ON APPEAL FROM THE HIGH COURT OF JUSTICE
MR JUSTICE FLOYD
Strand, London, WC2A 2LL
B e f o r e :
OF THE COURT OF APPEAL CIVIL DIVISION
LORD JUSTICE LLOYD
LORD JUSTICE ELIAS
| MARK EUGENE WHITE
|- and -
|DAVENHAM TRUST LTD
Barry Isaacs QC (instructed by DWF LLP) for the Respondent
Hearing date: 18 May 2011
Crown Copyright ©
Lord Justice Lloyd:
"(4) The court may grant the application if
(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or
(b) the debt is disputed on grounds which appear to the court to be substantial; or
(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 6.1(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
(d) the court is satisfied, on other grounds, that the demand ought to be set aside."
"When therefore the rules provide, as does rule 6.5(4)(d), for the court to have a residual discretion to set aside a statutory demand, the circumstances which normally will be required before a court can be satisfied that the demand "ought" to be set aside, are circumstances which would make it unjust for the statutory demand to give rise to those consequences in the particular case. The court's intervention is called for to prevent that injustice.
This approach to sub-paragraph (d) is in line with the particular grounds specified in sub-paragraphs (a) to (c) of rule 6.5(4). Normally it would be unjust that an individual should be regarded as unable to pay a debt if the debt is disputed on substantial grounds: sub-paragraph (b). Likewise, if the debtor has a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt: sub-paragraph (a). Again, if the creditor is fully secured: sub-paragraph (c)."
"It was unjust to allow Octagon to proceed against Mr Remblance by the insolvency route if it could not proceed against JBR by that route. The reason for that is easy enough to see. Mr Remblance's obligation was not an obligation himself to pay the rent and discharge JBR's obligations under the lease. It was an obligation to see to it that JBR discharged its obligations to Octagon and to make good to Octagon all losses sustained "through the default of the tenant in respect of any of the before mentioned matters." The distinction between the two types of obligation is well established. Their obligations were co-extensive."
"That is because it will usually be unjust to require the principal debtor to face the consequences of bankruptcy if he appears to have a counterclaim, set-off or cross demand. There may be circumstances where the principal debtor's ability to pay is a relevant factor. But as Nicholls LJ said, the theme running through rule 6.5(4) is that a statutory demand will be set aside where it is just to do so. In my judgment, it is difficult to see how it can be just not to set aside a demand where the principal debtor satisfies one of the conditions in sub-paragraph (a) merely because he can afford to pay the debt."
"Justice requires that the two cases should be treated in the same way. Prima facie, it is unjust to require the principal debtor to face the consequences of bankruptcy where he appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand. Having regard to the principle of co-extensiveness, it is equally unjust in such circumstances to require the guarantor to face the consequences of bankruptcy. It is as unjust to the guarantor to require him to pay the debt as a condition of avoiding the consequences of bankruptcy as it is unjust to the principal debtor to require him to pay the debt as a condition of avoiding the consequences of bankruptcy."
"But in my judgment that is immaterial to the question whether he should succeed in an application to set aside a statutory demand under rule 6.5(4)(d). The question whether execution of a judgment should be stayed is distinct from the question whether a statutory demand should be set aside. That is demonstrated by the fact that, as is conceded, JBR would be likely to succeed in an application to set aside a statutory demand by Octagon under rule 6.5(4)(a) in circumstances where it might well fail in an application to stay the execution of a judgment in favour of Octagon."
"52. In my judgment, justice required the statutory demand to be set aside in this case. There are no good reasons for distinguishing between the position that obtains in this case from the position which would have obtained if an application had been made by JBR under rule 6.5(4)(a) to set aside a statutory demand made against it. Having regard to the principle of co-extensiveness, justice requires the two cases to be treated alike.
54. I do not accept that rule 6.5(4)(a) should be regarded as anomalous. It is a rule which reflects the interests of justice. So too is rule 6.5(4)(d). I do not see why the fact that the guarantor does not have the counterclaim, set-off or cross-claim should of itself mean that he does not have the benefit of the co-extensiveness principle and is not in the same position as the debtor so far as rule 6.5(4)(d) is concerned."
"In view of the fact that JBR has a counterclaim which may exceed the arrears of rent, it is likely, assuming that the Insolvency Rules applied to it, that it would be able successfully to rely upon rule 6.5(4)(a) to set the statutory demand aside because it would be unjust not to do so. Having regard to the co-extensive nature of the guarantor's liability, and the underlying need for comparable treatment being afforded under rule 6.5(4)(d), justice demands similar treatment for Mr Remblance."
"I conclude, in agreement with Dyson LJ, that justice demands that Mr Remblance be placed in a comparable position with JBR and that since JBR would not be in peril of immediate payment of the arrears of rent, neither should Mr Remblance be required to pay these arrears under threat of bankruptcy. It is not just to differentiate between them."
"It is a well-known rule in bankruptcy that a creditor having a security against the estate of a debtor must either surrender his security and prove for the whole debt, or value his security and prove for the balance, but it has never been the law that a creditor having a security against a third party for his debt must give credit for that when proving in the bankruptcy: see for instance, In the matter of John Plummer and William Wilson."
"The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all. If the creditor chose to sue the surety and not pursue any other remedy, the creditor on being paid in full was bound to assign the mortgaged securities to the surety. If the creditor chose to exercise his power of sale over the mortgaged security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell. The creditor does not become a trustee of the mortgaged securities and the power of sale for the surety unless and until the creditor is paid in full and the surety, having paid the whole of the debt is entitled to a transfer of the mortgaged securities to procure recovery of the whole or part of the sum he has paid to the creditor. The creditor is not obliged to do anything."
"it is appropriate when considering whether to set aside a statutory demand under that paragraph to consider the consequences if one does set it aside ... Similarly, in my view, there is no point in setting aside a statutory demand and requiring a creditor to litigate his claim that he is owed money by the debtor if it cannot be foreseen that there will be any ground on which the creditor will be denied his claim were the matter to be litigated. That would only be to increase costs to no purpose whatever."
"The real question, as it seems to me, in this case is whether Mr Budge can show a substantial reason, comparable to the sort of reason one sees in paras (a), (b) and (c) of r 6.5(4), why the demand ought to be set aside."
Lord Justice Elias
Lord Justice Maurice Kay