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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Booth -v- The Viscount and Investec Bank [2016] JRC 068 (22 March 2016) URL: http://www.bailii.org/je/cases/UR/2016/2016_068.html Cite as: [2016] JRC 68, [2016] JRC 068 |
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En Desastre - application for an order under the Bankruptcy (Desastre)(Jersey) Law 1990.
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Before : |
Sir Michael Birt, Commissioner, and Jurats Fisher and Ronge |
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Between |
Julie Anne Monks Booth |
Representor |
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And |
HM Viscount |
First Respondent |
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And |
Investec Bank (Channel islands) Limited |
Second Respondent |
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Advocate O. A. Blakeley for the Representor.
HM Viscount appeared in person.
Advocate J. D. Garood for the Second Respondent.
judgment
the commissioner:
1. This is an application by the representor ("Mrs Booth"), as the spouse of a debtor whose property has been declared en désastre, for an order under Article 12 of the Bankruptcy (Désastre) (Jersey) Law 1990 ("the Law").
2. It requires the Court to consider the application of Article 12 in the context of a situation where one or more secured creditors hold hypothecs over the matrimonial home which exceed the value of that property.
3. Following the hearing, the Court announced its decision to dismiss Mrs Booth's application. We now give our reasons.
4. The history of the matter can be found in the judgment of the Court of Appeal at Investec Bank (Channel Islands) Ltd-v-Booth [2016] JCA 025. For our purposes it can be summarised as follows.
5. On 25th July, 2011, Mr Booth and his late wife entered into a loan facility agreement with the Second Respondent ("Investec") for a maximum amount of £2,950,000. As security for the loan, on 2nd September, 2011, Investec obtained a first judicial hypothec secured over the property known as King's Oak, St Mary ("King's Oak"). Sadly, Mr Booth's late wife subsequently passed away. King's Oak is now owned by him alone and he is the sole debtor in respect of the loan from Investec.
6. The last payment made by Mr Booth in respect of the loan was on 5th March, 2014. Since then no payments of interest or capital have been made.
7. On 20th February, 2015, Investec obtained judgment against Mr Booth in the sum of £2,910,358.32 together with continuing contractual interest until date of repayment and costs.
8. Investec subsequently began the process of proceeding to a dégrèvement. On 3rd July, 2015, Mr Booth presented an application to the Royal Court seeking a remise de biens. The Jurats appointed to investigate and report subsequently presented their report. This suggested that the secured claims greatly exceeded the amount available for distribution and accordingly the Court on 17th July, 2015, rejected Mr Booth's application for a remise.
9. Investec subsequently applied for an adjudication of renunciation. This was subject to certain delays but eventually came before the Court on 16th October. On that occasion Mr Booth presented an application for a declaration of désastre. The Royal Court decided to grant the declaration rather than an adjudication of renunciation and an appeal against that decision was dismissed in the judgment of the Court of Appeal on 27th January, 2016, referred to above. It follows that the property of Mr Booth has been en désastre since 16th October, 2015.
10. The assets and liabilities in the désastre (so far as relevant) are as follows. At the date of the désastre, Mr Booth owned two immovable properties. The first is King's Oak. There is however a dispute as to its value. The average valuation taken from the two valuations obtained by the Jurats for the purposes of the remise application is £2,675,000. Mr Booth, however, refers to a valuation obtained in August 2011 which was produced for Investec at the time of the original loan. This valued King's Oak at £4 million.
11. The second property owned by Mr Booth was Beaumont Hill House. That was valued at the time of the remise application at £825,000.
12. As to secured liabilities, there were two creditors, namely Investec and a Mr and Mrs Le Cornu. The amount owed to Investec under the facility currently stands at £3,190,131.72. The amount owed to Mr and Mrs Le Cornu at the date of the désastre was £2,326,922. Investec has a first hypothec on King's Oak and Mr and Mrs Le Cornu have a hypothec over both properties, but their hypothec on King's Oak ranks behind that of Investec.
13. Beaumont Hill House has now been sold by the Viscount, although only after objection from Mr Booth which he took to the Royal Court whose decision is reported at Booth-v-the Viscount [2016] JRC 049. The net sale proceeds of that property have gone towards reducing the amount owed to Mr and Mrs Le Cornu. We were informed by the Viscount that the balance now owed to them stands at approximately £1.7m. It follows that, in round terms, the amount still secured by way of first and second judicial hypothec over King's Oak is £4.9m (ie £3.2m owed to Investec and £1.7m owed to Mr and Mrs Le Cornu). It follows that, even if King's Oak were to realise £4m in accordance with the original valuation in 2011, there would still be no surplus available for unsecured creditors, let alone for Mr Booth. If the amount realised on a sale were to be at the valuation obtained for the Jurats' report, there would be a shortfall in the amount owned to Investec in the sum of approximately £500,000.
14. Mrs Booth is 61. Until recently she lived in England. Prior to moving to Jersey, she was employed as a general manager of a small group of companies owned by a charity which helps people with learning disabilities to work. She married Mr Booth on 18th September, 2013, and moved from England to live with him at King's Oak on 4th November, 2013. They have lived there together since then.
15. On moving to Jersey, she sold her home in England, realising net proceeds of approximately £166,000. She was aware that Mr Booth was suffering financial difficulties as a result of investments in property and the downturn in property prices. When she moved to Jersey, Mr Booth was paying approximately £26,000 per quarter to service the mortgage with Investec but had fallen into arrears. In order to help him, she used her savings to provide him with loans so that he could pay debts and meet obligations. She started lending him money in September 2013 and made a final loan in April 2015. Over that period, she loaned a net amount of approximately £124,000, which she has claimed as an ordinary creditor in her husband's désastre.
16. Of this sum, we were referred in particular to three payments which have been used directly or indirectly to pay quarterly mortgage instalments. In November 2013 she transferred £25,000 to her husband who used that sum to pay an instalment on the mortgage. On 27th/28th November, she transferred £30,000 which was used by Mr Booth to pay an instalment on 29th November, 2013. Finally, on 5th March, 2014, she made a payment of £25,889.58 directly to Investec. As already mentioned, that was in fact the last payment made in respect of the Investec mortgage.
17. She and Mr Booth live alone at King's Oak. Previously, Mr Booth's adult children had also lived there but they no longer do so. As can be assumed from the price, King's Oak is a substantial property with two integral cottages and approximately seven acres of garden, côtil and meadow. There are two large ornamental lakes and also a number of outbuildings, one of which is used as an office. Mrs Booth is currently unemployed. She says she has been seeking work since coming to the Island and hopes to find employment.
18. Article 12 of the Law provides (so far as relevant) as follows:-
19. The Law makes provision for immovable property which is subject to a hypothec as follows:-
20. Somewhat surprisingly, there is little judicial authority on the application of Article 12. We have been referred to only two cases, namely re Hanley [1993] JLR N2, unreported 15th November, 1993, and re Ostroumoff [1999] JLR 238. We did not find the latter to be of assistance as it was concerned with whether a wife who was also en désastre could apply under Article 12 in respect of the matrimonial home, to which the answer was that she could not.
21. In Hanley, the Court gave consideration to the meaning of the expression 'first consideration' in Article 12(8). It quoted with approval an extract from the judgment of the English Court of Appeal in Suter v Suter [1987] 2 All ER 336 at 341:-
22. That case was concerned with the interpretation of an Act dealing with matrimonial matters but we agree with the Royal Court in Hanley that it gives useful guidance as to the meaning of the phrase 'first consideration' in the Law. In short, the first consideration is to be borne in mind throughout consideration of all the circumstances and is an important consideration, but it is not a paramount or overriding consideration.
23. The detailed facts of Hanley are not easy to ascertain from the judgment but it appears that there was a jointly owned property with a mortgage. The husband had, unknown to the wife, perpetrated a serious fraud to fund his gambling addiction. He had been sent to prison and declared en désastre with debts of some £3.5m. It was accepted that the wife knew nothing of this dishonesty. There were also two very young children of the marriage. The Court exercised its power under Article 12(5)(a) to order the transfer of the Viscount's half share of the property to the wife subject to the hypothec in favour of the bank and subject to payment of a sum of £50,000 to the Viscount, which would only become payable on sale of the property or on other specified events. It is not clear from the report what the equity in the property amounted to. One must also assume from the decision that the wife was in a position to service the mortgage owed to the bank.
24. Mrs Booth applies for two remedies under Article 12. First, she seeks an order under paragraph 5(b) that she be paid the sum of £52,664.91 from the proceeds of sale of King's Oak, representing two of the three sums of money which she provided for payment of the mortgage. Secondly, she applies for a usufruct of the property until such time as it is sold.
25. The first point is whether there is jurisdiction to make the requested orders under paragraph (b) or (c). Advocate Garrood submits that there is no jurisdiction to make such an order to the prejudice of a secured creditor. Thus he points out that sub-paragraph (a) specifically provides that any order for the vesting of the property in the applicant is subject to any hypothec and debts secured thereby. He contends that the reference in sub-paragraph (b) to 'or such part of the proceeds as represents the value of the interest in the part of the property as to which the Viscount is beneficially entitled' and the equivalent wording '...or in such part thereof as to which the Viscount is beneficially entitled ...' in sub-paragraph (c) means that it is only the equity in the property after allowance for any secured debt that can be made the subject of an order under sub-paragraph (b) or (c).
26. We do not think that is the correct interpretation of these two provisions. The same expression namely '...or the interest in part thereof as to which the Viscount is beneficially entitled' is used in sub-paragraph (a) where it clearly cannot be referring to the equity in the property after allowance for any hypothecs because there is specific reference to any such vesting being made subject to any hypothec and debts secured thereby. We conclude therefore that the various references to the 'interest in part thereof as to which the Viscount is beneficially entitled' are to the situation where, for example, property is jointly owned and on a désastre the Viscount becomes entitled in common to a half interest in the property. The Viscount is beneficially entitled only to that half interest in common. The Court can therefore order the vesting of that interest under (a), make a payment out of the proceeds of the sale of that interest under (b) or create a usufruct in that interest under (c).
27. It follows that, in our judgment, there is jurisdiction to make the orders requested, although clearly the interests of a secured creditor will always be an extremely significant factor as discussed below.
28. We would summarise Advocate Blakeley's submissions in support of the application for a payment of £52,664 under sub-paragraph (a) as follows:-
(i) Mrs Booth contributed some £78,000 (ie three instalments) towards the mortgage. She was under no obligation to do so. The result was extremely harsh for her as, together with the other loans which she had made to Mr Booth, the result was the exhaustion of virtually all her savings. She was in a dire financial position. There was little likelihood of her receiving anything as an unsecured creditor.
(ii) She accepted that it may have been a mistake to make these payments. However, Investec had also made a mistake in that it had lent more than appeared now to be the value of the property (according to the Jurats' valuations). Why should Mrs Booth's mistake be used to help reduce the cost of Investec's mistake?
(iii) If she had not made the payments, Investec would be some £78,000 worse off.
(iv) Investec's claim included an element of compound interest as provided for in the original facility letter. The Court had often said that it would not award compound interest and this should therefore be taken into account in assessing the balance of the justice of the position.
(v) In short, in circumstances where there had been no obligation upon her to make the various payments which she had, the justice of the situation pointed towards a repayment of at least two of the instalments so that she would have some ability to support herself pending the finding of employment.
29. As to the application that she stay in the property until sale, Advocate Blakeley submitted that there would be no prejudice to the Viscount or the creditors (including Investec). She was willing to undertake to vacate upon sale, so that vacant possession could be given to any purchaser. It was common practice for an occupant of immovable property to remain in occupation until sale and there was nothing to suggest that she should be treated differently. There was no evidence that she would behave irresponsibly by creating difficulties in terms of access, ability to undertake repairs, decorations, etc nor was there any evidence that she would be difficult about giving vacant possession when the time came. As there would be no prejudice to any other party and as she had nowhere else to live at present because of her dire financial position, the balance of justice came down in her favour, particularly given the requirement for 'first consideration' to be given to the position of the spouse and dependents, although it was accepted that there were no minor dependents in this case. It was noteworthy, he submitted, that she and Mr Booth had recently vacated the property for a day so that a new valuation by a surveyor could be undertaken at the request of the Viscount.
30. Advocate Garrood, on behalf of Investec, opposed both applications. In relation to the payment, he pointed out that, on the basis of the valuation provided for the remise application, the sale proceeds would be insufficient to satisfy Investec's debt and it would still be out of pocket by some £500,000. Even if the sale proceeds were to exceed Investec's debt of £3.2m, they would be inadequate to settle the debt of £1.7m still owed to Mr and Mrs Le Cornu. It followed that, on any view, a payment of £52,000 to Mrs Booth would be at the expense of secured creditors. This was quite contrary to the whole basis of the Law which was that secured creditors should be paid first (other than the Viscount's costs) out of the proceeds of sale of a property over which they had a hypothec. The effect of ordering a payment to the wife would be to move her (as an unsecured creditor) ahead of the secured creditors. There was no justification for this in the circumstances of this case. Furthermore, if payment by a wife of a mortgage payment owed by a husband were to lead to the Court allowing repayment of some or all of such sums out of the sales proceeds, that would be very damaging to the confidence placed by lenders on security obtained by way of a hypothec. In many if not most cases, a spouse might well contribute directly or indirectly to mortgage payments either by his or her wages going into the account from which mortgage payments were made or by paying for other expenses so as to enable the debtor to make the mortgage payments. There was no real distinction between that situation and the current situation.
31. As to the application for a usufruct until sale, Investec was concerned for the reasons set out at paragraph 6 of the second affidavit of Mr Stephen Houchen, banking officer of Investec. These concerns included the potential for Mr and Mrs Booth to frustrate the sale process by discouraging potential purchasers, the need to give unfettered access to agents, potential purchasers and persons who might be needed to carry out repairs or maintenance, the difficulty which might arise on account of the Viscount being unable to guarantee vacant possession and the possible diminution in price which might result therefrom and the prospect of Mr and Mrs Booth frustrating a sale or causing difficulties by refusing to vacate promptly once the sale had been agreed. The matter should be left in the hands of the Viscount as to when she required vacant possession.
32. The Viscount expressed great sympathy with Mrs Booth's position but was clear that she could not support either application. In relation to the application for payment, the effect of such an order would be to prefer her unsecured debt of £124,000 to both the secured creditors and all of Mr Booth's other unsecured creditors. Most importantly, it would be likely to diminish the confidence of the banking and lending community in the effectiveness of taking security over immovable property. That would be damaging in the long run. As to the proposed usufruct, she considered that it was important that she as Viscount should be able to obtain vacant possession as and when she thought appropriate in the context of seeking to obtain the best possible price for the sale of King's Oak. She submitted that, contrary to Advocate Blakeley's argument, the position was very different from the case of an ordinary sale. There, the vendor would be receiving the sale proceeds and would have decided to move somewhere else; so there was a strong vested interest in the vendor giving vacant possession on the day of the sale. Here, the position was very different. Mr and Mrs Booth were not keen on the sale and would not receive any direct financial benefit from the sale proceeds. Furthermore, Mr Booth's conduct so far had been to oppose almost every decision. Thus he had applied for a remise, he had opposed dégrèvement and applied for désastre and, since the désastre, he had challenged the Viscount's decision over the sale of Beaumont Hill House and was challenging her decision over the decision not to proceed with certain litigation. Furthermore, although it was correct to say, as Advocate Blakeley had, that Mr and Mrs Booth had vacated the property for a day recently in order for the new valuation to take place, this had only been after much negotiation and with much reluctance on Mr Booth's part. Accordingly, the Viscount did not have confidence that an assurance that they would vacate in time for completion of a sale could be relied upon.
33. We begin by making a preliminary observation. When Mrs Booth's representation was first presented before the Court, it was argued on her behalf that there was no need to convene Investec. The Bailiff, who was presiding on that occasion, rejected that submission and ordered that Investec be convened.
34. Having now heard the matter, we wish to record our respectful agreement with the Bailiff's decision. When a spouse makes an application under Article 12 in respect of immovable property where there is a secured creditor whose interests may be affected by an order made on such an application, it seems to us essential that such creditor be convened so that he may make submissions. It would in our judgment be unsatisfactory and unfair to such creditor to rely on the Viscount to put forward arguments on his behalf.
35. We have no hesitation in rejecting Mrs Booth's application that the sum of £52,664 (or indeed any other sum) should be paid to her out of the proceeds of sale of King's Oak. We would summarise our reasons as follows:-
(i) Advocate Blakeley referred to the fact that under Article 12(8) the Court is directed to give 'first consideration' to the desirability of reserving the matrimonial home for the occupation of the spouse and any dependents of the debtor. However, in this case there is no question of reserving the matrimonial home for such occupation. It is accepted (correctly) by all parties that there is no alternative to a sale of King's Oak. It follows that Article 12(8) has no direct application to the present case. Even if it did, Article 12(8) directs the Court also to have regard to 'all the circumstances of the désastre including the interests of creditors'.
(ii) Such an approach would be consistent with that in England as exemplified in the case of Bank of Ireland Home Mortgages Limited v Bell [2001] 2 All ER (Comm) 920, although the statute is in somewhat different terms there. In that case Mr and Mrs Bell fell into arrears on their mortgage but the judge refused to order a sale of the property on the basis that the property had been purchased as a family home and was occupied by Mrs Bell and her son, with Mrs Bell being in poor health. The Court of Appeal overturned the judge's decision and ordered the sale of the property. We would quote the following two passages from the judgment:-
(iii) The need to have regard to the interests of creditors is particularly significant in the case of a secured creditor. Recognition is given in the Law to the importance of security over immovable property by providing that, on a sale, the secured creditor is paid first (after payment of the Viscount's sale costs) and only after full repayment of the secured creditor is any surplus available for unsecured creditors. The Viscount (whose views we are specifically directed by Article 12(10) to include among the circumstances to which we must have regard) emphasised to us the importance of respecting security over immovable property as a general principle. We entirely agree.
(iv) If we were to order payment to Mrs Booth in the present case, this would prefer her as an unsecured creditor over the security conferred upon Investec by way of its hypothec and over the interests of Mr and Mrs Le Cornu (should the sale proceeds be sufficient). In our judgment, it is of the first importance that lenders (whether financial institutions or private individuals such as Mr and Mrs Le Cornu) should be confident that in general their security will be respected and that other persons will not receive payment out of any sale proceeds ahead of them. If it were to be otherwise, we think there is a real risk of lenders in respect of a matrimonial home becoming more reluctant to lend or imposing stiffer terms on lending, such as a requirement for a larger percentage deposit. This would be extremely prejudicial to the commercial life of the Island. Countless young couples rely upon the availability of mortgage finance to purchase their home. If lenders were to become more restrictive in any way because of a lack of confidence in their ability to rely on the security conferred by a hypothec, we think this would be damaging to the community as a whole. We conclude therefore that very strong grounds of hardship are necessary before an order under Article 12 is made which has the effect of materially prejudicing the interests of a creditor who holds a hypothec over the property.
(v) Like the Viscount, we have considerable sympathy with Mrs Booth, who has expended a large part of her life savings in supporting her husband in his attempt to avoid bankruptcy and so prevent King's Oak from being sold. However, this was her choice which she made with knowledge of his financial difficulties. The effect of her making the payments was to enable the parties to continue living in King's Oak for a longer period. If the payments had not been made, we have no doubt that Investec would have begun legal proceedings to recover its loan at an earlier stage. It would therefore be quite wrong at this stage, after Mr and Mrs Booth have obtained the advantage of continued residence as a result of the instalments being paid, to in effect order that they be repaid at the cost of Investec. The consequence would be that Mr and Mrs Booth would (unknown to Investec at the time) have lived in the property rent free at Investec's expense.
(vi) If we were to order a payment on the ground that Mrs Booth had contributed to certain mortgage instalments, it is hard to see where this might lead. In many cases, a spouse will contribute to mortgage payments either directly or indirectly (by payment of outgoings so as to enable the property owning spouse to make the mortgage payment). If that were sufficient to lead to the Court making an order under Article 12 for payment out of the sale proceeds of the matrimonial home to that spouse ahead of payment to the secured creditor, this would drive a coach and horses through the confidence which can be placed in obtaining security over such property.
(vii) Advocate Blakeley submitted that we should take into account that Investec (like almost all lenders) was seeking to make a profit on its lending. It had, he submitted, no doubt made some profit already on the interest payments made to date and a lack of profit had to be balanced against the hardship caused to Mrs Booth, which would be of a much greater degree because she would be rendered homeless after having lost most of her capital. As already stated, we have considerable sympathy with Mrs Booth, but the fact that a lender intends to make a profit as a result of a loan cannot be a sufficient reason to tinker adversely with the security conferred by a hypothec. Again, if it were to be so, there would be a risk of general loss of confidence in the effectiveness of such security, which would be detrimental to the availability of funds and therefore to the ability of couples to purchase a home.
(viii) Advocate Blakeley also suggested that part of the amount now claimed by Investec arose as a result of compound interest and that the Court could not or should not give effect to that. It followed, he submitted, that a modest payment of some £52,000 would not in reality prejudice Investec because, to the extent that its claim included compound interest, it should not be recoverable. We do not accept this argument. The facility letter signed by Mr Booth specifically provided that interest would be charged at 3.25% over the bank's base rate, that this would be increased to 5.25% over base rate in the event of overdue payments and that such interest would in that event be compounded monthly (both before and after judgment) until payment. The provision for compound interest was therefore a specific term of the agreement. Although it was not included in the bundles, Advocate Blakeley referred to the case of Doorstop Limited v Gillman [2012] (2) JLR 297. However, we do not think that that case assists him. William Bailhache, Deputy Bailiff at paras 69 - 79 of Doorstop specifically accepted that compound interest could be awarded by way of damages where there was default in paying a loan and the contract provided for such compound interest and that is obviously correct. That was subject to the overriding principle that the Court would not award interest at a rate which was unreasonable, but it is not even arguable that the rates of interest in this loan agreement reach the very high level necessary before the Court will decline to enforce an agreement freely entered into between the parties. Accordingly this point does not assist Advocate Blakeley.
36. For these reasons, we do not think it appropriate to order that Mrs Booth receive any payment out of the sale proceeds of King's Oak ahead of the secured creditors.
37. In the normal course of events, where a désastre includes the matrimonial home which is to be sold, it is a matter for the Viscount's discretion as to when she seeks vacant possession of the property from the debtor and his family. We see no reason to depart from that practice in this case and to order that Mrs Booth (together no doubt with Mr Booth) be entitled to remain in the property until sale. Whilst we accept Advocate Blakeley's submission that there is no specific evidence that Mr and Mrs Booth would not vacate the property on a sale, we do not think the possibility can be excluded. It is clear from the history of this matter that Mr Booth has sought to oppose proceedings at every step along the way and is generally most unhappy at the turn of events which have brought a désastre about.
38. Furthermore, if we were to grant Mrs Booth's application in the present case, it is hard to see why a court would not do so whenever there was a spouse of the debtor who lived with the debtor in the matrimonial home. That cannot be what Article 12 was intended to cover. There are no minor dependents in this case and the house is a large and expensive one. We think that the primary consideration must be the need to obtain the best price and the Viscount needs to be given discretion as to how to achieve this. For example, it may be - although we do not know - that it would be helpful to spend some money to improve the property prior to a sale.
39. In all the circumstances we do not see any good reason to interfere with the position that the matter of when to seek vacant possession should be left to the Viscount. In reaching such a decision, she will no doubt balance the need for Mr and Mrs Booth to have accommodation with the interests of the creditors in obtaining the best price. We cannot agree with Advocate Blakeley that the order being applied for would place the parties in exactly the same position as on any sale, where the vendor remains in possession until sale. We agree with the Viscount that the position here is very different. This sale is being effected by the Viscount and will be entirely for the benefit of the secured creditors. Mr and Mrs Booth will not gain as a result of the sale of King's Oak and will not be receiving any of the sale proceeds. They are not therefore in the usual position of a vendor who will clearly wish to give vacant possession so that he can receive the sale proceeds and move into his new accommodation.
40. For the reasons we have given, we reject Mrs Booth's application in its entirety. In all the circumstances, the Commissioner considers that no order as to costs would be the fair order.