England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		22 October 2010

1. MR JUSTICE NEWEY: I have before me appeals from orders setting aside statutory demands served on the respondents, Mr Mark Henry and his father, Mr William Henry.
2. The background, in brief, is as follows. Both Mr Henrys were formerly directors and shareholders of a company called "Lancsville Construction Limited". In 2008 a substantial loan was made to Lancsville pursuant to a facility agreement dated 3 June 2008. On the same day, Mr Mark Henry and Mr William Henry each entered into a personal guarantee. In the case of Mr William Henry, the other party to the guarantee was described in the following terms:

"AGILO MASTER FUND LIMITED acting by its Delegate Investment Manager AGILO LIMITED (Company Number 05965340) having its registered office at Denman House, 20 Piccadilly, London, W1J 0DJ ("Lender")".

With Mr Mark Henry's guarantee, the names "Agilo Limited" and "Agilo Master Fund Limited" were reversed and the other party to the guarantee was given as:

"AGILO LIMITED (Company Number 05965340) having its registered office at Denman House, 20 Piccadilly, London, W1J 0DJ acting as Delegate Investment Manager of AGILO MASTER FUND LIMITED ("Lender")".

A similar description was used in the facility agreement.

3. Early this year, statutory demands were served on both Mr Henrys on the strength of the guarantees. However, in June each of the statutory demands was set aside. The statutory demand in respect of Mr Mark Henry was set aside by District Judge Parker in Slough County Court on 4 June 2010. The statutory demand in respect of Mr William Henry was set aside by District Judge Davidson in the same court on 7 June 2010. It is those decisions which are now under appeal.
4. The district judges arrived at their conclusions by different routes. District Judge Parker took the view that the statutory demand in respect of Mr Mark Henry had been served by the wrong person. The essence of his reasoning is to be found in the following passage:

"It seems to me perfectly clear that what we have here is a statutory demand issued by Agilo Limited in relation to a debt owed, if it is owed, by Mr Henry to Agilo Master Fund Limited, that therefore the statutory demand comes from the wrong person, and that there are very substantial grounds for Mr Henry to dispute that he owes anything at all to Agilo Limited."

District Judge Parker described an alternative argument advanced on Mr Mark Henry's behalf, to the effect that Mr Henry had entered into the guarantee under undue influence, as "extremely weak".

5. District Judge Davidson, for his part, concluded as regards Mr William Henry that there was "a realistic case of undue influence on the papers". He had earlier reached the following conclusions in relation to the argument that the statutory demand had been served by the wrong party:

"This point can be dealt with fairly swiftly. Although the name AL [i.e. Agilo Limited] appears on the first page of the Statutory Demand the full background to the demand is set out on the second page and it is clear that the debt is owed to AMFL [i.e. Agilo Master Fund Limited]. The point raised by the Applicant [i.e. Mr William Henry] is a technical one but unless the alleged error is substantial then it would not be right to set aside the demand. It is clear from the second page that the debt which is the basis of the Statutory Demand is one due to AMFL."

In the penultimate paragraph of his judgment, the district judge stated that the statutory demand should be set aside:

"through a combination of their being a genuine triable issues and/or there are other good reasons which require that the statutory demand be set aside."

6. The parties before me differed as to whether District Judge Davidson had accepted that the "wrong party" point was a reason for setting aside the demand. Mr Nicolas Craig, who appears for the appellant, contended that District Judge Davidson, unlike District Judge Parker, had rejected the point. In contrast, Mr Michael Wheater, who appears for Mr William Henry, argued that it was apparent from District Judge Davidson's final conclusion that he had accepted that the "wrong party" point was a reason for setting aside the statutory demand. On the view I take of matters, I do not need to try to resolve the question.
7. It is the appellant's case that neither statutory demand should have been set aside on the basis of the "wrong party" point. The appellant argues too that District Judge Davidson was wrong to conclude that there was "a realistic case of undue influence". Mr Craig contends in his skeleton argument that:

"there was no basis upon which the judge could conclude that it is arguable that Mr Henry was pressured into signing the Guarantee without understanding what it or the underlying Facility Agreement meant. There is no possible case of undue influence as found by him."

8. I have to date heard argument only on the "wrong party" point. As to this, Mr Craig advanced three principal submissions. He argued, first, that on their proper construction the guarantees and facility agreement conferred a right to sue on Agilo Limited (which I shall simply call "Agilo"). In the alternative, he contended, secondly, that the creditor on whose behalf the statutory demands were served was Agilo Master Fund Limited (which I shall call "Master Fund"). Thirdly, he submitted that, if there was a defect in the statutory demands, it was a pure technicality which had caused no prejudice and so could not be a good reason for setting aside the demands.
9. In contrast, Mr Edward Rowntree, who appears for Mr Mark Henry, and Mr Wheater contended that the "wrong party" point justified the setting aside of both demands. Each argued that there was, at the least, a serious dispute as to whether Agilo, which they said could be identified as the entity on whose behalf the statutory demands were served, was entitled to claim anything from either Mr Henry. Each also pointed out that this was a true appeal. That point, though, is more obviously of help to Mr Rowntree than to Mr Wheater given the dispute as to whether District Judge Davidson accepted the "wrong party" point as a reason for setting aside the statutory demand with which he was concerned.
10. It is convenient to refer at this stage to relevant provisions of the Insolvency Act, 1986. Section 264 of that Act states that a bankruptcy petition can be presented against an individual by, amongst others, "one of the individual's creditors'." Section 267(1) stipulates that:

"A creditor's petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed."

By section 267(2)(c), a petition can be presented only if "the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay". Section 268(1) provides as follows:

"For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either– (a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as 'the statutory demand') in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or

(b) execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied, in whole or in part."

Section 383 contains a definition of "creditor". The word is defined as follows:

"(a) in relation to a bankrupt, means a person to whom any of the bankruptcy debts is owed (being, in the case of an amount falling within paragraph (c) of the definition in section 382(1)of 'bankruptcy debt', the person in respect of whom that amount is specified in the criminal bankruptcy order in question), and

(b) in relation to an individual to whom a bankruptcy petition relates, means a person who would be a creditor in the bankruptcy if a bankruptcy order were made on that petition."

11. The overall effect of the provisions is to allow a person owed money by an individual to present a bankruptcy petition provided that, among other things, he has served a statutory demand.
12. Further provisions relating to statutory demands are to be found in the Insolvency Rules. Rule 6.1 relates to the form and content of a statutory demand, Rule 6.2 contains requirements as to information to be given in such demand, and Rule 6.3 is concerned with service. Rules 6.4 and 6.5 deal with applications to set aside statutory demands. Rule 6.5(4) provides that the court may grant such an 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 6.15 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."

13. It is clear from the authorities that a defective statutory demand will not necessarily be set aside. The leading case is the decision of the Court of Appeal in In re A Debtor (No. 1 of 1987) [1998] 1 WLR 271. In that case, Nicholls LJ (with whom the other members of the court agreed) said this at page 276:

"In my view, the right approach to paragraph (4) of rule 6.5 is this. Under the Act, a statutory demand which is not complied with founds the consequence that the debtor is regarded as being unable to pay the debt in question or, if the debt is not immediately payable, as having no reasonable prospect of being able to pay the debt when it becomes due. That consequence, in turn, founds the ability of the creditor to present a bankruptcy petition because, under section 268(1), in the absence of an unsatisfied return to execution or other process, a debtor's inability to pay the debt in question is established if, but only if, the appropriate statutory demand has been served and not complied with.

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)."

14. At page 279 Nicholls J said the following:

"The court will exercise its discretion on whether or not to set aside the statutory demand, having regard to all the circumstances. That must require the court to have regard to all the circumstances as they are at the time of the hearing before the court. There may be cases where the terms of the statutory demand are so confusing or misleading that, having regard to all the circumstances, justice requires that the demand should not be allowed to stand. There will be other cases where, despite such defects in the contents of the statutory demand, those defects have not prejudiced and will not prejudice the debtor in any way, and to set aside the demand in such a case would serve no useful purpose. For example, a debtor may be wholly unable to pay a debt which is immediately payable, either out of his own resources, or with financial assistance from others. In such a case the only practical consequence of setting aside a statutory demand would be that the creditor would promptly serve a revised statutory demand, which also and inevitably would not be complied with. In such a case the need for a further statutory demand would serve only to increase costs. Such a course would not be in the interests of anyone."

15. I was also referred to the decision of the Court of Appeal in Coulter v Chief Constable of Dorset Police [2005] 1 WLR 130. In that case, the then Chief Constable of Dorset Police, a Mrs Stichbury, served a statutory demand in respect of sums which the debtor had been ordered to pay when a predecessor had been in office. By the time, however, that an application to set aside the demand was heard, the former Chief Constable had assigned the debt to the present one. A deputy district judge refused to set aside the demand, and his decision was upheld by the Court of Appeal. In the course of his judgment, Chadwick LJ (with whom the other members of the court agreed) said this:

"(22) Nevertheless, it remains the position (whether or not there has been an application to set aside the statutory demand and whether or not the demand has been set aside on any such application) that a creditor's petition can only be presented by a person to whom the debt is owed – section 267(1) of the Act – and payable, either immediately or at some certain further time – section 267(2)(b). It follows that a petition presented by a person who is not a creditor at the time that the petition is presented will be dismissed – unless there is some other person who was a creditor at that date and who can be substituted as petitioner under rule 6.30.

(23) It follows, also, that an application to set aside a statutory demand – where the demand has been served by a person who is not a creditor at the date of the hearing of the application – ought normally to be granted under paragraph (d) of rule 6.5(4); for the reason that no bankruptcy petition can properly be presented on the basis of that demand. But that is not this case. In the present case the demand was served on behalf of the person, Mrs Stichbury, who was (on any view) the creditor at the time of the hearing of the application before the district judge – by virtue of the assignment under section 136 of the Law on Property Act 1925. And, in the present case, Mrs Stichbury will be able to present a bankruptcy petition under section 267 of the Insolvency Act, 1986 on the basis of the statutory demand unless the demand is set aside. That is because, when the position is presented, she will be able to satisfy the condition in section 267(2)(c), read with section 268(1)(a). She will then be 'the petitioning creditor to whom the debt is owed' for the purposes of section 268(1)(a); and she will be the person who 'has served on the debtor a demand … requiring him to pay the debt'."

16. The result, as I see it, is that a distinction is to be drawn between, on the one hand, cases where creditors have served defective statutory demands and, on the other, cases where creditors have not served (or arguably have not served) statutory demands at all. If a creditor has served something that can sensibly be regarded as a statutory demand (as was the case in In re A Debtor (No.1 of 1987) – see Nicholls LJ's judgment at the top of page 278), the court will exercise its discretion on whether or not to set aside the demand having regard to all the circumstances, and, if the demand is not set aside, it will be open to the creditor to present a bankruptcy petition. In contrast, a creditor who has not served anything that can be described as a statutory demand will not be entitled to petition. That will be so both (a) where no document at all has been served and (b) where a statutory demand has been served on behalf of someone else. In a case of the latter type, the first sentence at paragraph 23 of Chadwick LJ's judgment in Coulter will apply – "an application to set aside a statutory demand – where the demand has been served by a person who is not a creditor at the date of the hearing of the application – ought normally to be granted under paragraph (d) of rule 6.5(4); for the reason that no bankruptcy petition can properly be presented on the basis of that demand." Where there is a genuine dispute as to whether a demand has been served on behalf of the creditor, it seems to me that the demand should also, normally, be set aside. In such a case, as Mr Wheater submitted, it may be that the demand should be set aside under paragraph (b) of Rule 6.5(4) rather than paragraph (d).
17. In the present case, it is clear that it was Master Fund, and not Agilo, which lent money to Lancsville. Mr Craig expressly accepted in submissions (as he had, I gather, before District Judge Parker) that Agilo was Master Fund's agent and that the loan was made by Master Fund rather than Agilo. At first sight, therefore, it will be to Master Fund that the Mr Henrys will owe any money as Lancsville's guarantors, and Master Fund will, accordingly, be the "creditor" which would present any bankruptcy petition.
18. Has, then, Master Fund served statutory demands on the two Mr Henrys? District Judge Parker held that it had not, and Mr Rowntree and Mr Wheater both maintain that he was right. The second of Mr Craig's arguments (as summarised earlier) was to contrary effect.
19. Each of the statutory demands was signed by a solicitor from DLA Piper UK LLP who confirmed that he was "authorised to make the demand on the creditor's behalf". Higher up the page, each demand states, "This demand is served on you by the creditor: Name Agilo Limited", and each demand goes on to state that "the creditor" claims that a sum is owed and demands that the sum is paid, secured or compounded. The next page of each demand gives "Particulars of Debt" in the style of particulars of claim. In each case, paragraph 1 refers to a personal guarantee made between (1), the relevant Mr Henry and "(2) Agilo Limited (acting as delegate investment manager of Agilo Master Fund Limited) ("Creditor")."
20. Mr Craig argued that, reading each statutory demand as a whole, it could be seen that the demand was served by the solicitor on behalf of Agilo on behalf, in turn, of Master Fund – and, hence, that the statutory demands had been served on behalf of Master Fund. I do not agree. In my judgment, the person on whose behalf the statutory demands were served is the person unequivocally identified as "the creditor" on the first page of each demand: Agilo Limited. With regard to the "Particulars of Debt", District Judge Parker commented, "all the first paragraph is doing is to recite the agreement which is relied upon." I agree.
21. It follows that no statutory demands have been served by Master Fund, which, as I have said, is at first sight the "creditor" who would present any bankruptcy petition.
22. That brings me to Mr Craig's submission (the first of three principal submissions I listed earlier) that, on their proper construction, the guarantees conferred a right to sue on Agilo. In this connection, I was referred to passages from Bowstead and Reynolds on Agency, 19th edition. Bowstead and Reynolds states in paragraph 9-001, under the heading "General rule", "In the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it. Nor can he sue the third party on it." However, paragraph 9-004 is in these terms:

"An agent who makes a contract on his principal's behalf is liable to or entitled to sue the third party in accordance with the terms of any contractual engagement, whether upon the same contract or upon some independent contract, into which he has entered."

23. One of the authorities cited by Bowstead and Reynolds is Montgomerie v United Kingdom Mutual Steamship Association Ltd [1891] 1 QB 370, to which Mr Craig took me. There, Wright J said the following at page 371:

"There is no doubt whatever as to the general rule as regards an agent, that where a person contracts as agent for a principal the contract is the contract of the principal, and not that of the agent; and, prima facie, at common law the only person who may sue is the principal, and the only person who can be sued is the principal."

Wright J went on, however, to note that there were many exceptions to this rule. One was that "the agent may be added as the party to the contract if he has so contracted, and is appointed as the party to be sued". Another exception, Wright J said (at 372), was:

"that by usage, which is treated as forming part of the contract or of the law merchant, where there is a foreign principal, generally speaking, the agent in England is the party to the contract, and not the foreign principal; but this is subject to certain limitations."

A little lower on the same page, Wright J said:

"in all cases the parties can by their express contract provide that the agent shall be the person liable either concurrently with or to the exclusion of the principal, or that the agent shall be the party to sue either concurrently with or to the exclusion of the principal."

24. As regards the position of a foreign principal, Bowstead and Reynolds explains in paragraph 9-020:

"There long existed a strong presumption of fact (so strong that a court was 'justified in treating it as a matter of law') that in the context of sale where an agent in England contracted on behalf of a foreign principal, disclosed or undisclosed, the agent assumed personal liability to his English suppliers and had no authority to pledge the principal's credit by establishing privity of contract between the principal and the third party; and conversely, where a merchant in England contracted for a principal abroad, that merchant was not to be regarded as having authority to bring his principal into privity of contract with the home supplier."

However, in Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545 the Court of Appeal held that the presumption no longer existed.

25. On the facts of the present case, Mr Craig contended that, under the terms of the two guarantees, Agilo was entitled to enforce them. Mr Craig went so far as to submit that Master Fund would not alone be entitled to enforce the guarantees in its own name.
26. Mr Craig developed his submissions by reference particularly to the guarantee given by Mr Mark Henry. He pointed out that, in the guarantee, "Agilo Limited … acting as Delegate Investment Manager of Agilo Master Fund Limited" was referred to as "the Lender", and he relied on clause 2.1, which is in the following terms:

"In consideration of the Lender granting time, credit and banking facilities to the Borrower, the Guarantor unconditionally and irrevocably guarantees the payment or discharge of the Secured Liabilities and shall on demand in writing pay or discharge them to the Lender."

This clause provided, Mr Craig said, for payment to Agilo as the "Lender". Among the other clauses to which Mr Craig referred was clause 16, which states (in clause 16.2):

"The address and fax number of the Lender for any communication or document to be made or delivered under or in connection with this Guarantee is the address or fax number included with its signature below or any substitute address or fax number as the Lender may notify to the Guarantor by not less than five Business Days notice."

Mr Craig pointed out that, at the end of the document, "Lender Notice Details" gave the address, "Denman House, 20 Piccadilly, London, W1J ODJ", which is Agilo's registered address.

27. The force of Mr Craig's point is reduced somewhat with the guarantee given by Mr William Henry, where the "Lender" is identified as "Agilo Master Fund Limited acting by its Delegate Investment Manager Agilo Limited". Leaving that aside, however, the basis for saying that there has been a departure from the general rule that an agent cannot sue, seems to me quite slight. It is not in dispute, as I understand it, that it was Master Fund which lent money to Lancsville; the person "granting time, credit and banking facilities" to Lancsville (as mentioned in clause 2.1 of each guarantee) would thus appear (as Mr Rowntree submitted) to be Master Fund. That Agilo's registered office was given as the address for notices does not strike me as of much significance. It is, moreover, evident, as Mr Rowntree submitted, that the guarantees do not in terms provide for Agilo to have any right of enforcement as they could have done had that been the intention.
28. District Judge Parker said the following about this aspect of the case:

"If the intention of the parties had been that Agilo Limited should itself be a party with rights under the agreement, it would have been very simple for this agreement, which has obviously been professionally drafted, to say so. Or, if the agreement between Mr Henry and Master Fund were to confer certain rights on Agilo Limited, it could have said that, but it does not, at least not with any clarity. So it seems to me it is beyond argument that the quoted words I have referred to simply mean that Agilo Limited was agent for Agilo Master Fund Limited and go no further. Even if that is wrong, I take Mr Rowntree's point that I am considering this application under Insolvency Rule 6.5(4)(b). The question is whether the debt is disputed on grounds which appear to me to be substantial, and I would certainly say at least that there are substantial grounds for taking the interpretation of the agreement which I have said I think is correct."

29. I agree with that conclusion. In my judgment, there is at least real scope for argument as to whether Agilo is entitled to enforce the guarantees. On balance, I am inclined to think that it is not so entitled.
30. Mr Craig described the "wrong party" point as technical. It seems to me that that is a fair description. I also agree with Mr Craig that there is no reason to believe that either Mr Henry has suffered any prejudice as a result of the statutory demands being served (n the view I take) by Agilo instead of Master Fund. Despite the efforts of Mr Rowntree and Mr Wheater to persuade me otherwise, I cannot regard their arguments on the "wrong party" point as meritorious.
31. Nonetheless, it follows, in my judgment, from the conclusions I have arrived at that District Judge Parker was right to set aside the statutory demand relating to Mr Mark Henry, and that the statutory demand served on Mr William Henry fell to be set aside on the same basis. There was, as a minimum, real scope for argument that the Mr Henrys owed nothing to the person on whose behalf the statutory demands were served (namely, Agilo), and that no statutory demand had been served by or on behalf of the only person who could be entitled to present a bankruptcy petition as a creditor (namely, Master Fund).
32. In the circumstances, I do not need to deal with the undue influence point, and I do not think that I should. In the first place, I have not yet heard argument on it. In any event, any views I expressed on it would not, as I understand it, be binding on any court considering applications to set aside future statutory demands.
33. Furthermore, while I know little about claims against Mr William Henry and his wife as trustees of the Lancsville Pension Scheme which are coming on for trial shortly, my impression is that those proceedings may generate evidence which the parties may wish to rely on in any future application to set aside a statutory demand. That increases the chances of the evidence before the court on a future application to set aside a statutory demand being different from the evidence which was before the district judges here and different also from the evidence before me.
34. In the circumstances, I shall simply dismiss the appellant's appeals from the orders setting aside the statutory demands, and I shall hear the parties on Mr Mark Henry's cross appeal as to costs.