BANKRUPTCY LAW

HL Deb 08 February 1973 vol 338 cc1220-33

7.15 p.m.

LORD HALE rose to ask Her Majesty's Government whether they are satisfied with the practice and procedure of the existing law of bankruptcy and with its equity to debtors. The noble Lord said: My Lords, it is 56 years since I entered the office of the Official Receiver in Bankruptcy at Leicester and found myself becoming acquainted with a procedure which had been enacted in 1914, though substantially based on Acts passed many years before. Fifty-six years ago, of course, was a time when the roses were not blooming in Picardy, nor the poppies growing in Flanders. Best blood, having run, was then manuring the plain. In Leicester, business was as usual, and there was very little bankruptcy work about for some time. Customers were rare; but my principal was also a practising solicitor. I hope your Lordships will forgive me if I say very briefly what we did. I recall a single, simple case. One day, while my principals were out, a lady called to say that she felt she ought to go bankrupt, and that her friends had so advised her. I had to tell her that she must deposit £10 as evidence of insolvency, as that was a requirement of the law, rather in the manner of the story about the virgin who applied for admission to the Magdalen Hospital for Fallen Women and was told she had not yet fallen and must go out and come back morally depraved.

Having got the £10, I had to fill in a form setting out this Leicester lady's long history; I had to prepare her statement of affairs, which was minimal, because she had no assets and had borrowed the £10; and I had to prepare a form of adjudication and receiving order, take them round to the county court and have them stamped by an elderly clerk who was almost blind and who used to say, "Is this in order?" and, in response to the reply "Yes", stamp something twice and send out the notice to the Press. By that time, much of the procedure was over. There remained only the public examination before the registrar on a day fixed, which would almost inevitably be formal until some information came in. I waited for the congratulations of my principals on this evidence of industry, but they came back and said, "You have not put in the lady's occupation."I said," She hasn't got an occupation", and they said, "Then she cannot possibly be made bankrupt; a married woman can be made bankrupt only if she is in a trade or business." I said, "You should have told me that before, but this matter is now res judicata, the matter is published, she is adjudicated and there is a receiving Order"; and, with that tact which always gets us out of our legal troubles, the public examination did not raise the question of the lady's occupation and she still remains one of those examples to which the noble and learned Lord so felicitously referred in his brilliant judgment on Monday as one of those unexpected events which shape the history of the law.

My Lords, some six years later I left to buy a brass plate and was not directly concerned with bankruptcy law for a long time, though from time to time one had ample evidence of its difficulty. But one of the problems when I was in the bankruptcy office was that, as the years went by, particularly in the case of country bankruptcies and we gathered less and less to share, there was a flood of anonymous letters making allegations against the conduct of the bankrupt. For example, "There was an old Rolls-Royce car that he used to park in the tithe barn"; and if we looked in the tithe barn we would find this—in those days—not very sub-stantial asset. Or, "There was a lady who visited him and stopped all night and was seen to be wearing jewels". Those letters arrived in quantities.

I have often argued that one should not act on anonymous information, but my police constable friends tell me that a "tip off" is better than Lord Peter Wimsey; and that if it is not acted upon a great deal of very useful information would be rejected. We did not try to look into these things; but if the vicar had the car in the tithe barn, the vicar's name appeared in the Press. He was asked to explain it; and he did. With luck, he could make a statement to the Press and get away with a headline saying, "Vicar denies allegations"—never the most happy form of exculpation. No doubt he was interviewed by his Bishop and told that Christian charity has limits and should be exercised with discretion.

I do not propose to mention the other things that happened. But it was the law. The official receiver or, in case of assets, the trustee appointed by the creditors acting on the instructions of a committee of inspection appointed by them, should in open court question the bankrupt very fully about his assets, his liabilities and his recent financial history and connections. There were complaints, and the people complaining were told, "Write to your M.P.!" Some, no doubt, got a letter from their M.P. saying that he would take the matter into consideration next time the bankruptcy law was revised; but apart from some Amendments in 1926 it never has been revised. There are two things about this procedure. First, it seemed really hopelessly supererogatory in tiny cases. It was far too elaborate for the minor case. Secondly, the whole organisation was quite inadequate to deal with the rare and large case which presented major problems of investigation; nor had anyone the resources to pursue it to the end.

There was a period when I acted for a gentleman who exemplifies the problems of bankruptcy law. His name was a household word. I am disclosing nothing that is not known. I have not troubled to check the facts; indeed, the Dictionary of National Biography does not record his existence. But in his day his name was very well known and on his first bankruptcy, which was for something in the neighbourhood of five figures, he was made to dispose of an immense hall in Cambridge and the yacht he had bought from the Prince of Wales; and St. Paul's Cathedral returned for the benefit of the creditors the gold plate which he had presented to them.

On his second bankruptcy, which I think was for six figures, there was no possibility of this because, under the law, the unsatisfied creditors in the first bankruptcy still took priority. On his third bankruptcy which, if I recollect—and I hope I am not deceiving the House—ran into seven figures, there was really nothing for the creditors to do. He was never prosecuted, so far as I know, for a bankruptcy offence. If he was, he was acquitted, though he did spend two periods as a guest of Her Majesty, one of nine months over the Tsar of Russia's diamond mines and one of three years over the Jubilee Cotton Mills. From then on, his bankruptcies made him absolutely writ-proof. To make him bankrupt a fourth time was useless. He used his career as a method of selling shares. He would say, "Do not trust me. You know all about me. Everybody knows about my record". He was an engaging character. He was far too clever to follow once he got on figures. He lived throughout his three bankruptcies at a modestly stately hall in Derbyshire which he had the foresight to settle on his very charming wife before his financial career which, once very promising, came to ruin.

That is the system. I became, to my great advantage personally, a member of the Payne Committee on the Enforcement of Debt, having acted more recently for another gentleman who had a judgment against him for £800,000 in this House for tax and who was being sued for £3 million damages for criminal conspiracy with about sixty others and whose operations I followed throughout Australia. I shall not have time to do justice tonight to my distinguished colleagues on that Committee. Their labours were immense, their courtesy wonderful. The amount of work done by the chairman, Mr. Justice Payne; the amount of patience he displayed, the amount of tolerance and kindness was infinite. This was a period of illness for me and I could not take much part, for so many knew much more about it. The joy of the conversation and the legal polemics was such that I sat and looked around sometimes expecting either Sam Johns or Ben Jonson to arrive from the club or from the Mermaid Tavern. Everyone should read that Report. I beg them to read it. There are 453 pages of close print, a quarter of a million words. They will see what was said.

My problem was that we were in theory abolishing imprisonment for debt; but we did that at Oldham years ago by sheer good sense. No one went to prison from the county court in Oldham for years and years. We were applying once more to the small debtor a system which was pretty harsh. We were applying the attachment of earnings, of future earnings, in payment of debts. How can a Socialist sign such a document?—when the man who owes £10,000 can go into court, give an interview to the Press and say, "Of course, this will not affect my earning capacity. I can make £15,000 a week any time. I am just popping in to clear up my past and to get a new start in life." There is a great deal to be said for a new start. I do not object to it provided it is open to all. The law should be open to all.

I am detaining the House; but your Lordships will have become aware that at this moment the bankruptcy laws are attracting increasing attention and most of the newspapers have been indulging in polemics about some aspects of this law. It may be that the time is ripe for reform. Noble Lords on the Government Front Bench have said that they want to do something about the Payne proposals —but not this year. I thought that "not this year" gave at least hope of next year.

I want to say only one word or two about the proceedings now on. I want to say them with restraint; but I passionately want to say them. I think they ought to be said. I do not know Mr. Muir Hunter. I know that he is the editor of the standard work on bankruptcy which is regarded as a brilliant work and is very dull reading. I know he is esteemed by some of his contemporaries. I desire to dissociate myself wholly and entirely from the ill-informed criticism which has been made about a man who is performing his duty as counsel to trustees whose job is to get money for the creditors; who is getting money for the creditors. I am not sure whether money should be accepted on a promise of anonymity, but that is a matter for the court and not for counsel who is handling information which is coming along the conveyor belt and having to deal with it almost as it arrives.

My Lords, I have trespassed on the indulgence of the House quite a bit now. I am hoping that the noble and learned Lord on the Woolsack will permit me to correct one thing, and I come to the question of the Bar Council and what was said to-day and which is really irrelevant to this Question. There was some discussion about the Bar Council report on Wednesday. I was immediately informed that the Bar Council have sent copies of their report, not to all 1,150 Peers, which might be expensive, but to a list selected without consideration of Party or rank; to every one of the Peers who had shown an interest in legal matters, and that one had been sent to me. I have said that to the best of my humble belief it has not arrived but they have promised that if that is so another one will be sent. I had hoped that I might correct that.

I wonder whether it is presumptous of me to add a word about the astonishing announcement about Mr. Muir Hunter. It seems to me that it would be presumptous for me to say anything, but perhaps it would be a little cowardly to refrain at the stage I have reached. Perhaps I may say that when I heard the news on the radio I did not believe it. When it was reported to me I said that I did not believe it. When I heard it I said that the B.B.C. had got it wrong. I do not recall any precedent for this action, but of course—I do not know—I must assume that they have information about which I do not know. Nowadays I never express myself in very strong terms, but if there is one thing in which I passionately believe it is the freedom of the advocate, and I believe that the noble and learned Lord on the Woolsack would be the first to echo that sentiment.

My Lords, we demand that our judges should be entirely independent of the Legislature, and we shall go on insisting on that. And the only curb upon the judges is of course the freedom of the advocate. I reflected that night that if the Bar Council had acted 200 years ago as they appear to have acted that night, then Erskine would have been cut short in the opening speech of his career, at the moment when he said, "Whether Lord Sandwich is before the court or not, I will bring him before the court." And it would have been a bad thing for England—though perhaps the Woolsack would not have suffered much—if that advocate's first 20 years at the Bar had not been lived. There was more tolerance in those days. As the Lord Chancellor knows, one advocate attacked his Scottish colleagues at the Bar with a ferocity, we are told, that had never been equalled; and then departed in a hired cab, which his enemies said had been already hired for the purpose, on his way to London and to the Woolsack.

I am grateful for the tolerance I have had and I have strayed a little beyond the bounds which I ought to have set myself, but I want to conclude with this. I did, my Lords, put the point I have been humbly trying to make—and not doing so very clearly—in the form of a Minority Report. I apologise to my old colleagues for quoting myself and not their much more important utterances. We did, of course, have to examine the whole law of bankruptcy in those proceedings. Every analogy had to be taken from the law of bankruptcy; all the questions of priority had to be considered, and I wrote a Report of which I will read only a little as quickly as I can: The result of the exclusion is that it has not been possible to consider the anomolies or the injustice which the continued operation of the two-tier system must inevitably produce nor would it be permissible for me to pursue, in detail, subjects on which evidence has not been formally taken. That was because the main subject was outside our terms of reference. But I said: The position now, therefore, remains and will remain if the Report be implemented, that any civil debtor to whom the Report applies may be forced into bankruptcy at the option of any one substantial creditor; and that any debtor who possesses at one and the same time the sum of £10 and a disposition not to pay his debts, can opt out of the new system and seek refuge in the safer harbour of bankruptcies…"— and that in fact there was evidence that that was being done.

I said that two of my colleagues had made reservations in which they too made reference to the importance of considering the law of bankruptcy, and then I concluded in a paragraph, after recommending of course that the existing system of the Official Receiver, with all its deficiencies, with all its inadequacies, might well be combined with the enforcement system so as to make a single equitable system applying fairly to every debtor: I venture therefore to conclude, in the absence of evidence to the contrary, that the maintenance of a dual system is contrary to justice, morally wrong and that its existence would impair the working of the new system. Wholly unwilling to embark upon economic seas I can only humbly suggest that some economists might opine that two systems operating different rules in adjacent and, indeed, overlapping areas would needlessly increase public expenditure to the public disadvantage.

My Lords, in conclusion, may I say, at Stephen Leacock said, that one thing that was missing out of the biographies of successful men was the point between when they struck the town without a "bob" in their pocket and the time when they had £2,000 in their pocket to buy somebody's company and expand it into £100,000. It was how they got the first bit of money. Now we know how it is done. You borrow £49 from a friend and allot yourself 51 shares as fully paid in return for your services. You embark upon a career of debt. You fail and go "bust". You find another friend with £49 and, with any luck, by the fifth small company you may strike lucky and become a millionaire and an ornament of mercantile society.

We have always failed to deal with that aspect in bankruptcy affairs. We find delay after delay which usually finishes with a long fraud investigation and the delinquent insolvent in the I3ahamas. Therefore I beg the Government and their advisers when they consider the reform and the implementation of the Report of the Payne Committee; when they consider the objections to two systems, and the objections to the lack of equity, that they should try to present a comprehensive system with a full-time headquarters, capable of handling the massive tasks which may fall upon them; and a system which might draw much from the present French law in its essence of a differential bankruptcy which I will not elaborate now. My Lords, I apologise for taking up time at this hour of night. I had intended to try to be brief, and I am very grateful for the courtsey I have received from those who have so kindly listened to me.

7.39 p.m.

THE LORD CHANCELLOR

My Lords, if no other noble Lord wishes to address the House. I shall reply to Lord Hale's Unstarred Question. I am sure that the House is greatly indebted to the noble Lord and also has been greatly diverted by some of his reminiscences. The subject of bankruptcy law, which is an intricate and highly technical one, has become, in the last few months, a popular subject for discussion for the first time in my professional career which, though perhaps not so long as the noble Lord's, at least goes back to 1932. The noble Lord's question was to ask the Government whether they are satisfied with the practice and procedure of the existing law of bankruptcy and its equity to debtors". It was not possible for me, with the best will in the world, exactly to divine the scope of the inquiry which the noble Lord was seeking to make of the Government.

I was afraid at one point that the noble Lord might be going to comment upon the implications of the Poulson case or a recent exchange of Questions and Answers in another place between the Attorney General and two Members of Parliament and the rather intemperate comments which have been made in some quarters about those exchanges. Except tangentially in his references to one of the counsel engaged in the case, I do not think he has done so. But his tangential reference perhaps allows me to say that had he gone further into the matter I should have had to say to him, and I must say to the House, that there are four separate sets of inquiries proceeding at the moment about that case which render it particularly inappropriate either for the Law Officers or for the Lord Chancellor to make any comment about it. There is the public examination of the debtor himself. There are the police inquiries into the matters emerging as the result of the case which may or may not result in criminal proceedings of one sort or another. There are the Civil Service inquiries into the public servants involved and there is the Bar Council inquiry into the professional conduct of one of the counsel engaged in the case to which the noble Lord referred. So that if I were asked, or any of my colleagues were asked, to make any comment remotely relevant to the Poulson affair, I should have to say that we really must wait until the results of, at any rate, some of these inquiries are known before beginning to adopt attitudes or draw inferences.

The noble Lord has referred much more generally to the law and practice of bankruptcy, and he has really had to leave me to answer the Question by giving the state of play at the moment as I sec it at the moment in relation to the general law. As he told the House, the law and practice of bankruptcy was last reformed on a general scale in 1914 when the principal Act was enacted. This Act and the amending Act of 1926, together with the Bankruptcy Rules, still dominate the scene. In 1955 a further Committee was set up under the late Judge Blagden and that Committee reported in May, 1957. That report was to the effect that, the basic structure of the Bankruptcy Law apart from that relating to discharge is generally sound and well suited to its purpose. That has remained the view of successive Governments ever since. The Blagden Committee went on to suggest a number of amendments, designed as they put it, to remove as far as possible administrative difficulties and inequalities some of which have been inherent in a system of law which has to serve a twofold purpose: on the one hand protecting the bankrupt from anything in the nature of persecution by his creditors, and on the other protecting creditors from the dishonest or fraudulent financial dealings of their debtor. There the matter rested, because the amendments were relatively small; and although they accepted the general thesis successive Governments from that day to this have never found Parliamentary time to enact the minor amendments.

Dealing next with the Government structure, the Department of Trade and Industry is responsible for amending the bankruptcy law, as was its predecessor the Board of Trade. The recommendations of the Blagden Report have not so far been enacted and I must add that no legislation is contemplated this Session. There have been small changes since 1957 and the House will recall that last year in the Criminal Justice Act 1972, which we have just passed, we introduced the new concept of criminal bankruptcy which will involve the Department in a considerable volume of new arrangements and new work. In addition to that, the Department of Trade and Industry is at present considering bankruptcy law as a whole since this has been rendered necessary in the light of our entry into the E.E.C., and in particular in the light of the draft Bankruptcy Convention which is at the moment under negotiation between the nine Members. Presumably, any general reform of the law would await the negotiation and discussion of that Convention.

In addition to the substantive law, I am primarily responsible for the bankruptcy rules, although of course I have to consult Departments in the ordinary way. There are under consideration the following proposals which are still under consideration by Departments. These amendments, I frankly confess, have been prompted to some extent by public discussion of the public examination of Mr. Poulson. But so far as I am concerned, none of them involves any judgment whatever upon the merits of that case. I am considering an amendment which would have the effect of requiring the court, when considering an application for the adjournment of a public examination, to have regard to the fact that criminal proceedings either have been or are likely to be brought. I am also considering—but again I emphasise that I make no comment or judgment on recent events—amending the rules so as to underline the courts' powers to exclude all irrelevant or scandalous matter and to order that such matter be excluded from the record of proceedings. I am further considering reminding registrars of their powers to refer examinations of exceptional difficulty to the judge, or for hearing in London.

My Lords, I want to add one or two general considerations in the light of public comment without going near the actual facts of the particular case that we all have uppermost in our minds. The first is the introduction of matter into bankruptcy proceedings which is or may be defamatory of third parties. Naturally, I have been considering that particular aspect of the question from the very first, but obviously I cannot comment wholly candidly upon that kind of point with the examination still continuing. I should like, however, to make one or two general observations. The first is that this is not a bankruptcy problem in itself. Indeed I must say that I cannot recall its ever having arisen in bankruptcy proceedings before. On the other hand, the mention of third parties' names in this way can occur in a wide variety of proceedings—indeed, in almost any kind of proceeding. It could happen, for instance, in a Crown Court trial tomorrow. To give the House an example, in the Cambridge Garden House Hotel not case a complaint was made that evidence was given at the trial that senior members of the university, and one don in particular, had encouraged the rioters. It can also occur in civil cases. I cannot for the moment recall whether the Pemberton Billing Black Book case which occurred in my boyhood was a criminal or a civil case, but it quite clearly could happen to-morrow in a libel case in the civil courts. It can happen at inquests; and it does occur in tribunals of inquiry in relation to which the probem was discussed in the Salmon Report which resulted in one of the recommendations regarding legal representation which has been generally accepted since.

The second general observations I would make is that the difficulty is not surmounted—or at best is only partially surmounted—by the provision of legal representation either at inquiries or in other cases. It is the initial impact of the scandalous matter which counts most, as I think the noble Lord pointed out in one of his observations. Third parties cannot of course be allowed to interrupt proceedings to hold, as it were, a trial within a trial. It is sometimes more effective to make statements to the Press, provided one is careful not to commit a contempt of court. Representation at the hearing, although it does sometimes enable counsel with watching briefs to make statements at the end of proceedings does not always remove the injustice, except perhaps in relation to some inquests and inquiries.

Looking at various other aspects of bankruptcy procedure, I do not think one can really hope to cure the difficulty by holding inquiries in camera. Of course, when third parties are brought before the bankruptcy court they are examined in private, and it is right that that should he so. I suppose it would be possible to devise a bankruptcy law in which the debtor was examined in private too, but I wonder whether the public would accept the private examination of a debtor, particularly in a notorious case. I suppose it would be possible to prohibit reporting, as was done for matrimonial cases in 1926, but if one tried to do that I am sure the legislation would be extremely contentious and very unpopular with the Press. I do not know whether it would commend itself to Parliament.

I think it is out of the question to remove the absolute privilege from witnesses or counsel. I share to the full, without expressing any view about this case, the noble Lord's anxiety that the independence of advocates should be respected. At any rate the remedy, by removing absolute privilege, would take place long after the event. No doubt the Faulks Committee will be considering the matter, but I doubt whether there is any advantage in pursuing it. I should also like to emphasise (and this again without any kind of criticism of the way in which this case is being conducted) that it is the business of the presiding judge or the registrar to exercise a strict control over proceedings—this is true in every court case—and in particular he must exercise control over members of the Bar or solicitors, however eminent. Subject to that comment, I do not impute the slightest impropriety in the actual case. I must remind the House that members of the Bar have a great responsibility to exercise their privilege with restraint. Failure to do so can, in extreme cases, amount to professional misconduct.

There is only one other comment I should like to make on the noble Lord's very interesting speech; that concerns the Payne Committee, which of course was not primarily concerned with bankruptcy law, though I took the point which the noble Lord made in his reference to his Minority Report. I think the majority of the salient recommendations of the Report have been brought into effect by me since I have been Lord Chancellor. While the noble Lord was speaking, I sent for a note of those which have not yet been brought into effect. I do not think they are major recommendations. I may not have got a complete list of them, but they certainly include transfer from the magistrates' courts to the county court jurisdiction in civil debts, the establishment of enforcement offices, the transfer of responsibility of under-sheriffs to the county court and the abolition of distress for rent. But on the whole I think that the main recommendations of the Report I brought into effect more than a year ago.

My Lords, I am sorry to have made rather a scrappy reply to the noble Lord's interesting Question, but it is a very big subject and I thought the House would like to know the state of play as I saw it.