Day v Refulgent Ltd

Introduction

This is an application by Mr Day for permission to appeal an order made by D J Kelly on 7^th August 2015 when she made a bankruptcy order against Mr Day. There are three grounds of appeal which are conveniently summarised in paragraph 2 of Mr Day’s skeleton argument:

The application is opposed by Miss Temple on behalf of Refulgent Ltd (“Refulgent”). She submits that this was a discretionary decision of D J Kelly. She referred me to the well-known principles set out in the judgment of Lord Woolf MR in Phonographic Performance Ltd v AEI Rediffusion Music Ltd [1999] 1 W.L.R. 1507 at 1523C-D:

“Before the court can interfere it must be shown that the judge has either erred in principle in his approach or has left out of account, or has taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”

She drew my attention to the recent Court of Appeal decision in Edgington v Sekhon [2015] EWCA Civ 816 where these principles had been applied in a bankruptcy situation where the Deputy District Judge refused a late application for an adjournment to enable the debtor to have time to pay. She submitted that D J Kelly’s judgment was careful and comprehensive and had taken into account all relevant factors. The decision not to adjourn was within the ambit of her discretion and that this Court should not interfere with the decision.

When I first saw the papers I did not have the benefit of a transcript of D J Kelly’s judgment. I took the view that the matter was urgent and accordingly directed that the application for permission and the appeal should be listed at the same time.

The matter was argued before me for a full half day. In the light of the matters that were argued I am satisfied that this is an appropriate case for permission to appeal to be granted. The remainder of this appeal is concerned with the appeal itself.

Before dealing with the merits of the appeal I should like to acknowledge with thanks the assistance I received from both Mr Day and Miss Temple in the conduct of this appeal. Both produced skeleton arguments which were full and comprehensive. Mr Day is, of course a litigant in person, and thus did not address the law in any detail. His oral submissions to me were relevant and presented with courtesy. Miss Temple’s skeleton argument contained a comprehensive analysis of the relevant law. In her oral submissions she drew my attention to a number of documents which she submitted were sufficient to justify D J Kelly’s decision.

The facts

In his skeleton argument Mr Day sets out what he alleges is the material background to the dispute. Much of the background is controversial and is not relevant to the issues in the appeal. I shall deal with it quite shortly.

Refulgent Limited is now owned and controlled by Mr Andrew Duffield. Mr Day has been associated with Mr Duffield October 2009. From 8 April 2008 to 5 June 2014 Mr Day was a Director of Refulgent Limited and from October 2009 Mr Duffield was a minority shareholder. Mr Duffield took control of Refulgent Limited on the 31 March 2014.

On 23 May 2014 Refulgent issued proceedings against Mr Day and a company under his control (Entrusted Group Ltd) in the High Court in London. In the proceedings Refulgent claimed rescission of agreements entered into on 14 February 2013, damages for fraudulent misrepresentation and the return of monies paid by way of loan. The loss was claimed in the sum of £763,907.

On 31 July 2014 Mr Day served a defence denying liability.

On 13 August 2014 Bean J (as he then was), on a without notice application, made a freezing order against Mr Day and the Company. The injunction listed some 12 properties including Warmanbie Cottage, Annan Dumfriesshire and Tom Na Car, Aberfeldy, Perthshire. Under paragraph 9 of the order Mr Day was required to disclose all of his assets worth more than £1,000.

The return date for the freezing order was extended on a number of occasions. The matter was eventually listed for 10 or 11 November 2014. Shortly before the hearing date the application was compromised. It was agreed that the freezing order would continue until the date of the trial or further order. The agreement was included in a consent order made by William Davis J on 7 November 2011. The consent order provided for a CMC in the action to be listed for the first available date after 11 December 2014.

Meanwhile, on 22 and 27 August 2014 Mr Day served a witness statement in pursuance of paragraph 9 of Bean J’s order. Refulgent did not accept that Mr Day had made full disclosure and on 20 October 2014 made an application to commit Mr Day to prison for breach of the order. The application was listed before HH Judge Seymour QC on 12 December 2014. On 7 December 2014 Mr Day filed a witness statement in which he apologised to the Court and admitted that the witness statement contained a number of inaccuracies which he alleged were inadvertent. In the result Refulgent applied to withdraw the committal application and to apply for its costs. On 12 December 2014 Judge Seymour QC acceded to both applications. A transcript of his judgment is reported at [2014] EWHC 4760 (QB). He summarily assessed the costs in the sum of £30,000 to be paid by 24 December 2014. There was no appeal against that order.

It is that order for costs which forms the basis of the bankruptcy petition.

Mr Day did not pay the £30,000 by 24 December 2014. Accordingly on 29 December 2014 he was served with the Statutory Demand in the sum of £30,085.48. On 12 January he made an application to set aside the demand.

Mr Day was represented by solicitors who on 27 February 2015 agreed to a consent order under which the application was dismissed with costs. Mr Day agreed to pay the £30,085.48 by 19 March 2015 and to make an interim payment in respect of costs in the sum of £5,000 plus VAT by 1 April 2015.

The consent order contained a recital that Refulgent consented to a variation of the freezing order to permit payment of the sums of £30,085.48 and £5,000.

No payment was made by 19March 2015 and no application was made to vary the freezing order.

On 23 March 2015 the petition was presented. It was served on Mr Day on 16 April 2015.

On 15 May 2015 Mr Day filed a Notice of Intention to Oppose the petition relying on 6 grounds. One of the matters relied on was that he was in the process of obtaining a loan of £40,000 against the security of Warmanbie Cottage and Tom Na Car.

The petition came before DJ Troy on 22 May 2015 who gave directions including a direction that Mr Day file a witness statement in support of his Notice of Opposition. Mr Day duly filed a witness statement in opposition. In paragraph 39 he referred to an offer dated 21May 2015 on behalf of Save on Stock Ltd (“SOS”) to purchase Warmanbie Cottage and Tom Na Car with a £30,000 deposit which would be released to enable the bankruptcy debt to be settled. He went on to assert that Refulgent was unreasonably holding up the sale of the two properties.

On 9 July 2015 Mr Graham, the partner at Watson Burton responsible for overall control on behalf of Refulgent filed a witness statement in answer. The witness statement deals in detail with the assertion made by Mr Day in his witness statement.

On 15 July 2015 Mr Day filed a witness statement in reply. It will be necessary to summarise the matters raised in relation to the offers.

The matter came before D J Kelly on 17 July 2015. Mr Day was unwell on that date and presented medical evidence that he was having an operation on 29 July 2015. As a result D J Kelly adjourned the hearing until 7August 2015. She directed Mr Day to file and serve evidence by 3 August 2015 “proving that the sale of the Scottish properties is still likely to proceed, together with evidence as to the likely timescale for exchange of contracts”.

She also made an order that any application by Mr Day to vary the freezing order to allow the sale of the Scottish properties should be made by 4 p.m 3 August 2013.

Mr Day did not comply strictly with either of D J Kelly’s orders.

On 3 August 2015 he posted an application to vary the freezing order to the Royal Courts of Justice. As D J Kelly pointed the posting of the application to the Royal Courts of Justice was not the same as “making the application” by 3 August 2015.

In support of the application he made a witness statement. In paragraphs 18 – 22 he summarised what he said was the position with offers. In paragraph 23 he stated that:

Exhibit SJDA page 6 was an email dated 31 July 2015 from zulfi.ali@hotmail.co.uk which was headed “Subject to Contract and final agreement” and included the following:

Mr Day did not file a witness statement with the Court in accordance with D J Kelly’s order. Instead at 9.30 a.m on the morning of 7 August 2015 he emailed to the Court in Leeds a copy of the application he had sent to the RCJ together with the supporting witness statement and exhibit SJDA. Possibly by oversight he failed to attach a complete copy of exhibit SJDA. He did not include Page 6.

When the matter came before D J Kelly later that morning she had before her the witness statement and exhibit SJDA without Page 6 . Mr Day did not bring a copy of Page 6 of the exhibit to Court.

As already noted D J Kelly refused to adjourn the application and made a bankruptcy order.

During the course of the appeal before me Mr Day invited me to look at the email as fresh evidence. Whilst there is no doubt that Mr Day would not be able to satisfy the strict test under Ladd v Marshall it seems to me to be in accordance with the overriding objective to take the email into account. This is not a case where there has been a trial. The omission of the document appears to have been an oversight and the consequences of a bankruptcy order are very serious.

Before considering the reasons given by D J Kelly it is necessary to summarise the position over Warmanbie Cottage and Tom Na Car

On 21 May 2015 solicitors for SOS sent Mr Day’s solicitors a written offer for Warmanbie Cottage and Tom Na Car. A number of points can be made:

Mr Egner, the solicitor with day to day conduct of the matter at Watson Burton emailed Mr Day at 17.56 the same day. He pointed out that there was uncertainty as to when exchange and completion would take place. He also pointed out that the deposit would need to be paid to the secured creditors and that it was unreasonable to impose on Watson Burton an obligation to make payments of the debt to third parties on Mr Day’s behalf.

On 22 May 2015 Mr Day emailed a formal letter to Mr Egner requesting consent to the release of Warmanbie Cottage and Tom Na Car.

Mr Egner replied on 26 May 2015. In paragraph 1 of the email he granted the requested consent “for the sole purpose of paying the Debt”. In paragraph 2 he requested documentary evidence that the secured lenders consented to the deposit moneys being used to satisfy the debt. In paragraphs 3 and 4 he provided evidence that the buyer might not be solvent and requested an assurance that it was solvent.

Mr Day replied on 2June 2015. He asserted that the “lender” (presumably SOS) had been trading for a number of years. He regarded the question of solvency as irrelevant and thus he asserted that Watson Burton was not entitled to any information regarding his “lender funder”.

Mr Egner replied on 3 June 2015. He repeated the consent to the variation of the freezing order. He explained that if SOS entered a formal insolvency procedure there was a risk that the transfer would be reviewed. He also drew attention to the Money Laundering Regulations. He accordingly asserted that it was not unreasonable to seek assurances of SOS’s solvency.

Mr Day replied in a long email on 9 June 2015. He stated that SOS was not prepared to provide any further information and that they were of the opinion that they did not need to do so.

Mr Egner replied in a long letter on 11 June 2015. In that letter he set out in detail his concerns about the transaction. An additional concern was that the sales appeared to be sales at an undervalue and that would amount to the dissipation of assets. Drive by valuations dated 16 June 2015 and 17 June 2015 placed values of £120k and £250k on the two properties so that the proposed sales would appear to be at a figure of some £45k less than the market value of the two properties.

On 1 July 2015 Mr Egner wrote directly to the solicitor acting for SOS setting out his concerns and making a number of detailed requests. The solicitor provided a detailed reply on 3 July 2015. It is not necessary to set out the reply in any detail. However the final substantive paragraph is in the following terms:

D J Kelly’s judgment

D J Kelly’s judgment extends to 29 paragraphs and just over 11 pages. In paragraph 1 she set out s 271(1) and (3) of the Insolvency Act 1986 (“the 1986 Act”). In paragraphs 2 to 8 she summarised the history of the High Court proceedings and the bankruptcy proceedings up to the hearing before DJ Troy. In my view there can be no complaint about that summary.

In paragraphs 9 and 10 of the judgment she deals with the offer in respect of Warmanbie Cottage and Tom Na Car. She referred to the fact that questions had been raised. In particular she referred to the fact that the sale was at an undervalue and that there were doubts about the solvency of SOS. She pointed out that Refulgent would not consent to a sale at an undervalue which made it incumbent on Mr Day to apply to the Court to vary the freezing order.

In paragraphs 11 – 13 she summarised the hearing on 17 July 2015 and the events following that hearing. She pointed out that there was a breach of her order in that the application to vary the freezing order had not been made by 3 August and the failure to produce the email from Mr Ali meant that there was no independent evidence that the sale would proceed.

In paragraphs 14 and 15 she made the point that in Mr Day’s skeleton argument he asserted that he had sufficient assets to pay the debt. She pointed out that it was then more than 8 months after the date for payment. Numerous proposals had been made for payment but nothing had materialised to enable the debt to be paid.

In paragraphs 16 to 18 she made the point that Mr Day did not dispute the debt but was asking for more time to pay. She summarised the offers in relation to Warmanbie Cottage, Tom Na Car and 4 other properties.

In paragraphs 19 to 21 D J Kelly analysed the offers She made a number of points:

In paragraph 22 she summarised the 2 linked questions that she had to ask:

In paragraphs 23 to 29 she analysed those questions before making the bankruptcy order and refusing the adjournment. In so doing she made a number of points:

Matters of law.

Before considering the merits of the appeal there are a number of uncontroversial matters of law that need to be considered.

A freezing order is not akin to a charge or other security. Authority for this is to be found in the speech of Lord Bingham in Fourie v La Roux [2007] UKHL 1

“Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign ...”.

Discretion on the hearing of the petition

S 271 of the 1986 Act provides:

In paragraph 10 of Shrimpton (Michael) v Darbys Solicitors LLP [2011] EWHC 3796 (Ch)Mr Justice Richards explained:

In paragraph 19 of Edginton Lewison LJ summarised the law on adjournment in the following way:

Grounds of Appeal

As noted in the Introduction there are three grounds of appeal. I have set out the grounds and do not repeat them. The third ground can be disposed of quite shortly. The freezing order did not have the effect of creating charges over Mr Day’s assets. Accordingly Refulgent remained an unsecured creditor and was entitled to pursue the petition.

The first is the principal ground and relates to the decision not to adjourn the petition. As noted above D J Kelly treated this as linked to the question of whether Refulgent were unreasonably refusing an offer by Mr Day. The only realistic prospect of payment within a reasonable time concerned the transaction with SOS. However there were a number of problems with this deal some of which were highlighted by D J Kelly. The sales were at an undervalue and thus involved a possible dissipation of assets. The letter of May 21^st imposed conditions on Watson Burton which involved Watson Burton making payments. This point was specifically raised by Mr Egner but not dealt with. There were problems over the solvency of SOS. Importantly there was no evidence before D J Kelly that the transaction would proceed. Indeed the most recent letter from SOS’s solicitors stated in terms that it would not proceed. Any application to vary the freezing order would be likely to take some time.

D J Kelly in her clear and comprehensive judgment took these factors into account and concluded as a matter of discretion that it was not appropriate to grant an adjournment. In my view that conclusion was well within the ambit of D J Kelly’s discretion.

I have indicated that for the purpose of the appeal I am willing to take into account the 31^st July 2015 email. However there are a number of problems with that email. First, it is inconsistent with SOS’s solicitor’s letter of 3 July 2015. There is no explanation of the apparent change of heart by SOS. Second it is headed “Subject to Contract and Final Agreement”. Thus it clearly contemplates that there will be further negotiation. Third, it refers to a loan of £35,000 which is not the nature of the transaction described in the letter of 21^st May 2015. Fourth it refers to the letter of 21^st May 2015. This is the letter which included the conditions. One of the conditions required payments by Watson Burton; the other required Refulgent to accept the price. In the light of the fact that the price was an undervalue both of these conditions were unacceptable. Fifth it does not explain what authority Mr Ali had to make the assertions contained in the email. This is important in the light of the solicitor’s detailed letter of 3 July 2015.

It is quite clear that D J Kelly did consider the other offers being made by Mr Day. She summarised the other properties and the possible equity in paragraphs 19 to 21 of her decision. She was entitled to conclude that it was not unreasonable to accept the late offers that had been made. She was entitled to conclude that none of the other offers were sufficiently detailed. None offered a reasonable prospect of the petition debt being paid off in a reasonable period.

The reality is that this was a clear and careful judgment by D J Kelly. She set out the history, and the arguments in considerable detail. She took into account the factors that were relevant and did not omit any relevant factors. She reached a decision that was well open to her on the evidence. Although it is irrelevant I would probably have reached the same decision.

This appeal is accordingly dismissed.