[1997] 1 Ch. 45
[CHANCERY DIVISION]
In re HAYWARD, Dec'd.
[Nos. 10 and 11 of 1996]
1996 March 27, 28
Rattee J.
Bankruptcy - Jurisdiction - Trustee's claim to overseas interest -
Bankrupt owning half-interest in property in Spain - Bankrupt dying
intestate - Bankrupt's widow transferring interest to third party -
Trustee in bankruptcy claiming bankrupt's interest in Spanish property
- Whether proceedings relating to succession or bankruptcy - Whether
bankruptcy court in England having jurisdiction to determine trustee's
claim - Civil Jurisdiction and Judgments Act 1982 (c. 27), Sch. 1 (as
substituted by Civil Jurisdiction and Judgments Act 1982 (Amendment)
Order 1990 (S.I. 1990 No. 2591)), art. 1
Conflict of Laws - Jurisdiction - Immoveable property - Bankrupt's
widow claiming interest in bankrupt's house in Spain - Transfer of
interest to third party - Trustee in bankruptcy claiming entitlement
to bankrupt's interest and seeking rectification of Spanish property
register - Whether English court having jurisdiction - Civil
Jurisdiction and Judgments Act 1982, Sch. 1 (as substituted by Civil
Jurisdiction and Judgments Act 1982 (Amendment) Order 1990)), art. 16
In 1986 the debtor and H. purchased jointly a villa in Minorca, the
title to which was then registered in the Minorcan property register
as being held by them "in indivisible halves." In June 1987 the debtor
was made bankrupt and his assets became vested in his trustee in
bankruptcy. In December 1987 the debtor died intestate. In 1992 his
widow declared in Spain that she was entitled to the debtor's
interests under his intestacy and pur****ted to transfer the debtor's
half-interest in the villa to H. in settlement of a debt she owed him
for money spent on maintenance of the villa. H. became the sole
registered proprietor of the villa in the Minorcan property register.
In 1994 the trustee in bankruptcy applied in the county court for an
order entitling him as trustee to what had been the debtor's share in
the villa and for a declaration that the debtor's interest in the
villa formed part of his bankruptcy estate. The trustee also sought an
order that the debtor's widow and H. take steps to rectify the
Minorcan property register so as to show himself as owner of the
debtor's half-share of the villa and an order that the villa be sold
in England and the proceeds divided between himself and H. The judge
struck out the trustee's application on the ground that by virtue of
article 16 of the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 19681 scheduled to the Civil
Jurisdiction and Judgments Act 1982 the Spanish courts had exclusive
jurisdiction to deal with the owner****p of land situated in Spain.
On appeal by the trustee in bankruptcy: -
Held, dismissing the appeal, (1) that since the basis of the trustee's
claim was that on his appointment he had taken over the half-share in
the villa to which the debtor was then entitled,
1 Convention on Jurisdiction and the Enforcement of Judgments in Civil
and Commercial Matters 1968, as amended, art. 1: see post, p.49D-E.
Art. 16: see post, p. 49G-H.
[1997] 46
1 Ch. In re Hayward, decd.
the claim raised no issue of succession; and that, although the claim
would not have existed but for the bankruptcy, its principal subject
matter was not bankruptcy but, essentially, a claim to recover from a
third party assets said to belong to the debtor's estate and therefore
to be vested in the trustee in bankruptcy (post, pp. 53H-54A, 55A-D).
Gourdain v. Nadler (Case 133/78) [1979] E.C.R. 733, E.C.J.
distinguished.
(2) That the trustee's claim was in proceedings which had as their
object a right in rem in immoveable property; that to the extent that
the trustee claimed that the Minorcan property register required
rectification because it showed void transactions the proceedings also
had as their object the validity of entries in a public register; and
that, accordingly, by virtue of article 16 of the Convention, the
Spanish courts had exclusive jurisdiction (post, p. 57B-F).
The following cases are referred to in the judgment:
Gourdain v. Nadler (Case 133/78) [1979] E.C.R. 733, E.C.J.
Scherer v. Counting Instruments Ltd. (Note) [1986] 1 W.L.R. 615;
[1986] 2 All E.R. 529, C.A.
Webb v. Webb (Case C-294/92) [1994] Q.B. 696; [1994] 3 W.L.R. 801;
[1994] 3 All E.R. 911; [1994] E.C.R. I-1717, E.C.J.
The following additional cases were cited in argument:
Deschamps v. Miller [1908] 1 Ch. 856
Spiliada Maritime Cor****ation v. Cansulex Ltd. [1987] A.C. 460;
[1986] 3 W.L.R. 972; [1986] 3 All E.R. 843, H.L.(E.)
APPEAL from Judge Geddes sitting in the Walsall County Court.
By a notice of appeal dated 16 January 1996 the applicant, John Stefan
Wheatley, the trustee of the property of Malcolm William Hayward,
deceased, appealed from the order of Judge Geddes dated 20 December
1995 striking out for want of jurisdiction his application dated 4
October 1994 by which, inter alia, he sought to establish that he was
entitled to a half-share in a villa in Minorca, Spain, which had been
owned jointly by the deceased and the first respondent, John Gerald
Hulse, in whose sole name it was now registered in the Minorcan
property register.
The grounds of appeal were, inter alia, that the judge erred in ruling
that the proceedings did not fall within an exception set out in
article 1 of the Convention on Jurisdiction and the Enforcement of
Judgments in the sense that the proceedings were not concerned with
succession or bankruptcy and analogous proceedings; that further, in
so far as he ruled that article 16 of the Convention applied, he erred
in deciding that the proceedings had rights in rem as their object and
were therefore to be litigated in Spain.
The first respondent cross-appealed against the refusal of the judge
to make an order for costs following his successful application that
the trustee's application should be struck out.
The second respondent, Molly Hayward, the widow of the deceased,
claimed to have an interest in the deceased's half-share in the villa.
The facts are stated in the judgment.
[1997] 47
1 Ch. In re Hayward, decd.
Kevin Hegarty for the applicant.
Isabel Hitching for the first respondent.
The second respondent did not appear and was not represented.
The submissions of counsel are sufficiently summarised in the
judgment.
RATTEE J. . I have before me two appeals, that is to say an appeal and
a cross-appeal, from decisions of Judge Geddes given in the Walsall
County Court in bankruptcy, on 20 and 21 December 1995. The
proceedings in which the judge determined the application were
themselves commenced by an ordinary application issued on 4 October
1994 by the trustee in bankruptcy of one Malcolm William Hayward, now
deceased. The ordinary application, made pur****tedly under sections
363 and 366 of the Insolvency Act 1986 according to the title to the
proceedings, sought various heads of relief designed to establish the
trustee's title to half-share in a villa in Minorca, Spain, which I
shall refer to simply as "the villa."
The judge struck out the ordinary application on the grounds that the
court had no jurisdiction to entertain it by reason of the provisions
of the Convention on Jurisdiction and the Enforcement of Judgments in
Civil and Commercial Matters made applicable in English law by the
Civil Jurisdictions and Judgments Act 1982. The application to strike
out was made by the first respondent to the ordinary application, who
himself is the person in whose name the villa is currently registered
in the relevant property register in Minorca. Although the judge
struck out the ordinary application in accordance with the submissions
made by the first respondent, he declined to make any order for costs
of the application.
The trustee appeals against the substantive decision to strike out the
ordinary application. The respondent appeals against the judge's
failure to make an order for costs to follow the event, that is to
say, an order for costs in favour of the first respondent. I should
say that the second respondent to the ordinary application, who in
fact is the deceased bankrupt's widow, did not, as I understand it,
appear below and she has not appeared before me although I have seen a
letter written by her solicitors to the effect that she wishes her
costs to be provided for in the event of the trustee's appeal failing
before me.
The relevant background facts can be fairly shortly stated and have
been helpfully set out by Judge Geddes in his judgment. On 1 October
1986 the villa was purchased by the deceased, Mr. Hayward, and the
first respondent, Mr. Hulse, by contribution between them in equal
shares of the purchase price. The title to the villa was, in
consequence, registered in the Minorcan property register as being
held by them "by indivisible halves," as it is put in a translation of
the entries in the register which I have seen.
Mr. Hayward was made bankrupt by an order of 5 June 1987. On 21 June
the trustee was appointed as his trustee in bankruptcy. Accordingly,
prima facie, on the appointment of the trustee, the assets of Mr.
Hayward vested in him under the provisions of the Insolvency Act 1986.
On 9 December Mr. Hayward died intestate. In March 1992, according to
the judgment, Mrs. Hayward, the second respondent, and
[1997] 48
1 Ch. In re Hayward, decd. Rattee J.
I quote from the judgment: "declared in Spain that she was the person
entitled to Mr. Hayward's interests under his intestacy." She then
transferred, or pur****ted to transfer, her late husband's half-
interest in the villa to Mr. Hulse in consideration, as she understood
the matter, for the release of a debt owed by her to Mr. Hulse in
respect of moneys which he had spent on the maintenance of the villa.
On completion of the pur****ted transfer Mr. Hulse became sole
registered proprietor of the villa in the appropriate land register in
Minorca.
The essence of the present proceedings, or rather the proceedings
which were struck out by the judge in the county court, namely the
proceedings begun by the originating application, was an attempt by
the trustee to establish and protect, and indeed perfect, what he
alleged was his entitlement as trustee in the bankruptcy of Mr.
Hayward to what had been Mr. Hayward's half-share in the villa. By the
ordinary application, the various heads of relief designed for that
purpose can be summarised as follows: (1) a declaration that the
interest of Mr. Hayward in the villa formed part of his "bankruptcy
estate" and vested in the trustee on his appointment as trustee in
bankruptcy; (2) a declaration that, on the death of Mr. Hayward on 9
December 1987, he had no interest in the villa capable of being passed
to any person entitled to benefit under his intestacy and that, in
particular, he had no interest in the villa at the date of his death
capable of being passed to his widow, the second respondent; (3) a
declaration that the pur****ted transfer of Mr. Hayward's estate or
interest in the villa to his widow is void (I take it that by what is
there intended to be referred to as "the transfer of Mr. Hayward's
interest to his widow" is the widow's pur****ted inheritance of that
interest under the law of intestacy. I am not conscious, from the
papers I have seen, of there being any suggestion that there was any
other transfer of Mr. Hayward's interest to her); (4) a declaration
that the first respondent, Mr. Hulse, was aware of the bankruptcy
order made in respect of Mr. Hayward prior to December 1991; (5) a
declaration that Mr. Hulse was aware prior to December 1991 that the
trustee claimed that he was entitled to Mr. Hayward's interest in the
villa as trustee in bankruptcy; (6) a declaration that the pur****ted
transfer of an interest in the villa from Mrs. Hayward, the second
respondent, to Mr. Hulse, the first respondent, is void; (7) an
injunction restraining Mr. Hulse dealing with the villa without the
trustee's consent; (8) an inquiry and declaration as to the extent of
Mr. Hulse's interest in the villa; (9) an order that both respondents
should immediately take steps to rectify the Spanish register of the
villa to acknowledge that "the pur****ted transfer (a) of the interest
of Mr. Hayward in the villa to Molly Hayward and (b) of the interest
thereby pur****tedly acquired by the second respondent to the first
respondent are void." The rectification sought was to the effect that
the register should show that the villa is held in the joint names of
the first respondent, Mr. Hulse, and the trustee; (10) an order that
the villa should be sold in England with the trustee to have conduct
of the sale, the proceeds to be divided between him and Mr. Hulse in
accordance with the declaration sought under (8).
The ordinary application sought further ancillary relief, which is not
relevant for present purposes. The ordinary application was
supplemented
[1997] 49
1 Ch. In re Hayward, decd. Rattee J.
by points of claim delivered by the trustee, which underwent certain
amendments and, as amended, set out the trustee's claim that he became
entitled on his appointment as trustee in bankruptcy to Mr. Hayward's
half-share in the villa and that, in effect, nothing that has happened
since was effective to impinge on that entitlement. The first
respondent, Mr. Hulse, put in a defence, which again in due course was
amended, in which, in particular, it was denied that any entitlement
to the villa or any share in it had vested in the trustee. As I have
already indicated, Mr. Hulse launched an application to strike out the
originating application. The defence which he delivered expressly made
plain that it was without prejudice to his argument that the
application should be struck out in limine on the basis that in
effect, by virtue of the fact that the matter in issue was owner****p
of foreign land, the English court had no jurisdiction to deal with
the matter. However, the principal ground on which that contention was
put forward was that jurisdiction to deal with the matter had been
expressly removed from the English court, even if it would otherwise
have had it, by the provisions of the European Convention, to which I
have referred. The terms of that Convention are set out in Schedule 1
to the Civil Jurisdiction and Judgments Act 1982 (as substituted in
1990). I should refer to some of its provisions. Article 1 provides:
"This Convention shall apply in civil and commercial matters
whatever the nature of the court or tribunal. It shall not extend, in
particular, to revenue, customs or administrative matters. The
Convention shall not apply to - 1. The status or legal capacity of
natural persons, rights in property arising out of a matrimonial
relation****p, wills and succession. 2. Bankruptcy, proceedings
relating to the winding up of insolvent companies or other legal
persons, judicial arrangements, compositions and analogous
proceedings. 3. Social security. 4. Arbitration."
Article 2 provides:
"Subject to the provisions of this Convention, persons domiciled
in a contracting state" - which both this country and Spain are -
"shall, whatever their nationality, be sued in the courts of that
state. Persons who are not nationals of the state in which they are
domiciled shall be governed by the rules of jurisdiction applicable to
nationals of that state."
Article 16 of the Convention provides, so far as material:
"The following courts shall have exclusive jurisdiction,
regardless of domicile: 1.(a) in proceedings which have as their
object rights in rem in immoveable property or tenancies of immoveable
property, the courts of the contracting state in which the property is
situated; . . . 3. In proceedings which have as their object the
validity of entries in public registers, the courts of the contracting
state in which the register is kept."
Judge Geddes in the county court held that the Convention did apply to
the proceedings commenced by the trustee's ordinary application and
that the Convention's application was not excluded by the provisions
of
[1997] 50
1 Ch. In re Hayward, decd. Rattee J.
article 1, which I have read. He further held that, by virtue of
article 16, the courts of Spain had exclusive jurisdiction in relation
to the subject matter of the originating application (that is to say,
the trustee's claim to a half-share in the villa) by reason of the
fact that the proceedings were either proceedings which had as their
object rights in rem in immoveable property or were proceedings which
had as their object the validity of entries in public registers.
The trustee's contention, both before the judge and before this court,
was to the effect that article 1, on its true construction, does
exclude the application of the Convention to the proceedings begun by
the originating application because, within the meaning of that
article, the proceedings relate both to matters of succession and to
matters of bankruptcy. They relate to matters of succession because
the title, or alleged title, of the first respondent, Mr. Hulse, to
the half-share originally owned by Mr. Hayward in the villa depends on
Mrs. Hayward, the second respondent, having succeeded to that half-
share on the bankrupt's death.
The proceedings relate to matters of bankruptcy, submitted the
trustee, because the title which he seeks to assert is one he only has
as trustee in bankruptcy and therefore which arises only by virtue of
Mr. Hayward's bankruptcy. Moreover, submitted the trustee, the
proceedings are brought under the provisions of the Insolvency Act
1986 in the bankruptcy court. On either basis, submitted the trustee,
the other provisions of the Convention do not, having regard to the
terms of article 1, apply to the relevant proceedings.
For the first respondent it was submitted by Miss Hitching that that
is not so. The argument put very clearly by her in a very helpful
skeleton argument sets the submissions out in summary. It was
submitted that the subject matter of the proceedings begun by the
trustee is neither succession nor bankruptcy within the true meaning
of those words in article 1 of the Convention. In sup****t of that
submission, Miss Hitching relied on the judgment of the Court of
Justice of the European Communities in Gourdain v. Nadler (Case
133/78) [1979] E.C.R. 733, to which I should refer. The proceedings
were under a particular provision of French law in which a liquidator
sought to make the manager of the company, whose affairs he was
liquidating, personally liable for the company's debts. The court was
asked to consider whether the relevant proceedings were proceedings to
which the Convention applied or proceedings where the Convention's
application was ousted by virtue of the provisions of article 1, which
I have read. In the course of its judgment, the court said, at p. 743:
"As article 1 serves to indicate the scope of the Convention it is
necessary, in order to ensure, as far as possible, that the rights and
obligations which derive from it for the contracting states and the
persons to whom it applies are equal and uniform, that the terms of
that provision should not be interpreted as a mere reference to the
internal law of one or other of the states concerned. By providing
that the Convention shall apply 'whatever the nature of the court or
tribunal' the first paragraph of article 1 shows that the concept of
'civil and commercial matters' cannot be interpreted solely in the
light of the division of jurisdiction between the various types of
courts
[1997] 51
1 Ch. In re Hayward, decd. Rattee J.
existing in certain states. The concepts used in article 1 must be
regarded as independent concepts which must be interpreted by
reference, first, to the objectives and scheme of the Convention and,
secondly, to the general principles which stem from the corpus of the
national legal systems."
In that passage, as Miss Hitching submitted, it is clear that the
court was deciding that in interpreting the provisions of article 1 of
the Convention and, in particular, in interpreting its references to
succession and bankruptcy, one must, so far as possible, treat the
concepts of succession and bankruptcy as independent concepts of
European law, having similar effect throughout the contracting states,
parties to the Convention, and not dependent on particular provisions
of a particular contracting state's national law.
In Gourdain v. Nadler the court went on, at p. 744, immediately
following the passage I have just read, to deal with the concept of
bankruptcy, which I think is helpful for present purposes and which I
shall read:
"As far as concerns bankruptcy, proceedings relating to the
winding up of insolvent companies or other legal persons, judicial
arrangements, compositions and analogous proceedings, according to the
various laws of the contracting parties relating to debtors who have
declared themselves unable to meet their liabilities, insolvency, or
the collapse of the debtors' creditworthiness, which involve the
intervention of the courts culminating in the compulsory 'liquidation
des biens' in the interest of the general body of creditors of the
person, firm or company, or at least in supervision by the courts, it
is necessary, if decisions relating to bankruptcy and winding up are
to be excluded from the scope of the Convention, that they must derive
directly from the bankruptcy or winding up and be closely connected
with the proceedings for the 'liquidation des biens' or the 'r=E8glement
judiciaire.' In order to answer the question referred to the court by
the national court it is therefore necessary to ascertain whether the
legal foundation of an application such as that provided for in
article 99 of the French law" - the article under which the
proceedings in that case were brought - "is based on the law relating
to bankruptcy and winding up as interpreted for the purposes of the
Convention. The application under article 99, called an application to
make good a deficiency in the assets, for which special provision is
made in a law on bankruptcy and winding up is made only to the court
which made the order for the 're=E8glement judiciaire' or the
'liquidation des biens.' It is only the 'syndic' - apart from the
court which can make the order of its own motion - who can make this
application on behalf of and in the interest of the general body of
creditors with a view to the partial reimbursement of the creditors by
respecting the principle that they rank equally and by taking account
of any preferential rights lawfully acquired."
As I understand it, the reference to the "syndic" is a reference to
somebody in the position of a liquidator or trustee as in the present
case. The judgment went on, at pp. 744-745:
"In this application, which derogates from the general rules of
the law of liability, the de jure or de facto managers of the company
are
[1997] 52
1 Ch. In re Hayward, decd. Rattee J.
presumed to be liable and they can only discharge this burden by
proving that they managed the affairs of the company with all the
requisite energy and diligence. The period of limitation of three
years for the application runs from the date when the final list of
claims is drawn up and is suspended for the duration of any scheme of
arrangement which may have been entered into and begins to run again
if such a scheme is terminated or declared void. If the application
directed against the manager of the company succeeds it is the general
body of creditors which benefits, some assets being added to the funds
to which they are entitled, as happens where the 'syndic' establishes
a claim which benefits the general body of creditors. Furthermore, the
court may order the 'r=E8glement judiciaire' or the 'liquidation des
biens' of those managers who have been made responsible for part or
all of the liabilities of a legal person and who do not discharge the
said liabilities, without having to verify whether the said managers
are businessmen and whether they are unable to meet their liabilities.
It is quite apparent from all these findings that the legal foundation
of article 99, the object of which, in the event of the winding up of
a commercial company, is to go beyond the legal person and proceed
against its managers and their property is based solely on the
provisions of the law of bankruptcy and winding up as interpreted for
the purpose of the Convention."
Thus, submitted Miss Hitching, it is plain from the comments made by
the European court in that case that a matter is not one of bankruptcy
from which the application of the Convention is excluded by article 1
merely because some question of bankruptcy law may arise incidentally
in the course of the relevant proceedings. In Gourdain v. Nadler
itself, the court, in the last paragraph of the passage I have just
cited, stressed the fact that the relief available to the liquidator
against the allegedly defaulting company manager, in that case, was
relief which was available only by virtue of the relevant insolvency
law of France.
Miss Hitching further drew my attention to section 3 of the Civil
Jurisdiction and Judgments Act 1982 which applies the Convention in
English law and which provides:
"(1) Any question as to the meaning or effect of any provision of
the Conventions shall, if not referred to the European Court in
accordance with the 1971 Protocol, be determined in accordance with
the principles laid down by and any relevant decision of the European
Court. . . . (3) Without prejudice to the generality of subsection
(1), the following re****ts (which are reproduced in the Official
Journal of the Communities), namely - (a) the re****ts by Mr. P. Jenard
on the 1968 Convention and the 1971 Protocol; and (b) the re****t by
Professor Peter Schlosser on the Accession Convention, may be
considered in ascertaining the meaning or effect of any provision of
the Conventions and shall be given such weight as is appropriate in
the cir***stances."
In the light of that provision, Miss Hitching referred me to passages
in the re****t of Mr. Jenard referred to in subsection (3). In the
course of that re****t, the author, Mr. Jenard, said (O.J. 1979 C. 59,
pp. 10, 12):
"However, matters falling outside the scope of the Convention do
so only if they constitute the principal subject matter of the
proceedings.
[1997] 53
1 Ch. In re Hayward, decd. Rattee J.
They are thus not excluded when they come before the court as a
subsidiary matter either in the main proceedings or in preliminary
proceedings. . . . Proceedings relating to a bankruptcy are not
necessarily excluded from the Convention. Only proceedings arising
directly from the bankruptcy and hence falling within the scope of the
Bankruptcy Convention of the European Economic Community are excluded
from the scope of the Convention."
As Miss Hitching pointed out, that passage assumed that there was
going to be a Bankruptcy Convention of the E.E.C. which, she told me,
never came into being.
In Dicey & Morris, The Conflict of Laws, 12th ed. (1993), vol. 1, pp.
277-278, in commenting on the Convention and, in particular article 1
of it, the authors say:
"Wills and succession. Matters relating to wills and succession
were excluded because it was thought that the divergence in laws,
especially in the relevant rules of private international law, among
the original 1968 Convention contracting states was so great that it
would be premature to include them before the rules of private
international law had been unified. The expression 'wills and
succession' covers all claims to testate or intestate succession,
including disputes as to validity or interpretation of wills setting
up trusts; but disputes concerning the relations of the trustee with
persons other than beneficiaries may come within the scope of the
Conventions.
"Bankruptcy, etc. This exclusion extends to bankruptcy,
proceedings relating to the winding up of insolvent companies or other
legal persons, judicial arrangements, compositions and analogous
proceedings. Bankruptcy was excluded because of the great disparities
in national practice between the original 1968 Convention contracting
states, because of its proximity to public law, and because a draft
Bankruptcy Convention was being considered by the Community. In
Gourdain v. Nadler (Case 133/78) [1979] E.C.R. 733, 744 the European
Court held that for proceedings to be excluded on the basis that they
concerned bankruptcy, etc., it was necessary that they must derive
directly from the bankruptcy or winding up and be closely connected
with the bankruptcy proceedings. Thus a claim by an English liquidator
against the directors of a company for fraudulent trading under
section 630 of the Companies Act 1985 would be outside the scope of
the Conventions. But an action by a liquidator to recover debts due to
an insolvent company would not be excluded, since the claim in no
sense relates to bankruptcy."
For my part, I cannot see that the claim made by the originating
application by the trustee in bankruptcy can properly be said to raise
any question of succession. Mr. Hegarty for the trustee submitted that
it does, on the basis that the first respondent's claim himself to be
entitled to the half-share in the villa which is claimed by the
trustee depends on a claim that the second respondent, Mrs. Hayward,
succeeded to that share on the death of the bankrupt, her husband.
However, it seems to me that the trustee's claim in these proceedings
raised no issue of succession. Succession was in no sense the
principal
[1997] 54
1 Ch. In re Hayward, decd. Rattee J.
subject matter of the proceedings. The trustee's claim was simply on
the basis that the bankrupt had been entitled to a half-share of the
villa and that, on his appointment as trustee, the trustee had taken
over the bankrupt's entitlement thereto. That in no sense, in my
judgment, raises any questions of succession.
So far as the reference in article 1 of the Convention to bankruptcy
is concerned, Mr. Hegarty for the trustee forcefully and attractively
argued that the claim made by the originating application is a matter
of bankruptcy, because that claim depends essentially on the
bankruptcy of the late Mr. Hayward. Only by virtue of that bankruptcy
does the trustee have the claim which he seeks to assert in the
proceedings. That, of course, is perfectly true: but for the
bankruptcy, the trustee himself would have no claim such as he seeks
to establish in the proceedings. However, the nature of the claim made
by the trustee in the proceedings, in my judgment, is not a matter of
bankruptcy in the sense that any question of bankruptcy is the
principal subject matter of the proceedings. The claim made in the
proceedings is essentially a claim by the trustee to recover from a
third party, the first respondent, Mr. Hulse, assets said to belong to
the bankrupt's estate and, therefore, to be vested in the trustee. It
is very like a claim made by a liquidator of a company to recover the
company's debts, such as was contemplated in the passage from Dicey &
Morris which I have just quoted, in which the editors, in my judgment
rightly, suggest that such a claim is not taken outside the provisions
of the Convention by article 1.
Unlike the situation in Gourdain v. Nadler, the relief sought by the
trustee in the present case by his originating application cannot be
said, in my judgment, to be relief available to the trustee only in
the bankruptcy jurisdiction and in accordance with bankruptcy law. The
issue between the parties in the proceedings, started by the
originating application, is no aspect of bankruptcy law but is the
effect under Spanish law, as the lex situs of the villa, of the fact
that, rightly or wrongly, the first respondent, Mr. Hulse, is at
present the sole registered proprietor of the whole of the villa. It
is true that, as Mr. Hegarty rightly stressed, the relief the trustee
sought was sought in the bankruptcy court in the context of
proceedings relating to Mr. Hayward's bankruptcy, and was pur****tedly
sought, according to Mr. Hegarty's submissions, under the provisions
of section 367 of the Insolvency Act 1986:
"(1) If it appears to the court, on consideration of any evidence
obtained under section 366 or this section, that any person has in his
possession any property comprised in the bankrupt's estate, the court
may, on the application of the official receiver or the trustee of the
bankrupt's estate, order that person to deliver the whole or any part
of the property to the official receiver or the trustee at such time,
in such manner and on such terms as the court thinks fit."
On the face of it, it seems to me at least doubtful whether the court
has jurisdiction to grant the relief sought by the originating
application and, in particular, orders for the rectification of the
Minorcan property register under section 367 of the Act. However, in
my judgment, it matters not whether such orders could be made under
that section. For it is plain
[1997] 55
1 Ch. In re Hayward, decd. Rattee J.
that the relief sought is not (as was the relief in Gourdain v.
Nadler ) relief of a type which can only be obtained from the court
under the provisions of some law relating to bankruptcy or insolvency.
The trustee, if he has a good claim, as he alleges, could clearly
pursue that claim in an action against the first respondent, Mr.
Hulse, quite outside the bankruptcy jurisdiction.
The only connection between these proceedings and bankruptcy, it seems
to me, is that the title sought to be established by the trustee
depends, as a first step, on the fact that, as trustee in bankruptcy
under the English statute, the trustee is entitled to whatever
property was vested in Mr. Hulse at the date of the bankruptcy. That
does not, in my judgment, make bankruptcy the principal subject matter
of the proceedings so as to bring the application within the excluding
terms of article 1 of the Convention, construed in the light of the
comments to which I have referred, made by the European court in
Gourdain v. Nadler and by Mr. Jenard in the re****t on the Convention
which I am told by section 3(3) of the Civil Jurisdiction and
Judgments Act 1982 I have to take into account when construing the
Convention.
Accordingly, in my judgment, Judge Geddes was entirely correct in his
conclusion that the application of the Convention to the proceedings
begun by the trustee's originating application was not precluded by
the provisions of article 1 of the Convention. The proceedings
concerned are not either succession or bankruptcy proceedings within
the meaning of that article.
It therefore becomes necessary to consider the alternative grounds of
appeal relied on by Mr. Hegarty, namely, that, even if the provisions
of article 1 of the Convention do not oust the application of the
other provisions of the Convention in this case, none the less, the
judge in the county court was wrong to decide that, by virtue of the
provisions of article 16 of the Convention, exclusive jurisdiction in
respect of the trustee's claims is given to the Spanish court, so that
this court has no jurisdiction to entertain the trustee's application.
As appears from paragraphs (1) and (3) of article 16, which I have
already read, exclusive jurisdiction in the courts of Minorca - I
suppose, more properly, the courts of Spain - can exist either on the
footing that the trustee's proceedings are proceedings which have, as
their object, rights in rem in immoveable property situated in Spain,
or on the basis that they are proceedings which have, as their object,
the validity of entries in public registers.
Mr. Hegarty sought valiantly to argue on behalf of the trustee that
his proceedings fell within neither of those paragraphs of article 16.
So far as the first paragraph is concerned, he submitted that the
trustee's proceedings did not have, as their object, rights in rem in
immoveable property because what they sought were orders in personam
against the respondents to cause the Spanish property register to be
rectified by showing the trustee as proprietor of one-half of the
villa. Alternatively, Mr. Hegarty sought to argue, as I understood his
submission, that the trustee had some personal claim or claim in
personam against Mr. Hulse by reason of the fact that Mr. Hulse had
pur****ted to take a transfer of the bankrupt's half-share in the villa
from Mrs. Hayward, his widow, and to register himself as the
[1997] 56
1 Ch. In re Hayward, decd. Rattee J.
sole proprietor of the villa in cir***stances in which he knew
perfectly well that the trustee himself was claiming the bankrupt's
half-share as trustee in bankruptcy.
So far as paragraph (3) of article 16 is concerned, Mr. Hegarty denied
that the proceedings had, as their object, the validity of entries in
the Minorcan land register. He said he was not, in his proceedings,
challenging the validity of the register, but merely seeking a
declaration in the first place that he was entitled to a half-share in
the villa and, consequent upon that, orders against the two
respondents to compel them to cause the necessary amending entries to
be made in the register so as to show the trustee's half-share in the
villa.
On this part of the case, Miss Hitching contended that, indeed, what
the trustee was claiming in his proceedings was the clearest possible
right in rem. For that proposition she relied on a passage from the
re****t of Professor Schlosser (referred to in section 3(3) of the
Civil Jurisdiction and Judgments Act 1982) in which he refers to
owner****p as being "the most comprehensive right in rem:" O.J. 1979 C.
59, pp. 120-121, para. 166. A little earlier in that paragraph he had
commented on the essential differences between rights in personam and
rights in rem where he said:
"The concept of a right in rem - as distinct from a right in
personam - is common to the legal systems of the original member
states of the E.E.C., even though the distinction does not appear
everywhere with the same clarity. A right in personam can only be
claimed against a particular person; thus only the purchaser is
obliged to pay the purchase price and only the lessor of an article is
obliged to permit its use. A right in rem, on the other hand, is
available against the whole world. The most im****tant legal
consequence flowing from the nature of a right in rem is that its
owner is entitled to demand that the thing in which it exists be given
up by anyone not enjoying a prior right."
I was referred to a decision of the Court of Justice of the European
Communities in Webb v. Webb (Case C-294/92) [1994] Q.B. 696 where,
on a reference from the Court of Appeal, the European court decided
that a claim by a plaintiff based on an allegation that a defendant
held land as trustee for the plaintiff and for relief against the
defendant accordingly was a claim, not to a right in rem, but to a
right in personam. It was pointed out in the decision that in that
case the plaintiff concerned did not claim that he already enjoyed
legal owner****p of the property concerned. His claim was based on the
proposition that he was entitled as cestui que trust to enforce a
trust of the property against the defendant.
In the present case, submitted Miss Hitching for the first respondent,
what is claimed by the trustee is not a right in personam in relation
to the villa but the very right of owner****p to one-half of it, which
apparently, under Spanish law, judging by the entries on the register
that I have seen, can exist as what we would regard as a legal and not
only (as under our system) an equitable interest in the villa. The
trustee's claim, submitted Miss Hitching, was of the very essence of a
claim to a right in rem, in that it was a claim to owner****p itself of
one-half of the villa.
[1997] 57
1 Ch. In re Hayward, decd. Rattee J.
In my judgment, that submission is sound. Although English law does
not perhaps recognise quite the same distinction between rights in
personam and rights in rem as explained by Professor Schlosser in the
re****t to which I have referred, it seems to me clear that, within the
meaning of article 16 of the Convention, construed even apart from
Professor Schlosser's re****t, let alone in the light of it, it is
difficult to contemplate any right more clearly a right in rem than a
right to legal owner****p such as is claimed by the trustee in the
present case.
Accordingly, in my judgment, the trustee's claim by the originating
application was a claim in proceedings which, within the meaning of
article 16(1) had as their "object" - I think by that must be meant
subject matter - a right in rem in immoveable property, namely the
villa.
In the light of that conclusion, it is really unnecessary to decide
whether the claim also fell within article 16(3), as being made in
proceedings which had as their object the validity of entries in
public registers. It seems to me that, given the trustee's claim as
formulated in the points of claim, to the effect that the register of
land held in Minorca required rectification by reason of the fact that
it showed what the trustee said were void transactions, indeed the
proceedings brought by the trustee were proceedings which had as their
object (or subject matter) the validity of entries in a public
register. There is no doubt, as I understand the proceedings, that the
whole purpose of them, from the trustee's point of view, was to get
the Minorcan property register rectified so as to show him as the
owner of half the property because, without that, he was facing
difficulties, if not an impossibility, of effectively dealing with the
half-share which he claimed to be entitled to as part of the
bankrupt's estate.
Thus, in my judgment, the judge in the county court was entirely right
in the conclusions he reached and in his overall conclusion that,
given that the Convention applied to the proceedings brought by the
trustee's originating application, and given that article 16 of the
Convention conferred exclusive jurisdiction on the courts of Spain,
being the country in which the relevant property is situated and the
relevant registers are situated, the English court had no jurisdiction
to entertain the trustee's application and that it should accordingly
be struck out. For those reasons, I dismiss the trustee's appeal.
So far as the first respondent's cross-appeal is concerned, that
arises in this way. Although the first respondent won before the judge
in the county court in the sense that he was successful in his
application to strike out the trustee's ordinary application, the
judge declined to make any order for costs in favour of the first
respondent. There is no transcript of any reasons given by the judge
for that conclusion, but it has apparently been agreed between
counsel, for the purposes of this appeal, that his reasons are
accurately set out in ground 2 of the grounds of appeal specified in
the first respondent's notice of appeal before this court, where he
said:
"The reason given by the judge for refusing the first respondent
his costs of the ordinary application was that, so the judge held, the
first respondent had in his defence put in issue a point of English
bankruptcy law which was not really an issue in the proceedings but
which, had it been in issue, would or could arguably have made the
[1997] 58
1 Ch. In re Hayward, decd. Rattee J.
proceedings a matter principally concerned with bankruptcy which
would have been outside the scope of the Brussels Convention."
I fail to see the reality of that point taken by the judge. As I
understand the first respondent's defence, he denied that the
bankrupt's title to half the villa vested in the trustee. Neither
before the judge below nor before this court has the first respondent
made any submission to the effect that, quite apart from the
application of Spanish law, as the lex situs, the trustee was not
entitled to whatever property rights were vested in the bankrupt at
the date of the bankruptcy order. It is quite clear that the first
respondent's case is based on the proposition that Spanish law, in
relation to registration of title to property, has the effect, in the
events which have happened, that the trustee is not now entitled to
any interest in the villa.
On this cross-appeal, Mr. Hegarty for the trustee relied on a
reference in the judge's judgment to the fact that, before the judge,
it was conceded on behalf of the first respondent that he took no
point on the application of the provisions of the English Insolvency
Act 1986 vesting the bankrupt's estate in the trustee, as opposed to
the point that any effect which those provisions might otherwise have
had in relation to the villa were ousted by the relevant provisions of
Spanish law in the events which have happened. Mr. Hegarty sought to
justify the judge's conclusion on costs on the basis that the judge
made it plain in his judgment that he reached the conclusion he did -
namely that the Convention applied to the trustee's proceedings - on
the basis, at least in part, of the first respondent's concession that
he was not arguing any point on the provisions of the Insolvency Act
1986 itself. Therefore, Mr. Hegarty submitted, the judge was perfectly
entitled to say that, since the first respondent had not made any such
concession clear in his pleading, he ought not to have his costs of
the successful application to strike out the trustee's claim.
Of course the question of costs is in the discretion of the judge.
Miss Hitching on behalf of the first respondent rightly referred me to
what was said by the Court of Appeal in relation to the exercise of a
judge's discretion on costs in Scherer v. Counting Instruments Ltd.
(Note) [1986] 1 W.L.R. 615 where the court stated what, if I may say
so, is fairly obvious, namely that a judge's discretion on costs must
be exercised judicially, and that a judge cannot penalise a party in
costs except on the basis of some relevant consideration.
Miss Hitching submitted that, in the present case, it is apparent that
the judge did not properly exercise his discretion in relation to the
first respondent's costs of the application before him. That
application succeeded. Prima facie, costs would be expected to follow
the event, yet the judge declined to let costs follow the event on the
grounds, so far as appears from the agreed statement in the notice of
appeal, that somehow the first respondent had encouraged the trustee's
resistance to the application to strike out his originating
application by appearing in the first respondent's defence to put some
question of English bankruptcy law in issue. With great respect to the
judge, I think he did err fundamentally in pur****ting to exercise the
discretion in the way in which he did. The question before him was
whether the trustee's application amounted to
[1997] 59
1 Ch. In re Hayward, decd. Rattee J.
bankruptcy or succession proceedings within the meaning of article 1
of the Convention. Even if it had been right that the first respondent
in his defence raised some question of bankruptcy law, it is not
obvious to me that that would have the effect of converting. the
trustee's claim into something which it otherwise was not.
Be that as it may, in my judgment, on a fair reading of the defence in
this case, it did not put in issue any question of bankruptcy law. It
simply denied that the trustee had title to the relevant half-share of
the villa, which is a denial which is still maintained by the first
respondent on the footing (albeit that this footing was not spelt out
perhaps as clearly as one might have ideally liked in the defence)
that Spanish law, being the relevant lex situs relating to the
registration of title to Spanish property, has the effect that Mr.
Hulse's registered title defeats any title that the trustee might
otherwise have. To say that that denial in the defence could somehow
be treated as having encouraged the trustee's persistence in resisting
the application to strike out the originating application seems to me,
with all due respect to the judge, to have been misconceived.
Accordingly, in my judgment, the only reason given by the judge for
the decision he reached on costs was not a reason relevant to the
issue of costs. The judge gave no valid reason for costs not following
the event. Accordingly I allow the cross-appeal and vary the judge's
order by providing that the costs of the application to the judge
should be paid by the trustee.
Appeal dismissed and cross-appeal allowed with costs.
Solicitors: Edge & Ellison, Birmingham; Sydney W. Smith & Co.,
Wednesbury.
K. N. B.
[1997] Ch. 45
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