England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
HIS HONOUR JUDGE SIMON BARKER QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		7th September 2011

Lord Justice Longmore:

1. The appellant investment company, Argentum Lex Wealth Management Limited ("Argentum"), is the successor of an earlier investment company called Wynyard Asset Management Limited ("Wynyard"), at least in the sense that the directors of Wynyard, who have the same as the directors of Argentum, agreed on Argentum's behalf by a deed poll made with the Financial Services Authority on 1 July 2010 to accept responsibility for the acts or omissions of Wynyard in carrying out activities regulated pursuant to the Financial Services and Markets Act of 2000 ("2000 Act").
2. In 2004 the respondent, Mr John Giannotti, instructed Wynyard in relation to his pension arrangements, and in particular requested Wynyard to transfer his occupational pension scheme to a self-invested personal pension. Wynyard negligently mismanaged this request and in December 2006 Mr Giannotti complained to the Financial Ombudsman Services ("FOS") which advised him on 26 February 2007 that since the maximum compensation which the FOS could order was £100,000 he would be better advised to resort to court proceedings. The FOS said that unless they heard to the contrary they would dismiss his complaint. They did not hear to the contrary but Mr Giannotti issued court proceedings against Wynyard and two other defendants in 2008 in respect of various claims in the sum of £460,105 and a further sum for alleged secret profits.
3. Wynyard defended the claim, but before the claim got to trial Wynyard applied to the FSA to have its authorisation to conduct investment business cancelled and was then placed in creditors' voluntary liquidation on 15 February 2010. The liquidators, apparently not wishing to spend money on Mr Giannotti's litigation, settled the matter on terms and a consent judgment was entered against Wynyard for £243,511 on 31 December 2010.
4. By the time that Wynyard went into liquidation Mr McMann and Mr Laverick, the old directors of Wynyard, were shareholders and directors of Argentum and had transferred the majority of Wynyard's assets to Argentum. Mr McMann said in a witness statement before the judge that Wynyard had disclosed existing claims when Wynyard's removal of authorisation was sought in an application to that effect of 17 March 2010. That was a wrong statement by Mr McMann in his witness statement because no such disclosure had in fact been made.
5. In any event, as a condition of Wynyard being allowed to cease business and Argentum being allowed to start up their business, Argentum had been required to enter into the deed poll already mentioned.
6. On 30 June 2010 Mr Gordon Ferguson at the FSA had emailed Mr McMann in the following terms:

"Further to our recent telephone and email conversations in which you indicated that Wynyard Asset Management Limited was transferring all its liabilities past and present to Argentum Lex Wealth Management, I would appreciate if you would complete the attached form for our records. This is a new process we have introduced and places a requirement on and records that the firm is taking on the liabilities of its/the predecessor firm. I look forward to receiving the completed document and please do not hesitate to contact me should you have any questions regarding this matter."

7. Not unnaturally, in the light of the deed poll (which then followed) Mr Giannotti expected Argentum to honour the judgment he had obtained against Wynyard, but they did not do so, and he therefore caused a statutory demand for £243,511 to be served on Argentum on 18 January 2011. Instead of paying up, Argentum on 7 February 2011 issued proceedings for an injunction restraining Mr Giannotti from presenting a winding up petition based on that statutory demand. The basis for the proposed injunction was that Mr Giannotti was not an eligible complainant within the terms of the deed poll or indeed within section 226(6) of the 2000 Act and that the debt was therefore disputed.
8. On 28 February 2011 HHJ Barker QC, sitting as a High Court judge in Birmingham, refused an injunction, stating that Argentum were liable pursuant to paragraph 10 of the deed poll.
9. There is now an appeal to this court with the permission of Toulson LJ on the basis that Mr Giannotti can only be an eligible complainant if he has made, and is making, a complaint pursuant to the FOS scheme. It is said that once the complaint is withdrawn or dismissed he is no longer an eligible complainant.
10. Since the decision of the judge, Mr McClelland has thought of two further arguments which we have given him permission to submit this morning by way of amendment to his notice of appeal. I will come to those arguments in a moment or two.
11. As far as the law and the deed poll is concerned, Part 16 of the 2000 Act sets out the Financial Services Ombudsman scheme and Section 226 provides that a complaint is to be dealt with under that scheme if various conditions are satisfied. The first condition is that the complainant is eligible and wishes to have the complaint dealt with under the scheme. Subsections (6) to (8) then provides:

"(6) A complainant is eligible, in relation to the compulsory jurisdiction of the ombudsman scheme, if he falls within a class of person specified in the rules as eligible.

(7) The rules --

(a) may include provision for persons other than individuals to be eligible; but

(b) may not provide for authorised persons to be eligible except in specified circumstances or in relation to complaints of a specified kind.

(8) The jurisdiction of the scheme which results from this section is referred to in this Act as 'the compulsory jurisdiction'."

12. The deed poll itself is constituted by clause 10.1 of Argentum's application for authorisation. It is prefaced by an explanation of the reasons why the FSA asks for a deed poll:

"When the business of the firm passes to the applicant, we need to be sure that all the regulatory obligations of the firm including obligations in respect of past business are accepted by the applicant. As part of the change of legal status process we require the deed poll set out in this section to be completed. This acknowledges the applicant's acceptance of responsibility, particularly in relation to complaints and any requirements to review past business. Such responsibility is joint and several. The deed poll does not relieve the firm from any liabilities that it may have for its past business once it ceases to be authorised."

13. Clause 10.1 then provides:

"10.1 Deed poll in relation to the past business of the firm

By this Deed Poll, the applicant hereby confirms that:

1. The FSA and the Financial Ombudsman Service may treat the regulated activities and investment business previously carried on by the firm, or by a predecessor of the firm and for which the firm has accepted responsibility, as regulated activities and investment business carried on by the applicant; and

2. The applicant undertakes to treat such activities and business as regulated activities and investment business carried on by itself;

And accordingly, in particular:

3. The applicant accepts responsibility jointly and severally with the firm for the acts and omissions of the firm or the firm's predecessor in carrying out such activities and business;

4. The applicant accepts liability jointly and severally with the firm for any damages that may be payable in respect of those acts and omissions, whether such liability arises in contract, in tort or otherwise, and whether it is present or future, actual and contingent;

5. The applicant will carry out and complete any required past business review of such activities and business, including the review of any pension business conducted by the firm or the firm's predecessor in line with the provisions of a deemed scheme under section 404 of the Financial Services and Markets Act 2000 (FSMA), and meet the costs of providing redress to any person to whom, in line with our standards and specification for the review, such redress may be due:

6. For any complaints which have been made and/or may be made by or on behalf of any person in respect of those activities or business, the complainant has the same rights against the applicant as he would have had against the firm or the firm's predecessor if it had remained authorised; the Financial Ombudsman Service has the same jurisdiction and powers in relation to the applicant as if the applicant had been the firm or its predecessor; and the applicant will comply with the relevant requirements on the proper handling of such complaints, including the requirement to comply promptly with any award of the Financial Ombudsman Service and pay any levies and/or case fees regarding these complaints. "

14. It then continues:

"This Deed Poll is entered into for the benefit of, and is enforceable against the applicant by, the FSA, the Financial Ombudsman Service Limited and any eligible complainant who has a complaint in respect of such activities and business, whether under the Contracts (Rights of Third Parties) Act 1999 or by any other common law or statutory means of a third party taking benefit and enforcing any aspect of its instrument.

This Deed Poll may only be varied, amended, terminated or rescinded with the prior consent of the FSA.

The applicant confirms that the directors/partners members of the applicant be made aware of this deed poll and an appropriate board/partners/committee resolution dated [such and such] has been passed."

15. The first question that arises is the appropriate test for the Companies Court to apply when an application is made either to set aside a statutory demand or for an injunction to restrain a presentation of a petition for winding up. There was some controversy in relation to the extent to which, on an application for an injunction to prevent presentation of a petition to wind up the company, the Companies Court should go into the merits of the facts and legal matters underlying the statutory demand.
16. In Re A Company [1992] 1 WLR 351 at page 354G Hoffman J said that proceedings in the Companies Court were not to be used as an alternative to proceedings for summary judgment. On the other hand, it cannot be the case that an applicant for an injunction, or an applicant who seeks to set aside a statutory demand, can just say that there is a dispute as to that statutory demand; he must explain to the court what the dispute is, and the dispute so shown must be a real and not a fanciful or insubstantial dispute (see Re A Company [1991] BCLC 737 at page 740 per Harman J).
17. "Substantial grounds for disputing the claim" is how Sir Andrew Morritt Chancellor also put it on behalf of the Court of Appeal in Abbey National v JSF Finance [2006] EWCA Civ 328 at paragraph 46. The distinction between raising a substantial dispute and the test for summary judgment under Part 24 of the CPR is no doubt somewhat elusive, but the way it was put by Harman J and Sir Andrew Morritt Chancellor is, in my judgment, not very different from the test for granting judicial review applications in the administrative court or granting permission to appeal to this court from a court of first instance, viz that there should be a realistic prospect of success.
18. On that basis Mr McClelland for Argentum now puts forward three grounds for disputing the statutory demand and thus for granting the injunction. First, he says that although the deed poll refers, in four bullet points, to liabilities for acts or omissions whether in contract, tort or otherwise, the preamble with its reference to regulatory functions, the sixth bullet point with its reference to the financial ombudsman scheme, and the application of the deed poll to an eligible complainant who has a complaint, all point to the deed poll being referable solely to complaints capable of being made and actually made to the Financial Ombudsman Service. If, moreover, complaint is made, says Mr McClelland, to the Financial Ombudsman Service and dismissed or withdrawn there is no longer an eligible complainant "who has a complaint" in the present tense within the meaning of the terms of the deed poll.
19. Secondly, Mr McClelland submits that the acceptance by Argentum of the liabilities of a predecessor in business does not mean that a consumer in the position of Mr Giannotti is absolved from the necessity of obtaining a judgment against Argentum. Moreover, on application for such a judgment, Mr McClelland submits, Argentum would be able to take any points which would have been open to Wynyard, especially if the liquidators of Wynyard, the predecessor company in liquidation, have settled a claim without regard to the merits of the claim. Thirdly, he submits, either as a matter of the true construction of the deed poll or by necessary implication into it, that liabilities cannot include liabilities for judgments against the predecessor in business (in this case Wynyard) to which the successor (in this case Argentum) is not a party and in respect of which Argentum has had no opportunity of objecting.
20. There are obvious difficulties in the way of each of these submissions, many of which have been canvassed by the court in questioning Mr McClelland and also by Mr Hilton for Mr Giannotti and Mr Purves for the FSA. But for my part I cannot say that they are fanciful. I was particularly struck by the fact that Mr Hilton and Mr Purves were unable to agree whether or not the phrase "eligible complainant" in the deed poll referred to "eligible complainant" as defined in the FSA handbook and the FSA rules. Mr Hilton submitted that eligible complainant just meant eligible in the terms of the deed, in other words someone who had a complaint giving rise to liabilities in contract, tort or otherwise pursuant to bullet point 4, whereas Mr Purves submitted that words "eligible complainant" were terms of art that could only be construed by reference to the handbook and the FSA rules. They both agreed that, whatever the right approach was, Mr McClelland could not win because, even if it had the technical meaning in the handbook, if someone made a claim to the ombudsman service and either withdrew it or had it dismissed, he was nevertheless someone who was an eligible complainant who "in the present tense has a complaint" within the meaning of the deed poll. That itself seems to me a matter that is capable of argument.
21. I am also impressed by the fact that the FSA, not unnaturally, have treated the points that have arisen in this case as of great importance within the general purview of the FSA's duties and obligations. They have put in a bundle which is about 200 pages long with 32 tabs in order to make their point. It no doubt may be a very good point, but the idea that it should be disposed of in a summary way is, in my judgment, misconceived.
22. I therefore would think it right, subject to a final point made by Mr Hilton, to say that those points are susceptible of argument and should be matters for proper argument in front of a chancery judge at the appropriate time and should not be dealt with by the kind of side wind that the Companies Court operates by way of its jurisdiction in setting aside statutory demands or granting injunctions to restrain petitions for winding up.
23. Mr Hilton's final point was that since this is a claim for an injunction it should fail in any event, however arguable the points are, because Argentum do not come to the court with clean hands, having said in their first statement by Mr McMann that they had notified the claim which Mr Giannotti had brought to the FSA, but, having made clear in the second and third witness statements, that that was an error and that they had not notified the claim. As a result of that failure to notify, Wynyard were allowed to have their authorisation withdrawn without the FSA being aware that there was an outstanding claim against Mr Giannotti. The clean hands doctrine is of course a very important doctrine. Mr McMann says that it was a matter of inadvertence because he thought that when he was asked to notify claims that only meant claims which had come to a definite resolution, which he calls a definite liability, presumably by way of judgment award or settlement, none of which had happened at the time he signed the document.
24. One might have very great reservations about the truth of Mr McMann saying that this was an omission due to inadvertence, but, whatever suspicions one might have, I cannot think it would be right that we should disregard his assertion in his witness statement that it was by inadvertence without his being cross-examined because if indeed he intended to deceive the court it would be a very serious matter. Granted that I have come to the conclusion that there are serious matters which need to be debated in the proper forum rather than pursuant to the Companies Court winding-up jurisdiction, I do not think it would be right to dismiss the appeal purely on the basis that Argentum did not have clean hands. As it is, I for my part would allow this appeal.

Lord Justice Ward:

25. I agree.

Lord Justice Sullivan:

26. I also agree. So the appeal is allowed.

Order: Appeal allowed