Coulter v Dorset Police

J U D G M E N T

1. LORD JUSTICE CHADWICK: This is an appeal from an order made on 19th October 2004 by Evans-Lombe J, sitting in Bankruptcy on appeal from an order made on 7th June 2004 by District Judge Field in the St Albans County Court, dismissing an application under rule 6.4 of the Insolvency Rules 1986 to set aside a statutory demand served on the appellant, Mr Gerald Coulter, on 24th September 2003. The judge dismissed the appeal. Mr Coulter appeals to this court with permission granted by Neuberger LJ on 31st January 2005.

2. The appeal may be seen as a further round in a protracted and, if I may so, pointless litigation between Mr Coulter and the Dorset Police. The background to that litigation is set out in a judgment [2004] EWCA (Civ) 1259 delivered in this court on 8th October 2004 -- and now reported at [2005] BPIR 62 -- in a earlier appeal in relation to the same underlying debt.

3. It is unnecessary to set out that history again. It is sufficient to say that the judgment debt, £6,627.47, arises out of an order for costs made on 28th October 1997 in proceedings brought by Mr Coulter against the Chief of Dorset Police in relation to the theft of his motor vehicle. The allocatur following assessment of the costs in those proceedings is dated 9th October 1998.

4. Those proceedings alleged negligence in the manner in which the police had dealt with the theft of the motor vehicle. They were struck out on the grounds that they were scandalous, frivolous and vexatious. Mr Coulter was ordered to pay the costs of the Chief of Dorset Police.

5. The police authority took no steps to enforce that order until some 5 years later. On 19th July 2003 a statutory demand -- to which I shall refer as the first statutory demand -- was served in the name of the Chief of Dorset Police, requiring payment of the judgment debt for assessed costs. In the meantime there had been a change in the holder of the office of Chief Constable of the Dorset Police Force. Mr Aldous, who had held that office in November 1997, had retired in 1999 and had been succeeded as Chief Constable by Mrs Stichbury. The office of Chief Constable is not a corporation sole. The chosen action representing the right to enforce the judgment debt remained vested in Mr Aldous and was not transferred automatically to Mrs Stichbury on her appointment.

6. Mr Coulter applied under rule 6.4 of the Insolvency Rules 1986 to set aside the first statutory demand. That application was also made in the St Albans County Court. Amongst the points that he took was that the person in whose name the first statutory demand had been made, the Chief of Dorset Police, was not the person to whom the debt was owed. The Chief of Dorset Police at the time of the service of the first statutory demand was Mrs Stichbury. The creditor was and had remained Mr Aldous.

7. The hearing of the application to set aside the first statutory demand was fixed for 22nd September 2003. On 18th September 2003 -- no doubt, in order to meet the point that Mrs Stichbury was not a creditor in respect of the debt which was the subject of the statutory demand -- Mr Aldous executed a formal assignment of the debt to Mrs Stichbury. A notice of that assignment was served on Mr Coulter on 20th September 2003 in a form which complied with the requirements of section 136 of the Law of Property Act 1925.

8. At the hearing on 22nd September 2003, District Judge Lewis dismissed the application to set aside the first statutory demand. He made the usual order under rule 6.5(6), authorising presentation on a bankruptcy petition. Mr Coulter appealed to a judge of the High Court as he was entitled do, by notice dated 3rd October 2003. On 9th October he sought and obtained, from HHJ Norris QC, sitting as a judge of the Chancery Division, an order staying presentation of the bankruptcy petition until after the hearing of that appeal.

9. The appeal came before Patten J on 12th December 2003, [2003] EWHC 3391 (Ch) reported at [2004] 1 WLR 1425. Patten J dismissed the appeal and authorised service of the bankruptcy petition. Mr Coulter appealed to this court. His appeal was dismissed by this court (Waller LJ, Carnwath LJ and myself) on 8th October 2004.

10. As I have said, the application to set aside the first statutory demand had been dismissed by the District Judge on 22nd September 2003. Two days later, on 24th September 2003, the Chief of Dorset Police served a second statutory demand on Mr Coulter based on the judgment debt of £6,627.47. By that date, of course, the debt had been assigned to Mrs Stichbury, so whatever force there might have been in the argument that the first statutory demand was invalid, that point could not be taken in relation to the second statutory demand.

11. On 13th October 2003, Mr Coulter applied to set aside the second statutory demand. That application came before District Judge Field at the St Albans County Court on 7th June 2004. She dismissed the application and gave permission to present a bankruptcy petition on the basis of that second demand.

12. She did so for the reasons set out in her judgment of that day. At paragraph 5, she recorded that both parties had agreed before her that there was a preliminary issue as to whether Mr Coulter was estopped from making an application at all. Put shortly, the submission for the Chief Constable was that Mr Coulter had had his opportunity at the hearing of that application to set aside that first statutory demand on 22nd September 2003, to put before District Judge Lewis all the matters upon which he wished to rely, including any challenge to the debt and allegation of compromise or counterclaim. She thought that he should not have a further opportunity to do so on a second attempt. She said this at paragraph 15 of her judgment:

"15. It is quite clear on the evidence that I have read that the issues that Mr Coulter raises in this application are identical to the ones that he raised before the District Judge on 22nd September last. There is an issue of him bringing additional evidence in respect of the compromise that he says he achieved with one of the respondent's employees.

"16. It seems to me that the law as it has been set out for me, that this additional evidence, which he now seeks to bring, arguably should have been available at the time of the first application. It was I who raised the point with Mr Stubbert [the solicitor-advocate for Mr Coulter] about making an application for an adjournment, which he chose not to do at that time. I would agree on what I have read with the respondents that this is something that was known to him and that it was in issue. Indeed, I have been referred to Mr Stubbert's recent statement at page 133 of the bundle, which makes it clear that it was something of which he was aware and he would have relied on it in certain circumstances if they arose.

"17. So it seems to me that he could, if he had chosen to argue a certain position, gone down that route in front of the District Judge back in September last year. For whatever reasons he presented his case on a certain basis in front of the judge, who did not favour him. It does not seem to me that there is any basis for me now to allow him to consider further evidence. The respondents have said that he has brought certain evidence at that stage and has not succeeded. He is now trying again and taking another point. He should not be allowed to do this. He should have put all his arguments at the appropriate time. If he chose not to do so, which I would say he did not, then he should not have the opportunity of bringing further arguments, particularly when he was aware of them on the first hearing on a separate application."

13. She concluded at paragraph 19 in these terms:

"Quite simply, it seems to me that Mr Coulter had his opportunity before the judge on 22nd September 2003. He could have produced all the evidence that he now has to hand for the reasons that he did not seek an adjournment or produce it then. I cannot see any basis now for me reopening the issue. My view is it has been clearly adjudicated upon by District Judge Lewis. That order has been appealed unsuccessfully so far as the District Judge's findings are concerned. He is entitled to exercise his discretion and the judge on appeal has not faulted that. So I cannot see that there is any merit in the application that Mr Coulter seeks to bring today, a second application in almost identical terms to that which was before the court and did not succeed last September."

14. It is pertinent to have in mind the position of 7th June 2004, at the time when the application to set aside the second statutory demand was before the District Judge. The application to set aside the first statutory demand had been dismissed. An appeal from that dismissal had itself been dismissed by Patten J. An appeal from the order of Patten J was pending in this court. Permission for that appeal had been granted by Carnwath LJ on 26th March 2004. This appeal was listed for hearing in this court on 18th June 2004. The Chief Constable had been authorised to present a bankruptcy petition by Patten J but had chosen not to do so. In those circumstances, it would have been open to the District Judge -- and it might have been more sensible -- to adjourn the application before her in relation to the second statutory demand until after this court had decided to appeal from Patten J.

15. If the order of Patten J was upheld, then the second statutory demand ceased to serve any purpose. In those circumstances the District Judge could make no order on the application -- save perhaps as to costs -- on the basis that the Chief Constable would be able to rely on the liberty to present the petition which had been given by Patten J. It was only if this court reversed Patten J's order that the Chief Constable would need to rely on the second statutory demand and it was only then, and in that event, that the question whether he should be permitted to do so -- or whether the second statutory demand should be set aside -- would need to be decided. As events turned out, it was never necessary to decide that point because this court upheld the order of Patten J.

16. Be that as it may, the District Judge did decide on 7th June 2004 that the application to set aside the second statutory demand should be dismissed. Mr Coulter appealed that order to a judge of the High Court (as in the context of this litigation, was wholly predictable). That appeal came before Evans-Lombe J on 19th October 2004.

17. By that date there had been two further developments. The Chief Constable had presented a bankruptcy petition (in reliance on the second statutory demand) on 18 August 2004, and the Court of Appeal had dismissed the appeal from Patten J. There was, on 19th October 2004, no need to decide the issue which had been raised before District Judge Field on June 2004. The petitioner could, if necessary, rely on that first statutory demand. On a true analysis, the only live issue was whether the District Judge was right in ordering that Mr Coulter pay the costs of the application before her.

18. Nevertheless, Evans-Lombe J considered the question of principle: should Mr Coulter be permitted to advance, on an application to set aside the second statutory demand, grounds which he could have advanced, if he had chosen to do so, on the application to set aside the first statutory demand in respect of the same debt. After considering some observations of mine in this court in Turner v Royal Bank of Scotland[2000] BPIR 683 on the question whether a debtor could pursue at the hearing of the bankruptcy petition a challenge to the petition debt on grounds which had already failed on an earlier application to set aside the statutory demand, Evans-Lombe said this, at paragraph 11 of his judgment, now reported at [2005] BPIR 76:

"It seems to me that the principle on which Chadwick LJ relied was what he regarded as being the purpose of this group of sections of the 1986 Act and Rules, which deal with the statutory demand procedure before the presentation of a petition. I can see no reason why the same principle should not also apply to a situation in which, for purely technical reasons, a statutory demand has been served, challenged and disposed of but for those technical reasons a second statutory demand based on the same petitioning debt has been served, and an application is made to set it aside, which raises all the issues which were dealt with on the first statutory demand, and also raises an issue which could have been raised when the first statutory demand was challenged but was not made. The issue on the second statutory demand is precisely the same as the issue on the first statutory demand, namely, does there exist a cross-claim in the debtor which over-tops the petitioning debt?"

Then he went on at paragraph 13 in these terms:

"It seems to me that that which Chadwick LJ was in fact applying, not the principles of estoppel illustrated by Henderson v Henderson but the principle of estoppel by res judicata when he decided Turner v Royal Bank of Scotland. That was the same basis upon which District Judge Field disposed of the application to set aside the second statutory demand on 7th June of this year, which order is appealed to me. It seems to me that it was appropriate for her to do so and I am not able to fault the basis on which she approached the case."

Accordingly, he dismissed the appeal.

19. Estoppel and res judicata were not canvassed before the court in Turner. The basis of the observations of mine to which Evans-Lombe J referred was that it would be a waste of court time and the parties' money to allow a debtor, who had already failed on his application to set aside a statutory demand, to advance the same arguments by way of challenge to the petition debt on the hearing of the petition. The same point was made by Neuberger LJ in Atherton v Ogunlende[2003] BPIR 21 at page 27C, where he put the point in these terms:

"However, in general, it seems to me right in principle and in the public interest that, if a party has raised an argument in a proper forum, where it has been considered in connection with a particular process, in this case a bankruptcy or a prospective bankruptcy, and from which forum he had a right of appeal if he wished to exercise it, if that argument is rejected and he does not appeal, it requires exceptional circumstances before he can raise the same argument at a later stage during the same process."

Neuberger LJ took that point a little further at page 27G, where he said this:

"It seems that the principle enshrined in the passage in the judgment of Vinelott J, [in Brillouet v Hachette Magazines Ltd[1996] BPIR 518] approved by Chadwick LJ, and indeed his own judgment in Turner v Royal Bank of Scotland[2000] BPIR 683, indicates that the principle should not be abrogated simply because the party has found a better way of putting the same point, or wants to put in more evidence to support the same point. If there were evidence from Mr Atherton as to specific facts which really make a difference, and which he was unable to put forward on 11 March 1999 through no fault of his own (eg because it was then unavailable or unknown to him at that hearing) different considerations might apply. However, to my mind there is nothing in the subsequent evidence which justifies my going against the normal rule as laid down in Turner."

The position is different, of course, where there has been no application to set aside the statutory demand, see the observations of HHJ Maddocks, sitting as a judge in the High Court in Barnes v Whitehead[2004] BPIR 693 at 698 and 699, paragraph 12.

20. The authorities following Turner were reviewed by Mr Bernard Livesy QC sitting as a Judge of the High Court in Adams v Mason Bullock[2004] EWHC 2910 (Ch), [2005] BPIR 241. I draw attention, if I may, to the citation in that judgment at paragraph 23, page 247, of a passage in an unreported judgment of mine in this court in West Bromwich Building Society v Crammer [2002] EWCA Civ at 1924, where, after referring to the passage in Turner, I said this:

"Those observations were plainly obiter in that case; but will be given, no doubt, the weight which they deserve. But they do not have the effect of depriving a court exercising its functions under s 271 of the duty to decide whether or not to make a bankruptcy order on the material which is then before it. Plainly, a court will ask itself whether arguments that are being run before have already been run and failed; and it may go on to ask itself why arguments which have been run before it have not previously been run. But it is for that court to decide whether the conditions which must be satisfied before a bankruptcy order can be made are satisfied."

21. Further consideration was given to the point by Mr Launcelot Henderson QC sitting as a Judge of the High Court in Commissioners of Inland Revenue V Lee-Phipps[2003] BPIR 803. He observed that, in a case where there had been no reasoned determination of the arguments at the earlier stage and the application had simply been struck out for a formal defect, then the principle referred to in Turner was not engaged.

22. The principle is not based on estoppel, whether of a Henderson v Henderson nature or res judicata. It goes no further than this: (i) that it is indeed a waste of the court's time and the parties' money to rehearse arguments which have already been run and have failed; and (ii) that, in circumstances where it is desired to run arguments which have not already been run, then, as HHJ Maddocks pointed out in Barnes v Whitehead, the court will inquire why those arguments were not run at the time when they could and should have been run.

23. Evans-Lombe J dismissed the appeal and awarded costs against Mr Coulter. Mr Coulter sought permission to appeal. His appellant's notice was filed on 2nd November 2004. Permission was granted by Neuberger LJ on the papers on 31st January 2005.

24. It is not clear to me from the material before this court whether Neuberger LJ was aware, when he granted permission on 31st January 2005, that Mr Coulter had already been made bankrupt on 25th November 2004. That order was made by Deputy District Judge Littlejohn in the St Albans County Court on the petition presented on 18th August 2004. That petition, as I have said, was based on the debtor's failure to pay the judgment debt in response to the second statutory demand. Given that a bankruptcy order had already been made and that the first statutory demand had been upheld in this court, any need to decide the issues which the appellant seeks to raise on this appeal might be thought to have become academic. Further, there was clearly a question whether Mr Coulter as a bankrupt had standing to raise them. The order for costs made against him would be a debt provable in his bankruptcy. It would not have been enforceable against him personally. The question of whether he had standing to raise the matter would have been determined in accordance with principles set out in Heath v Tang.

25. But those matters have themselves been overtaken by events. On an appeal by Mr Coulter from the bankruptcy order Peter Smith J set that order aside on 28th April 2005. He did so on the basis of procedural injustice: holding that, had Mr Coulter been given the opportunity to instruct his solicitor-advocate in the course of the hearing before the District Judge, an application would have been made to the District Judge to refuse himself. Peter Smith J thought the Deputy District Judge would have been bound to have acceded to that application. The position now, as I understand it, is that Mr Coulter is not subject to a bankruptcy order. But he is respondent to a pending bankruptcy petition -- the petition presented on 18th August 2004 -- which has been stood over until this court has heard this appeal.

26. I have little doubt -- having regard to the history of this litigation -- that, at the renewed hearing of the bankruptcy petition (which will, as it seems to me, take place whatever decision we reach on this appeal) Mr Coulter will seek to advance arguments for the purpose of showing that the judgment debt is outweighed by a cross-claim or cross-claims which he has against the police, or that it has become the subject of a compromise. In other words, he will seek to advance at the hearing of the bankruptcy petition much the same arguments as he wishes to advance in support of his application to set aside the second statutory demand. I say "much the same arguments" in recognition of the likelihood -- again, in light of the history -- that there may be other arguments which he will wish to advance or which will be advanced on his behalf. Whether or not he should be permitted to do so will be for the judge to determine when hearing the bankruptcy petition; directing himself with regard to the observations in this court in Turner and in the light of the subsequent decisions to which I have referred.

27. The extent to which Mr Coulter should be allowed to advance new arguments or rely on new material at the hearing of the bankruptcy petition will, as it seems to me, have to be decided whatever decision we might reach on the issues in this appeal. I note that, when giving permission to appeal on 31st January 2003, Neuberger LJ took the view that the factors which might lead a court to allow or to refuse a debtor permission to advance new arguments or to rely on new material on an application to set aside a second statutory demand might differ from those which would be pertinent on the hearing of a bankruptcy petition. If that is the correct view, (and I express no view of my own on the point) then nothing will be gained by a decision of this court on a point of principle which will not be of assistance to the judge hearing the bankruptcy petition. If that is not a correct view (and the factors are the same) then there is nothing to be gained by rehearsing principles which have already been established by reported decisions over the last few years.

28. I would hold that it is unnecessary, inappropriate and potentially dangerous for this court to decide questions which (for those reasons) do not need to be decided in this litigation, in circumstances in which the only purpose for doing so would be to vary the orders for costs that have been made. Accordingly, I would make no order on the substantive issues raised by the appeal. Nevertheless, Mr Coulter is entitled to be relieved from orders for costs against him if they should not have been made. As I have indicated, I take the view that the sensible course, when the application to set aside the second statutory demand was before the District Judge on 7th June 2004, would have been to adjourn that hearing on the basis that the validity of the first statutory demand would be before this court in the very near future -- that is to say, some 11 days time. It does not appear that either party invited the District Judge to take that course. In those circumstances, I would set aside the order for costs made by the District Judge on 7th June 2004 and make no order as to the costs of that hearing. Those costs were incurred unnecessarily. Neither party took the obvious step which would have avoided them.

29. Similar considerations apply to the costs before Evans-Lombe J. By the time the appeal came before him, this court had already determined that the first statutory demand provided a valid basis for the presentation of a bankruptcy petition. A bankruptcy petition had in fact been presented. There was no sensible reason (other than in relation to the costs before the District Judge) for the appeal before Evans-Lombe J to proceed. Neither party invited the judge to take the course which, as I have indicated, would have disposed of the appeal without the need for argument. So I would set aside his order for costs also. I would make no order as to costs of the hearing before Evans-Lombe J. Save in those respects, and subject to any submissions which may be made as to the costs of this appeal, I would make no order.

Order: No order on the substantive issues of the appeal. The claimant is to be relieved of the costs made by the District Judge on 7th June 2004 and of the costs made by Evans-Lombe J on 19 October 2004. No order given as to the costs of this appeal.