Thursday, 16 January 2014

Revisiting the Remise de Biens – Part 1

I've been looking at the judgement given in the rejected Remise de Biens application by the Pitmans, and annoyingly it cited a case I had been unable to access because it was behind the Jersey Legal Information Board restricted access login. This was "Super Seconds Limited and Others v Sparta Investments Limited [1997] JLR 112." It was annoying, because some aspects of that judgement were significant in the Pitman's case.
Jurat's Calculation of Assets
With regard to the Jurats assessment of the situation:
"The Jurats concluded that on the basis that the property was sold before 13th June 2014 and the secured lending discharged in full, together with additional interest amounting to approximately £10,670.40, there would be a surplus available to pay a dividend to the unsecured creditors providing sufficient margin to justify a remise."
Reasons for Rejection: Remise applies to Dégrèvement not Désastre
The Pitman's assets covered the secured creditor, so why did the remise fail, and the Court reject it?
The Court looked back at the major case law with regard to the Remise, that of "Re Mickhael" and it noted that it
"sets out the principles which the Royal Court will be likely to consider in determining when conditions warrant the granting of a remise but this was against the background of dégrèvement proceedings. In the case before us there were no dégrèvement proceedings either instituted or threatened."
It should be remembered that like, the Remise, a dégrèvement is an archaic legacy of Jersey law, which is a debt recovery process for secured lenders seeking to recover an unpaid debt. It is a debt recovery procedure which results in the debtor's property becoming freed from all security and thereby "disencumbered". It is therefore very different from a désastre. The aim of désastre is to settle debts amongst the creditors equitably.
The ruling of case law was that a remise was preferable to a dégrèvement, but the case of the Pitmans involved a désastre instead. But there is no case law providing authority for this:
"the Court was faced with applicants who were applying for a remise not to avoid the potential injustices of a dégrèvement but to gain the advantages of a remise and avoid the disadvantages of a désastre. There was no authority, as Mr Clarke conceded, to support the notion that a remise should be granted in order to avoid a désastre."
Here the case of Super Seconds Limited and Others v Sparta Investments Limited [1997] was cited, and the critical sentence in assessing the Pitman's case was this judgement:
"In the ordinary course of events, where a court has a discretion to make a declaration treating a debtor's property as being en désastre, that course will be preferable to authorizing one of the older procedures, unless it is shown to be in the interests of justice that the latter should be used.  "
With the case of Sparta, the Court rules that:
"The substance (although not of course the legal analysis) of the transaction would be that Sparta would have succeeded in artificially re-arranging the order in which the company's assets are applied against its liabilities"
It is clear that the Court's thinking with regard to the Pitmans was that this was also an artificial arrangement to circumvent a désastre which would have settled debts amongst the creditors equitably.
In summing up, the differences in approach were noted between a dégrèvement, where a secured creditor pursued a claim, and a désastre, which covered the rights of the unsecured creditors to be paid.
The critical factor in the judgement was not that the unsecured creditors would be paid a proportion of what remained in the estate, because that is the case with a remise, but the fact that a remise was a legal means to mitigate the harshness of a dégrèvement.
As Natasha Clark of Appleby noted:
"The advantage of the dégrèvement procedure for a creditor bank, as opposed to the désastre (bankruptcy) option, is clear: whilst désastre ensures the equitable treatment of all the creditors, a dégrèvement is concerned with clearing charges off the property and disposing of it. Unlike a désastre it allows any value in the property, over and above that which is owed, to vest in the creditor who takes the property, and not in the debtor."
It can be seen that any monies left from the sale of property with a dégrèvement would remain with the creditor bank, a "windfall" effect!:
This is why the Court in judging the Pitman's case ruled that:
"What should be added however is that both the previous cases concerned an application for a remise de biens where the alternative was that of dégrèvement.  In those cases, a remise de biens could mitigate the rigours of the process of dégrèvement and provide either a return for unsecured creditors, or indeed a return of some equity to the debtor.  "
And Natasha Clark (in her article) actually does not consider best means of  mitigation to be an application for a Remise but rather to apply for a désastre:
"Whilst at a first glance the procedure does appear unfair on debtors, there is in fact a safety net in place for them, as they may apply for a désastre after the dégrèvement procedure has started, up until the dégrèvement is actually granted by the court (a time period of at least 3 months). "
In rejecting the claim for a Remise, the Court looked back at the two cases in question. The Super Seconds / Sparta one was an example of a Remise being rejected because it was "artificially re-arranging the order" in which creditors were paid, and the Jersey Home Loans Limited case was one where it was rejected "there was some good or sound reason to do so" in favour of a désastre:
"It must be right, therefore, that as the Court of Appeal said in Super Seconds Limited, the Court should endeavour to order a désastre, even if it is more costly as a procedure, unless it can be shown to be in the interests of justice that the older remise procedure should be used, or as the Deputy Bailiff put it in Jersey Home Loans Limited, there was some good or sound reason to do so."
And they also notice how the désastre proceedings are a better way of balancing interests of debtors and creditors:
"That balance has been struck by allowing a period of time to elapse (ordinarily four years) after a declaration and before the debtor can be discharged of his debts, during which time the creditors can benefit from the comprehensive powers vested in the Viscount (and the Court) and from the possibility of sharing in any property acquired after the declaration and before the discharge. This modern and balanced regime governs the great majority of bankruptcies and we could see no reason why those insolvent debtors who happen to own real property in Jersey and might therefore qualify for a remise should be treated any differently, unless it was to avoid the real injustices that can flow from a dégrèvement, which is, after all, the rationale for the 1839 Law."
I've looked through every Remise case available, and they all involve a dégrèvement and not a désastre. Remise as a mitigation against a désastre has never been considered in those cases, and this case sets an important precedent in rejecting that avenue, and setting out the broad principles for doing so.
Clean Hands Argument Failed
As an aside, it is pertinent to note that the Court gave no credence to the submission of the lawyers for the JEP and Broadlands, Mr Santos-Costa and Mr Steenson who
"submitted that the application should be refused because the applicants did not come to the Court with clean hands, in part because of their criticisms of the Jersey judicial system and in part for their having caused their clients to incur legal fees which they could not pay."
"Mr Santos-Costa handed us a copy of Mr Pitman's blog in which he is indeed very critical of the Jersey judicial system, but the Court declined to take it into account.  Whatever opinions the members of the Court might personally hold on the contents of the blog, we robustly defend the right of every person whatever views he or she may hold to have access to impartial justice."
The Court instead noted that "No bad faith could be shown on the part of the applicants in their application for a remise".
Unanswered Questions
While I think the Court provided sound reasons for rejecting a Remise, there remain unanswered questions relating to the whole proceedings, which I find most unsatisfactory, and I will attempt to explain those in part 2 (tomorrow).

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