession to be given in just over three months.