Housiaux (t/a Harpers of Weybridge) v Customs & Excise

The Court of Appeal dismissed the appellant's challenge to an order that he and his wife pay the costs of a bankruptcy petition and its annulment. The court applied the Insolvency Act 1986 and the Insolvency Rules 1986, holding that the district judge acted within her broad discretion on costs and was entitled to proceed without an adjournment for oral evidence on proportionality grounds. The court emphasised that a trader is responsible for communications sent to the trader's registered VAT address and for ensuring that such communications are brought to his attention.

The court also held that a consent annulment made under section 282(1)(a) of the Insolvency Act 1986, where the petitioner explicitly did not admit liability and costs were reserved, did not amount to a factual determination in the debtor's favour and could not be relied on as proof that the creditor accepted the debtor's factual assertions. The court did not need to decide whether service strictly complied with the Insolvency Rules because the real cause of the debtor's lack of knowledge was the internal failure of communication between the husband and wife and the conduct of the wife in the handling of documents.

Background and parties:

• Appellant: Mr David Housiaux trading as Harpers of Weybridge (VAT-registered retail business at 82 Church Street).
• Respondent: Commissioners for Customs & Excise.

Factual and procedural history:

• Customs & Excise raised VAT assessments; a statutory demand was left through the letterbox at 82 Church Street in June 1999 and not complied with.
• A bankruptcy petition was presented and, following substituted service, a bankruptcy order was made on 15 December 1999.
• Mr Housiaux applied to rescind or annul the bankruptcy order, supported by affidavits asserting that he had given his home address as the contact and that his wife had collected documents but did not inform him.
• By consent the bankruptcy order was annulled on 29 February 2000 (s282(1)(a)); costs were reserved and later the Croydon County Court by District Judge Fink ordered costs of about £4,817 to be paid by both Mr and Mrs Housiaux (31 July 2001).
• Peter Smith J dismissed the appellants' first appeal (25 April 2002). Permission to appeal to the Court of Appeal was initially refused on paper by Simon Brown LJ but later granted by Arden LJ; this Court heard the second appeal on 30 January 2003.

Nature of the application and issues:

• The appellant sought an order that Customs & Excise pay the costs of the petition and annulment, contending defective service, that substituted service was wrongly ordered, and that the district judge should have heard oral evidence to resolve factual disputes.
• The Court framed issues on (i) the effect of the consent annulment, (ii) compliance with the Insolvency Rules on service (rules 6.3, 6.11, 6.14, and related provisions), and (iii) whether the district judge misapplied her discretion by refusing an adjournment and imposing costs.

Court's reasoning:

• The Court reviewed the statutory framework (Insolvency Act 1986 sections 267, 268, 271, 282) and the Insolvency Rules governing statutory demands and petitions. It observed that where a statutory demand is served, the creditor may present a petition but the court must still be satisfied as to the requisite matters on the petition hearing.
• The Court held the consent annulment did not amount to an admission of the factual allegations in the affidavits because the consent order expressly recorded no admission of liability and reserved costs. A court should not annul a bankruptcy order by consent under s282(1)(a) without investigation where factual disputes remain.
• The district judge was entitled, on proportionality grounds in a dispute over a modest sum, to refuse a lengthy adjournment and to decide costs on the material before her. Her findings — that the appellant had held out the shop address as the operating address and that the wife had failed to bring documents to his attention — were open to her on the evidence. That failure of internal communication, not procedural defects in service, explained the appellant's ignorance of the proceedings.
• The court distinguished the present facts from the authority relied on by the appellant and concluded Customs & Excise had not acted improperly in seeking to bring the demand and petition to the appellant's attention.

Disposition:

• The Court of Appeal dismissed the appeal and ordered the appellants to pay costs assessed at £5,000.

Appeal dismissed. The Court held that the district judge had properly exercised her discretion in ordering costs against Mr and Mrs Housiaux: her factual findings about the appellant's holding out of the shop address and the wife's failure to bring documents to the husband's attention were open on the material, proportionality justified disposal without lengthy oral evidence, and a consent annulment reserving costs did not amount to a judicial finding that the creditor accepted the debtor's factual account.

Bankruptcy order made 15 December 1999 (High Court in bankruptcy). Bankruptcy order annulled by consent 29 February 2000 (Croydon County Court) with costs reserved. Croydon County Court (District Judge Fink) ordered costs against Mr and Mrs Housiaux on 31 July 2001 (about £4,817). Appeal to High Court (Peter Smith J) dismissed on 25 April 2002. Application for permission to appeal to the Court of Appeal initially refused on the papers by Simon Brown LJ; permission granted on rehearing by Arden LJ (25 September 2002). Second appeal to the Court of Appeal heard 30 January 2003 and dismissed ([2003] EWCA Civ 257). The judgment discusses and distinguishes Legal Services Commission v Leonard [2002] EWCA Civ 744.