Sands (as trustee in bankruptcy) v Layne & Anor

This appeal concerned the scope of section 375(1) of the Insolvency Act 1986 and whether a court may review, rescind or vary an order that it previously made when that order was made in the exercise of the court's appellate jurisdiction. The Court of Appeal held that section 375(1) applies to "every court having jurisdiction for the purposes of the [individual insolvency] Parts", and therefore includes the High Court whether sitting at first instance or on appeal, subject to the practical limitation that the review power extends only to orders made by that same court. The court also held that the trustee in bankruptcy should have been joined to the application which produced the Subject Order so that provision could be made for the trustee's costs and expenses; the appeal was therefore allowed in part and remitted to the High Court to determine payment of the trustee's costs, the remainder of the appeal being dismissed. The court considered related provisions including sections 271(3), 282(1), 306, 340 and 341 of the Insolvency Act 1986 and addressed the bankrupt's standing to appeal.

The appellant, the trustee in bankruptcy, applied to rescind an order (the "Subject Order") made by a High Court judge on 29 June 2012 which had discharged a bankruptcy order against the bankrupt, Mr Layne, on terms agreed with the creditor (Wycombe). The trustee argued that the Subject Order should not have been made because other creditors would be prejudiced and because the trustee had not been joined to the proceedings leading to the Subject Order.

The procedural history was: Wycombe obtained a bankruptcy order in Aylesbury County Court (7 July 2011); Mr Layne applied late for permission to appeal; the permission application and appeal were listed in the High Court; before hearing the parties compromised and asked the High Court judge to make an order discharging the bankruptcy order on agreed terms (the Subject Order). The trustee only later applied to rescind the Subject Order; the county court transferred that application to the High Court where Mr Donaldson QC refused rescission.

The principal issues identified and decided by the Court of Appeal were:

• Whether section 375(1) IA 1986 permits a court to review, rescind or vary an order it previously made when that earlier order was made on appeal. The court held that section 375(1) applies to "every court having jurisdiction for the purposes of the [individual insolvency] Parts", and that the High Court may therefore review an order it made whether that order was made at first instance or on appeal; the limitation is that the review power extends only to orders made by that same court.
• Whether the bankrupt or the trustee had standing to pursue the appeal. The court concluded that a bankrupt retains the right to appeal against the bankruptcy order despite the vesting of estate rights in the trustee; the trustee does not automatically displace the bankrupt's right to appeal against the adjudication itself.
• Whether the trustee should have been joined to the application producing the Subject Order. The court held the trustee ought to have been joined so that provision could be made for payment of trustee costs and to avoid the trustee incurring needless expenses; the appeal was therefore remitted to the High Court to determine payment of those costs and expenses.
• Whether the Subject Order ought to have been resisted on the ground that other creditors would be prejudiced. The court held that a creditor who applies for a bankruptcy order remains in control of the petition and the court may dismiss a petition where the debtor makes a reasonable offer of security (section 271(3)), even if the debtor is insolvent and other creditors remain unpaid; accordingly the trustee would not necessarily have succeeded in opposing the Subject Order on the basis of prejudice to other creditors.

The court considered prior authorities (including Appleyard and Cahillane) but undertook its own statutory interpretation, emphasising the wording "every court" and the internal limiting phrase "made by it" in section 375(1). The appeal was allowed in part: the Court of Appeal held that the High Court had power under section 375(1) to review orders it had made on appeal and remitted the matter to the High Court to determine the trustee's costs and expenses; the remainder of the appeal was dismissed.

Appeal allowed in part. The Court of Appeal held that section 375(1) IA 1986 permits a court to review, rescind or vary orders previously made by that court whether the earlier order was made at first instance or on appeal; the power is, however, confined to orders "made by it". The Court further held that the trustee should have been joined to the proceedings that produced the Subject Order so that provision could be made for the trustee's costs and expenses. The case was remitted to the High Court to determine the trustee's costs; the remainder of the appeal was dismissed.

The application to rescind the Subject Order was originally made to Aylesbury County Court (where District Judge Rand transferred the application to the High Court on 7 November 2013). The matter was heard in the High Court, Chancery Division (Mr David Donaldson QC sitting as a Deputy High Court Judge), who refused rescission. The decision was then appealed to the Court of Appeal (this judgment: [2016] EWCA Civ 1159). Prior High Court authorities considered in argument included Appleyard v Wewelwa [2012] EWHC 3302 (Ch) and National Asset Loan Management Ltd v Cahillane [2015] EWHC 62 (Ch).