Clarke v Coutts & Co (A Firm)

Under Insolvency Act 1986, section 252(2), making a charging order nisi absolute is a continuation of execution. It requires the court’s leave where an interim order is in force. A charging order nisi creates an immediate but defeasible charge; execution is not complete until the order is made absolute. An order made without the required leave is irregular, rather than a nullity, but remains in force only until set aside. Where the statutory requirement has not been complied with and no retrospective leave is sought, the court must set the order aside. The procedural discretion under CPR rule 3.10 cannot defeat that statutory prohibition.

Coutts obtained judgment against David Clarke and a charging order nisi over his home. Before the hearing to make that order absolute, Clarke obtained an interim order under Part VIII of the Insolvency Act 1986 restraining the continuation of execution without leave.

The charging order was nevertheless made absolute without leave. Clarke’s later application to set it aside was refused by Master Rose and, on appeal, by His Honour Judge Zucker QC, although the judge held that leave had been required and that he had a discretion whether to set the order aside. Clarke appealed. The central issues were whether making the order absolute continued execution and whether the court had discretion to leave the irregular order in place.

1. Appeal allowed. The order of His Honour Judge Zucker QC and the charging order absolute were set aside. Costs were awarded to Clarke in this court and below.
2. Making a charging order under the Charging Orders Act 1979 is a two-stage process. The order nisi creates a temporary and defeasible charge. The court must still decide, at the inter partes stage, whether to make the charging order absolute, having regard to section 1(5), including the debtor’s circumstances and prejudice to other creditors.
3. Making the order absolute is therefore a continuation of execution within section 252(2)(b) of the Insolvency Act 1986. The statutory references to completion of execution in sections 183 and 346 had to be construed consistently with Roberts Petroleum Ltd v Kenny Ltd [1983] 2 AC 192. A defeasible order nisi lacks the necessary finality for execution to be complete. The contrary reasoning in Haly v Barry (1868) 3 Ch App 452 was no longer valid.
4. The charging order absolute, made without leave, was irregular but not void. It remained effective until set aside. However, the court had no discretion in the circumstances to refuse Clarke’s application. CPR rule 3.10 concerned procedural errors under the CPR regime and could not displace the statutory requirement in section 252(2).
5. Retrospective leave could in principle be granted, and the High Court had jurisdiction to grant it, consistently with In re Saunders [1997] Ch 60 and Calor Gas v Piercy [1994] BCC 69. No timely application for retrospective leave had been made. The late application made to the Court of Appeal was refused.
6. Isaacs v Robertson [1985] 1 AC 97 concerned the effect of an irregular order in contempt proceedings. It did not establish a discretion to refuse an application to set aside an order made in breach of section 252(2).

• Court of Appeal (Civil Division): appeal allowed; the High Court judge’s order and the charging order absolute were set aside.
• High Court, Queen’s Bench Division: His Honour Judge Zucker QC dismissed Clarke’s appeal from Master Rose’s refusal to set aside the charging order.
• Master Rose: application to set aside the charging order absolute refused on 3 October 2001.