Setting aside a statutory demand—Dunbar Assets plc v Butler

What lessons can lawyers learn from the Chancery Division’s decision to allow an appeal against a decision of a deputy registrar setting aside a statutory demand that had been served on a guarantor? Faith Julian of 9 Stone Buildings analyses the decision in Dunbar Assets Plc v Butler.

Original news

Dunbar Assets plc v Butler [2015] EWHC 2546 (Ch), [2015] All ER (D) 138 (Sep)

The Chancery Division allowed an appeal against a decision of a deputy registrar setting aside a statutory demand that had been served on a guarantor, where an alleged representation that the guarantees would not be enforced was not arguably capable of giving rise to estoppel and there was no other ground for finding that the guarantee was not entitled to enforce the guarantees. Further, the deputy registrar had been wrong to conclude that there was a genuine triable issue as to the guarantor’s liability for the sums claimed. The defendant had had no realistic prospect of making out the factual basis of his case.

What was the background to the application briefly?

This was an appeal against an order setting aside a statutory demand based upon various personal guarantees given by Mr Butler. At first instance the deputy registrar found that there was a genuine triable issue as to whether the guarantees were enforceable on the basis of an alleged compromise reached between Dunbar Assets Plc (Dunbar) and Mr Butler.

What were the legal issues that the deputy judge had to decide in this application?

The deputy judge was asked to consider whether or not:

  • the deputy registrar had applied the correct test for setting aside a statutory demand
  • Mr Butler’s evidence, taken at its highest, was capable of establishing the alleged promissory estoppel (ie the compromise), and
  • the deputy registrar had attached sufficient weight to contemporaneous documentation postdating the alleged compromise

Why did these issues arise?

The guarantees were provided for loans taken out by two property development companies with which Mr Butler was in some way affiliated. His case at first instance had been that since 2009 Dunbar had continually assured him that if he continued to manage the development properties the guarantees would not be called upon. Dunbar was thereby estopped from enforcing, because it would be unconscionable to allow Dunbar to go back on its word.

The deputy registrar dismissed any arguments relating to the period before 2012, but considered that what was said at a meeting between the parties in September 2012 was an issue requiring investigation at trial.

Dunbar’s evidence was that nothing approaching a compromise was reached at that meeting, and in support of that contention exhibited both a note of the meeting and also various documents postdating the meeting. Mr Butler’s evidence was that the meeting note contained a fundamental omission, namely that he was told that ‘any enforcement action under the guarantee would be postponed indefinitely if I continued to assist with the developments’—which he continued to do until the autumn of 2013.

What were the main legal arguments put forward?

The test for setting aside a statutory demand

Counsel for Dunbar submitted that the deputy registrar ought to have asked whether Mr Butler’s evidential case, taken at its highest, was capable of disclosing a defence to Dunbar’s claims (Macpherson v Wise [2011] EWHC 141 (Ch), [2011] All ER (D) 146 (Mar) at para [19]). In this vein, it was submitted that an evidential dispute must relate to a material issue between the parties.

Counsel for Mr Butler submitted that an appeal should only be allowed where the decision is ‘plainly wrong’. The deputy registrar’s decision was not plainly wrong because he reminded himself of the correct approach as outlined in Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2007] All ER (D) 233 (Dec) at paras [20], [21]—namely that ‘there has to be something to suggest that the assertion [that there is a genuine triable issue] is sustainable’.

Was the evidence capable of establishing the alleged promissory estoppel?

The law of promissory estoppel was not in dispute, and is set out at para [33] of the judgment. In brief, it requires:

  • a legal relationship between the parties
  • a representation, express or implied, by one party that he will not enforce his strict rights against the other
  • reliance by the representee (whether by action or by omission to act) on the representation, which renders it inequitable, in all the circumstances, for the representor to enforce his strict rights, or at least to do so until the representee is restored to his former position (Snell’s Equity, 33rd Edn at 12-022)

Dunbar submitted that, even after making every evidential allowance in favour of Mr Butler, promissory estoppel was not a triable issue:

  • what was allegedly said amounted to nothing more than a temporary indulgence or concession, which is inadequate to support a promissory estoppel. The most that might be required would be the giving to Mr Butler of a reasonable period of notice that any indulgence to him, based upon his co-operation, was being brought to an end (Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 2 All ER 657 at paras [763], [764])
  • the words used were insufficiently precise to support a contractual variation and thus also an estoppel (Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, [1972] 2 All ER 271 at pages 758A and B, per Lord Hailsham). An indication that is not temporally definite will lack the requisite certainty (Lord Pearson at pages 761H–762B). The most that Mr Butler was promised, on his own evidence, was an indefinite postponement (which is what was given: the statutory demand was served 17 months after the alleged representation)
  • there can only have been a clear an unequivocal representation if Mr Butler could not reasonably have arrived at any other conclusion (per Nourse LJ in Goldsworth v Brickell [1987] 1 Ch 378 at page 411B–E). Reasonably understood, the promise of postponement could only mean that there should be a postponement until such time as Dunbar should withdraw from any arrangement or until the expiration of a reasonable period of notice
  • there was neither reliance nor detriment—Mr Butler continued to conduct himself towards the developments in the same way as he had done for several years previously

It was submitted on behalf of Mr Butler that the essential question was whether Dunbar’s conduct was unconscionable:

  • Tool Metal Manufacturing does not apply in the context of a personal guarantee
  • the intervention of equity does not require the same threshold of certainty as a contractual variation (Snell at 12-024)
  • the fact that the period of postponement might be indefinite did not preclude an estoppel arising (in Hughes v Metropolitan Railway Co (1877) 2 App Cas 439 it was the essence of the estoppel that there was to be a suspension for an inherently uncertain period)
  • Mr Butler’s witness statement asserted that work was carried out on the express basis that the guarantees would not be enforced—it is a matter for trial whether Mr Butler had complied with the terms on which the estoppel is based
  • reasonable notice terminating the compromise was not given

Did the deputy registrar attach sufficient weight to contemporaneous documentation postdating the alleged compromise?

Counsel for Dunbar contended that the deputy registrar relied upon the note of the meeting, and ignored documents which evidenced an absence of belief on the part of Mr Butler that he remained liable under the guarantees, ie:

  • an assets and liabilities schedule prepared by Mr Butler after September 2012 in which the guarantees are listed as a liability
  • an email from Mr Butler’s solicitors dated 18 September 2013 requesting that no action would be taken under the guarantees until January the following year, and
  • a further email from Mr Butler’s solicitors dated 11 November 2013 making an offer of payment

It was submitted in opposition that the deputy registrar had clearly taken those documents into account when he referred to the inconsistencies in the evidence of both parties, and that the material point was that the matter required investigation at trial.

What did the deputy judge decide, and why?

The test for setting aside a statutory demand

In order for an evidential dispute to give rise to a ‘triable issue’, the dispute must relate to a material matter, in the sense that, if accepted, such evidence would disclose a defence to Dunbar’s claim. The deputy registrar correctly proceeded on this basis but did not adequately consider whether the factual issues raised were capable of answering Dunbar’s claim.

Was the evidence capable of establishing the alleged promissory estoppel?

No. If the September 2012 representation was indeed made, it would have been intended to affect the parties’ rights but only for the intended duration of the arrangement. The statement could not reasonably be interpreted to mean that Mr Butler could unilaterally prevent the taking of enforcement action by his continuing to undertake work on the developments even if Dunbar made it clear that it was not required.

There was nothing unconscionable in Dunbar’s actions. In taking steps to enforce the guarantees it had not resiled upon the disputed representation (assuming that it had been made)—this was because the period during which it was intended to operate had come to an end, both by Mr Butler’s cessation of work in Autumn 2013, and by the giving of the notice to him on 19 September 2013.

However, the simple absence of a fixed period for the suspension of Dunbar’s rights was not fatal to Mr Butler’s case (per Lord Tucker in Tool Metal Manufacturing at page 785 which, despite a submission to the contrary, is applicable in this case because the guarantees were given in the context of a commercial transaction).

Did the deputy registrar attach sufficient weight to contemporaneous documentation postdating the alleged compromise?

No. Neither Mr Butler nor his solicitors asserted in contemporaneous documentation that the representations had been made. If Mr Butler had genuinely carried out a significant amount of work on the strength of such a promise, it would be remarkable that it was not asserted by him or on his behalf in the exchanges between the parties. Mr Butler’s factual case could not be reconciled with the terms of the correspondence exhibited by Dunbar, and was inconsistent with there being anything unconscionable in Dunbar proceeding to enforce the guarantees.

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

It is a timely reminder that raising an evidential dispute is, in itself, insufficient to see off an application for summary determination. The resolution of the dispute must be material to the outcome of the case. Voluminous documentation is of no use if it fails to disclose a valid defence.

What practical lessons can those advising take away from the case?

It is a trite but valuable observation that when preparing to make or defend an application pursuant to rule 6.4 of the Insolvency Rules 1986, SI 1986/1925 (or indeed CPR 24), the evidence must match the law and, crucially, disclose a defence. Per Arden LJ in Collier at para [21]:

‘The best evidence would be incontrovertible evidence to support the applicant’s case, but this is rarely available. It would in general be enough if there were some evidence to support the applicant’s version of the facts, such as a witness statement or a document, although it would be open to the court to reject that evidence if it were inherently implausible or if it were contradicted, or were not supported, by contemporaneous documentation…But a mere assertion by the applicant that something had been said or happened would not generally be enough if those words or events were in dispute and material to the issue between the parties.’

It was fatal to Mr Butler’s case that although he submitted a raft of evidence disputing that filed on behalf of Dunbar, none of it, when examined closely, disclosed a defence to Dunbar’s claim.

Faith Julian joined 9 Stone Buildings this year. She is developing a broad commercial chancery practice which encompasses personal and corporate insolvency, real property, landlord and tenant, company, commercial, and chancery.

Interviewed by Barbara Bergin.

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

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

What to do if you are served with a statutory demand and you dispute the debt

Appeals in insolvency proceedings

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.

First published on LexisPSL Restructuring and Insolvency

Relevant Articles
Area of Interest