Setting aside statutory demands and abuse of process (Harvey v Dunbar Assets plc (No 2))

Setting aside statutory demands and abuse of process (Harvey v Dunbar Assets plc (No 2))

In Harvey v Dunbar Assets plc (No 2), the Court of Appeal was asked to decide whether a debtor could apply to set aside a statutory demand on a ground that he had unsuccessfully argued in respect of a previous statutory demand that had been served on him. Joseph Curl, barrister at 9 Stone Buildings who acted for Dunbar Assets plc, discusses the Court of Appeal’s judgment.

Original news

Harvey v Dunbar Assets plc (No 2) [2017] EWCA Civ 60, [2017] All ER (D) 127 (Feb)

The Court of Appeal, Civil Division held that, in the circumstances of the case, it was not open to the debtor to apply to set aside a second statutory demand on the same grounds on which he had unsuccessfully raised in opposition to a first statutory demand and which he had never sought to uphold on the appeal from the first statutory demand.

What was the background to the appeal?

This was an appeal to the Court of Appeal against the decision of His Honour Judge Kaye QC (sitting as a High Court judge) to refuse to set aside a statutory demand served on the appellant, Mr Harvey, by Dunbar Assets plc (Dunbar). The proceedings had a very unusual and drawn-out history.

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 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. This is an argument that is often raised by personal guarantors but generally does not gain any traction in court—see, for example, the recent appeal case of Gaind v Dunbar Assets plc [2016] EWHC 3187 (Ch), [2016] All ER (D) 89 (Dec) where the High Court rejected a similar argument based on actionable misrepresentation (see News Analysis: Rare appellate decision on a very common argument).

Mr Harvey’s first application to set aside was dismissed by a district judge in Newcastle in March 2012. After the circulation in draft of the district judge’s judgment—but before it was handed-down—Mr Harvey changed solicitors. The new solicitors spotted that one of Mr Harvey’s co-guarantors (a Mr Lenney) denied 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. Only the signature point was appealed; the promissory estoppel point was expressly abandoned. HHJ Kaye QC dismissed the appeal (Harvey v Dunbar Assets plc [2012] EWHC 2890 (Ch), [2012] All ER (D) 22 (Dec)) 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. Mr Harvey brought a second appeal to the Court of Appeal (Longmore, Black, Gloster LJJ), which allowed the appeal (Harvey v Dunbar Assets plc [2013] EWCA Civ 952, [2013] All ER (D) 400 (Jul)) 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. 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. They 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. 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. HHJ Kaye QC dismissed the appeal. His Lordship’s decision was grounded on the earlier decision in Turner v Royal Bank of Scotland plc [2000] Lexis Citation 3293, which held that 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 that had either been presented earlier, or where there had been an opportunity to present them earlier.

Lewison LJ granted permission to Mr Harvey to bring a second appeal to the Court of Appeal.

For further reading on the decision of HHJ Kaye QC that led to the Court of Appeal's judgment, see News Analysis: Repeating an argument to set aside a second statutory demand.

What were the legal issues that the Court of Appeal had to decide?

There were two grounds of appeal:

  • first, Mr Harvey contended that it was not an abuse of process or res judicata for him to re-run the promissory estoppel argument that had failed before the district judge in 2012 and that had not been appealed. It was submitted that a res judicata could not arise against a party who had lost on a particular issue but had won overall. The reason for this was that such a party had no opportunity to appeal the issue on which they had lost because of their overall success. Against this, Dunbar submitted that it was nonetheless an abuse of process to re-run an argument where there had been an opportunity to appeal, and an appeal had indeed been pursued, but a deliberate decision had been taken not to pursue that particular argument on the appeal
  • second, Mr Harvey reasserted his promissory estoppel defence

What did the Court of Appeal decide and why?

Giving the leading judgment, Henderson LJ observed that the nature of the bankruptcy legislation was such that '…there are a number of different stages in the procedure governing personal bankruptcy at which a debtor may in principle be entitled to raise a dispute about his alleged indebtedness to the creditor' (para [35]). Such opportunities will include the hearing of an application to set aside a statutory demand and the hearing of a bankruptcy petition—it is not unusual for debtors to re-run argument at the petition stage that have been disposed of at the statutory demand stage. Further opportunities to revisit earlier arguments include an application pursuant to section 375 of the Insolvency Act 1986 (IA 1986) to review, rescind or vary any order, and an application to annul a bankruptcy order pursuant to IA 1986, s 282.

Henderson LJ agreed that there was no res judicata issue estoppel arising from the decision of the district judge in 2012, by reason of the subsequent successful appeal. But Henderson LJ held that it '…does not follow from this, however, that the setting aside of [the first statutory demand] had the consequence that the judgment of the district judge on the promissory estoppel point disappeared into some kind of legal black hole and thereafter had to be disregarded for all purposes. True, the judgment could no longer give rise to an issue estoppel, but I can see no reason in principle why the judgment should no longer be capable of being taken into account when deciding whether it is an abuse of process for Mr Harvey to re-litigate the same question in the context of the bankruptcy proceedings against him founded on the same debt' (para [48]). His Lordship agreed with HHJ Kaye QC and held that it was an abuse of process for Mr Harvey to raise the same argument again. The appeal would be dismissed on that ground.

Although it was not strictly necessary to consider the promissory estoppel ground, Henderson LJ nonetheless addressed it. His Lordship held that Mr Harvey’s case was implausible: 'how could he possibly have supposed that the Bank was inviting him to execute a guarantee which would never be enforced against him?' It was 'simply not credible' that Mr Harvey was engaged 'in a solemn farce' with Dunbar (para [65]). Sir Stephen Tomlinson, delivering a short concurring judgment, used stronger language and held that 'many might have dismissed' the promissory estoppel argument 'as simply absurd'. His Lordship held that '[t]he vacuity of the alleged promissory estoppel argument serves well to emphasise the need for salutary principle adopted in the bankruptcy jurisdiction' (para [74]).

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

While the precise facts in this case were very unusual (ie the debtor lost an application to set aside a statutory demand at first instance on a particular ground, but then succeeded on a subsequent appeal on an entirely unrelated ground, then the ground on which he had succeeded was neutralised by the creditor, and the debtor sought to revisit the previously abandoned ground on a second application) and probably unlikely to arise very often. The decision is nonetheless useful in gathering together a body of authority indicating that it is impermissible to re-run arguments at different stages of the bankruptcy process without a good reason to do so.

For lenders, the decision restates in powerful terms how difficult it is for a guarantor to succeed on any argument based on alleged representations that a personal guarantee will not be enforced.

Case details

  • Court: Court of Appal, Civil Division
  • Judges: Henderson, Gross LJJ and Sir Stephen Tomlinson
  • Date of judgment: 13 February 2017

Interviewed by Stephen Leslie.

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

Can solicitors serve a statutory demand for unpaid legal fees as a precursor to bankrupting a former client?

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

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.