England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
(DEPUTY JUDGE JARVIS Q.C.)

		Royal Courts of Justice Strand London WC2 Wednesday, 28th March 2001

Wednesday, 28th March 2001

1. LADY JUSTICE ARDEN: This is an application by Mr. Shaun Lawrence Gibbons for permission to appeal from the order of Mr. Jarvis Q.C., sitting as a Deputy Judge of the Chancery Division, dated 7th December 1999. By this order the judge dismissed an appeal against the order of District Judge Nuttall, sitting in the Lancaster County Court, whereby the District Judge refused to set aside a statutory demand which had been served on Mr. Gibbons. Mr. Gibbons also seeks leave to appeal out of time and a stay of execution to prevent a bankruptcy order being made while any application to this court is pending.
2. This is a second appeal and accordingly CPR 52.13 applies and the applicant must show that the appeal would raise an important point of principle or practice or that there is some other compelling reason for the Court of Appeal to deal with it.
3. I need to say something about the facts in these proceedings. Turning to page 15 of the bundle, there is the statutory demand which is sought to be set aside. It is dated 19th May 1999 and is served by Scottish & Newcastle plc. The particulars of debt state that:

"The debtor is indebted to the creditor in respect of monies due under a repayable loan account together with a trading account for deliveries made to the debtor by the creditor during the currency of the debtor's trading at the outlet known as Manhattan's Bar (formally Pippins) of 93 King Street, Lancaster."

4. It then goes on to say that the creditor holds security against part of the debt due from the debtor in relation to a first charge registered against the property at 93 King Street, Lancaster, the legal charge being dated 9th May 1995. It is then said that, pursuant to the debtor's default under the terms for repayment under the loan agreement and pursuant to its covenants under the legal charge previously mentioned, proceedings for possession were commenced within the Lancaster County Court. It then gives the particulars of that action and states that within the proceedings for possession a money judgment was secured against the debtor in favour of the creditor in the sum of £138,297.04.
5. There are then further particulars and it appears that the creditor valued the premises at £100,000 and that it has added statutory interest to the judgment debt at the statutory rate of 8% per annum, so as to give a total amount due of £46,541.36. When one deducts the secured element, therefore, the balance due and payable at the date of the statutory demand is £46,541.36.
6. It was explained to me by the applicant that the particulars in reference to the repayable loan account refer to the balance of an amount lent to him when he acquired the premises and that this amount was lent to him in the sum of £100,000 by Courage plc, the brewery then owning the premises. There was a further £10,000 to pay which he funded himself, but that repayable loan account is then the balance of that £100,000 and has been repaid by discounts allowed on barrelage of drink supplied to Mr. Gibbons since the loan account was set up. Mr. Gibbons could not tell me the precise amount of the loan account, but he estimates it to be some £90,000 at the date of the statutory demand. Obviously that figure can be investigated hereafter.
7. I next turn to Mr. Gibbons' affidavit, which is dated 24th September 1999. He says in paragraph 4:

"The creditor claims that the property is only worth £100,000 (one hundred thousand pounds) and that there will be a shortfall of £46,541.36 – the amount claimed in the Statutory Demand. The creditor provides no evidence or independent valuation of the security to support the creditor's valuation of the security.

5. I contend that this Statutory Demand is premature and should not have been made until the property had been sold and the proceeds of the sale offset against the debit. It is conceivable that the proceeds of sale could be in excess of the debt to the creditor. In short, the debt should be crystallised before insolvency proceedings commence."

8. I should say that Mr. Gibbons has fairly and properly told me that the property has now been sold and that it has obtained £100,000 and on resale something less, and so this particular point no longer applies, the property having realised the sum of £100,000. No doubt Scottish & Newcastle have applied that to settlement of the debt.
9. Mr. Gibbons goes on in his affidavit:

"6. Further, I am advised that a counterclaim exists against the Creditor for false and misleading information supplied at the time the property was purchased. The vendor, Courage Plc, in 1995 claimed that the property had the benefit of a late hours liquor licence. Courage Plc subsequently sold out to John Smith Plc who, in turn, merged with Scottish & Newcastle plc – the Creditor. It transpired, after purchase, that this was not the case. I was, therefore, required to take steps to obtain the necessary legal and statutory approvals before the premises could be utilised for the intended purpose. Substantial costs - the basis of a counterclaim against the creditor – were involved in obtaining the required authorities and since the property could not be utilised, there was loss of income and loss of profits which, together, total a sum of money in excess of the amount claimed in the Statutory Demand."

10. That was how the evidence stood when the learned judge had to consider this case. He dealt with the valuation point at pages 2 to 3 of his judgment. He refers to a valuation provided by a chartered surveyor and valuer. He does not, in fact, say how much that valuation was for. However, he gives the sum for another transaction in the property of £85,000 and he concludes that there was no evidence to show that the valuation of the chartered surveyor was incorrect or inadequate.
11. As I have explained, I do not think that I need say more about the valuation point because it has in fact fallen away.
12. The other point was the counterclaim point, and the judge rejected that and gave some four grounds for doing so. However, before doing that he dealt with the point that the claim would be statute-barred. The judge records that Mr. Gibbons said the purchase was in May 1995, and indeed the legal charge in favour of the brewery is dated 9th May 1995. Of course it does sometimes happen that the legal charge is dated some time later than the date of completion of sale because a lender often has to complete various enquiries and the legal charge is only dated as at the date when it is ready for registration. At any rate, the judge concluded that he should not decide the case on the basis that the claim would be statute-barred.
13. Of course the judge was dealing with the case as at 1999. If there is a counterclaim, then prima facie the limitation period would be six years and that means that any proceedings would have to be started against the person liable to the counterclaim before the six years expired. What is not clear is when that six years started and when it ends. I note that the judge says that the legal charge was dated 9th May 1995. That means that there may indeed be a little time to issue proceedings. The legal charge is not, unfortunately, before me in this court. Mr. Gibbons recollects that the purchase was in fact a little later in 1995. But he does not have all his papers here and he cannot say for certain. It may be that there is some later date when the limitation period expires. But on either date it has not yet expired, although it will shortly do so, and that is a matter to which I will have to return.
14. The judge then goes on to say this: "First, [Mr. Gibbons] would have to show the Court, at least by some evidence, that a contractual claim for misrepresentation was now the responsibility of the brewery, the petitioning creditor, rather than the original vendor, Courage. He has shown me no evidence to satisfy me that such a claim could be made out."
15. On that point Mr. Gibbons has explained to me that when the business was sold by Courage to Scottish & Newcastle via John Smith plc his loan account was effectively transferred to the new company and that in effect it is the same loan account as represents the balance of the original purchase price. In those circumstances it seems to me that there is an argument that what happened was that the debt which Mr. Gibbons owed to Courage was successively assigned and so Scottish & Newcastle is merely in the position of an assignee of the debt. The debt arose out of the transaction of purchasing the premises, and that was the transaction which gave rise to the misrepresentation which Mr. Gibbons refers to in his affidavit.
16. In those circumstances the question would arise as to the extent to which Scottish & Newcastle, as assignee of the loan account, took subject to any claim which Mr. Gibbons had at the date of the assignment. There are some equities which bind the assignee. In Snell's Equity, 30th ed., page 94, there is a passage concerning "Effects of Assignment on Equities" and at para. 5-22 it is said that the assignee takes a chose in action subject to all equities in existence before notice is received by the debtor. Snell goes on to say this:

"If the set-off arises directly out of the same contract or transaction as the subject matter of the assignment, the defendant may set it off against the assignee whether it accrued to him before or after notice of the assignment. [Then there is a footnote reference to the authorities, which include Government of Newfoundland v. Newfoundland Railways [1888] 13 AC 199 para. 5-24.] But if a claim arises out of a contract which is independent of that in which the debt arose (as where L is liable to T on a bond and T owes L arrears of rent) he can set off that claim against the assignee only if the claim arise before the notice of the assignment, whether or not it is payable before that date.

There seems therefore to be a prospect of an argument that what has happened in this case is that Scottish & Newcastle have succeeded to a loan account from Courage plc. It therefore is subject to any set-off which Mr. Gibbons had against Courage, and if indeed Mr. Gibbons has a claim that the purchase price should have been diminished by his claim to damages for misrepresentation, then that would be capable of being raised against Scottish & Newcastle, even though they are not Courage. That indicates to me that there is a ground for giving permission to appeal against the judge's first ground. However, I would still need to be satisfied that the cross-claim was of substance, and that is a matter to which I shall return.

Returning to the judgment, the second reason given by the judge is as follows:

"...this is a claim which he asserts in relation to misrepresentations in relation to a licence. It is the universal practice in conveyancing that enquiries as to licences would have been made. It seems to me inconceivable that this matter was not dealt with by Mr. Gibbons' solicitors who acted for him at the time."

17. Mr. Gibbons has explained to me that the position is that he did instruct solicitors but they did not check the position on licences and that he only discovered there was no full liquor licence some three to four weeks after completion and on that basis, provided he could put more evidence before the court and the court was prepared to accept that, there would be a prospect of success on appeal on that reason. The judge continues:

"Third, if there had been anything in this suggested counterclaim, it would have seen the light of day well before the statutory demand was served on Mr. Gibbons. It was not until the statutory demand was served that he chose to raise this claim. That leads me to believe that this is no more than an attempt to avoid a liability and does not represent a genuine counterclaim."

18. Of course that is an important point. If a debtor does not make a claim, it rather suggests that he did not have one to make and that he was only doing it as a device to avoid the liability. But Mr. Gibbons has explained that he was not aware that he had a claim until he instructed business advisers in about December 2000. Those are business advisers in Preston who he tells me would be prepared to instruct solicitors to bring proceedings on his behalf.
19. So there is an answer to that point and it seems to me reasonably arguable as a matter of law that that is a reason on which the court could set aside the reasoning of the judge. Also it is not, of course, a cast-iron rule that a debtor must have raised the counterclaim before the statutory demand was served.
20. The fourth reason which the judge gives is that the counter-claim was totally unparticularised. He says:

"There are no amounts, and no calculation of a claim is made. There is nothing at all, documentary or otherwise, to support a counterclaim that would extinguish the statutory demand."

21. This is of course a very important point, that there was before the judge very little evidence to substantiate what Mr. Gibbons had said in paragraph 6 of his affidavit. It still remains the case that there is no contemporaneous documentary evidence of the claim. However, Mr. Gibbons has prepared particulars of his counterclaim and he has given more information. I will now set out what he informs me in his particulars.
22. Mr. Gibbons says that Peel & Co., agents for Courage, advertised the premises as a night club in 1994 with the benefit of a full liquor licence until 2 a.m., when in fact it was only licensed until 11 p.m. His case against Scottish & Newcastle is that he was misled into believing that the premises could be opened for the business it was intended. After the purchase 93 King Street, Lancaster in 1995, he realised that that could not happen and he had to apply for a special hours 2 a.m. licence which cost over £2,000, plus additional work which then had to be done to comply with a new licence application. All that cost in the region of £10,000 and caused a major delay in the reopening, which resulted in loss of turnover and profit for approximately six months.
23. Mr. Gibbons also states that, during the period for which the premises remained closed, the brewery insisted that the mortgage be paid each month, all of which caused great financial pressure on the business, which caused it to fail. He estimates that his claim against Scottish & Newcastle will be in excess of £100,000, and that is based on licensing fees, legal fees, council fees, business work and labour plus loss of profits and damages. He states that, given the fact that Scottish & Newcastle now know that he is in receipt of family tax credit due to being on low income and that he has no savings or assets that could be liquidated, there seems only one benefit in bankrupting him, namely stopping him from pursuing his claim, which is later than that of Scottish & Newcastle. He then explains that the property was repossessed in 1999 and that those particulars are dated as of today and contain dates to the best of Mr. Gibbons' recollection.
24. I have explained to Mr. Gibbons that the fact that he is on family tax credit does not assist on this application, though it is obviously a matter of which the court should be aware. Mr. Gibbons has told me orally a number of things about the particulars, including the fact that he has documentation, including the particulars of sale.
25. In those circumstances, subject to a point about the limitation of action which I have referred to above, there seems to me to be some prospect of success on appeal if an application to put in further evidence is duly made. It may be that the court, if it permits that further evidence to be adduced, would say that there was now sufficient substance in the counter-claim for the statutory demand to be set aside. I am obviously aware of the significance of a statutory demand in bankruptcy proceedings, because it is the non-payment of a statutory demand which gives rise under the Insolvency Act to appearance of insolvency which enables a court to make a bankruptcy order.
26. In those circumstances, I propose next to consider the question of the extension of time. This is a bankruptcy matter and therefore ought to have been treated as urgent. The court limits for entering notice of application for an appeal have been greatly exceeded, because Mr. Jarvis' judgment is dated 7th December 1999. Over a year elapsed before this application was made. However, within that year there have, I am told, been applications and steps taken in the Lancaster County Court sitting in bankruptcy. It is not altogether clear what they were, but whatever steps have been taken have been successively adjourned on the application either of Scottish & Newcastle or of Mr. Gibbons. Scottish & Newcastle have taken no steps to present a bankruptcy petition.
27. In those circumstances, although the delay is exceptionally long,it seems to me that, subject to certain conditions that I propose to attach, that time could be extended. Subject to those conditions, I will so direct.
28. The conditions which seem to me to be appropriate are these. The first condition is that Mr. Gibbons amends his application to this court or alternatively files an additional application to file new evidence. That is obviously to be the evidence covered in his particulars of counter-claim and what he has told me today. In addition, it would be helpful for him to produce whatever contemporaneous documentary evidence he has. However, the condition I attach is that the application be amended or a new application be served in order to apply to file new evidence on appeal, that new evidence to include information provided to the court today.
29. The second special provision I attach because I am obviously very concerned that, if Mr. Gibbons has a cross-claim against Scottish & Newcastle, it has become statute-barred. I have assumed that the limitation period is six years. If this is so, then it is very shortly to expire. If it becomes statute-barred, then there is no cross-claim which the court can take into account and it would cease to be one of substance which would enable the court to set aside the statutory demand. In those circumstances, the order will provide that unless Mr. Gibbons issues his own proceedings against Scottish & Newcastle to put forward his cross-claim within three months of today Scottish & Newcastle should be at liberty to apply to discharge the order which I make today. Likewise they are at liberty to apply to discharge the order if Mr. Gibbons issues those proceedings but they are struck out by the court, and obviously, if there is an appeal, I mean the final determination of the court striking out those proceedings. That will enable Scottish & Newcastle to consider the limitation point and also to bring this matter back to the court, should the counterclaim in fact be already statute-barred.
30. I referred at the outset to the fact that this was a second-tier appeal to which Order 52.13 applied; that is, I have to be satisfied that there is some important point of principle or practice or some other compelling reason for the Court of Appeal to hear this application. As I see it, I can reach the conclusion that there is a compelling reason for the Court of Appeal to hear this matter because Mr. Gibbons has come forward with further evidence to attach substance to his counterclaim. If this appeal does not go ahead he faces the very serious risk of bankruptcy and all the attendant disadvantages which follow from that.
31. In those circumstances, I will give permission to appeal, subject to the conditions I have already mentioned, and extend time. I further direct a transcript to be provided to Mr. Gibbons at public expense.
ORDER: Application allowed; time extended subject to conditions stated in judgment; transcript at public expense. (ORDER NOT PART OF APPROVED JUDGMENT)