Super Seconds Ltd, G. Santer and J. Santer (Née Werrin) v Sparta Investments Ltd

CourtCourt of Appeal
JudgeCollins, Nutting and Sumption, JJ.A.:
Judgment Date11 April 1997
Date11 April 1997
Collins, Nutting and Sumption, JJ.A.:

R.J.F. Pirie for the appellants;

C.M.B. Thacker for the respondent.

Cases cited:

(1) Barker, In re, 1985-86 JLR 186.

(2) Le Maistre v. Du Feu, Royal Ct., June 22nd, 1850, unreported; Le Gros, Droit Coutumier de Jersey, at 373, followed.

Legislation construed:

Bankruptcy (Dsastre) (Jersey) Law, 1990, art. 1(6): The relevant terms of this paragraph are set out at page 115, line 24.

art. 5(1): The relevant terms of this paragraph are set out at page 115, lines 34-42.

Loi (1832) sur les dcrets, art. 10: The relevant terms of this article are set out at page 116, lines 39-40.

Loi (1839) sur les remises de biens, art. 6: The relevant terms of this article are set out at page 117, lines 35-39.

Bankruptcydsastrecourt's power to orderpreferable to order dsastre rather than older bankruptcy procedure unless, e.g. in simple case, interests of justice require otherwise

Bankruptcydgrvementcourt's power to ordercourt may order dgrvement after failure of remise de biens, since operates as immediate, voluntary cession of propertycourt deemed to have "permitted" cession under Bankruptcy (Dsastre) (Jersey) Law 1990, art. 5(1)(b)irrelevant whether remise failed because value of property fallen or believed higher at outset

The appellants sought a dclaration en dsastre following an unsuccessful remise de biens of their property.

The second appellants owned and controlled the first appellant company, which was indebted to the respondent company. The debts, three bonds, were secured by judicial hypothecs against the first appellant's property; the second appellants also provided personal guarantees in respect of the first two bonds.

Following the failure by the first appellant to pay the instalments of interest as they fell due, the appellants obtained a remise de biens. However, it was subsequently discovered that due to a fall in property prices, the value of the appellants' property was no longer sufficient to leave a balance after payment of the principal debts and interest thereon; the remise was accordingly discharged by the Royal Court (Le Cras, Lieutenant Bailiff), which found that the interest was secured by the same hypothecs that covered the principal. These proceedings are reported at 1996 JLR 117.

The second appellants then sought to declare the first appellant en dsastre, its property being more than sufficient to pay off the first two bonds, leaving an outstanding debt on the third, which was not covered by the first appellant's guarantees. The respondent, however, sought an order for a dgrvement and ralisation of the appellants' property, to allow it to become tenant of the first appellant's property under the first bond only, renouncing its claims under the second and third. Since the first bond covered only a part of the indebtedness, it would be able to recover the remainder under the personal guarantees, forcing the sale of the second appellant's home and thus obtain property greatly exceeding the value of the debts, without having to account to the appellants for the surplus. Finding that it was precluded from making a dclaration en dsastre by art. 5(1)(b) of the Bankruptcy (Dsastre) (Jersey) Law 1990, a general cession of the appellants' property having automatically come into effect on the failure of the remise, the Royal Court (Hamon, Deputy Bailiff) ordered a dgrvement (in proceedings reported at 1996 JLR 233).

On appeal, the appellants submitted that the Royal Court had been wrong to allow the dgrvement to proceed, because (a) a dsastre was not precluded by art. 5(1)(b) of the 1990 Law, since the failure of the remise de biens did not operate as an automatic cession of their property, and even if it did, it could not be said that they had been "permitted" to make cession as required by art. 5(1)(b)rather, a cession would have arisen through operation of law and not through their choosing; and (b) it was unjust that the respondent be allowed to obtain property, including their home, which together was worth a sum greatly exceeding the value of the debts and in these circumstances, justice required that they be allowed to place the first appellant en dsastre and thereby make reasonable repayment.

The respondent submitted in reply that the Royal Court had rightly found itself unable to make a dclaration en dsastre since (a) the remise de biens having failed, there followed an immediate cession of the appellants' property, which had been voluntary in the sense that the appellants had voluntarily sought a remise, a temporary respite from the effects of a cession which, if successful, would have left them solvent; and (b) it could accordingly be said that the appellants had been "permitted" to make cession within art. 5(1)(b) and they could not therefore place their property en dsastre; in these circumstances, it was entitled to an immediate dgrvement, notwithstanding the detrimental effects on the appellants, which they had in any case risked in seeking a remise de biens rather than a dsastre in the first place.

Held, dismissing the appeal:

(1) Because it was a statutory code offering a flexible way of dealing with the interests of both debtors and creditors in a modern commercial situation, the dsastre procedure was preferable to the previous, more technical and often unsatisfactory bankruptcy system. The court would therefore endeavour to order a dsastre if possible, unless it were shown to be in the interests of justice that the older procedures be used, which was only likely in a simple case. The present case, however, was far from simple and a dgrvement would cause serious injustice to the appellants (page 119, lines 23-42).

(2) Nevertheless, the court had no option but to confirm the dgrvement ordered by the Royal Court. It was clear that because a remise was a temporary respite from execution, once it had failed, the processes of execution inevitably followed and the appellants had therefore to be considered to have made voluntary cession of their property, the cession being implicit in the voluntary act of seeking the remise. Furthermore, this rule applied both to cases in which the value of the property subject to the remise fell below the level of the debtor's liabilities, and to those in which it was later discovered that the value of the property had been insufficient from the outset. It followed that the appellants had been "permitted" to make general cession within art. 5(1)(b) and the court was accordingly precluded from making a dclaration en dsastre; indeed, a dsastre was impossible because, first, following the cession, the appellants had no valuable interest in the property capable of being vested in the Viscount, but bare title only; and, secondly, they were personally discharged from liability and were thus solvent. The Royal Court had therefore properly found the respondent entitled to execution by dgrvement, despite the grave financial consequences for the appellants, and its order would stand (page 121, line 6 - page 123, line 37).

SUMPTION, J.A., delivering the judgment of the court: Super Seconds Ltd. is a company controlled by Mr. and Mrs. Gebhard Santer which once carried on a number of businesses, mainly in the fields of retail clothing and property development. Between 1987 and 1992, it borrowed large sums of money from Sparta Investments Ltd. which it has been unable to repay. The money was borrowed on three bonds which were registered in the Royal Court as judicial hypothecs against the company's immovable property. They created successive charges ranking first, second and third. In addition to the...

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