1Corporate Rescue and Insolvency (2016) 1 CRI 40B February 2016

Author Beverley Lambert

Applications to set aside a statutory demand: is it possible to raise the same rejected argument in relation to a second identical statutory demand? Consideration of Harvey v Dunbar Assets plc

BACKGROUND: STATUTORY DEMANDS AND BANKRUPTCY PETITIONS

n A statutory demand may be served on an individual if there is a liquidated

debt due and owing of £5k or more. (Until 1 October 2015 this was £750.) A creditor is entitled to proceed to present a bankruptcy petition if the debtor appears unable to pay and the debt is payable immediately or at some future time. A debtor will be deemed unable to pay the debt pursuant to s 267(2)(c) of the Insolvency Act 1986 (IA 1986) if a statutory demand has been served and three weeks have passed, and it has not been complied with and/or no application has been made to set it aside.

SETTING ASIDE A STATUTORY DEMANDStatutory demands are governed by IA 1986. The court may grant an application to set aside the demand on a number of

grounds, one of which, pursuant to r 6.5(4) of the Insolvency Rules 1986 (‘the Rules’), is that the debt is disputed on grounds which appear to the court to be substantial. When considering whether the grounds are substantial the court must also consider whether there are genuine triable issues to be dealt with.

THE CASE IN SUMMARYMr Harvey, the applicant in this matter, had entered into a personal guarantee agreement on 10 March 2008 in respect of a finance facility that had been granted to a property development company. The guarantee had been entered into with four other individuals who were each jointly and severally liable. The facility agreement to the company extended to around £3.5m, although the guarantees in favour of Dunbar Bank Plc (‘the Bank’) were limited to £720,000.

Unusually, Mr Harvey was neither a

director nor shareholder of the company, but was on good terms with its directors and had personally loaned the company money in the past which had been repaid.

Mr Harvey contended that one reason that he had been persuaded to enter into the guarantee agreement was due to the fact the Bank had assured him that the guarantee was a mere formality and that it would not be enforced. Indeed, it is asserted that the Bank went so far as to say that they had never enforced a guarantee in the past. As a result of this asserted ‘pressure’, Mr Harvey later raised a defence of promissory estoppel.

PROMISSORY ESTOPPELThe doctrine of promissory estoppel has three elements which need to be proven for it to be effective. These elements are that:�� one party ‘promises’ that it will not

enforce its legal rights against the other party;�� there is an intention that the person

giving the promise, the promisor, will intend for the other party to rely upon that promise; and�� the actual promise will be relied upon.

TIMELINE OF EVENTS IN THE CASEThe development in which the property development company was involved had not been a successful venture, and on 22 March 2011 the Bank called upon the company to repay its lending.

On 4 April 2011 the Bank made a formal demand pursuant to the guarantee for Mr

KEY POINTS �� In the case of Harvey v Dunbar Assets plc [2015] EWHC 3355 (Ch), the court considered

whether a previous argument that had been raised on appeal, but subsequently dropped, could be raised again at a hearing to set aside a second identical statutory demand.�� A statutory demand is a formal demand for payment of monies pursuant to s 268(1)(a) of

the Insolvency Act 1986.�� A bankruptcy petition may be presented following expiry of a statutory demand as long as

there is no outstanding application to set aside the statutory demand.�� Rule 6.4 of the Insolvency Rules 1986 (‘the Rules’) allows an individual to make

application to set aside a statutory demand.�� A court may set aside a statutory demand pursuant to r 6.5(4) of the Rules that the debt is

‘disputed on grounds which appear to the court to be substantial’.

2 February 2016 (2016) 1 CRI 40B Corporate Rescue and Insolvency

Feature Biog boxBeverley Lambert is a consultant lawyer at Scott-Moncrieff & Associates Ltd. She has been practicing law since 2004 and specialises in the areas of insolvency, restructuring and property litigation. She advises a wide range of clients including individuals, banks, businesses and insolvency practitioners. Beverley is also an associate lecturer for the Open University where she teaches law. Email blambert@scomo.com

Harvey to meet his liability in the maximum sum it was able to claim of £720,000.

Mr Harvey did not pay the monies as demanded and the Bank proceeded to issue him with a statutory demand pursuant to IA 1986 for repayment of the monies owed.

Mr Harvey, as he was entitled, applied to set the statutory demand aside. The main argument in his application was his reliance on the doctrine of promissory estoppel. However, the application was dismissed and the judge held that Mr Harvey had failed to convince the court successfully that all of the elements of promissory estoppel had been proven.

Soon after the draft judgment was handed down, Harvey’s lawyers noticed that one of other individuals’ signature on the guarantee appeared to be a forgery. As a result they contended that this made the guarantee invalid. Whilst the judge refused to re-open the hearing, permission was allowed to appeal. It should be noted that, going forward, the promissory estoppel point was dropped and did not become a point of appeal.

THE APPEAL HEARINGThe appeal to set aside the statutory demand was heard on 7 September 2012. The appeal was dismissed, as the court held that even if it could be proven that the signature was a forgery then it would not mean that Mr Harvey was not bound by its terms.

An application for special permission to appeal, being a second appeal, was sought from the Court of Appeal. This application centred solely on the existence of the forged signature. It should be noted that the promissory estoppel argument was not included within the application.

The application was renewed and permission was granted on the point of the forged signature. The appeal was successful and the Court of Appeal held that if the guarantee was not signed by all the parties, it would not be binding on Mr Harvey.

Following on from the Court of Appeal hearing, the Bank issued proceedings against the other party to the guarantee. The court found that the document had not, in fact, been forged. Based upon this judgment the Bank sought to pursue Mr Harvey again.

THE SECOND STATUTORY DEMANDThe Bank proceeded to serve a further statutory demand in September 2014 and Mr Harvey sought to rely, once again, on his argument of promissory estoppel. He did not seek to rely on the assertion that one of the signatures on the guarantee had been allegedly forged.

During this time, the other signatories to the guarantee agreement had all been adjudged bankrupt.

The grounds for appeal to set aside the second statutory demand were very similar to those put forward to set aside the first statutory demand, although there was some additional evidence from witnesses to suggest that the bank had given similar assurances to other clients regarding signing documents.

The judge noticed that Mr Harvey was advancing the same points as those raised in the first hearing, and concluded that these same points could not be raised again as these same arguments had been dropped on a previous appeal. Indeed, the application had been initially dismissed as the court felt the assertion of promissory estoppel was not fully borne out.

The court held that there was little authority on this specific point, but the judge commented (para 41) that:

‘Bearing the above principles in mind, in my judgment there are no special or exceptional circumstances here to justify re-opening or re-arguing the promissory estoppel point:

– The so-called new evidence adds nothing material to the case previously

advanced. The evidence in support of the application is in truth and substance so far as affects Mr Harvey the same.

– Mr Harvey chose on previous occasions in seeking permission to appeal and on the appeals themselves not to pursue the promissory estoppel point;

– He is now seeking to re-argue that point on the same substantial material and on the same arguments as before.'

The court considered a number of authorities and established the following principles when reaching its conclusion:�� The court must consider whether the

conditions for making a bankruptcy order are satisfied.�� The court cannot reconsider points

already raised in, say, an application to annul or rescind a bankruptcy petition.�� The appropriate time to raise such

arguments is within the application to set aside the statutory demand.�� The court does still have discretion to

hear arguments put forward on the hearing of a bankruptcy petition.

It was therefore held that Mr Harvey could not rely upon his promissory estoppel argument for a second time.

CONCLUSIONAlthough there was little authority on this precise point, the general principle of the court is that it is not in the public’s interest to allow repeat litigation on the same point.

The case is a useful reminder to practitioners that there must be exceptional circumstances to justify the re-opening or re-arguing of a point that has already been raised. If these circumstances are not proven, it is unlikely the court will agree to hear them again. n