Charging order — Validity — Respondent obtaining charging order nisi over appellant’s property — Interim order imposing leave requirement for execution against appellant — Charging order made absolute without leave being obtained — Whether leave required — Whether order absolute to be set aside ex debito justiciae — Section 252(2) of Insolvency Act 1986 — Appeal allowed
The respondent bank obtained a judgment against the appellant in respect of debts owed to it, and was subsequently granted a charging order nisi over the appellant’s house. The appellant obtained an interim order, pursuant to section 252(2) of the Insolvency Act 1986, stating that “no other proceedings, and no execution or other legal process, may be commenced or continued against the debtor or his property without the leave of the court”. The appellant did not inform the respondent of that order.
The charging order nisi was made absolute at a hearing at which the appellant was neither present nor represented. Six years later, in 2001, the appellant applied to have the order absolute set aside, arguing that: (i) the making of the order absolute amounted to the continuance or execution of proceedings within the meaning of section 252(2); (ii) leave had therefore been required to make that order; and (iii) since leave had not been obtained, the order absolute should be set aside. That application was dismissed by a master and later by a judge on appeal. The latter held that, although leave had been required, the order did not thereby fall to be set aside ex debito justiciae, and that the court accordingly had a discretion as to whether to set it aside.
On a further appeal, the appellant contended that there was no such discretion, or that if there was, the judge had exercised it wrongly. The respondent argued that, inter alia: (i) execution was complete upon the making of the order nisi, with the effect that the making of the order absolute did not fall within section 252(2) and no leave was required for it; or, alternatively, (ii) if the order absolute were set aside, the order nisi still remained in force. During the hearing, it also made a last-minute application for retrospective leave.
Held: The appeal was allowed.
1. The rules provided for a two-stage process for the making of charging orders. Although a charging order was created at the nisi stage, it was only temporary and defeasible, and execution was not complete at that stage. The making of the order absolute completed the process, and amounted to the continuation of an already-commenced execution. It therefore fell within section 252(2) of the 1986 Act, and leave was required for it where an interim order was in force: Roberts Petroleum Ltd v Bernard Kenny Ltd (in liquidation) [1983] 2 AC 192 and Calor Gas v Piercy [1994] BCC 69 applied; Haly v Barry (1868) 3 Ch App 452 overruled.
2. The judge had erred in finding that he had a discretion as to whether to set aside the order absolute. An order absolute obtained without leave, in a case where an interim order was in force, fell into the class of order that the appellant could apply to have set aside as of right, ex debito justiciae, although it remained in force until that was done. Although, under CPR 3.10, the court had a discretion to hold orders to be valid, notwithstanding any procedural error, that discretion applied to breaches of procedural rules under the CPR, and could not be exercised so as to defeat the mandatory statutory requirement under section 252(2). To hold otherwise would defeat the purpose of the insolvency legislation, by allowing a creditor with only a defeasible right to “steal a march” on other unsecured creditors: Roberts Petroleum Ltd applied; Isaacs v Robertson [1984] 3 All ER 140 distinguished. The court did have a discretion, on an application by the respondent, to cure the procedural error by granting leave retrospectively. However, the respondent had left it far too late to make its application, and leave was therefore refused.
3. An order nisi was valid only “in the meantime”, until a decision was made as to whether to grant the order absolute. It could not stand alone, so once the order absolute was set aside, the order nisi also fell away, and the respondent could not rely upon it.
Geraldine Andrews QC (instructed by SPR Avery Midgen) appeared for the appellant; David Berkley QC and Andrew Butler (instructed by Farrer & Co) appeared for the respondent.
Sally Dobson, barrister
