Procedural Error with petition—fatal or not? (Re Saint Benedict’s Land Trust Limited)

Procedural Error with petition—fatal or not? (Re Saint Benedict’s Land Trust Limited)

The court had to consider whether a failure to comply with the procedures set out in the Insolvency (England and Wales) Rules 2016, SI 2016/1024 (IR 2016) for the issuing of a petition rendered the process null and void. There was further consideration of the inter-relationship between liability orders made for statutory deemed debts and the effect on the insolvency processes of potential disputes on that liability. In addition, the court had to consider the appropriateness of possible civil restraint order proceedings for unsuccessful applications. A salutary tale for those issuing petitions but also for those seeking to challenge proceedings on unpaid, deemed debts. Written by Graham McPhie, partner at Moon Beever LLP.

Re Saint Benedict’s Land Trust Ltd [2019] EWHC 3370 (Ch)

What are the practical implications of this case?

In a case that is undoubtedly fact specific, the key practical points that can be taken are:

  • a potential defect in procedure does not in itself render an action taken a nullity  
  • in challenging a liability under a statutory deemed debt for which the Magistrates Court has granted a liability order, the insolvency courts are likely to need more than an assertion that the debt is disputed  
  • the making of applications purely for matters of procedure will be viewed critically as to their purpose and could result in a finding that those applications are made totally without merit. Careful consideration must be given to the effect of making such applications for tactical reasons  
  • the context of this case has to be considered carefully as the decision could be said to be taken on the facts of this case and the overall conduct of the appellant. However, the points made above can be considered as of general application and should be considered in such circumstances  
  • the practical conclusion is that, if any debtor considers that there is a defence to a statutory debt, there must be a greater level of participation and challenge at the stage of the action in the Magistrates’ Court, as it will be difficult to dispute the debt subsequently to stall insolvency proceedings

What was the background?

The appellant had issued an appeal against the decision made by the district judge at first instance to dismiss a winding-up petition and to award costs to the petitioning and a supporting creditor. The petition had been dismissed because the underlying debt had been paid. The assertion was that the petition was invalid as the witness statement verifying it had not been signed as required by IR 2016, SI 2016/1024, r 7.6. The debt had been paid to prevent the petition from being advertised.

The appellant also appealed against a declaration that two applications had been made without merit. One had been for the case to be transferred to London and the other for the petition hearing to be adjourned. The order made as a result of the declarations was for the case to be referred to a High Court judge to consider the making of an extended or general civil restraint order.

The debt arose from eleven liability orders granted in the Magistrates’ Court. Upon failure to pay those orders, the winding-up petition was issued. The appellant contended that the petition was an abuse of process and indicated it was challenging the liability orders. However, an application for an injunction to prevent the advertisement of the petition was dismissed. The reasons of the judge who refused that application were not known at the petition hearing. The fact of this dismissal was not revealed to the petitioning creditor or the judge at the petition hearing.

There were negotiations between the parties about possible conditional payment of the debt pending an application to dispute the liability orders. Monies were sent to pay the debt but without any agreement having been reached as to the basis upon which the payment was made. The petitioner sought costs. The appellant sought an application that the proceedings be transferred to London to deal with an application that it be struck out and for wasted costs; the basis for this being that applications had been issued to set aside the liability orders and so it was inappropriate to proceed with the petition. The application to transfer was refused.

Shortly before the petition hearing, the appellant had discovered that the verifying witness statement had not been signed. This was rectified by a litigation assistant accepting the error and filing a further statement. The appellant wished an adjournment to consider the legal effect of the failure to sign. That application was refused.

What did the court decide?

At first instance, the district judge held that there were two grounds relied upon to seek to strike out the winding-up petition as an abuse. The first was there being no evidence of signed liability orders and the second being that the witness statement verifying the petition was unsigned.

There was no requirement for Magistrates’ Court order to be signed and so that did not nullify the liability orders. The effect of the orders was to deem a debt that was owed.

As for the failure to sign the witness statement, the court referred to the overriding objective under the CPR to deal with cases justly and at proportionate cost, as well as IR 2016, SI 2016/1024, r 12.64 to the effect that no insolvency proceedings are invalidated by any formal defect or irregularity unless there has been a substantial injustice caused that cannot be rectified by a court order. The petition was not an abuse of process.

The petition debt had been paid and there had been a number of hearings. The district judge held that there was no substantial injustice in exercising discretion to find that the petition was not invalidated by the formal defect. There was no injustice and no basis to allow further court time to be taken up by a further adjournment and, as only costs were to be decided, there was no reason why the petition could not be dismissed.

On appeal, the High Court noted that the only basis now relied upon was the failure to sign the witness statement verifying the petition rendering the petition a nullity and that the district judge had been wrong to rely on IR 2016, SI 2016/1024, r 12.64 to waive the non-compliance.

Upon examining IR 2016, SI 2016/1024, rr 7.6, 7.7 and 7.9, the judge held that there was no requirement that the petition be verified by witness statement on filing. The purpose of the evidence was to establish liability at the hearing. Until then, there is no point at which the court would consider the evidence in support. The petition was, therefore, valid.

However, even if the petition was a nullity, it was appropriate to grant relief under IR 2016, SI 2016/1024, r 12.64. The district judge’s reasoning that there was no substantial injustice was unimpeachable. This especially being so when there was an unsuccessful application to restrain the advertisement of the petition.

As for the striking out of the applications, the district judge had been entitled to conclude that they had been made without merit when the petition debt had been paid in full, the point was not a complex one and to adjourn would merely increase costs.

The appeal was therefore dismissed.

Case details

  • Court: High Court, Chancery Division  
  • Judge: Snowden J  
  • Date of judgment: 6 December 2019

Graham McPhie is a partner at Moon Beever LLP. If you have any questions about membership of LexisPSL’s Case Analysis Expert Panels, please contact caseanalysis@lexisnexis.co.uk.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.