Repeating an argument to set aside a second statutory demand—Harvey v Dunbar Assets plc (No 2)

In Harvey v Dunbar Assets plc (No 2), the court heard an appeal on the refusal to set aside a second statutory demand, where the same point had been raised on the first statutory demand but where the first statutory demand had been set aside on appeal on a different point. Joseph Curl, barrister at 9 Stone Buildings, discusses the decision.

Original news

Harvey v Dunbar Assets plc (No 2) [2015] EWHC 3355 (Ch), [2015] All ER (D) 02 (Dec)

The Chancery Division dismissed an appeal against a district judge's dismissal of the claimant's application to set aside a second statutory demand issued by a bank against him under a guarantee where it had been based on the same argument, promissory estoppel, used in respect of his application to set aside the first statutory demand issued by the bank. Where there was a second statutory demand, an argument that had been run unsuccessfully and abandoned on appeal could not be raised in respect of a second statutory demand unless there was a change of, or special, circumstances. There were no special or exceptional circumstances in the present case to justify re-opening or re-arguing the promissory estoppel point, which had previously been rejected and the district judge had been entitled to come to the conclusion that he had.

What was the background to the appeal?

This appeal of a debtor’s unsuccessful application to set aside a statutory demand had an unusual background. On 10 March 2008, Mr Harvey had been one of four individuals who had entered into a composite instrument of personal guarantee in favour of what was, at the time, Dunbar Bank plc (Dunbar) to secure the borrowing of a company. The company’s indebtedness was called in during 2011 and, shortly thereafter, a statutory demand was served on Mr Harvey under the guarantee. Mr Harvey applied to set the statutory demand aside pursuant to rule 6.5(4) of the Insolvency Rules 1986, SI 1986/1925 on the ground that an officer of Dunbar had allegedly promised him that the guarantee would never be called in. Mr Harvey contended that the alleged representation gave rise to a promissory estoppel in his favour. Such arguments are frequently put forward by personal guarantors and are seldom successful. That application to set aside was dismissed by a district judge in Newcastle in March 2012.

However, in between the circulation in draft of the district judge’s judgment and its handing-down, Mr Harvey changed solicitors. The new solicitors spotted that one of Mr Harvey’s co-guarantors (a Mr Lenney) had denied throughout that he had ever signed the guarantee. That potentially brought into play a technical argument concerning the law of guarantees. In simplified summary terms, if a single joint and several instrument is prepared for signature by more than one guarantor, the starting point is that there is an implied term amounting to a condition precedent that all the proposed guarantors must become bound if any of them are to be bound. Mr Harvey’s new solicitors argued that if—as he contended—Mr Lenney had not signed, then none of the guarantors were bound by the guarantee. At the hand-down hearing, Mr Harvey’s solicitors asked to re-open argument on this point. The district judge declined to do this, but granted Mr Harvey permission to appeal to a High Court judge on the point. Importantly, only the signature point was appealed—the promissory estoppel point was expressly abandoned. HHJ Kaye QC dismissed the appeal and held that the guarantee had been drafted in such a way that liability on the part of the signing guarantors was preserved, even if Mr Lenney had not signed—see Harvey v Dunbar Assets plc [2012] EWHC 2890 (Ch), [2012] All ER (D) 22 (Dec). Mr Harvey brought a second appeal to the Court of Appeal (Longmore LJ, Black LJ, Gloster LJ), which allowed the appeal on the ground that the terms of the guarantee were such that unless all named guarantors had signed and were bound by it, there was no guarantee at all—see Harvey v Dunbar Assets plc [2013] EWCA Civ 952, [2013] All ER (D) 400 (Jul). Again, the promissory estoppel argument was not pursued.

Dunbar set about resolving the triable issue in respect of Mr Lenney. Part 7 proceedings were issued against Mr Lenney. These proceedings were tried before Norris J, who allowed Dunbar’s claim and made a finding of fact that Mr Lenney had signed the guarantee.

A further statutory demand was served on Mr Harvey in 2014. Mr Harvey made a second application to set it aside on the promissory estoppel ground, which had failed before the district judge first time around and had not been pursued on either of his previous appeals. The district judge (coincidentally the same district judge who had dismissed the first application to set aside) dismissed the second application in July 2015. Mr Harvey appealed.

What were the legal issues that the judge had to decide?

The appeal of the second statutory demand coincidentally fell to HHJ Kaye QC, who had heard the first appeal of the first statutory demand. Mr Harvey accepted that there was no longer a triable issue about Mr Lenney’s signature, but argued that he would not have signed the guarantee unless he had received clear and unambiguous assurances from an officer of Dunbar that the guarantee was simply a formality and would never be called in.

Dunbar argued that this point had been disposed of in Dunbar’s favour back in 2012 and not appealed. If Mr Harvey had been unhappy with that outcome—Dunbar argued—he should have appealed it. Dunbar contended that it had the benefit either of an issue estoppel res judicata, or the application was otherwise an abuse of process. Mr Harvey sought to counter this point by contending that the Court of Appeal had set aside the previous statutory demand on the general ground that there was a genuine triable issue concerning the debt. The success of the appeal meant that no res judicata derived from a particular aspect of Mr Harvey’s case could be available in favour of Dunbar.

In short, Mr Harvey argued that the appeal trumped the estoppel.

What did the judge decide, and why?

HHJ Kaye QC noted that the specific question in the appeal was a novel one—that is, whether a debtor could make an application to set aside a second statutory demand on the basis of an argument that had previously failed in respect of an earlier statutory demand and had not been pursued on appeal, but where an appeal had subsequently succeeded on an unrelated ground. The judge, however, considered a number of cases where debtors had variously sought to re-run arguments during bankruptcy proceedings that had already been argued at an earlier stage of the process. The judge considered that those cases were apt for Mr Harvey’s case. The judge identified the following points of principle:

  • on the hearing of a bankruptcy petition, the court had a duty to consider whether the requirements for making a bankruptcy order were satisfied, and had a residual discretion whether or not to make an order
  • where there had been a previous hearing on the merits, unless there had been a change of circumstances, or good reasons to do so, a debtor could not re-argue points at the petition stage that had either been presented earlier (usually on an application to set aside a statutory demand), or where there had been an opportunity to present them earlier. Arguments about whether or not there was a debt should be raised at the earliest stage, ie on an application to set aside a statutory demand
  • even if there had not been a hearing on the merits, where a point had not been argued or had been abandoned, the court would not allow such a point to be raised if there had been an opportunity to raise it, because to do so would be an abuse of process
  • because the court retained a residual discretion at the hearing of a bankruptcy petition (see above), the principle was based on abuse of process, not on res judicata
  • these principles applied equally throughout the bankruptcy process, including on an application to annul or review a bankruptcy order

HHJ Kaye QC considered that the principles concerning a debtor’s ability to re-argue point were 'well trod' in the context of petitions, annulment or applications to review bankruptcy orders. These principles also applied to the particular facts of Mr Harvey’s case. The appeal was dismissed on the ground that, absent a change of circumstances or a good reason, it was not open to Mr Harvey to re-argue the promissory estoppel point.

To what extent is this judgment helpful in clarifying the law in this area?

As noted above, the factual matrix of this case was unusual in that it concerned two attempts to run the same argument at the same stage (ie the statutory demand stage) of the bankruptcy process. This had apparently not arisen in any prior reported case and is unlikely to arise frequently in the future. The reason for this is obvious—it is seldom the case that a creditor serving a statutory demand successfully resists an attempt to set it aside, then loses an appeal on an entirely distinct ground from that which failed at first instance, in circumstances where the unsuccessful first instance point is not argued on appeal, but is then able to address the ground on which it lost the appeal and serve a fresh statutory demand.

The judgment does, however, provide a useful digest of the case law on the general question of when a debtor can re-run an argument that has been run before, including at a different stage of the bankruptcy process. This is an issue that crops up a great deal—debtors often try to re-argue a point on the hearing of a petition despite having failed to set aside a statutory demand on that same point. Similarly, annulment and review applications are frequently grounded in matters that have already been ventilated at either the statutory demand or petition stage. This judgment brings together the 'surprisingly large number of authorities' (as the judge put it) on this area and distils them down to a useful set of principles, to provide a one-stop-shop for the busy practitioner.

By way of postscript, Mr Harvey has applied to the Court of Appeal for permission to appeal, but his application is at the time of writing yet to be determined.

Joseph Curl specialises in commercial Chancery, with the emphasis on insolvency. He also practises in the areas of banking and financial services, civil fraud, mortgages and real property. He is ranked as a leading junior in both the major legal directories. Joseph appeared for Dunbar Assets plc in this case.

Interviewed by Stephen Leslie.

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