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Human rights when seeking possession and sale of a bankrupt's home: Anything to fear?

Citation: Following Ford v Alexander (Trustee in Bankruptcy) [2012] EWHC 266 (Ch)

Introduction

For many insolvency practitioners (in the wider sense), the European Convention on Human Rights ("ECHR") and the Human Rights Act 1998 ("HRA") are pieces of legislation having little impact upon day to day insolvency practice.

There has been a large volume of litigation surrounding the application of Article 8 (right to respect for private and family life and your home) in the context of claims for possession of property. Article 8 has, over the past 10 years, made more and more significant inroads into the assessment (and, possibly, outcomes) of such claims.

Insolvency proceedings have been far from immune.

Human Rights in a property context

The high point of the litigation surrounding Article 8 was the decision of the Supreme Court in Manchester CC v Pinnock [2011] 2 AC 104. The greatest impact of Pinnock was felt by public and quasi-public providers of social housing. Whilst most routine claims to possession were left unaffected, others, particularly where the Court was ‘obliged’ to order possession (for example, claims against squatters and occupiers of temporary accommodation) were now confirmed as open to a defence based upon Article 8.

The answer to this defence is found in the proviso to Article 8, which provides that there should be no interference by a public authority with the Article 8 right except:

such as in accordance with the law and is necessary in a democratic society in the interests of... the economic wellbeing of a country, for the prevention of disorder or crime for the protection of health or morals, or for the protection of rights and freedom of others.”

As a result, where an occupier in claims to possession brought by a public or quasi public authority raises Article 8 in his defence, the Court is obliged to consider the proportionality of granting an order for possession in all the circumstances of the case. In other words, whether the inevitable interference with Article 8 rights is "in accordance with the law" and is "necessary" for one of the specified reasons.

It was made clear in Pinnock (paragraph 62) that in exceptional cases, the court could give the occupier longer to vacate, or even legitimately refuse to grant an order for possession, despite the possibly otherwise unfettered right of the landlord to possession.

The position with respect to the application of Article 8 to claims by private persons was specifically left open (paragraphs 4 and 50).

Application to insolvency cases

Several questions therefore typically arise in an insolvency context:

  1. As a trustee in bankruptcy is a private individual, and the court has wide discretion in joint ownership cases as to whether to order possession, is there any application of "proportionality" principles in an insolvency context?
     
  2. If an Article 8 defence is raised, what should be done about it?

The decision in Ford v Alexander

There have been several reported cases where Article 8 defences have been run in a joint ownership context – e.g. Foyle v Turner [2007] BPIR 43. In each case, the defence failed, the Court finding that section 335A was compatible with Article 8. However, those cases were pre-Pinnock, and the step change in approach to claims to possession that it brought about in a public context.

The current position was recently considered by Smith J in Ford & Ford v John Alexander (Trustee in Bankruptcy) [2012] EWHC 266 (Ch). Bankruptcy Orders had been made against Mr and Mrs Ford. The Trustee was appointed on 26 April 2010, who shortly thereafter informed Mr and Mrs Ford of his intention to seek possession of their home pursuant to IR 6.237 & s.283(A) IA86. Proceedings for possession were issued and the matter came before the Court on 15 April 2011.

Mr and Mrs Ford defended the claim on the basis that it would be disproportionate (in Article 8 terms) to order a sale of their home in all the circumstances, and that there were "exceptional circumstances" (per s335A (3)) why the statutory presumption that applies one year after first vesting should not apply. They made reference to the limited amount that would be realised, medical conditions, the fact that they would not be accommodated by the local authority, and the need to house their fish and terrapins. The Fords also argued that section 335A IA86 needed to be modified to include a full proportionality test to be compatible with Article 8.

The District Judge granted an order for possession, having comprehensively reviewed the relevant law and the need to conduct a balancing exercise between the individual’s rights and the rights of the creditors. She found no exceptional circumstances were present on the facts and granted an order for possession, suspended for 6 weeks.

The Fords sought permission to appeal, on the basis that:

  1. The DJ failed to read and apply section 335A in compliance with sections 3 and 6 of the HRA (the requirement to, so far as it is possible to do so, read legislation and give effect to it in a way compatible with Convention rights and the obligation of public authorities (including the Courts) to act compatibly with convention rights).
  2. The DJ failed to find that "exceptional" in s335A should be read "such that it would be disproportionate to do so", or that "exceptional" should be read and applied subject to the proportionality principle (per Pinnock).

Smith J had no hesitation in refusing permission to appeal, not least because the DJ had considered the facts of the case as if the law of proportionality was applicable to the case, and had come to the same conclusion nonetheless, having found it would not in those circumstances be disproportionate to order possession.

However, he went on to consider the grounds of appeal in more detail, noting that all the bankruptcy cases that considered Article 8 pre-dated Pinnock. He found nothing in Pinnock of assistance to the Fords, it being a decision apparently limited to public bodies. He concluded that, notwithstanding the change in jurisprudence brought about by Pinnock, the wording of section 335A IA 86 provides:

a necessary balance as between the rights of creditors and the respect for privacy and the home of the debtor. That balance serves the legitimate aim of protecting the rights and freedoms of others. I am therefore of the opinion that the requirements of section 335A satisfy the test of being necessary in a democratic society and are thus proportionate…. This was the conclusion in the pre Pinnock bankruptcy cases and I see no basis for… a different conclusion.”

Tactics and wider considerations

Whilst in none of the reported insolvency cases have Article 8 defences succeeded, the full argument required in each case (including on appeal) will have caused considerable delay and expense to the estate. It is noteworthy that since Pinnock, whilst the number of Article 8 defences in possession claims has increased considerably, there still has not been a reported case where the defence has defeated the claim to possession.

The more recent trend has been to run a defence based upon the Court itself being a public body (s6 HRA), thus rendering its decisions subject to the ECHR. This makes Article 8 principles, it is argued, applicable in cases brought by private individuals. This is currently untested in the higher courts, although there are a number of cases awaiting hearing in the Court of Appeal later in 2012. For example, in Khela (by his LPA receiver) v Dainter (Birmingham County Court, 29/2/12), HHJ McKenna has transferred an appeal to the Court of Appeal in a claim to possession brought by a receiver under s21 Housing Act 1988.

Further arguments specific to cases brought in an insolvency context remain to be tested, for example, based upon the trustee fulfilling a quasi-pubic role, bringing claims by a trustee arguably directly within the ambit of Pinnock. See, for example, Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] 4 All ER 164 (PC) at para 32:

“[a creditor’s winding-up petition… is an order to put the company into an insolvent liquidation that will affect the interests of all creditors as well as of all members. It will involve the administration of the liquidation [by the Official Receiver] and his officials or by a professional liquidator who, in carrying out his duties, will be an officer of the court. The liquidation, although from a financial point of view carried out for the benefit of creditors, is a public act or process in which the public has an interest.”

In sole ownership cases (where s.335A does not apply), Article 8 defences are arguably far more likely (albeit still very unlikely) to succeed yet appear to be rarely run. In such instances the Trustee is effectively claiming possession against "trespassers" in a property that vests in him, with the result that the Court is obliged to grant possession provided the claim is validly brought – it has no discretion. Following the reasoning in Pinnock, this inability to consider proportionality in such cases renders them potentially vulnerable to a defence based upon s6 HRA and Article 8.

There is thus considerable risk to trustees, where an Article 8 defence is raised, that the proceedings will prove unnecessarily lengthy and expensive.

The following should be borne in mind:

  • In the majority of cases, such a defence will not be raised.
  • Where raised, Ford may be useful (although only a permission to appeal decision).
  • Such a defence is highly unlikely to succeed.
  • It will take truly exceptional facts for an Article 8 defence to succeed where a defence based upon exceptionality (s.335A) would not.
  • The same is probably true in sole ownership cases. However, the usual reasoning that s.335A provides the appropriate balancing exercise is not open to the trustee in such cases.
  • Ensure the advocate is ready to address Article 8 arguments at the first hearing – often such arguments will be raised at the court door, and they can often be rapidly disposed of if addressed properly.
  • Where a defence founded upon Article 8 is allowed to proceed past the first hearing, consideration should be given to applying at an early stage to strike it out. Even put at its highest, it is most unlikely that many defences could possibly meet the high bar required for such an argument to succeed at trial (see paragraph 39 of West Kent v Haycraft [2012] EWCA Civ 276).
  • If a Judge is substantively considering an Article 8 defence in such cases, there will usually be no harm in inviting the Judge, in the alternative, to consider the case ‘as if’ a proportionality defence applied, thus closing the door to appeal, as demonstrated in Ford.