Anderson v Kas Bank NV & Anor

This is an appeal from a bankruptcy order made on 8 May 2003 by Deputy District Judge Furman in Kingston Upon Thames County Court against the appellant Jonathan Anderson. The petitioning creditor was KAS Bank NV, a bank incorporated in the Netherlands with an office in London. The appeal is advanced on a number of different grounds: a failure to serve the statutory demand on which the petition was based, the existence of a substantial dispute as to the debt claimed, the existence of claims which exceed the debt, and the circumstances in which judgment was delivered.

The background is that in the periodJanuary 1996 to December 1997 Mr Anderson was an active trader in securities listed in London and elsewhere. From January 1996 to June 1997 he received investment advice from Adams & Neville Asset Management Limited (Adams & Neville). Adams & Neville was not authorised to execute securities transactions or hold clients money. It therefore introduced Mr Anderson to KAS Bank NV (KAS) which could carry out those functions on behalf of Mr Anderson, but (as KAS asserts) at the direction of Adams & Neville. KAS’s evidence explains that the relevant trading details were inputted by Adams & Neville directly into KAS’s computer systems. KAS processed and settled the transactions. KAS acted as a clearing and settlement agent for trades introduced by Adams & Neville as Mr Anderson’s broker. Adams & Neville went into liquidation in June 1997, following which KAS wrote a letter dated 24 June 1997 to all its account holders who were clients of Adams & Neville. This letter was not before the court on the hearing of the petition, but Mr Anderson introduced it at the hearing of this appeal. It refers to Adams & Neville as having been the clients’ broker and goes on to outline a new arrangement under which former employees of Adams & Neville, including the relevant clients’ accounts executives, would be engaged by KAS and KAS would become the clients’ broker. All instructions were to be given to the relevant account executive, at KAS. Mr Fisher, who appeared on this appeal for KAS, accepted on instructions that this letter accurately stated the position as regards clients including Mr Anderson. The evidence of neither party before the County Court referred to or explained the change in relationship which took place in June 1997, and indeed some of the submissions made on behalf of KAS proceeded on the basis that KAS was not at any time Mr Anderson’s broker.

Mr Anderson continued to trade through KAS until the end of December 1997. He was not a discretionary management client of Adams & Neville or KAS but made his own investment decisions, entering into up to 90 trades a month. His trades were cleared through his trading account with KAS (number 274720 until the liquidation of Adams & Neville when the account number was changed to 574720). KAS at all times had a direct banking and custody relationship with Mr Anderson and was responsible to the market for settling his trades, but with a right of indemnity against him. KAS maintained other accounts for him, including for example a dividend account to which were credited dividends on shares held by or for Mr Anderson.

There was a debit balance of £80,030.25 on Mr Anderson’s trading account at 26 February 1998. Following various credits to the account during 1999 the debit balance was reduced to £47,956.21 in March 2000. By a letter dated 14 March 2000 to Mr Anderson, KAS confirmed this amount and demanded its payment. In a telephone conversation with Mr M.W.West of KAS on 4 April 2000, Mr Anderson agreed that he owed this amount. In a letter on the following day to him, KAS wrote:

“In confirmation of our telephone conversation of 4^th April 2000, please be advised that we have now placed a pre-advice instruction on your account 574720 for £47,956.21 with an expected value date of May 2000. This is in accordance with your verbal confirmation yesterday.

On receipt and clearance of these funds the account balance will be nil and the account closed.”

No payment was made in May 2000, and on 1 June 2000 Mr Anderson was telephoned by Jane Muirhead of KAS. He agreed to a repayment plan whereby he would, at his own suggestion, pay £5,000 at the beginning of each month. Payments of £10,000 and £5,000 were received by KAS on 29 June 2000 and 17 August 2000 respectively from Mr Anderson’s accountant on his behalf. A further two payments were later made, £5,000 on 19 January 2001 and £2500 on 29 June 2001. This left a debit balance of £25,456.21. Mr Anderson confirms in his evidence that he did not challenge these figures and made the payments referred to above in reduction of the amount shown as being due from him.

On 1 August 2001 KAS wrote to him at the address which it had for him and to which the earlier letter had been sent, 24 Haygarth Place, Wimbledon, concerning the outstanding debt. There is no response in evidence. On May 1 2002 Clifford Chance, instructed by KAS, sent a letter by courier addressed to him at 24 Haygarth Place, requiring payment. The letter was accepted and signed for by a woman at that address. On 10 May 2002 Mr Anderson wrote to KAS. The letter was not put in evidence before the Deputy District Judge by either party but it was referred to in a response from KAS which was in evidence. Mr Anderson produced a copy of the letter at the hearing of this appeal. It reads as follows:

“Please take notice that I am domiciled in the Philippines at the above address and no longer abode at 24 Haygarth Place.

I am happy to fulfil full and final settlement of my account with you, but in order to do so I need to have a final reconciliation of my account with you including at least the two years of trading leading up to the debt being incurred. Please could you provide this, as I have not received it previously, and I need to see how the debt was incurred.”

Two letters were sent on 20 May 2002. Clifford Chance wrote to Mr Anderson at 24 Haygarth Place, again requiring payment and also threatening bankruptcy proceedings. The letter was again sent by courier and accepted and signed for by a woman at that address, but this time it was returned, opened, three days later, with “not at this address” written on the envelope. The letter was also faxed by Clifford Chance to Mr Anderson at the number in the Philippines given by him. KAS also wrote to Mr Anderson on 20 May 2002, directly to the address given by him in the Philippines. In response to his request for “a final reconciliation of my account with you including at least the last two years of trading leading up to the debt being incurred”, KAS sent him statements for the last two years of trading and a copy of its letter dated 14 March 2000. As regards his address, KAS wrote:

“It remains our understanding that you still live at the Haygarth Place address and accordingly we will send a copy of this letter (with enclosures) to that address.”

Mr Anderson accepts in his evidence that he did not reply to or take issue with that paragraph.

No further payment was received from Mr Anderson nor did he raise any issue with regard to the amount due from him. A statutory demand addressed to him was left at 24 Haygarth Place on 21 August 2003. I will return to this in a little more detail when considering Mr Anderson’s case that it was not served on him for the purposes of the Insolvency Act and the Insolvency Rules. The bankruptcy petition was presented to the Kingston Upon Thames Court on 25 November 2002 and served at 24 Haygarth Place on 9 January 2003 pursuant to an Order for substituted service made on 20 December 2002.

Mr Anderson stated in his evidence that the statutory demand and the petition only came to his attention on 23 January 2003 when he was told by his solicitor, acting in connection with a re-mortgage of a flat owned jointly by himself and his ex-wife, that there was an outstanding petition against him. He immediately rang KAS which provided information to him. He wrote to KAS on 30 January 2003, asserting that there was no jurisdiction to make him bankrupt on the basis that he did not fall within any of the categories in section 265(1) of the Insolvency Act. He also took issue with service of the statutory demand and demanded further records of his accounts beyond those sent to him in May 2002. He did not however assert that the amount claimed was not due or that he had cross-claims which would extinguish it.

On February 2003 Mr Anderson received a bundle containing copies of the statutory demand, order for substituted service, the petition and supporting witness statements. On 4 February 2003 he wrote to Clifford Chance with his comments on the statements. His comments included the following:

“Previous settlement Agreements

I have always agreed with KAS, that at the end of 1997 I owed them a large sum of money but at no time have I agreed the exact amount.

Thereafter I paid them when I had money available and the payment record given Ms Linane in her statement I concur with.

I approached Ms Linane two Fridays ago because I knew that I was about to come into liquid assets which would easily cover KAS’ final settlement claim at present and I wished to agree a full and final settlement.”

The petition was set to be heard on 4 February 2003 and in late January Mr Anderson wrote to the County Court seeking dismissal of the petition on grounds of lack of jurisdiction, non-service of the statutory demand and an offer of security. The debt was not disputed nor was any cross-claim advanced. The Court adjourned the petition to 29 April 2003 and gave directions for evidence, which included a direction for service of any affidavit in opposition to the petition by 18 February 2003. No affidavit was served but on 25 February 2003 Tarlo Lyons, solicitors instructed by Mr Anderson, sought “a complete statement showing all sums received into and paid out of his account during its currency, including dividends and reclaimed stamp duty received.”

A further letter dated 4 March 2003 from Tarlo Lyons contained the first suggestion by or on behalf of Mr Anderson not only that he was not indebted to KAS but also that amounts were due to him. It was no longer suggested that he was not amenable to the Court’s bankruptcy jurisdiction. Clifford Chance responded by letter dated 10 March 2003. An unsigned witness statement by Mr Anderson was sent to Clifford Chance by Tarlo Lyons on 11 April 2003 and a signed copy was served on 24 April 2003. The petition was heard on 29 April 2003 when Mr Anderson was represented by solicitors and counsel. Judgment was reserved and handed down on 8 May 2003 when the deputy district judge made a bankruptcy order. Unfortunately, neither Mr Anderson nor his solicitors had any prior notice of this. If there was a hearing at which the order was made, Mr Anderson was neither present nor represented.

On this appeal Mr Anderson relies on most, but not all the grounds, put forward in opposition to the petition. His grounds now may be summarised as follows:

Service of a statutory demand is a necessary pre-condition to presentation of a bankruptcy petition by a creditor, unless the petition is based on a judgment debt and execution or other process has been returned unsatisfied in whole or in part. This is the combined effect of sections 267 (2)(c) and 268 of the Insolvency Act 1986. The Insolvency Rules 1986 make provision for the manner of service of a statutory demand. Rule 6.3(2) provides:

“The creditor is, by virtue of the Rules, under an obligation to do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected.”

Rule 6.11 requires an affidavit proving service of the demand to be filed in court. If the demand has not been served personally on the debtor, the affidavit must give particulars of the steps taken with a view to personal service, as well as the means by which it was sought to bring the demand to the debtor’s attention, and Rule 6.11(6) requires those steps to be such as would have justified an order for substituted service of a petition.

Guidance on the service of statutory demands is given in paragraph 11 of the Practice Direction on Insolvency Proceedings. Paragraph 11.1 states that where it is not possible to effect prompt personal service, service may be effected by other means such as first class post or by insertion through a letterbox, but that does not of course qualify the requirement to do all that is reasonable to bring the demand to the debtor’s attention, although in many cases it will be sufficient. By way of explanation of Rule 6.11(6), paragraph 11.4 sets out the steps which in most cases would be sufficient to justify an order for substituted service.

The evidence of service of the demand on Mr Anderson is given in an affidavit of a process server. His evidence is that he went to 24 Haygarth Place on Saturday 17 August 2002, was unable to obtain a reply but spoke to neighbours who confirmed that Mr Anderson still lived at that address but had not been seen for a few days. The process server put an appointment letter addressed to Mr Anderson through the letterbox and sent a copy of the letter by first class post to him at the same address. He attended at 24 Haygarth Place at the time of the appointment on the following Wednesday evening but was again unable to obtain a reply. A neighbour confirmed that Mr Anderson still resided at the address and that she had spoken to him the previous day. The process server put the demand through the letterbox. It was not returned.

The steps followed by the process server are those set out in paragraph 11.4 of the Practice Direction. Mr Anderson objects that the demand or a copy should have been sent to him in the Philippines. His evidence is that he has not lived at 24 Haygarth Place since February 1998 and that he did not visit it between April 2002 and January 2003.

In my judgment Mr Anderson’s objection is not sustainable. Although he had informed KAS by the letter dated 10 May 2002 that he had moved to an address in the Philippines and no longer lived at 24 Haygarth Place, KAS had replied on 20 May 2002 that it was their understanding that he still lived there. That letter was sent to Mr Anderson in the Philippines but, as he accepts, he chose not to correct KAS’ statement or to insist that all communications or copies be sent to him in the Philippines. In those circumstances, and in the light of the process server’s evidence, I am satisfied that KAS did all that was reasonable to bring the demand to Mr Anderson’s attention. It was accordingly duly served for the purposes of the statutory requirements.

I turn now to the allegations that there is a substantial issue as to whether Mr Anderson owes the amount claimed by KAS. Mr Anderson agreed as long ago as April 2002 that he owed £47,956.21. Having defaulted on his agreement to pay that sum in May 2000, he agreed a plan for monthly instalments and, although he failed to keep to that plan, he paid a total of £22,500 between June 2000 and June 2001 towards the debt. In his comments in early February 2003 on the petition and supporting evidence he agreed that at the end of 1997 he owed a large amount to KAS.

Even now Mr Anderson cannot state the grounds on which the debt is disputed. Instead he asserts that he has been unable to reconcile the various statements and contract notes supplied to him by KAS and, in particular, points to entries in some statements showing transfers out of his accounts which he says are unexplained. The deputy district judge was fully entitled on the evidence to treat these points as being without substance. KAS’s evidence is that throughout the period of Mr Anderson’s trading it sent contract notes for each trade to Mr Anderson and monthly statements of his accounts. This is exactly what one would expect between a bank and its customer. If Mr Anderson had questions he could, and should, have raised them during his period of trading or before he agreed the amount due and made payments towards settlement of it.

Mr Anderson’s third basis for his appeal is that he has cross-claims which exceed the petition. Since the hearing in the court below, Mr Anderson has narrowed his cross-claims to two matters. First, on the basis of spreadsheets giving details of trades on his behalf in 1996 and 1997, he claims that he was over-charged commission by more than £36,000. However, he nowhere gives any evidence of the agreed terms for commission. Without the evidence of those terms, he cannot begin to show that he was over-charged. He told me that there was an oral agreement with Adams & Neville for commission at 1% on the first £10,000 of a trade’s value and ½ % on the balance. This is not in evidence nor is any document relating to it in evidence. Such agreement was with Adams & Neville and any claim for over-charging in the period of 18 months to June 1997 would lie against that company. Mr Anderson gave no evidence of the commission terms agreed with KAS and applicable from June to December 1997.

The second alleged cross-claim related to Irish stamp duty on trades in Irish-listed shares. Mr Anderson says that it is the responsibility of the buying broker to reclaim Irish stamp duty, that it was done in the case of 7 of his trades but not done in others leading to a claim of at least £5841. Even if there were any substance in this cross-claim, it would still leave a substantial debt due from Mr Anderson to KAS, well above the bankruptcy level. In my judgment, the deputy district judge was fully entitled on the evidence to treat this alleged cross-claim as without substance. Mr Anderson adduced no evidence to show that the trades in question were ones which entitled him or his broker to reclaim Irish stamp duty, nor any evidence that in the period to June 1997 it would have been the responsibility of KAS, not Adams & Neville, to make any claim for repayment. There is simply no evidence to support this cross-claim.

Mr Anderson’s final ground of appeal relates to the circumstances in which judgment was delivered and the bankruptcy order was made by the deputy district judge. Mr Anderson should have been given advance notice of the date on which the judgment would be delivered and it is most regrettable that neither he nor his solicitors were given notice. The issue on this appeal is whether that led to a substantial injustice or prejudice to Mr Anderson which requires the order to be set aside. The prejudice suggested by Mr Anderson is that if he had received a copy of the judgment in advance of its handing-down he would have paid KAS’s debt so that no bankruptcy order would have been made. Alternatively, if no copy of the judgment was provided in advance, and there was certainly no obligation on the deputy district judge to do so, he submits that he would have sought an adjournment of 7 days to enable him to pay the debt. A debtor clearly has no right to an adjournment in these circumstances, although it may be that a court would grant one if he could produce convincing evidence that the debt would be paid within a very short period. Mr Anderson has produced no evidence at all, let alone convincing evidence, that he would have been able to pay the debt within 7 days or any other period. Without that evidence, he can show no prejudice resulting from the circumstances in which the bankruptcy order was made in this case.

I dismiss the appeal.