THOMAS-EVERARDS &
ORS v SOCIETY OF LLOYD'S (2003)
Ch.D (Laddie J)
18/7/2003
INSOLVENCY AND
BANKRUPTCY - CIVIL PROCEDURE
STATUTORY DEMANDS : SET
ASIDE : PERMISSION TO APPEAL : APPLICATION PENDING : REFUSAL : COUNTERCLAIMS :
EQUAL OR EXCEED DEBT : DISPUTED DEBT : GENUINE TRIABLE ISSUES : REAL APPEALS :
FRIVOLOUS APPEALS : R.6.5(4)(a) and (d) INSOLVENCY RULES 1986 SI 1986/1925 :
PARA.12 PRACTICE DIRECTION : INSOLVENCY PROCEEDINGS (2000) BCC 927
On an application to
set aside statutory demands under r.6.5(4)(a) Insolvency Rules 1986 SI
1986/1925, where a first instance judge had decided the issues to be raised in
a proposed counterclaim were too insubstantial to be allowed to be pleaded,
that was an important factor in deciding whether the issue was genuinely
triable, but it was not determinative. If an appeal process was on foot the court
had to decide whether it was a real, as opposed to a frivolous, appeal.
Application by certain
former Lloyds' names ('the names'), for an order setting aside statutory
demands issued by the respondent ('Lloyd's') in respect of judgment debts
obtained against each of the names. As some of the names raised cross-claims
the court ordered the determination of a preliminary issue as to alleged
fraudulent misrepresentation by Lloyd's. However before the preliminary issue
trial Lloyd's served statutory demands on the names, whose applications to set
aside were successful and Lloyd's subsequent appeal was dismissed, Society of
Lloyd's v Garrow (2000) 1 BCLC 103. On 3 November 2000 Cresswell J decided
against the names on the "threshold fraud point" and refused
permission to appeal. Permission was subsequently granted by the Court of
Appeal, which subsequently found that Lloyd's had made certain
misrepresentations Society of Lloyd's v Jaffray (2002) EWCA Civ 1101, but held
that they were not fraudulent. The court stated that there was nothing that
prevented the names from making an application for permission to amend to the
Commercial Court to raise negligent misrepresentation. In November 2002,
Lloyd's served the statutory demands in issue in this case while a number of
names applied to amend to raise claims for negligent misrepresentations based
on the decision in Jaffray (supra). Cooke J found that the majority of the
names should not be allowed permission to amend, however the application for
permission to amend by a smaller group of names was not refused subject to
filing properly particularised claims limited to a short time period. The judge
refused permission to appeal and an application for permission was pending with
the Court of Appeal. Beside applying to amend to plead negligent
misrepresentation the names sought to set aside the statutory demands on the
basis inter alia that it would be wrong to allow the demands to stand while the
counterclaims, for which amendment was sought, had not been adjudicated on. The
names argued inter alia that: (i) circumstances here justified the making of an
order to set aside under r.6.5(4)(a) or (d) Insolvency Rules 1986 SI 1986/1925;
(ii) under r.6.5(4)(a) the court had to determine whether there was a genuine
triable issue on the counterclaim and although Cooke J's judgment and refusal
to give permission to appeal could be taken into consideration, they were not
determinative; and (iii) the court was obliged to consider whether there was a
non-frivolous appeal that was being pursued seriously. If satisfied, the
counterclaim raised a genuine triable issue within para.12.4 Practice
Direction: Insolvency Proceedings (2000) BCC 927. Lloyd's argued inter alia
that there would only be a triable issue if the Court of Appeal gave both
permission to appeal and allowed the appeal in which case para.12.4 of the
Practice Direction would be engaged and in the absence of such permission the
names' claims were not sufficient to be pleadable or triable.
HELD: (1) Rule 6.5(4) of
the Rules indicated that all objections to a statutory demand, including the
existence of a counterclaim and the disputing of a debt, could be raised at an
early stage so as to set aside a statutory demand. Further, where indebtedness
was challenged on grounds under r.6.5(4) the debtor was obliged to get on with
the challenge and it was not appropriate to adjourn the challenge so it could
be raised at the bankruptcy petition hearing. Therefore most challenges had to
be mounted at the set aside stage, which included a challenge based on the
existence of an alleged counterclaim. Those based on judgment debts had to be
challenged at the petition stage. However there was nothing to suggest that the
court's assessment of the seriousness of the challenge should differ from one
stage to another. The question to be asked at the set aside stage was whether
the debtor had raised a genuine triable issue. That a first instance judge had
decided the issue to be too insubstantial to be allowed to be pleaded was an
important factor in deciding whether the issue was genuinely triable, but it
was not determinative. If an appeal process was on foot the court had to decide
whether it was a real, as opposed to a frivolous appeal. (2) Cooke J's judgment
and his decision not to give permission to appeal were not determinative of
whether the names' proposed counterclaim raised a genuine triable issue. It was
necessary to take into account the fact that an application for permission to
appeal had been lodged and to assess whether the appeal the names wished to
pursue was a real bona fide and non-frivolous one. The appeal could not be
dismissed as frivolous or other than real. (3) The statutory demands would be
set aside.
Application allowed.
Jeremy Callman
instructed by Grower Freeman for the names. Edward Bannister QC and David
Foxton instructed by Freshfields for Lloyd's.
LTL 18/7/2003
EXTEMPORE : TLR 28/8/2003
Judgment Approved
Document No.
AC9200560