Insolvency Practitioners beware! The question of jurisdiction in insolvency proceedings

On 10 July 2024 HHJ Matthews handed down his judgment in the case of Anthony James Broom v Maria Del Pilar Molina Aguilar [2024] EWHC 1764 (Ch), a case which I am deeply familiar with having acted for Mrs Molina Aguilar since 2021.

The judgment looks at the question of jurisdiction in the context of service of insolvency proceedings and considers whether an order for payment from 2015 should be set aside due to the lack of jurisdiction over the appellant, Maria Del Pilar Molina Aguilar.

Background

On 18 March 2015 Eric Stonham, the Trustee in Bankruptcy of Michael Chambers (“Mr Stonham”) –  who was subsequently replaced as Trustee in 2022 by Anthony James Broom (“Mr Broom”) – pursuant to a Block Transfer Order), obtained an Order against the appellant, the Bankrupt’s wife. The Order required her to repay sums which the court declared were transactions at an undervalue or preferences within the meaning of the Insolvency Act 1986 (the “March 2015 Order”).

The appellant, a Spanish national, was not in attendance at the hearing as she was not aware of the existence of the proceedings having moved back to Spain from England in October 2014. Prior to the March 2015 Order being made, Mr Stonham had been unable to serve the proceedings on the appellant. He sought and was granted an order under CPR rule 6.15 to allow service by alternative methods, such as sending a text message or a message on Facebook Messenger asking the appellant to contact his solicitors.

The appellant only became aware of the proceedings in 2021 when Mr Stonham took steps to enforce the March 2015 Order in Spain by freezing her assets.

On becoming aware of the proceedings the appellant applied to set aside the March 2015 Order under section 375 of the Insolvency Act 1986 (the “Set Aside Application”). The appellant argued that not only did she have a strong defence to Mr Stonham’s claims but that she had been totally unaware of the existence of the proceedings.

The Set Aside Application came before DJ Taylor on 10 and 11 October 2023. On 16 November 2023, DJ Taylor handed down a reserved judgment dismissing the Set Aside Application finding that the appellant had been served, because of what he called “the deeming provisions” within CPR rules 6.14 and 6.15, notwithstanding the fact that those rules provide alternative methods of service of proceedings on a person within the jurisdiction of England and Wales.

The appeal

The appellant sought permission to appeal on six grounds. HHJ Matthews gave permission to appeal on five of those grounds.

The appeal came before him on 9 April 2024. The appellant argued that she was unaware of the proceedings, was never served with the proceedings, was outside the jurisdiction when the order was made permitting service upon her by an alternative means, that accordingly the court never had any jurisdiction over her and that she had a strong defence to the claims.

Mr Broom opposed the appeal. He claimed that it had been impossible for Mr Stonham to make an application for permission to serve the appellant out of the jurisdiction in Spain when he did not know that she was there. Mr Broom argued that had Mr Stonham known she was there he would have made such an application.  He also argued that it is not the law that, for service to be validly effected on a defendant in the jurisdiction, that defendant must have been in the jurisdiction at the time.

In order to address the question of the Court’s jurisdiction, HHJ Matthews undertook a detailed analysis of the principles surrounding the jurisdiction of the English and Welsh courts. He began by looking at the development of statute and common law from 1832. He then considered the operation of the Rules of the Supreme Court 1965 as developed by the Civil Procedure Rules. He considered a number of cases including Chellaram v Chellaram [2002] 3 All ER 17, Marashen Ltd v Kenvett Ltd [2018] 1 WLR 288, Cadogan Properties Ltd v. Mount Eden Land Ltd [2000] I.L. Pr 722  and BBG v Persons Unknown [2023] EWHC 2355 (KB) all of which had considered the question of jurisdiction.

The Judge held that:

“the authorities make clear that, in a case where the defendant is in fact outside the jurisdiction, the “fundamental rule” adverted to by Lawrence Collins J in Chellaram and approved in qualified form by the Court of Appeal in SSL International applies. That person is simply not subject to the jurisdiction of the English court, unless brought within the relevant statutory extension to persons abroad”.

He agreed with the judgment of Lavender J in Osbourne v Persons Unknown [2023] EWHC 39 (KB), when he said:

“24. … In circumstances where the Claimant does not know either the identity or the location of the person or persons who possess or control the Two [Non-Fungible Tokens] … the jurisdiction of the court can only be established by service of the claim form out of the jurisdiction.”

He held that the correct approach for Mr Stonham to have taken, as had been taken by the claimants in M v N, Interbunker Holdings and BBG, was to obtain permission to serve out of the jurisdiction even if he did not know the appellant’s location at the time.

It therefore follows that at the time the court had made the order for service by alternative means in February 2015, it actually had no jurisdiction over the appellant.

Compliance with that Order could not therefore amount to proper service of the proceedings upon her under the law of England and Wales.

Accordingly, the court did not have the jurisdiction to make the March 2015 Order and that the proper outcome was to grant the appellant’s application under section 375 of the Insolvency Act 1986. He therefore allowed the appeal and set aside both the March 2015 Order and the Order of DJ Taylor.

In dealing with the issue of costs and the liability for those costs HHJ Mathews has further held in a judgment dated 25 July 2024 that Mr Broom is personally liable for the appellant’s costs. He states at paragraph 16 of his second judgment:

“the fact that the respondent is a trustee in bankruptcy carrying on a statutory function cannot (in the absence of statutory sanction) in itself amount to a reason for the court’s making a different costs order to that which would be made in a case not involving a statutory officeholder carrying on litigation in an official capacity….Accordingly, they are subject to the ordinary costs rules… There is nothing here to suggest that a different rule should apply to this respondent. He has adopted an adversarial attitude, adduced evidence to support his case, and instructed counsel to argue for it. He has not suggested that, had he won, he would nobly decline to ask for his costs”.

A timely reminder

The case serves as a reminder to both solicitors and office holders to properly consider what steps to take when serving proceedings on respondents whose whereabouts are unknown. If there is any doubt as to the location of the respondents, such as to necessitate an application to serve by alternative means, then the correct approach must be to apply for leave to serve out of the jurisdiction and failure to do so may well result in the office holder being personally liable for costs.

A full copy of the judgments can be found here:  https://www.bailii.org/ew/cases/EWHC/Ch/2024/1764.html

https://www.bailii.org/ew/cases/EWHC/Ch/2024/1961.html