Harvey v Dunbar Assets Plc

This is a renewed application by Mr John Spencer Harvey (“Mr Harvey”) for permission to appeal the dismissal by District Judge Pescod on 6 July 2015 of Mr Harvey’s application to set aside a statutory demand served on him by the respondent, Dunbar Assets plc (formerly Dunbar Bank plc) (“the Bank”). The District Judge refused permission to appeal, as did HH Judge Behrens on paper on 9 September 2015. Judge Behrens however directed that if (as is the case) the application for permission was renewed, then it should, if granted, be immediately followed by the substantive appeal. In the result the application has been fully argued on both sides by Mr David Schmitz, counsel for Mr Harvey, and by Mr Joseph Curl, counsel for the Bank.

The point raised by the appeal is a novel one, with, as I understand it, no definite authority exactly on the point, namely whether a debtor can raise the same argument in respect of a second statutory demand as was raised and dismissed on the first but not pursued on appeal. Mr Schmitz submits he can; Mr Curl says no.

The statutory demand is based on Mr Harvey’s liability under a joint and several guarantee dated 10 March 2008 (“the Guarantee”) signed by four guarantors (Mr Harvey, Mr Lenney, Mr Bradley and Mr Trueman) in favour of the Bank to a maximum sum of £720,000 together with interest, charges, and costs in consideration of the Bank providing credit and banking facilities to a company called Vision Development Ashbrooke Ltd (“the Company”) of which Mr Harvey’s co-guarantors were directors.

Mr Harvey’s case is that although he was neither director nor shareholder of the Company, and although he had previously loaned money to the Company (which had been repaid) and was on friendly terms with the directors, he was persuaded to sign the Guarantee at the request of the Company and the Bank. In a nutshell, he said he had been told by a Mr Cullen, representing the Bank, that the proposed personal guarantee was a formality only to get the loan past the Bank’s credit committee and approved, that the Bank had never enforced a personal guarantee in the past, and never would do so in the future. On this basis, says Mr Harvey, he signed the Guarantee. Accordingly, it was submitted on his behalf, the Bank was estopped from enforcing the Guarantee against him. This became known as “the promissory estoppel point”.

The Guarantee was provided as part of an arrangement by which the Bank made facilities of over £3.5m available to the Company to finance the costs connected with a development site in Sunderland for the building of 24 or more flats.

The development project was not successful. On 22 March 2011 the Bank demanded repayment from the Company in excess of £4.8m followed on 4 April 2011 by a demand for payment from Mr Harvey under the Guarantee of £720,000.

On 16 June 2011 the Bank issued and subsequently, on 22 June, served a statutory demand (“the first statutory demand”) on Mr Harvey for that sum plus interest to date, the total being calculated in excess (then) of £725,000.

On 7 July 2011 Mr Harvey applied to set aside the statutory demand (“the first application”) on the grounds that there was a genuine triable issue with a real prospect of success, i.e. the promissory estoppel point above-mentioned. His own evidence was supported by evidence from his co-sureties and a witness to his signature, a Revd Oates. Further evidence was also filed and served in support.

After some adjournments of hearings (during which it was made abundantly clear the only point being relied on by Mr Harvey was the promissory estoppel point), the matter came before DJ Pescod where the point was fully argued, Mr Harvey being represented by counsel (not Mr Schmitz).

On 9 February 2012 the District Judge circulated a detailed written judgment (subsequently handed down on the 20 March 2012) refusing to set aside the (first) statutory demand. Even on the basis he accepted the evidence of Mr Harvey, this did not, he found, establish a case of promissory estoppel.

However, after the circulation of the draft judgment and before it was due to be handed down on 20 March 2012 Mr Harvey’s solicitors’ attention had been drawn to another point. As a result he now asserted that Mr Lenney’s signature on the Guarantee was a forgery and hence not all the intended signatories had signed the document, which accordingly was not binding on those who had. Mr Harvey sought to re-open the hearing before DJ Pescod but the District Judge refused. He did however give permission to appeal on this new point, which became known as “the Lenney Point”. No permission to appeal was sought on the promissory estoppel point either before the District Judge or before me (though grounds of appeal were prepared on both points).

The appeal came before me on 7 September 2012. Mr Harvey and the Bank were both professionally represented. The promissory estoppel argument was expressly abandoned and no permission was sought to raise it on the appeal, which proceeded purely on the Lenney point on which I heard full argument.

I dismissed the appeal on the grounds that the terms of the Guarantee excluded the possibility of Mr Harvey not being bound by its terms even if Mr Lenney had not signed it.

Special permission to appeal (as a second appeal) was sought from the Court of Appeal solely on the Lenney point. The promissory estoppel argument was not pursued. Lloyd LJ refused permission on the papers on 12 December 2012 observing that the estoppel point “would not, in my view, even justify a first appeal”.

The permission application was renewed before Kitchin LJ on 1 March 2013 but, as the Lord Justice expressly noted, the promissory estoppel point again was not pursued although permission was granted on the Lenney point ([2013] EWCA Civ 324). On 30 July 2013 the full Court (Longmore, Black and Gloster LJJ) allowed the appeal on the basis that the terms of the Guarantee, properly construed, had not excluded the principle that if one of the co-obligors of the Guarantee had not signed it, then none were bound unless and until they all had (see [2013] EWCA Civ 952). Accordingly the (first) statutory demand was set aside.

Following the Court of Appeal’s ruling, the Bank launched proceedings against Mr Lenney on the Guarantee. He was represented throughout up to the eve of the trial. Handwriting experts on both sides produced opinions to the effect that Mr Lenney had signed the Guarantee. Mr Lenney chose not to appear at the trial, which was duly heard before Norris J, the Vice-Chancellor, who held, on 14 July 2014, in favour of the Bank making a finding of fact that Mr Lenney had signed the Guarantee ([2014] EWHC 2733 (Ch)).

Thereafter, history somewhat repeated itself: the Bank issued a second statutory demand against Mr Harvey dated 3 September 2014 based on his liability under the Guarantee. A second application was made by Mr Harvey dated 13 October 2014 to set aside the second statutory demand on grounds identical, it is common ground, to his first application, namely that the Bank could not enforce the Guarantee against him by reason of promissory estoppel (the Lenney point was abandoned in view of the findings of Norris J). District Judge Pescod heard further full argument on 17 April 2015. Again Mr Harvey was professionally represented. Meanwhile his co-guarantors had now all been adjudged bankrupt.

The same evidence supported Mr Harvey’s second application as on the previous application, together with some further evidence from additional witnesses. This new evidence was largely to the effect that other customers of the Bank or signatories to guarantees had had similar promises allegedly made to them on other occasions. Mr Schmitz, who appeared for Mr Harvey before me as he had before DJ Pescod on the second occasion (but not prior thereto), sought to persuade me that this amounted to some evidence of a widespread practice or marketing campaign by the Bank of giving assurances to potential guarantors in order to obtain new business and as demonstrating that the Bank intended the guarantors to believe what they were being told by the Bank’s representatives. None of it directly addressed what passed or was agreed between Mr Harvey and the Bank or involved Mr Harvey’s own dealings with the Bank.

The District Judge noted that Mr Harvey was advancing the same case as had been advanced at the prior hearing on the first application. He concluded that Mr Harvey could not raise the same point again, having had the point already concluded against him on the merits and having abandoned the point on appeal to the High Court and in the Court of Appeal.

As the District Judge noted, the promissory estoppel point was the only point argued at the earlier hearing and addressed in the judgment handed down on 20 March 2012. Both appeals were limited to the Lenney point which was the ground on which the first statutory demand was set aside. The promissory estoppel point was, he found, an entirely separate and discrete point.

But, in any event, the District Judge concluded that even if he were wrong about that, his decision would still have been the same as on that previous occasion. Indeed, he attached and incorporated his previous judgment given in March 2012 as reflecting his further reasons for refusing to set aside the second statutory demand. He found the new evidence did not add materially to the evidence previously relied upon before the court and did not amount to any different case from that previously before the court. He refused permission to appeal.

Mr Harvey applied to HHJ Behrens for permission to appeal. He refused permission as previously noted on 9 September 2015.

There are thus two issues:

Before dealing with these issues it may be helpful to set out the legislative framework under the Insolvency Act 1986 (as amended, “the Act”) and Rules so far as relevant to the present background.

The broad scheme of the Act is to permit a bankruptcy order to be made on a creditor’s petition in respect of a debt exceeding £750 which the debtor appears to be unable to pay or to have no reasonable prospect of being able to pay and there is no outstanding application to set aside a statutory demand in respect of the debt (s. 267). A debtor is to be taken as unable to pay the debt if the creditor has served a statutory demand in the prescribed form and manner on the debtor and at least three weeks have elapsed since service and the demand has been neither complied with nor set aside in accordance with the Rules (see s. 268 and Rules 6.1-6.3). Before a bankruptcy order can be made on the petition the court must still be satisfied the debt has not been paid nor secured or compounded for, or the creditor has unreasonably refused an offer to secure or compound for the debt (see s. 271 and Rule 6.25).

Any application to set aside a statutory demand must also be made in the prescribed manner and time and supported by evidence (Rule 6.4). Unless satisfied there is no sufficient cause for the statutory demand, the court must hear the application and consider the evidence available to it and may grant the application if (amongst other grounds) the debt is disputed as set out above or if the court is satisfied on other grounds the demand ought to be set aside (Rule 6.5). There is a residual discretion in the court to decide at the hearing of the petition whether or not to make a bankruptcy order: Turner v Royal Bank of Scotland [2000] BPIR 683 CA at p. 694 per Chadwick LJ.

Thus, even if the demand is not set aside the court still has to consider the evidence and decide whether or not a bankruptcy order ought to be made on the material before it: see, for example, Commissioners of Inland Revenue v Lee-Phipps [2003] BPIR 803. Where, however, the debtor raises the same arguments on the hearing of the petition that have already been run and failed or where the debtor has failed to raise previous arguments the court will enquire (in the latter case) as to the reasons. The court must still be satisfied the relevant conditions for making the bankruptcy order are satisfied: see, e.g. Commissioners of Inland Revenue v Lee-Phipps (above), Coulter v Chief Constable of Dorset Police (No. 2) [2006] BPIR 10 CA; Vaidya v Wijayawardhana [2010] BPIR 1016.

Finally, it is also appropriate to refer to s 375(1) of the Act which empowers the court to “review, rescind or vary any order made by it in the exercise” of its jurisdiction under the Act.

The District Judge held he could not.

Mr Schmitz, for the debtor, argued, founding himself on the authorities concerning issue estoppel or res judicata in brief that there was no issue estoppel or res judicata preventing Mr Harvey rasing the same point as previously argued. It had not been argued before me, nor in the Court of Appeal and in any event the first statutory demand had been set aside by the Court of Appeal, albeit on a different point. The appeal trumped the estoppel; the unappealed portions could not raise an estoppel in respect of any point raised on the appeal (see Unilin Beheer BV v Berry Floor BV [2008] 1 All ER 156 CA at p 174 per Jacob LJ). (I pause to note that this is different from the arguments raised by Mr Schmitz that the successfully appealed point prevented the unappealed portion raising an estoppel. As DJ Pescod noted, the appeal court did not reverse the judgment below on the promissory estoppel point; it simply did not feature either before me or in the Court of Appeal.)

Mr Curl, for the Bank, submits this is a classic case. Whatever Mr Harvey’s rights may or may not be at the hearing of any bankruptcy petition presented against him by the Bank, his present case in respect of the second statutory demand was exactly the same as that previously advanced. The new evidence added nothing of substance or materiality. His then advocates (not Mr Schmitz) chose not to argue or pursue the promissory estoppel point before me on appeal nor before the Court of Appeal where Mr Schmitz expressly limited himself to the Lenney point.

On this first issue I was referred to and I considered a surprisingly large number of authorities including those cited above and amongst others also the following: Brillouet v Hachette Magazines Ltd [1996] BPIR 518; Eberhardt & Co Ltd v Mair [1995] 1 WLR 1180; Royal Bank of Scotland v Farley [1996] BPIR 638; West Bromwich Building Society v Crammer [2002] EWCA Civ 1924 (for a second round see [2012] EWCA 517); Atherton v Ogunlende [2003] BPIR 21; Barnes v Whitehead [2004] BPIR 693; Adams v Mason Bullock [2005] BPIR 241; Ahmed v Mogul Eastern Foods [2007] BPIR 975; Roseoak Investments Ltd v Network Rail Infrastructure Ltd [2010] BPIR 646; Hayes v Hayes [2014] EWHC 2694 (Ch).

Most of these cases involved the point as to whether a debtor who has lost an application to set aside a statutory demand can raise the same point on the hearing of the petition (see Brillouet, Eberhardt, Turner, Barnes, Adams, Lee-Phipps, Coulter, Roseoak, Hayes). The point has also been raised on an application to annul the bankruptcy based on grounds previously argued unsuccessfully on an application to set aside the statutory demand (Atherton and see the second Crammer referred to above)) and also in connection with an application to review the decision under s 375(1) (Brillouet, Farley, Ahmed, Vaidya). Of these authorities, the following involved decisions or dicta of the Court of Appeal namely Farley, Turner, Coulter.

Examination of the authorities reveals that the arguments have been well trod in these previous decisions. I do not propose to over-burden this judgment with lengthy quotations. The authorities in my judgment establish the following principles of relevance to this case:

Two observations of Chadwick LJ in Coulter serve to emphasise and underline these principles. At paragraph 19 Chadwick LJ stated as follows:

“Estoppel and res judicata were not canvassed before the court in Turner. The basis of the observations of mine to which Evans-Lombe J [in the court below] 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 …”

In paragraph 22 his Lordship added this:

“The [Turner] principle is not based on estoppel, whether of a Henderson v Henderson (1843) 3 Hare 100 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 the circumstances where it is desired to run arguments which have not already been run, then, as His Honour Judge 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.”

There appears to be no authority on precisely the point as to whether, where there is a second statutory demand, the argument that was run unsuccessfully, and abandoned on appeal, can then be raised in respect of a second statutory demand based on the same debt. In principle, whilst the court will always have in mind the potentially serious consequences to the debtor of making a bankruptcy order, it seems to me, absent the special circumstances and duties of the court that apply on the hearing of a bankruptcy petition to be satisfied the conditions for making a bankruptcy order are made out, or absent other exceptional or special circumstances, it can not.

District Judge Pescod at paragraphs 30 to 49 of his reserved judgment dealing with his analysis of the res judicata argument, referring to Eberhardt and Turner carefully noted that the refusal to set aside a statutory demand did not create a res judicata in relation to the making of a bankruptcy order. He also noted that the hearing before him was not the hearing of the petition but a second stab at the promissory estoppel point on an application to set aside the (second) statutory demand which had previously failed and been abandoned. The new evidence was merely more evidence of the type before the court on the first hearing and added nothing material even accepting Mr Harvey’s own factual evidence. Hence the application was simply an attempt to re-litigate the same point already decided between the parties involved which Mr Harvey could not be permitted to do. The whole purpose of the doctrine of res judicata is to avoid repeat litigation on the same point.

I respectfully agree. I would add as Chadwick LJ has made clear in Turner and Coulter, and Neuberger J made clear in Atherton, whether the result is based strictly on res judicata, issue estoppel, or the Turner principle on a second hearing on the same point in the bankruptcy process, apart from the special circumstances attending the hearing of the bankruptcy petition itself referred to above, and absent good reason, special, new, changed or exceptional circumstances (or however it might be described) the result is the same: the public interest was to avoid repeat litigation on the same point and same or similar material. Even allowing for the potentially serious consequences of bankruptcy, it would be a waste of time and money and, I would also add, the court’s resources and be inclined to delay access to the courts of other litigants to the courts who had not even had a first opportunity to present their case. This cannot be in the public interest.

Accordingly, even if the point is not governed by issue estoppel or res judicata in the true sense, in my judgment the Turner principle at least applies to the instant case. Absent a change of, or special circumstances the debtor ought not to be permitted to raise the point again.

Bearing the above principles in mind, in my judgment there are no special or exceptional circumstances here to justify re-opening or re-arguing the promissory estoppel point:

It would, in my judgment, be indeed be a waste of time and money and contrary to the public interest to permit Mr Harvey to raise the same point again. In my judgment in these circumstances he cannot.

It follows, however, nothing I say can affect the manner in which the court on hearing any subsequent bankruptcy petition against Mr Harvey exercises its powers and duties under the Act. Whether the court then permits him to raise the point yet again is for the judge hearing the petition to determine having regard to the principles set out above.

That is sufficient to dispose of this appeal, but in case the matter goes further I ought, briefly, to consider the promissory estoppel point.

To recap: Mr Harvey’s evidence and argument is that the Bank’s representative, Mr Cullen, told him during a telephone conversation that:

“Tony [i.e. Mr Cullen] told me thatthe [Guarantee] was just an exercise which needed to be carried out before [the Bank’s] credit committee would approve the loan facility agreement for [the Company]. He also assured me during the phone call that [the Bank] had never enforced a personal guarantee in the past and would never do so in the future.”

DJ Pescod’s clear conclusion was that the promissory estoppel point on the basis of Mr Harvey’s evidence and arguments failed for precisely the same reasons it had failed before.

The requirements of promissory estoppel are summarised at Snell’s Equity, 33^rd edn. (2015), para. 12-18:

“Where, by his words of conduct one party to a transaction, (A) freely makes to the other (B) a clear and unequivocal promise or assurance that he or she will not enforce his or her strict legal rights, and that promise or assurance is intended to affect the legal relations between them … or was reasonably understood by B to have that effect, and, before it is withdrawn, B acts upon it, altering his or her position so that it would be inequitable to permit the first party to withdraw the promise, the party making the promise or assurance will not be permitted to act inconsistently with it. B must also show that the promise was intended to be binding in the sense that (judged on an objective basis) it was intended to affect the legal relationship between the parties and A either knew or could have reasonably foreseen that B would act on it.”

This passage, as the current editor of Snell notes, was approved by Morgan J at first instance, in Crossco (No. 4) Unlimited v Jolan Ltd [2011] EWHC 803 (Ch) at para. 332 (decision upheld on appeal: [2011] EWCA Civ 1619).

DJ Pescod held that for a promissory estoppel to arise, it must be clear and unequivocal. The representee (B)’s conclusion must be the only one that could have been reached. In this instance the representations of Mr Cullen are consistent with a general statement of future intentions or expectations that there would be no need to rely on the Guarantee. The conclusion reached by Mr Harvey that the Bank promised unequivocally that it would not enforce the Guarantee was therefore not the only one that could have been reached. Further, it was not reasonable to expect Mr Harvey to rely on the assurance interpreted as alleged. Why else would the Bank go to the trouble of taking security it could never enforce? (When I put this to Mr Schmitz he did not, at least to my mind, have a clear answer.) Mr Harvey’s evidence was also to the effect that the Bank had refused to grant the Company facilities unless there was another, more creditworthy person on board. Obviously Mr Harvey was such a person. Why else would the credit committee attach such weight and importance to his credit status if it thought that the Guarantee would never be enforced? Mr Harvey cannot seriously have thought that the Bank would accordingly regard the Guarantee as unenforceable whilst seeking to be able to rely on Mr Harvey’s financial standing if things went wrong.

In my judgment therefore DJ Pescod reached the right conclusion for the reasons he gave.

As noted above HHJ Behrens refused permission to appeal but stipulated if the application should be renewed it should be listed to be followed by the appeal. I have had the benefit of helpful skeleton arguments, oral argument and authorities. I propose to grant permission to appeal but for the reasons previously indicated I dismiss the appeal.