ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE PATTEN)
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE RIGHT HONOURABLE LORD JUSTICE WALLER
THE RIGHT HONOURABLE LORD JUSTICE CHADWICK
and
THE RIGHT HONOURABLE LORD JUSTICE CARNWATH
Between :
GERALD SIMON COULTER | Appellant |
- and - | |
CHIEF CONSTABLE OF DORSET POLICE | Respondent |
(Transcript of the Handed Down Judgment of
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Mr Gerard Stubbert (solicitor advocate of Chua’s, 15 Devereux Court, London WC2R 3JJ) for the Appellant
Mr Timothy Calland (instructed by Lester Aldridge of Russell House, Oxford Road, Bournemouth, Dorset BH8 8EX) for the Respondent
Judgment
Lord Justice Chadwick :
This is an appeal from an order made on 12 December 2003 by Mr Justice Patten on an appeal from the refusal by Deputy District Judge Lewis, sitting in bankruptcy in the St Alban’s County Court, to set aside a statutory demand served on the appellant, Mr Gerald Coulter.
The statutory demand was served on 19 July 2003. The creditor on whose behalf it was served was described in the demand as “Chief of Dorset Police”. The amount demanded was £9,659.04; being, as to £6,627.47, assessed costs under a judgment in earlier proceedings and, as to the balance, interest on that sum. The particulars of debt describe the debt in these terms:
“The debt arises from a judgment dated 28 October 1997 made against the debtor in favour of the then Chief of Dorset Police, Dirk Wayne Aldous, in the High Court of Justice in proceedings brought under reference 1996 F 104. The judgment ordered inter alia that the debtor pay the creditor the creditor’s costs of the action.”
Mr Aldous retired as Chief Constable of Dorset Police on or about 10 May 1999. The present chief constable, Mrs Jane Stichbury, was appointed in his place. It is common ground that the office of chief constable is not a corporation sole; the office has no legal personality distinct from the individual who is the office holder for the time being. At the date when the statutory demand was served there had been no express assignment of the judgment debt to Mrs Stichbury. An assignment in writing, satisfying the requirements of section 136 of the Law of Property Act 1925, was executed by Mr Aldous on 18 September 2003. Notice of that assignment was given to the debtor on 20 September 2003.
The short point raised by this appeal is whether, in the events which had happened, the statutory demand could have any effect for the purposes of the Insolvency Act 1986. If not, it should have been set aside. The appellant’s submissions may be summarised as follows: the statutory demand was served on behalf of Mrs Stichbury; on the date that the demand was served, she was not the creditor in respect of the debt; accordingly the statutory demand was defective; the assignment of the debt to Mrs Stitchbury was too late to cure that defect.
The underlying facts
The circumstances in which the judgment debt arose are material to the issue for decision on this appeal. Further, knowledge of those circumstances and of the matters which took place between the judgment in October 1997 and the service of the statutory demand in July 2002, assists an understanding of the reasons why, notwithstanding an opportunity (provided, on the initiative of the Court, between the hearing and the delivery of these judgments) to seek a resolution of their differences through mediation, the parties have been unable to do so. The issue has been pursued in this Court, it seems, as a further skirmish in what the appellant sees as a campaign to obtain redress for an underlying wrong arising from the way he was treated in 1996. We must assume that the police authority has felt unable to recognise that the appellant had what, at first sight at least, seems a well-founded grievance.
As to the circumstances in which the judgment debt arose, I gratefully adopt the account set out in paragraphs 2 to 4 of the judgment delivered by Mr Justice Patten on 12 December 2003, [2003] EWHC 3391 (Ch), [2004] 1 WLR 1425:
“2. The debtor was the owner of a motor car which was stolen. He reported the theft to the Dorset Police, and a few days later, apparently, saw the vehicle on sale by some second-hand car dealers. The evidence before the district judge was that the car had been sold without a log book to those dealers for a fraction of its value. Despite the complaint made by the debtor to the police, the dealers were not prosecuted. The evidence is, that the police allowed the vehicle to remain in the possession of the dealers in what was said to be a secure compound. Subsequently it disappeared, the dealers maintaining that it had been stolen a second time. As I understand it the car has never been recovered.
3. The debtor issued proceedings to recover the value of the vehicle against the dealers and joined as a party to the action Mr Aldous. In the statement of claim that was issued, Mr Aldous, who was joined by name, is said, in paragraph 2(i), to be and to have been at all material times the Chief Officer of Police for the Dorset Police Area. He was not of course personally involved in the matters relating to the stolen car, but he was joined in these proceedings as the person said to be liable for the various failings of the officers under his command, which were the subject matter of the claim.
4. Mr Aldous then made an application to Master Prebble for an order that the statement of claim should be struck out as against him, and the action dismissed. The master acceded to that on the 28 October 1997, and ordered the debtor to pay the Chief Constable’s costs. As I have already indicated, those costs were subsequently assessed in the sum of £6,627.47.”
No attempt was made by the chief constable or the police authority to obtain payment of those costs until the statutory demand was served in July 2003 – almost six years later and without, it seems, any less formal request for payment by way of reminder. But, in the meantime, the chief constable had made a complaint to ICANN (Internet Corporation for Assigned Names and Numbers), a Californian corporation, in relation to the debtor’s website at www.dorsetpolice.com, alleging that the debtor was a ‘cybersquatter’. It appears that the debtor used that website to set out his complaints and those of others who have a grievance against the Dorset Police. That complaint was dismissed by the panellist appointed by ICANN to determine it. In the light, perhaps, of his success before ICANN, the debtor (it seems) took the view that the service on him of the statutory demand was an abuse of process. In paragraph 8 of the affidavit made by his solicitor, Miss Bebe Chua, in support of his application to set aside the demand, she said this:
“There has never ever been any question of the applicant being unable to pay his debts. Indeed, the greatest objection the Dorset Police have to the applicant is that he has the resources to litigate, to publicise his complaints, and to embarrass them hugely. He is funding and financing litigation and publicity which Dorset Police wish to suppress.”
These proceedings
As I have said, the statutory demand was served on 19 July 2003. The debtor applied, by notice dated 5 August 2003, for an order that the statutory demand be set aside under the Insolvency Rules 1986 (SI 1986/1925). Rule 6.5(4) is in these terms, so far as material:
“The court may grant the application if –
(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or
(b) the debt is disputed on grounds which appear to the court to be substantial; or
(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, . . . ; or
(d) the court is satisfied, on other grounds, that the demand ought to be set aside.”
The application came before the district judge on 22 September 2003. It was dismissed. In rejecting the debtor’s argument that the statutory demand was defective because the present chief constable, on whose behalf it had been served, was not the creditor, the district judge said this, at paragraph 5 in the transcript of his judgment:
“It is common ground that Mr Aldous and Mrs Stichbury have at all times held their respective roles in these proceedings in the representative capacity of Chief Constable of the Dorset Police. In force at the time of the proceedings was the Police Act 1964, s.48, subsequently re-enacted in s.88 of the 1988 Police Act in the same terms. From that legislation I find that the Chief Constable was acting in a representative capacity, and therefore that no issue of an assignment and therefore the need for an assignment arose. Should that be wrong Miss Page [then appearing as counsel for the chief constable] submitted that there is, or at least may have been an implied assignment. Mr Stubbert [then, as in this Court, appearing for the debtor as solicitor advocate] responded that that was not a concept known to the law, and that this might be a trust relationship and might be an equitable assignment. That issue does not arise for decision.”
The district judge went on to point out that, in any event, there had been an express assignment of the debt to Mrs Stichbury shortly before the hearing. The district judge observed, at paragraph 6 of his judgment.
“In any event, should both of theses arguments be wrong, there was then out of an abundance of caution an express assignment, notice of which was given by letter to Mr Coulter. Mr Stubbert argues on Mr Coulter’s behalf that that assignment was too late for the purposes of these proceedings. Miss Page responds that the proceedings have not yet begun, that a statutory demand is not the commencement of proceedings, which are not commenced until and unless an originating application is served. I accept that submission and therefore should it be that reliance needs to be placed on the express assignment, I find that it was valid for its purposes. Nothing I find therefore turns on the fact that its details have not been included within the pleadings.”
The district judge rejected, also, the debtor’s submission that he had potential cross-claims against the Dorset police which were in excess of the amount of the judgment debt. Put very shortly, one of those cross-claims was said to be in the tort of malicious prosecution (or, if pursued in the United States of America, ‘unwarranted proceedings’) arising out of the circumstances in which the complaint was made to ICANN; and the other was said to be founded on allegations of misfeasance in public office. The district judge was not persuaded that he should treat those cross-claims as sufficient reason to set aside the statutory demand, based (as it was) on a judgment debt. He said this, at paragraph 11 of his judgment:
“I find that both of the potential cross-claims are too complex, unquantified and to some degree nebulous. It is impossible to say that either of them represents a counter-claim set-off or cross demand equal to the amount of the debt which is £6,627.”
The debtor appealed to a single judge of the High Court, as he was entitled to do under section 375(2) of the Insolvency Act 1986 and rule 7.48(2) of the Insolvency Rules. The appeal came before Mr Justice Patten on 12 December 2003. The judge identified, at paragraphs 7 to 9 of his judgment, the three grounds on which, as he thought, the application to set aside the statutory demand was based. As to the first of those grounds he said this, at paragraphs 9 to 11:
“9 . . . The first point relating to the validity of the statutory demand really narrows itself to this. Under rule 6.1 of the Insolvency Rules 1986, a statutory demand served under section 268 of the Insolvency Act 1986 has to be dated and signed either by the creditor himself or by a person stating himself to be authorised to make the demand on the creditor’s behalf. As I have already indicated, the statutory demand dated 17 July was signed by the solicitors on behalf of the present Chief Constable, and it therefore did not comply with the requirements of rule 6.1, unless the present Chief Constable, Mrs Stichbury, was, at that time in July, the assignee and beneficiary of the order for costs made in 1997.
10. It is common ground between the parties that the office of Chief Constable is not itself a corporation, and therefore, there is not attached to it any form of legal personality separate from the office holder himself or herself. That officer, like any other member of the police force, holding an office under the Crown, and as such the office holder does not enjoy, either as between himself and the Crown, or as between himself and other police constables or officers under his command, the usual contractual relationship of master and servant. . . .
11. Where however, the chief constable obtains an order or judgment in his favour, the issue arises as to whether the benefit of that judgment passes automatically to his successors in title. The absence of any legal personality attaching to the office of chief constable means that there has to be some form of legal transmission of the benefit of the judgment debt. It has not been suggested that that is effected in relation to the chief officers of police by any statutory machinery. It is also common ground that there was no legal assignment of the benefit of the judgment debt prior to that which was executed on 18 September this year. If therefore, Mrs Stichbury, as the present office holder, is to rely on the benefit of the judgment, and, in particular her ability to enforce it independently of the express assignment of 18 September, she has to show that there was, prior to 17 July, an assignment to her in equity of the benefit of the judgment.”
The judge then addressed the question: “What is required in order to constitute an equitable assignment?” He pointed out that, unlike a legal assignment, an equitable assignment need take no particular form: “All that is needed is a sufficient expression of an intention to assign”. He observed that it was “almost beyond argument that Mr Aldous, as Chief Constable, must have held the benefit of the 1997 judgment, not for himself personally, but on trust, either for his successors in title, or for the police fund which funded his costs.” So, as it seemed to him: “When he came to retire, and therefore ceased to hold the office of Chief Constable, he must have become a bare trustee of the benefit of that judgment for his successors”. And, after reminding himself that there had been no express assignment before September 2003, he went on to say this, at paragraphs 15 and 16 of his judgment:
“15. . . . But the underlying principle in equity is, as one knows only too well, that equity treats as done, that which ought to be done. And where there is already in existence by operation of law, by virtue of the office, a fiduciary and equitable obligation to hold the benefit of the legal chose in action for the office holder’s successors in title, that seems to me to be a strong basis for an assumption that the intention was to effect an assignment in equity once that office holder comes to retire and his successor is appointed.
16. It was submitted to me, on behalf of the debtor by Mr Stubbert, that there has to be some outward manifestation, or some transaction between assignor and assignee before that legal consequence can occur. But in my judgment, the only effect of a contract, for example, would be to give rise to an equitable obligation, enforceable by the courts, for the transfer of the property from assignor to assignee. If, for the reasons I have given, an obligation to hold that property in trust and eventually to transfer it to the benefit of subsequent office holders already exists, then the conditions for an equitable assignment are already there. What, in my judgment, acts as a trigger, if trigger is needed, is the manifest event of the resignation or retirement of the existing office holder, and the assumption of office by his successor. That is, as I see it, a sufficient outward manifestation of an intention that the successor office holder should obtain the benefits of any property held on trust by a predecessor, for there to be an equitable assignment of the benefit of the judgment.”
He was satisfied, therefore, that at the time of service of the statutory demand, Mrs Stichbury “did have the benefit in equity of the earlier judgment”; and that she was entitled to make the demand as creditor.
The judge indicated that, had he not been of the view that, on 17 July 2003, Mrs Stichbury was entitled to the benefit of the debt in equity, he would have held the demand incurably defective. After referring to the observations of Lord Justice Nicholls in In re a Debtor (No 1 of 1987) [1989] 1 WLR 271, 278, he said this:
“Had I come to the conclusion that the present Chief Constable was not entitled to enforce the judgment, it seems to me, that it would be plainly unjust to allow bankruptcy proceedings to proceed on the basis of a statutory demand served by, or on behalf of someone to whom the debtor owed nothing, and who was not therefore entitled to serve a demand at all. In the event, however, that point does not arise”.
The judge then considered whether the debtor would have been entitled to have the demand set aside under paragraph (a) of rule 6.5(4); that is to say whether he had “a counterclaim set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand”. He held that the district judge had been entitled to reach the conclusion that the existence of a sufficient cross-claim had not been made out.
The issues on this appeal
Permission to appeal to this Court was granted, at a renewed oral hearing, by Lord Justice Carnwath. It is clear from his judgment, read with the appellant’s notice, that the only issue which the appellant has leave to raise on this appeal is that which I have already identified: whether Mrs Stichbury, the present chief constable, was a creditor in equity in respect of the debt in July 2003 and so entitled to serve the statutory demand. Correctly, as it seems to me, Mr Stubbert did not seek to address this Court on the question whether – on the basis of the evidence before the lower courts - the appellant had a sufficient cross claim to enable the demand to be set aside under rule 6.5(4)(a). He did apply to adduce further evidence on the basis of which he would have sought to re-open that issue; but we refused to allow him to do so.
The appellant’s notice was filed on 24 December 2003. On 20 April 2004 the respondent filed a respondent’s notice. The respondent seeks to uphold the order of 12 December 2003 on the ground that the judge misdirected himself as to the law in holding that the statutory demand could not stand if there had been no equitable assignment of the debt before 17 July 2003. It is said that, if there were a defect in the demand, that defect was cured by the assignment made under section 136 of the Law of Property Act on 20 September 2003. The right course in the circumstances of this case, if there were a defect in the demand, would have been to refuse to set the demand aside but to give the debtor the time for compliance to which he was entitled – three weeks from 20 September 2003 - by an appropriate order under rule 6.5(6) of the Insolvency Rules.
The respondent’s notice was filed some two weeks out of time; but the point had been raised before Mr Justice Patten and it could not be said that the appellant would be prejudiced by the failure to comply with CPR52.5(5). Accordingly we extended time as requested. There are, therefore, formally two issues before this Court: (i) whether the statutory demand was defective in that it was served on behalf the present chief constable, Mrs Stichbury, and (ii) whether, if there were a defect in the statutory demand as served, that defect was cured by the assignment made on 20 September 2003. But, on analysis, it can be seen that those are but two facets of the single issue: should the statutory demand have been set aside on 22 September 2003.
The statutory demand procedure
Section 264(1) of the Insolvency Act 1986 provides that a petition for a bankruptcy order to be made against an individual may be presented to the court by (inter alios) “one of the individual’s creditors or jointly by one or more of them”. Section 267 of the Act prescribes the circumstances in which a bankruptcy petition may be presented by a creditor. So far as material in the present context, the section is in these terms:
“267(1) A creditor’s petition must be in respect of one or more debts owed by the debtor and the petitioning creditor . . . must be a person to whom the debt . . . is owed.
(2) Subject to the next three sections, a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented –
(a) . . .
(b) the debt . . . is for a liquidated sum payable to the petitioning creditor . . .
(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay,
(d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt . . .”
The need for service of a statutory demand arises under section 267(2)(c) of the Act, read with section 268(1)(a) of that Act:
“268(1) For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either –
(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as “the statutory demand”) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has neither been complied with nor set aside in accordance with the rules, or . . .”
Rule 6.4 of the Insolvency Rules 1986 enables a debtor, within 18 days of the service upon him of a statutory demand, to apply to the court for an order setting that demand aside. Where a statutory demand has been served, no bankruptcy petition can be presented in respect of the debt demanded while an application to set aside that demand is outstanding – section 267(2)(d) of the Act. But, subject to that, failure to comply with a statutory demand (which has not been set aside on an application under rule 6(4) gives rise to the statutory hypothesis that the debtor is unable to pay the debt demanded; and that, in turn, satisfies the condition in section 267(2)(c) of the Act. In that context it is pertinent to have in mind rule 6.25(3) of the Insolvency Rules:
“A petition preceded by a statutory demand shall not be dismissed on the ground only that the amount of the debt was over-stated in the demand, unless the debtor, within the time allowed for complying with the demand, gave notice to the creditor disputing the validity of the demand on that ground; but, in the absence of such notice, the debtor is deemed to have complied with the demand if he has, within the time allowed, paid the correct amount.”
The object of the statutory demand procedure is to provide the debtor with an opportunity to pay so much (if any) of the debt as he admits is due; and to challenge so much of the debt as he disputes is due. The corollary is that, if no challenge is made – or the challenge is rejected by the court on an application to set aside the demand – non-payment of the debt is treated as sufficient evidence of inability to pay and the creditor may present a bankruptcy petition.
Nevertheless, it remains the position (whether or not there has been an application to set aside the statutory demand and whether or not the demand has been set aside on any such application) that a creditor’s petition can only be presented by a person to whom the debt is owed – section 267(1) of the Act – and payable, either immediately or at some certain future time – section 267(2)(b). It follows that a petition presented by a person who is not a creditor at the time that the petition is presented will be dismissed – unless there is some other person who was a creditor at that date and who can be substituted as petitioner under rule 6.30.
It follows, also, that an application to set aside a statutory demand - where the demand has been served by a person who is not a creditor at the date of the hearing of the application - ought normally to be granted under paragraph (d) of rule 6.5(4); for the reason that no bankruptcy petition can properly be presented on the basis of that demand. But that is not this case. In the present case the demand was served on behalf of the person, Mrs Stichbury, who was (on any view) the creditor at the time of the hearing of the application before the district judge – by virtue of the assignment under section 136 of the Law of Property Act. And, in the present case, Mrs Stichbury will be able to present a bankruptcy petition under section 267 of the Act on the basis of the statutory demand unless the demand is set aside. That is because, when the petition is presented, she will be able to satisfy the condition in section 267(2)(c), read with section 268(1)(a). She will then be “the petitioning creditor to whom the debt is owed” for the purposes of section 268(1)(a); and she will be the person who “has served on the debtor a demand . . . requiring him to pay the debt.”
Should the statutory demand have been set aside on 22 September 2003
The submission that the statutory demand should be set aside is founded on the requirement, in rule 6.1(1) of the Insolvency Rules 1986, that:
“A statutory demand under section 268 must be dated, and must be signed either by the creditor himself or by a person stating himself to be authorised to make the demand on the creditor’s behalf.”
The statutory demand was signed by a solicitor on behalf of the “Chief of Dorset Police”. The Chief of Dorset Police was described in the statutory demand as “the Creditor”; and, as rule 6.1(1) required, the solicitor stated that he was authorised to make the demand “on the Creditor’s behalf”. It is said that the demand was defective because, on a true analysis of the position, the “Chief of Dorset Police” was not the creditor in respect of the 1997 judgment debt at the time the statutory demand was signed or served.
It is clear that the fact that a statutory demand is defective is not, of itself, a sufficient reason to make an order that it be set aside under rule 6.5(4). The basis upon which the court should act was explained by Lord Justice Nicholls in In re a Debtor (No 1 of 1987) [1989] 1 WLR 271. At page 276C-E he said this:
“In my view, the right approach to paragraph (4) of rule 6.5 is this. Under the Act, a statutory demand which is not complied with founds the consequence that the debtor is regarded as being unable to pay the debt in question or, if the debt is not immediately payable, as having no reasonable prospect of being able to pay the debt when it becomes due. That consequence, in turn, founds the ability of the creditor to present a bankruptcy petition because, under section 268(1), in the absence of an unsatisfied return to execution or other process, a debtor’s inability to pay the debt in question is established if, but only if, the appropriate statutory demand has been served and not complied with.
When therefore the rules provide, as does rule 6.5(4)(d), for the court to have a residual discretion to set aside a statutory demand, the circumstances which normally will be required before a court can be satisfied that the demand ‘ought’ to be set aside, are circumstances which would make it unjust for the statutory demand to give rise to those consequences in the particular case. The court’s intervention is called for to prevent that injustice”
After describing the defects in that case – the calculation sent with the statutory demand was confusing, the amount of the debt specified was wrong, the interest calculations were made on the basis of compound interest at variable rates whereas only simple interest at a fixed rate was payable on the judgment debt – Lord Justice Nicholls went on (ibid, at 279B-E):
“Nevertheless, applying the approach which I have indicated above as the correct approach to these statutory provisions, in my view it by no means follows from the existence of these defects that this statutory demand ought to be set aside. The court will exercise its discretion on whether or not to set aside a statutory demand, having regard to all the circumstances. That must require a court to have regard to all the circumstances as they are at the time of the hearing before the court. There may be cases where the terms of the statutory demand are so confusing or so misleading that, having regard to all the circumstances, justice requires that the demand should not be allowed to stand. There will be other cases where, despite such defects in the contents of the statutory demand, those defects have not prejudiced and will not prejudice the debtor in any way, and to set aside the statutory demand in such a case would serve no useful purpose. For example a debtor may be wholly unable to pay a debt which is immediately payable, either out of his own resources, or with financial assistance from others. In such a case the only practical consequence of setting aside a statutory demand would be that the creditor would immediately serve a revised statutory demand, which also and inevitably would not be complied with. In such a case the need for a further statutory demand would serve only to increase costs. Such a course would not be in the interests of anyone.” [emphasis added]
Lord Justice Nicholls (with whose judgment the other members of the Court, Lord Justice Glidewell and Sir Stephen Brown, President, agreed) explained why the defects in that case could not be said to have misled the debtor. He concluded (ibid, 280B-C):
“In these circumstances I am in no doubt that, despite the mistakes in this statutory demand and the use strictly of the incorrect form, and despite the debtor not being aware of the precise amount of the debt when the demand was served on him, justice does not require that this statutory demand should be set aside. I can see no injustice in the consequences which flow from non-compliance with a statutory demand being permitted to flow in this case, despite the existence of those features.”
It is important to have in mind, in the present case, (i) that the debt of which payment was demanded in July 2003 was a judgment debt – there was no dispute that a debt was due from the debtor, (ii) that the person entitled to the benefit of the debt – and to whom the former and the present chief constable would have to account in respect of any monies recovered – was the Dorset Police Authority, (iii) that, in so far as the debtor had any counterclaim or cross demand against the former or the present chief constable – arising out of the conduct of members of the force of which they were for the time being head – those claims or demands would be met out of the police fund and could be set-off in equity against the judgment debt and (iv) that, at the date of the hearing before the district judge, the person entitled to sue for the debt at law, to give a good receipt for the debt, and to present a creditor’s petition (subject to the statutory demand not being set aside), was Mrs Stichbury.
In those circumstances – and with respect to the judge who thought otherwise – I am unable to see how it can be said that any injustice would result from a refusal to set aside the statutory demand in the present case; provided, of course, that the debtor is given the period of time which section 268(1)(a) of the Act allows (three weeks) to pay the debt before any bankruptcy petition is presented. The order of 22 September 2003 (which authorised presentation of a bankruptcy petition on or after 6 October 2003) was, I think, open to criticism in that respect; the appropriate date for the presentation of a petition would have been not earlier than 13 October 2003 (three weeks from 20 September 2003). But, in the circumstances that the debtor had made it clear, through the affidavit sworn by his solicitor, that he was well able to pay the debt if and when he chose, nothing turns on that.
The Police Acts
I have set out, in paragraph 26 of this judgment, two propositions which are, I think, self evident but which, for completeness, I should make good by reference to the Police Acts. First, that the person entitled to the benefit of the debt – and to whom the former and the present chief constable would have to account in respect of any monies recovered – was the Dorset Police Authority. Second, that, in so far as the debtor had any counterclaim or cross demand against the former or the present chief constable – arising out of the conduct of members of the force of which they were for the time being head – those claims or demands would be met out of the police fund and could be set-off in equity against the judgment debt.
Section 2 of the Police Act 1996 provided that a police force should maintained for every police area for the time being listed in schedule 1. The areas listed in that schedule included the county of Dorset. Section 3(1) of the Act provided that there should be a police authority for each police area. Section 6(1) of the Act imposed on the police authority the duty of maintaining an efficient and effective police force for its area. For that purpose the police authority was authorised to keep a fund, to be known as the police fund, into which all receipts of the police authority were to be paid and out of which all expenditure of the authority was to be met – section 14. The police force for each area was to be under the direction of the chief constable; who was to be appointed by the police authority, subject to the approval of the Secretary of State – sections 10 and 11 of the Act. All those sections of the Act, together with most of the other provisions in Part I (Organisation of Police Forces), came into force on 22 August 1996.
Section 88(1) of the 1996 Act, replacing provisions formerly in section 48(1) of the Police Act 1964, provided that the chief officer of police – who, in relation to a force maintained under section 2 of the Act was the chief constable (section 101(1)) – should be liable in respect of torts committed by constables under his direction and control in performance or purported performance of their duties in like manner as a master is liable in respect of torts committed by his servants in the course of their employment. Section 88(3) provided that any proceedings in respect of a claim made by virtue of subsection (1) should be brought against the chief officer of police for the time being or, in the case of a vacancy in that office, against the person for the time being performing the functions of the chief officer of police. Section 88(2) was in these terms:
“88(2) There shall be paid out of the police fund –
(a) any damages or costs awarded against the chief officer of police in any proceedings brought against him by virtue of this section and any costs incurred by him in any such proceedings so far as not recovered by him in the proceedings; and
(b) any sum required in connection with the settlement of any claim made against the chief officer of police by virtue of this section, if the settlement is approved by the police authority.”
The effect of those provisions is that proceedings in respect of torts said to have been committed by members of the police force are brought against the chief constable (not against the police authority); but (i) damages and costs awarded against the chief constable in such proceedings and (ii) the chief constable’s own costs of defending the proceedings (so far as not recovered in the proceedings) are paid by the police authority out of the police fund. It follows that, in so far as the costs of instructing solicitors and counsel to act for the chief constable in defending proceedings are paid by the police authority from time to time as they are incurred (as may be expected to be the case), any costs recovered under an order for costs against the claimant will be recovered for the benefit of the police authority and must be paid into the police fund.
It has not been suggested in the present case – and, in the absence of cogent evidence, I would not assume – that solicitors’ and counsel’s fees incurred in defending the proceedings brought by the appellant against Mr Aldous, as chief constable, under reference 1996 F 104 have not been paid, some time ago, by the police authority out of the police fund. In those circumstances it is, to my mind, beyond argument that the judgment debt has been held, since October 1997, for the benefit of the police authority. That was the position when the statutory demand was signed and served in July 2003; and that remained the position after the Law of Property Act assignment in September 2003. Further, it has been and remained the position throughout that claims which the appellant may have against the chief constable for the time being (whether Mr Aldous, Mrs Stichbury or any other officer fulfilling that role) will, if established, be met by the police authority out of the police fund. There is, as it seems to me, no doubt that those claims, if established, could be set-off in equity against the existing judgment debt.
The appellant’s application to adduce further evidence
By an application notice dated 14 June 2004 – served a few days before this appeal was listed for hearing in this Court – the appellant sought permission to amend his appellant’s notice and adduce further evidence. It is said, in support of that application, that the fresh evidence “was not available when the case was heard below” and would show “that the Appellant has a genuine and serious cross-claim against the Respondent” such that the statutory demand ought to be set aside under rule 6.5(4)(a) of the Insolvency Rules. The application is supported by a witness statement made by Miss Chua on 14 June 2004. She exhibits a witness statement made by Superintendent Geoffrey Brazier, a member of the Dorset police force, on 11 May 2004 in proceedings to set aside a second statutory demand served in respect of the 1997 judgment debt. It is said, at paragraph 4 of Miss Chua’s witness statement, that “The evidence of Mr Brazier transforms the Appellant’s case against the Respondent both in respect of malicious prosecution and misfeasance in public office”.
We dismissed the application to amend the appellant’s notice and to adduce further evidence. For my part I was not persuaded that there was anything in Mr Brazier’s witness statement which would have led the courts below to take a different view as to the existence of cross-claims capable of exceeding the amount of the judgment debt.
Conclusion
The district judge was right to refuse to set aside the statutory demand. I would dismiss this appeal, albeit for reasons which differ from those which attracted Mr Justice Patten.
Lord Justice Carnwath:
I agree.
Lord Justice Waller:
I also agree.
ORDER: Appeal dismissed with costs; order made under Rule 6(5) of the Insolvency Rules that a petition may be presented based on the statutory demand after 21 days.
(Order not part of approved judgment)