Insolvency –– Bankruptcy –– Foreign property –– Trustee in bankruptcy –– Whether trustee entitled to orders relating to possession and sale of foreign property –– Whether Article 16.1 of Brussels Convention applies –– Whether orders sought were for rights in rem or in personam
The appellants were the joint owners of a property in Portugal. The first appellant was bankrupt. The respondent trustee in bankruptcy obtained orders in the county court that the Portuguese property should be sold and that the appellants should give the necessary vacant possession. The appellants appealed those orders contending that the county court could not give to the trustee any remedy in respect of the foreign property in so far as rights in rem were sought.
Held: The appeal was dismissed. Where an English trust exists over land held abroad, Article 16.1 of the Brussels Convention, which gives the Portuguese courts exclusive jurisdiction over rights in rem, is no objection to the enforcement of that trust. Under English law, the Portuguese property vested in the trustee; to the extent that the trustee’s title had not been perfected, the bankrupt is, by English law, holding it for the trustee. The bankrupt can be compelled to complete the trustee’s title or do any other act in relation to the land at the trustee’s direction. Any such order, provided it is in personam, is an order that the English court can make, having, as it does, jurisdiction over the bankrupt who is domiciled in England.
The following cases are referred to in this report.
Gourdain v Nadler Case 133/78 [1979] ECR I-733
Hayward (deceased), Re [1997] Ch 45; [1996] 3 WLR 674; [1997] 1 All ER 32
Reichert v Dresdner Bank Case C-115/88 [1990] ECR I-27
Singh v Official Receiver [1997] BPIR 530
Webb v Webb Case C-294/92 [1994] QB 696; [1994] 3 WLR 801; [1994] 3 All ER 911
This was an appeal by the appellants, David Charles Pollard and Mary Louisa Pollard, from a decision of District Judge Ley, sitting in Brighton County Court, on an application by the respondent, Christopher R Ashurst, the trustee in bankruptcy of the first appellant.
Sebastian Prentis (instructed by Harkavys) appeared for the appellants; Ranna Sheikh (instructed by Lita Gale) represented the respondent.
Giving judgment, Jacob J said:
Introduction
A man is made bankrupt under our law. What remedies, if any, can our courts give to his trustee in bankruptcy in respect of land in another EU country owned by the bankrupt? That is the principal, short but important, question raised on this appeal.
The appeal is by Mr and Mrs Pollard from a decision of District Judge Ley. Mr Pollard is bankrupt. Mrs Pollard is not. The Pollards jointly own a property in the Algarve. On the application of Mr Pollard’s trustee in bankruptcy, the district judge ordered that:
1. The property known as Vivenda Carla Louisa as the same is registered at the Land Registry of Loule under the Title Number 02 437/271187 (Quarteria) be sold with vacant possession forthwith and the conduct of such sale be given to the Applicant.
2. The First and Second Respondents and each of them do concur with the Applicant in such sale and do all things as may be necessary to procure the sale of the Property with vacant possession.
3. Vacant possession of the said Property be given by the First and Second Respondents to the Applicant forthwith.
Nothing turns on the joint ownership. The question of principle is the same as if the property were wholly owned by the bankrupt. The only difference is consequential –– if the court here can make an order for sale, or some equivalent, then only his proportionate share will go into his estate.
English law vests the property in the trustee
No one disputes that if the land had been in England or Wales then the district judge could have made the order. Upon bankruptcy, section 306(1) of the Insolvency Act 1986 bites. It provides:
[Time of vesting] The bankrupt’s estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee.
And section 306(2) would then operate automatically to vest the property in the trustee by providing:
[Mode of vesting] Where any property which is, or is to be, comprised in the bankrupt’s estate vests in the trustee (whether under this section or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer.
Of course, even though section 306(2) operates as an automatic vesting, land registered in the name of the bankrupt would remain so registered until steps were taken to alter the register. Similarly, the title deeds of unregistered land would still indicate the bankrupt as owner, unless and until steps were taken to cause a formal vesting in the trustee, which might be necessary or useful for some purposes.
The Act tries to deal with foreign property in the same way. Section 436 defines “property” as including:
money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property
The language could hardly be clearer. Moreover, Sir Richard Scott V-C rejected any suggestion that the Act was confined to municipal effect in Singh v Official Receiver [1997] BPIR 530. He said at p531E:
[Mr Singh]… has submitted that the municipal law of this country is limited to, as he put it, the municipality, and thus the official receiver is not entitled to any information about his interests or property abroad. He has invited me to rule on that issue. I will do so. The proposition is wrong. Under s283 of the Insolvency Act a bankrupt’s estate for the purpose of the Act is defined as including all property belonging to or vested in the bankrupt at the commencement of the bankruptcy. “Property” is defined in s436 of the Act as including money, goods, things in action, land and every description of property wherever situated. It is plain, therefore, that the bankrupt’s estate for the purpose of the Act includes his property in India or elsewhere outside this country and that the official receiver is entitled to co-operation from Mr Tejendra Singh in supplying information about those assets.
Effect of section 306 vesting foreign land in the trustee
In Singh, the Vice-Chancellor went on to say at p531G:
It is a separate question to what extent the official receiver can do anything about the realisation of those assets…
That might have been the problem in this case. Dicey & Morris (13th ed) para 31-023 discuss it as follows:
But the sections of the Act relating to the vesting of the bankrupt’s property in his trustee and to the discharge of his debts purport to have a universal effect.
With regard to foreign countries, however, it is obvious that the question whether property of the bankrupt situated in such a country does or does not pass to the English trustee in bankruptcy must depend in the last resort on the lex situs whatever English law may say, in theory, on the question. For no Act of Parliament can of its own force and effect transfer property situated, eg in France from the bankrupt to the trustee.
Hence, although English law says that all the property of the bankrupt vests in his trustee, it may be difficult for the trustee to make his title effective, so far as property in a foreign country is concerned, as against, eg a judgment creditor levying execution there, or the trustee in a later local bankruptcy.
However, it is not suggested on behalf of the bankrupt that Portuguese law would refuse to recognise that English law vests ownership of the property in the trustee. And indeed the trustee has some evidence of Portuguese law that suggests that it would apply renvoi at least where the individual concerned is domiciled abroad. And the sort of problem involving priorities mentioned at the end of the passage from Dicey does not arise here.
I do not actually know whether Portuguese law would go so far as automatically to apply the provisions of section 306(2). It would seem not, for otherwise this application would not have been necessary –– it is hardly likely that the relevant Portuguese land registry would automatically treat the trustee as owner simply upon notification of the English court’s bankruptcy order. I will assume it would not so act and would not do so unless there were an order of the Portuguese court.
Does the English court have jurisdiction? Article 16.1 of the Brussels Convention
That brings me to the real point taken on behalf of the bankrupt by Mr Sebastian Prentis in his elegantly presented argument. He was prepared to assume that a Portuguese court would recognise the English bankruptcy and its effect. What he said was that it was only in a Portuguese court that orders for possession and sale could be sought. He relied upon the Brussels Convention, which forms part of UK law by virtue of section 2(1) of the Civil Jurisdiction and Judgments Act 1982. The argument goes in stages:
(1) By Article 1, the convention applies in “civil and commercial matters”, which these proceedings are.
(2) The second exception in Article 1, that the convention shall not apply to:
Bankruptcy, proceedings relating to the winding up of insolvent companies or other legal persons, judicial arrangements, compositions and other analogous proceedings
does not apply here.
(3) The Portuguese courts have exclusive jurisdiction by virtue of Article 16.1 of the convention, which provides:
The following courts shall have exclusive jurisdiction, regardless of domicile:
(a) in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Contracting State in which the property is situated;
(b) [a limited exception for short-term tenancies]
There is no doubt that these proceedings are civil matters. But are they “bankruptcy proceedings”, and thus excluded from the convention? I think the answer is, clearly not. These are proceedings consequential upon the bankruptcy –– not proceedings about whether or not the debtor should be made bankrupt. The question of bankruptcy has already been determined. Moreover, the claim made is not a special bankruptcy remedy –– it is just a property claim. As Rattee J put it in Re Hayward (deceased) [1997] Ch 45 at p54C:
the nature of the claim… is not a matter of bankruptcy in the sense that any question of bankruptcy is the principal subject matter of the proceedings.
His decision, and mine, follow from the decision of the ECJ in Gourdain v Nadler Case 133/78 [1979] ECR I-733. There, the court held that for proceedings to be excluded from the convention, they must:
derive directly from bankruptcy or winding-up and be closely connected with proceedings for [in that case] the “liquidation des biens” or the “reglement judiciare” [here, liquidation or bankruptcy proceedings]
So the convention applies. I come, therefore, to the principal point raised by Mr Prentis. He submits that these proceedings indeed have as their object rights in rem. Their purpose and subject-matter is the transfer of title to Portuguese property. It is no business of the English court to make orders for possession or sale of such property. The English court cannot simply act as if the property were here, even though English law says the trustee has title. Article 16.1 says that the trustee must go to the Portuguese courts.
I think Mr Prentis is in part, but only in part, right. The thinking behind Article 16.1 is that orders relating to land that have effect against all the world are to be made only by the courts of the lex situs. The form of para 1 of the order made here purports to be effective against the world. In Portugal, the land is registered in the name of the bankrupt, yet the order purports to authorise the trustee to sell. I do not see how, in the face of Article 16. 1, such an order can be made.
However, this case does not turn on the form of the order. It is now settled by Webb v Webb Case C-294/92 [1994] QB 696 that where an English trust exists over land held abroad, Article 16.1 is no objection to enforcement of that trust. So, if land elsewhere is held on a bare trust by X for Y, Y will have the usual remedies of a beneficiary against a trustee. He can, for instance, compel X to have the land conveyed to him. In Webb, the court spelt that out with precision at p716G, para 15:
The aim of the proceedings before the national court is to obtain a declaration that the son holds the flat for the exclusive benefit of the father and that in that capacity he is under a duty to execute the documents necessary to convey ownership of the flat to the father. The father does not claim that he already enjoys rights directly relating to the property which are enforceable against the whole world, but seeks only to assert rights as against the son. Consequently, his action is not an action in rem within the meaning of article 16(1) of the Convention but an action in personam.
Mr Prentis sought to escape that conclusion. He submitted that the trustee’s action was more than an action in personam because it actually sought to determine ownership and possession of immovable property, relying upon para 11 of the decision of the court in Reichert v Dresdner Bank Case C-115/88 [1990] ECR I-27 at p41, para 8. However, it seems to me that his argument was exactly that rejected by the court in Webb. As Advocate General Darmon put it in Webb:
The claim of ownership undeniably underlies the claim for recognition of such a trust.
There is no doubt that English law regards the Portuguese landholding as vested in the trustee. To the extent that the trustee’s title has not been perfected, the bankrupt is, by English trust law, holding it for the trustee. So the bankrupt can be compelled to complete the trustee’s title or do any other act in relation to the land at the trustee’s direction. Any such order, provided it is in personam, is an order that the English court can make, having, as it does, jurisdiction over the bankrupt who is domiciled here. I say nothing about the position if he had not been so domiciled.
The second part of para 2 of the district judge’s order, which required the respondents to do all things that may be necessary to procure the sale of the property with vacant possession, seems to me to be nearly the appropriate order. It is, in principle, right because it is in personam. It might be more happily expressed as an order directing the respondents to sell the property at the best price reasonably obtainable. No doubt, in practice, the trustee could liaise with the bankrupt over the sale, but it is the bankrupt who must be effecting the sale and not the trustee. Alternatively, and perhaps better, the bankrupt can be required to convey the property to the trustee, again by an order in personam. If that were done, the trustee could effect his own sale in Portugal under Portuguese law.
I should mention a point under the Trusts of Land and Appointment of Trustees Act 1996. By section 14(1) and (2):
(1) Any person who is a trustee of land or has an interest in a property subject to a trust of land may make an application to the court for an order under this section.
(2) On an application for an order under this section the court may make any such order ––
(a) relating to the exercise by the trustees of any of their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions), or
(b) declaring the nature or extent of a person’s interest in property subject to the trust, as the court thinks fit.
Section 27(3) provides that the Act extends only to England and Wales. Mr Prentis submitted that, therefore, no order could be made under the Act. That is self-evidently so, but seems to me to be irrelevant. What the Act does not say is that the court cannot act in relation to trust property held abroad or that similar orders as can be made under the Act cannot be made by virtue of the court’s jurisdiction over property held under an English trust.That concludes the main point on this appeal. It was conceded by Mr Prentis that any rental income and interest from the property since the date of the bankruptcy and any future rent was subject to the bankruptcy, and that the court had jurisdiction to make orders in respect of that money. The order of the district judge required that 50% of this money should be paid to the trustee. This assumes that the bankrupt and his wife are entitled to equal shares of the property. This is inconsistent with para 5 of the order, which contemplates a determination of the respective shares. It was agreed that the appropriate order should be that 50% of the moneys be paid to the trustee’s solicitors to be held pending any claim by the wife that she was entitled to more than 50% of the property. Any such claim would have to be made within a short period, which I will set if it is not agreed.
Appeal dismissed.
