England and Wales High Court (Chancery Division) Decisions

IN THE APPEAL COURT
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM DISTRICT JUDGE HUDSON IN THE LINCOLN COUNTY COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		31 March 2010

Sarah Asplin QC:

1. This is an application for permission to appeal and if granted an appeal from the decision of District Judge Hudson, made in the Lincoln County Court on 12 January 2009, dismissing the Appellant's application to annul the bankruptcy order made against him on 8 December 2008.
2. The appeal is pursuant to s375(2) Insolvency Act 1986 and as a result of Rule 7.49 Insolvency Rules 1986 as amended, the procedure and practice in relation to this application is that relating to appeals to the Court of Appeal.
3. The Notice of Appeal was filed on 25 February 2009, ("the Notice of Appeal"). This matter came before Arnold J on 17 November 2009 and 8 December 2009 and on the latter occasion he made the direction that the appeal should be heard immediately after the application for permission if successful.
4. Before me, the Appellant, Dr Vaidya has appeared in person. The Respondent Dr Wijayawardhana was represented by Mr Paul Kirtley. Mr Kirtley helpfully set out the background to the case on Dr Vaidya's behalf.

Background

(i) The statutory demand

5. The statutory demand dated 1 September 2008 upon which the bankruptcy order in respect of Dr Vaidya was based, was served upon Dr Vaidya personally on 12 September 2008. The debts set out in the demand arose as a result of two costs orders made against Dr Vaidya by Her Honour Judge Swindells QC in the Lincoln County Court on the 26 February and 6 June 2008 in the sums of £4,996.14 and £3,420.31 respectively.
6. The costs orders were in respect of applications made in action number 7GR00416 in the Grantham County Court, in which Dr Wijayawardhana was a claimant both on his own behalf and as a representative of the United Lincolnshire Hospitals NHS Trust, ("the Trust"). In that action, Dr Wijayawardhana had sought an interim injunction preventing Dr Vaidya from contacting him or the Trust directly or from entering the Trust's premises in order to deliver or distribute correspondence to Dr Wijayawardhana, the Trust or its employees. In fact, Dr Vaidya gave voluntary undertakings instead and the costs in relation to which Her Honour Judge Swindells QC gave judgment were incurred as a result of applications made by Dr Vaidya in relation to those undertakings.
7. The application for an injunction had arisen as a result of proceedings which had been ongoing between Dr Vaidya and Dr Wijayawardhana, a number of his colleagues and the Trust in its capacity as their employer. It appears that there were numerous proceedings and that they all related to claims by Dr Vaidya of harassment, discrimination and other wrong doing, in particular by Dr Wijayawardhana. These were consolidated into a single action numbered 4GR00811, ("the 0811 action"). In that action, Dr Vaidya claims damages in respect of loss of future earnings in the region of £2million.
8. I was also informed by Mr Kirtley on behalf of Dr Wijayawardhana that Dr Vaidya's complaints had been the subject of a lengthy hearing before the employment tribunal the outcome of which had been that it was found that Dr Vaidya had been unfairly dismissed by the Trust but no damages were awarded in Dr Vaidya's favour or costs orders made.

(ii) Application to set aside the statutory demand

9. Dr Vaidya made an application to set aside the statutory demand on 22 September 2008. The application was supported by his affidavit dated 19 September 2008. In his affidavit, Dr Vaidya admitted that the costs orders had been made but set out the background to his dispute both with Dr Wijayawardhana and the Trust. Paragraph j of that affidavit reads as follows:

"In August 2004 I filed a claim against the Trust for harassment, breach of contract and other statutes [re. "a-i" above. 4GR00811], to which Dr Wijayawardhana has been later joined as a named defendant."

Paragraph q is in the following form:

"To the best of my knowledge and belief, Dr Wijayawardhana has made no personal contribution to the legal costs of this Claim No 7GR00416 which he purports to claim through the said statutory demand."

Finally, at paragraph (6) he added:

"I have a counterclaim pursuant to "j" [re. "a" –"p" above] for a sum vastly exceeding the claim in respect of <> . . ."

10. Dr Vaidya's application was dismissed by District Judge Toombs without a hearing, on 1 October 2008 pursuant to Rule 6.5(1) of the Insolvency Rules 1986 (as amended), ("the Insolvency Rules"). The order is headed, "By the Courts own motion" and does not set out the name of District Judge Toombs. The body of the order states that the application was dismissed "as no grounds within the insolvency rules 1986 Rule 6.5(4) are established." There is no detailed reasoning or express reference to the matters raised in Dr Vaidya's 19 September 2008 affidavit.
11. Dr Vaidya contends that he heard nothing in relation to his application to set aside the statutory demand until 8 December 2008 when he was handed a copy of the order of 1 October 2008 at a hearing to which I shall refer. Mr Kirtley on behalf of Dr Wijayawardhana does not seek to dispute that this was the case.

(iii) Hearing of the Bankruptcy Petition

12. In the meantime a bankruptcy petition dated 6 October 2008 was presented. It was served on Dr Vaidya on 25 October 2008. Dr Vaidya completed a form indicating his intention to oppose the application for a bankruptcy order which was dated 27 November 2008. In that notice, Form 6.19, Dr Vaidya stated as follows:

"As stated earlier, I have a massive claim against United Lincolnshire Hospitals NHS Trust, the Petitioner and others from 2004-05-07 that predated Petitioner's counter-claim from 2007. The defendants have serially stayed the determination of this claim by abuse of court's process and the damages and costs recoverable by me exceed this small amount of debt by several fold. . . This petition is an abuse of court's process by the Petitioner as an attempt to take control of my litigation in which Petition –purporting as creditor – is one of the Defendants."

13. This is the same claim which was referred to in Dr Vaidya's affidavit of 19 September 2008 which he filed in support of his application to set aside the statutory demand. It is a reference to the 0811 claim.
14. The hearing took place before Deputy District Judge Powell on 8 December 2008. It was at this hearing that Dr Vaidya was handed a copy of the order of District Judge Toombs dismissing his application to set aside the statutory demand.
15. At the hearing on 8 December 2008, the claimant Dr Wijayawardhana was represented by counsel, Mr Normington and Dr Vaidya appeared in person. The transcript reveals that Dr Vaidya addressed Deputy District Judge Powell both in relation to the fact that he had not been aware of the order of District Judge Toombs made on 1 October 2008 until he was handed a copy by Mr Normington at the beginning of the hearing and as to the background litigation. In particular, he made express reference to the 0811 claim which he had commenced in August 2004 and which he had referred to in his affidavit of 19 September 2008 as his claim/counterclaim upon which he relied when seeking to have the statutory demand set aside. These were once again the same proceedings to which he referred in his opposition to the bankruptcy petition, contained in form 6.19 and referred to above.
16. He also made clear that there was a hearing in relation to the 0811 claim set for 12 January 2009. Mr Normington on behalf of the claimant pointed out that there was no evidence before the court of a counterclaim or set off in relation to the costs which were the basis for the statutory demand and the bankruptcy petition.
17. In a short judgment, Deputy District Judge Powell made reference to the considerable amount of litigation between Dr Vaidya, the Trust and various doctors in the following way:

"1. . . . . It appears that there has been a considerable amount of litigation involving Dr Vaidya and his former employer, United Lincolnshire Hospitals, and various other doctors involved with that Trust, including employment proceedings and county court proceedings issued by Dr Vaidya.

2. Dr Vaidya has asked me to adjourn the matter until certain county court proceedings he had issued, which have been adjourned until January next year have been dealt with. However, it is clear, Mr Normanton argues on behalf of the petitioner, that that is wrong in that a proper statutory demand was issued against Dr Vaidya in relation to the two debts claimed and that Dr Vaidya in fact applied to set aside that statutory demand but his application was dismissed by an order dated 1st October 2008."

18. In addition, Deputy District Judge Powell addressed the issue of whether Dr Wijayawardhana was the true claimant in the proceedings in which the costs orders upon which the bankruptcy petition was based. He concluded that the costs orders were in favour of Dr Wijayawardhana and stated at paragraph 5 of his judgment, that

"In the circumstances, as there is clearly an affidavit in support of the petition, which I have seen, and there is a certificate of continuing debt together with the list of any supporting – well there are no supporting creditors, I have no alternative but to make the bankruptcy order today . . ."

(iv) Decision of District Judge Hudson for annulment of bankruptcy order

19. An application for annulment of the bankruptcy order, supported by a witness statement made by Dr Vaidya was made on 22 December 2008 and was heard on 12 January 2009 by District Judge Hudson.
20. In his witness statement dated 19 December 2008, Dr Vaidya set out the alleged procedural irregularities on which he relied and what appears to be a lengthy description of the underlying litigation between himself, the Trust, Dr Wijayawardhana and his colleagues. In particular, at paragraph 22 of the witness statement, he makes reference to claim 0811 and uses much the same language as that at paragraph (6) of his affidavit of 19 September 2008, which I have already set out. Furthermore, he explained the manner in which the undertakings were given which led to the costs orders which in turn, formed the basis for the statutory demand.
21. His witness statement of 19 December 2008 also makes reference to an affidavit sworn by him on 29 September 2008 which sets out much the same background in relation to his disputes with the Trust and Dr Wijayawardhana. Paragraph 1p of that affidavit is in almost identical terms to paragraph j of the affidavit of 19 September 2008, set out at paragraph 9 above. Accordingly, it also refers to claim 0811.
22. Dr Vaidya states that he had no notice of the hearing of the application for the annulment of the bankruptcy order because the order was sent out by post only on Friday 9 January 2009 and was not received by him until after the hearing on Monday 12 January 2009. In fact, he was present at court with his counsel, Mr Hays because a strike out application in the 0811 action was listed to be heard that day. It had a time estimate of five days.
23. Both the strike out application and the annulment application were listed to be heard by His Honour Judge Inglis in the Lincoln County Court on 12 January 2009. In fact, the learned judge adjourned the hearing in the 0811 matter pending the outcome of the bankruptcy hearing and transferred that hearing to District Judge Hudson.
24. The transcript of the latter hearing reveals that Dr Vaidya's counsel, Mr Hays was required to make submissions in the bankruptcy matter without prior warning but was given a short time to prepare himself.
25. The application to annul the bankruptcy order was dismissed. It is this order that Dr Vaidya seeks to appeal and with which I am concerned.

(vi) the 0811 proceedings

26. In order to complete the picture, I should add that I was informed by Mr Kirtley on behalf of Dr Wijayawardhana, that the bankruptcy order having been made, Dr Vaidya's trustee in bankruptcy disclaimed the 0811 proceedings. In fact, it appears from the Court file that a notice of disclaimer was dated 18 March 2009 and was sealed on 14 July 2009. However, it does not appear that any order consequent upon the disclaimer has been made. I was also informed both by Mr Kirtley and Dr Vaidya that Dr Vaidya's bankruptcy has been discharged and that the purpose of this appeal is in effect, to seek to resurrect the 0811 claim if possible.

The Grounds of Appeal

27. The Grounds of Appeal set out in the Notice of Appeal are that Deputy District Judge Hudson

(i) erred in law by ignoring or rejecting the undisputed existence of a counterclaim being Claim No 4GR00811;

(ii) erred in fact and law in upholding the Respondent's argument that the argument as to the counterclaim had been advanced an "earlier" hearing, despite acknowledging that there had been no such hearing;

(iii) that Respondent was not afforded the opportunity to appeal the "anonymous" Order of 1 October 2008 of which he only became aware on 8 December 2008; and

(iv) as a consequence a miscarriage of justice and breach of the Appellant' Article 6 Human Rights Act [1998] has occurred.

28. These grounds have been refined in the form set out at pages 7-10 of the Appellant's skeleton argument. This refinement, he says arose as a result of having had the transcripts of the various hearings made available to him. The grounds as refined are in the following form:

That Deputy Judge Hudson:

(i) erred in law in failing to consider the undisputed counterclaim as a ground which was properly existing at the time the order was made, pursuant to s282(1)(a);

(ii) further erred in law and fact in deciding against the counterclaim "because the time for relying upon a counterclaim was at the time that the application to set aside the statutory demand was made" and District Judge Toombs in dismissing the application to set aside the statutory demand obviously considered that affidavit;

(iii) the decision was contrary to Eberhardt and Co Ltd v Mair [1995] 1 WLR 1180 in which Evans Lombe J held that "no issue estoppel arises, the court's duty being to ensure that justice is done."

(iv) erred in law in discounting the material defect in the statutory demand which did not contain reference to an assignment, the "anonymous" order of District Judge Toombs and its absence from the court file, without considering whether such defects had caused or could have caused injustice to Dr Vaidya;

(v) was wrong in law in holding that the order "does not have to specify a time limit";

(vi) further, erred in law in his dismissal of the ground of "breach of indemnity principle" by failing to consider whether a sole petitioning creditor acting in two different capacities could have proper claim to the whole of the costs without proof of formal assignment;

and

(vii) that there was a breach of Dr Vaidya's human rights as a result of the judge failing to adjourn and/or transfer the hearing to a Circuit Judge to deal with the ground based upon a breach of Art 6(1) European Convention on Human Rights and shutting out the Human Rights issue before him. In particular in this regard, Dr Vaidya relied upon:

A failure to be afforded any opportunity :

(a) to advance his grounds under Rule 6.4 at a hearing before District Judge Toombs;

(b) to challenge the order of District Judge Toombs on grounds of error of law or CPR 40 irregularities; or

(c) make emergency arrangements to pay the debt had he been made aware of District Judge Toombs' order;

Finally, Dr Vaidya contends that there is a wider breach of Article 6(1) namely that the consequence of the dismissal of the application for an annulment of the bankruptcy order has led to the counterclaim being action number 0811 being further delayed.

29. Mr Kirtley on behalf of Dr Wijayawardhana made no objection to Dr Vaidya proceeding on his grounds in the refined form. I suggested that Dr Vaidya apply formally to amend his Notice of Appeal, which he did. I granted the application.

Submissions

(i) Dr Vaidya

30. Dr Vaidya submitted that his application had come squarely within s282(1)(a) Insolvency Act 1986 under which there is a wide discretion. He pointed out that claim number 0811 existed at the time of the bankruptcy order and was referred to in his affidavit of 19 September 2008 which was before District Judge Toombs. He contended that it was wrong of District Judge Hudson to assume that District Judge Toombs had considered all the points in the affidavit, including the reference to claim 0811 and that if he had considered it, his dismissal of the application to set aside the statutory demand was as a result of an error of law, the 0811 claim being a valid counterclaim falling within Rule 6.5(4)(a) Insolvency Rules 1986 as amended.
31. In this regard, he referred me to the decision of Evans-Lombe J in Eberhardt & Co Ltd v Mair [1995] 1 WLR 1180 as support for the contention that issue estoppel does not apply in bankruptcy proceedings and that the court must avoid injustice.
32. Dr Vaidya also drew my attention to a number of alleged procedural errors which he submitted were an abuse of his right to a fair trial, under Article 6(1) European Convention on Human Rights and had led to injustice. These were the lack of a name on the Order of District Judge Toombs dismissing the application to set aside the statutory demand, the failure to refer to a date for the under Rule 6.5(6) Insolvency Rules 1986 as amended and the failure of the Court to inform him of the outcome of that hearing which prevented him from appealing against it. He also referred to what he said was an incorrect reference to r 6.25 the Insolvency Rules made by Mr Normington at the hearing before Deputy District Judge Powell on 8 December 2008. I should say at this stage, that in my judgment, there was nothing incorrect about that reference. Rule 6.25 which I set out in full below, is concerned with the basis upon which a bankruptcy order may be made.
33. With regard to the lack of a name on District Judge Toombs' order, Dr Vaidya referred me to CPR 40.2(1) and 40.4(2)(a). CPR 40.2(1) provides that except in circumstances which are irrelevant here, every judgment or order must state the name and judicial title of the person who made it. Dr Vaidya also referred to CPR 40.4(2) which provides that unless the court otherwise directs, any order made otherwise than at trial must be served on the applicant and respondent. Insolvency Rule 6.5(6) provides that if an application to set aside a statutory demand is dismissed, the court shall make an order authorising the creditor to present a bankruptcy petition either forthwith or on or after a date specified in the order and that "a copy of the order shall be sent by the court forthwith to the creditor."
34. He also drew my attention to the fact that the action in which the costs had been made was commenced by Dr Wijayawardhana in two capacities but that he was the sole creditor for the purposes of the statutory demand. He also referred to the fact that credit had been given for £12 paid on account by Dr Vaidya, part of which was made payable to the Trust. Dr Vaidya went on to submit that despite Dr Wijayawardhana's dual capacity as claimant in action number 7GR00416, Part C of the Statutory Demand which must be completed if the creditor is entitled to the debt by way of assignment was left blank. He referred to this head as "the indemnity principle."
35. Lastly, Dr Vaidya drew my attention to the transcript of the hearing before District Judge Hudson where it was recorded that the learned District Judge declined to accept the Human Rights submissions made by Mr Hays on Dr Vaidya's behalf. Dr Vaidya emphasised that as a result of these failures he was denied the opportunity to advance his grounds at an oral hearing before District Judge Toombs, challenge what he says was his defective order or make emergency arrangements to pay the debt before the bankruptcy petition was presented. Dr Vaidya says that District Judge Hudson failed erroneously to take any of these matters into account. In addition Dr Vaidya refers to the effect of this procedure on claim 0811.

(ii) Mr Kirtley

36. Mr Kirtley on the other hand submitted that effectively, this is an attempt by Dr Vaidya to retry the matters heard by District Judge Hudson on 12 January 2009. He took me to paragraph 3 of the judgment at which the omission of the name from District Judge Toombs' order was considered and paragraph 4 at which the rule 6.5(6) matter was explored. District Judge Hudson held that where the application to set aside a statutory demand is dealt with on paper under Rule 6.5(1), the time limit provision in rule 6.5(6) does not apply.
37. The question of whether Dr Wijayawardhana was a proper petitioner and whether the "indemnity principle" had been met were dealt with at paragraphs 6 and 7 of the judgment, District Judge Hudson concluding that there was nothing in the argument that Dr Wijayawardhana was not the proper petitioner or entitled to the benefit of the costs orders.
38. With regard to delays in relation to the 0811 proceedings, Mr Kirtley submitted that all of the adjournments prior to 12 January 2009 had been at the behest of Dr Vaidya and not the defendants in that action, a contention which Dr Vaidya did not challenge.
39. Mr Kirtley emphasised that this is not an appeal from the decision of District Judge Toombs and that although on any version of events, Dr Vaidya had been made aware of that order on 8 December 2008, he had never sought to appeal it, even though in the circumstances, there would have been good prospects of seeking to do so out of time. Instead, Dr Vaidya had made an application to annul the bankruptcy order and by that means had sought to go behind the decision of District Judge Toombs which he had made on paper which he was entitled to do. Furthermore, he submitted that there was nothing in Dr Vaidya's Human Rights points because he could have sought to appeal the District Judge Toombs decision once he became aware of it.
40. Mr Kirtley submitted that Dr Vaidya had failed to produce any evidence which was new or different from that which was before District Judge Toombs and which had been rejected by him. He had raised the same issues on the subsequent occasions before Deputy District Judge Powell at the hearing of the bankruptcy petition and District Judge Hudson at the annulment hearing. On each occasion effectively, he had rehearsed the facts in relation to the 0811 claim, albeit not in exactly the same words.
41. Although Mr Kirtley accepted that the court has a wide discretion under s282(1)(a) Insolvency Act 1986 when determining whether to annul a bankruptcy order, he pointed out that the discretion must be exercised judicially and the court should ensure that a debtor was not afforded a second or even third bite of the same cherry.
42. In this regard, I was referred to the judgment of Patten J in Ahmed v Mogul Eastern Foods (2005) EWHC 3532 (Ch) and in particular to paragraphs 19-25 of that judgment at which the learned Judge considers the jurisdiction in a case of this kind. As in this case, Patten J was concerned with an appeal against the dismissal of an application to annual a bankruptcy order. Mr Kirtley drew my attention in particular, to paragraph 25 of that judgment. However, I will set out the whole passage because it is of particular relevance:

"·19. Jurisdiction

Sections 282(1)(a) and s.375(1) of the Insolvency Act 1986 provide as follows:

"Section.282(1)(a) - The court may annul a bankruptcy order if it at any time appears to the court -

(a) that, on any grounds existing at the time the order was made, the order ought not to have been made, or …

Section 375(1) - Every court having jurisdiction for the purposes of the Parts in this Group may review, rescind or vary any order made by it in the exercise of that jurisdiction."

Both are in unqualified terms and confer on the court a jurisdiction either to annul or to rescind or vary a bankruptcy order if the statutory conditions for the exercise of the discretion are fulfilled. In the case of s.282 this requires the applicant to show that at the time of the making of the bankruptcy order grounds existed upon which the order should not have been made. In the case of s.375 the power is extremely wide and does not specify any particular grounds which have to be satisfied prior to the discretion being exercised. Therefore, in jurisdictional terms there is nothing in the statute itself to suggest that the making of a prior determination by the court about the merits of the bankruptcy defence to the petition operates as a bar to the making of an order, either under s.282 or under s.375. Nor is there anything in either statutory provision which limits the court's power to entertain such applications to cases in which, for example, evidence relevant to the alleged indebtedness could not have been produced at the time of the earlier hearing. However, both sections confer on the court a discretion which requires to be exercised judicially, and in order to protect its own process from abuse the court may, in the exercise of that discretion, decline to annul or rescind an earlier bankruptcy order when it is clear that the bankrupt is not seeking to raise any new argument or any new evidence, but is merely seeking to re-argue the points already decided against him at the bankruptcy hearing. In such cases an appeal is his appropriate remedy. This is, I think, made clear in the judgment of the Court of Appeal in Re R S & M Engineering Company Limited [1999] 2BCLC 485, a case under Rule 7.471 of the Insolvency Rules, which correspond and are identical in terms to s.375(1) of the Insolvency Act. In that case Jonathan Parker J had declined to review or rescind an order made by another High Court judge in relation to the expenses of the liquidation. The remedy, he said, was to appeal the earlier order. Chadwick LJ at page 492 said this:

"For the reasons which I have given, I am not persuaded that it is necessary to decide that point. On any view Jonathan Parker J had an inherent jurisdiction to decide what order he would make in the circumstances that no earlier order had been entered and Judge Kolbert had retired. But, since the point has been raised and may be of importance in other contexts, it is appropriate that I indicate that I can see no basis why the words used in r7.47(1) should not be given the very wide effect which, as a matter of language, the meaning which they naturally bear would indicate that the rule making body intended. The rule is in terms which are indistinguishable from the parallel provision applicable in bankruptcy – see s 375(1) of the 1986 Act; and, in that context there is no reason to doubt that Parliament intended to preserve the unlimited jurisdiction to conduct a re-hearing which, as Sir James Bacon observed in Ex p Keighley (1874) LR 9 Ch App 667 at 668 was 'of very considerable antiquity' and which had been enshrined in successive Bankruptcy Acts – see s 71 of the 1989 Act, s 104(1) of the 1883 Act and s 108(1) of the 1914 Act. As Hoffmann J pointed out in Re Calmex Ltd [1989] BCLC 299 at 301, [1989] 1 All ER 485 at 486, the power is expressed in completely general terms. But, although I would hold that, as a matter of jurisdiction the power to review conferred by r 7.47(1) is unfettered, it is, of course, a power which is to be exercised judicially. It would, in my view, be inappropriate – save in the most exceptional circumstances – for a judge to exercise that power in order to substitute his own decision for that of another judge of co-ordinate jurisdiction reached on the same material after a full consideration of the arguments. The power to review is not to be used in order to hear an appeal against a judge of co-ordinate jurisdiction. The exercise of the power should be confined, as a matter of discretion, to cases in which there has been some change in circumstances (which may, perhaps, include the consideration of material which was not previously before the court) since the original order was made – see the observations of Millett J in Re A Debtor (No 32/SD/91) [1993] 2 All ER 991 at 995, [1993] 1WLR 314, 318 to 319."

20 Although this decision was made in relation to the power to rescind, it applies, in my judgment, with equal force to applications under s.282. In Atherton v. Ogunlende [2003] BPIR 21, Neuberger J had to consider a case in which the bankrupt applied for annulment on the ground that he had a counter-claim which would extinguish the debt. This argument had been raised and rejected both on an application to set aside the statutory demand and at the bankruptcy hearing. Neuberger J referred to the judgment of Chadwick J in Turner v Royal Bank of Scotland v Farley [2000] BPRI 683 where he said that absent a change of circumstances, it would not ordinarily be open to a bankrupt to raise issues at the bankruptcy hearing which had been decided against him on an application to set aside the statutory demand.

21 At page 27 of his judgment Neuberger J said this:

"However, in general, it seems to me right in principle and in the public interest that, if a party has raised an argument in a proper forum, where it has been considered, in connection with a particular process, in this case a bankruptcy or a prospective bankruptcy, and from which forum he had a right of appeal if he wished to exercise it, if that argument is rejected and he does not appeal, it requires exceptional circumstances before he can raise the same argument at a later stage during the same process"

"It seems to me that the principle enshrined in the passage in the judgment of Vinelott J approved by Chadwick LJ and indeed his own judgment, in Turner v Royal Bank of Scotland [2000] BPIR 683, indicates that the principle should not be abrogated simply because the party has found a better way of putting the same point, or wants to put in more evidence to support the same point. If there were evidence from Mr Atherton as to specific facts which really would make a difference, and which he was unable to put forward on 11 March 1999 through no fault of his own (eg. Because it was then unavailable or unknown to him at that hearing) different considerations might apply. However, to my mind there is nothing in the subsequent evidence which justifies my going against the normal rule as laid down in Turner."

22 A similar approach was taken by Laddie J on an application under s.375(1) in Papanicola v. Humphreys [2005] 2All ER 418. At page 424 of his judgment in paragraphs 25 and 26 he said this:

"It seems to me that a number of propositions can be formulated in relation to s 375. Some of them are derived from the passages cited above. (1) The section gives the court a wide discretion to review vary or rescind any order made in the exercise of the bankruptcy jurisdiction. (2) The onus is on the applicant to demonstrate the existence of circumstances which justify exercise of the discretion in his favour. (3) Those circumstances must be exceptional. (4) The circumstances relied on must involve a material difference to what was before the court which made the original order. In other words there must be something new to justify the overturning of the original order. (5) There is no limit to the factors which may be taken into account. They can include for example changes which have occurred since the making of the original order and significant facts which, although in existence at the time of the original order, were not brought to the court's attention at that time. (6) Where the new circumstances relied on consist of or include new evidence which could have been made available at the original hearing, that, and any explanation the applicant gives for the failure to produce it then or any lack of such explanation, are factors which can be taken into account in the exercise of the discretion.

The second and fourth of these propositions merit some expansion. Inherent in s 375 is the concept that something has changed so that it is appropriate for the court to reconsider its own earlier order. If there is no change in circumstances, the only way to challenge the order is by appeal. The court is not to review its order simply on the basis that the applicant wants to present essentially the same facts and the same arguments but more forcefully or attractively. This is apparent from the following passage in Fitch's case:

'An appellate court can quash a bankruptcy order only if it is satisfied that, on the evidence which was before the court which made the order or on new evidence which is admitted in accordance with the rule in Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489], the order should not have been made. An application under section 375(1) is essentially different. It must be based on a change in circumstances since the order was made or more rarely on the discovery of further evidence which could not be adduced on appeal'

23 Although there are references in these cases to what are described as exceptional circumstances, the essential point that emerges from these authorities is that if nothing has changed in the nature of the material before the court on the annulment or rescission application, then the court will not entertain it. The proper course in those circumstances is for the bankrupt to have appealed the original order. But if the court, on a consideration of the application, is satisfied that it has been presented with new material, which was not before the judge who made the bankruptcy order, and perhaps was not even available at that time, then in my judgment, the court is entitled to exercise its discretion and in appropriate cases, to decide to entertain the application and review the earlier decision.

24 It is in any event clear, that Neuberger J considered that the production of evidence not available would fall within the relevant test. For my own part, I would not wish to import into applications under s.282, a rule equivalent to that in Ladd v. Marshall. It seems to me that the correct approach in all cases is the one which was taken by Millett J in relation to applications under s.375 in his decision in Re A debtor [1993] 2All ER 991 where he distinguished an application under s.371(1) from appeal and at page 995 said this.

"Where an application is made to the original tribunal to review, rescind or vary an order of its own, however, the question is not whether the original order ought to have been made upon the material then before it but whether that order ought to remain in force in the light either of changed circumstances or in the light of fresh evidence, whether or not it might have been obtained at the time of the original hearing. The matter is one of discretion, and where the evidence might and should have been obtained at the original hearing that will be a factor for the court to take into account; but the rationale for the rule in Ladd v Marshall that there should be an end to litigation and that a litigant is not to be deprived of the fruits of a judgment except on substantial grounds has no bearing in the bankruptcy jurisdiction. The very existence of s.375 is inconsistent with such a rationale."

25 It is, I think, clear from the authorities I have mentioned, that there is no absolute ban to the bankruptcy court entertaining an application to annul or rescind a bankruptcy order merely because at the bankruptcy hearing the judge has decided the question of whether there was a disputed debt. The availability of new evidence may justify the review of that earlier decision if it is material which, in the judgment of the court hearing the application, is likely to have led the judge at the earlier hearing to reach a different conclusion. The realities are that if the judge hearing the application for annulment or rescission reaches that view, it will only be because he has been presented with material sufficiently new and different in nature as to cause him to reach that conclusion. In a sense, the probative effect of the new material is likely, in practice, to determine whether the application in discretionary terms is justified. "

43. Accordingly, Mr Kirtley submits that Dr Vaidya needed to have brought something new forwards before District Judge Hudson for there to have been a reason to exercise the discretion to annul the bankruptcy order. On the contrary, he says that in this case, the District Judge found that there was nothing new and that the counterclaim/cross claim argument had already been addressed.
44. Furthermore, Mr Kirtley reminded me that in order to succeed in an appeal against the decision of District Judge Hudson it is necessary to show that his exercise of discretion not to annul the bankruptcy order was as a result of a failure to take all relevant and no irrelevant matters into account or otherwise to have come to an irrational decision. In this case he says it is clear that all relevant matters were considered, there was nothing irrational in the decision and there was nothing new which was raised which would have justified the exercise of discretion to annul the previous order of the same court, made by Deputy District Judge Powell.

(iii) Dr Vaidya in reply

45. In reply, Dr Vaidya contended that District Judge Hudson should have looked into the issue of the counterclaim or given him the opportunity to appeal District Judge Toombs' order. He says that he should not have dealt with it on the basis that the time for relying on a counterclaim was at the application to set aside the statutory demand and that as there was nothing new, it was too late. He sought to distinguish Ahmed v Mogul Eastern Foods on the basis that in that case, the debtor had been afforded a full hearing of his application to set aside the statutory demand. Furthermore, he drew my attention to Patten J's observation at paragraph 19 of his judgment that:

"in jurisdictional terms there is nothing in the statute itself to suggest that the making of a prior determination by the court about the merits of the bankruptcy defence to the petition operates as a bar to the making of an order, either under s.282 or under s.375."

46. He stated that all that is necessary is the existence of a counterclaim, set off or cross claim and referred me to an extract from the Civil Bench Book August 2006 which emphasises that if the debtor "appears' to have a counterclaim, set off or cross claim, the statutory demand should be set aside. He also drew attention to the passage in the transcript of the hearing before Deputy District Judge Powell in which it was asserted that case 0811 was an entirely different matter which did not affect the debt at all. Finally, he referred to the transcript of the hearing before District Judge Hudson at 24A where Mr Kirtley who also appeared on that occasion, made reference to the cross claim being "pie in the sky." Dr Vaidya contends that the existence of a cross claim is sufficient and it was not for District Judge Hudson to consider its merits.
47. Although before me Mr Kirtley made passing reference to it being unnecessary to take into account a counterclaim unless it contained a genuine triable issue, a reference to paragraph 12.4 of the Practice Direction, Insolvency Proceedings, no submissions were made as to the precise nature and quality of the 0811 claim.

Basis upon which permission to appeal may be granted

48. I was reminded by Mr Kirtley that pursuant to CPR 52.3(6) permission to appeal may only be given where the court considers that the appeal would have a real prospect of success or there is some other compelling reason why the appeal should be heard. Dr Vaidya also drew my attention to CPR 52.11(3) which provides that the appeal court will allow an appeal where the decision of the lower court "was wrong" or "unjust because of a serious procedural or other irregularity in the proceedings in the lower court".

Further submissions

49. After the hearing in this matter, I sought further written submissions both from Mr Kirtley and Dr Vaidya in accordance with the note made by Arnold J in relation to the directions he gave on 8 December 2009, as to the precise status of the 0811 claim both at the date of the hearing before District Judge Hudson and now. I also asked for submissions in relation to the Court of Appeal decisions in Popely v Popely [2004] BPIR 779 and Coulter v Chief Constable of Dorset Police (No 2) [2006] BPIR 10 neither of which had been mentioned at the oral hearing, but which appeared to have potential relevance in this case.
50. Dr Vaidya submitted that it was clear from the judgment of Jonathan Parker LJ in Popely v Popely that the decision of District Judge Toombs pursuant to rule 6.5(1) of the Insolvency Rules could not stand because of the lack of reasons given, that the principle of estoppel or res judicata was not engaged and that therefore, District Judge Hudson's decision should be set aside. Mr Kirtley on behalf of Dr Wijayawardhana on the other hand stressed that Popely v Popely should be distinguished because in that case, the refusal to set aside the statutory demand had been appealed whereas in this case, it is the exercise of discretion by District Judge Hudson in relation to the refusal to annul the bankruptcy petition which is in issue.
51. With regard to Coulter v Chief Constable of Dorset Police (No 2) [2006] BPIR 10 Mr Kirtley submitted that were Dr Wijayawardhana arguing solely regarding the existence of the cross claim, he would argue that there was not a genuine triable issue but that in any event, all matters were properly canvassed before District Judge Hudson and his decision fell within the broad range of discretion available to him.
52. In relation to claim 0811, it was confirmed that no defence has been served although a defence was served in claim number 4GR00028 with which it was consolidated. The Respondents provided me with a detailed analysis of the history of the claim and the associated proceedings before the Employment Tribunal, together with supporting documents. Dr Vaidya also provided me with his skeleton argument for the adjourned strike out hearing of 12 January 2009.
53. It is clear from this documentation that there is a long and acrimonious history of litigation between the parties to this action, the Trust and a variety of doctors. Claim 0811 was stayed whilst the Employment Tribunal proceedings took place. An application to have the 0811 claim struck out as an abuse of the process was made on 25 June 2007 and a further application for strike out and summary judgment in the alternative was made on 14 May 2008. It was this application which was intended to be heard by His Honour Judge Inglis on 12 January 2009, having been adjourned on two previous occasions at the behest of Dr Vaidya.

Relevant law and procedural framework

(i) relevant provisions

54. The relevant provisions of the Insolvency Act 1986 are as follows:

"271

(1)     The court shall not make a bankruptcy order on a creditor's petition unless it is

satisfied that the debt, or one of the debts, in respect of which the petition was presented is either—

(a) a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured or compounded for, or

(b) a debt which the debtor has no reasonable prospect of being able to pay when it falls due."

. . . .

"282

(1) The court may annul a bankruptcy order if it at any time appears to the court:

(a) that on any ground existing at the time the order was made the order ought not to have been made"

. . . .

"375

(1) Every court having jurisdiction for the purposes of the Parts in this Group may

review, rescind or vary any order made by it in the exercise of that jurisdiction.

(2) An appeal from a decision made in the exercise of jurisdiction for the purposes

of those Parts by a county court or by a registrar in bankruptcy of the High Court lies to a single judge of the High Court; and an appeal from a decision of that judge on such an appeal lies. . . to the Court of Appeal."

55. The relevant Insolvency Rules are as follows:

6.5(1)On receipt of an application under Rule 6.4, the court may, if satisfied that no sufficient cause is shown for it, dismiss it without giving notice to the creditor. As from (inclusive) the date on which the application is dismissed, the time limited for compliance with the statutory demand runs again. . . .

(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 ground which appear to the court to be substantial; or

. . .

(d)the court is satisfied, on other grounds, that the demand ought to be set

aside."

6.21 Where the debtor intends to oppose the petition, he shall not later than 7 days before the day fixed for the hearing –

(a) file in court a notice specifying the grounds on which he will object to the making of a bankruptcy order, and

(b) send a copy of the notice to the petitioning creditor or his solicitor"

6.25(1) On the hearing of the petition, the court may make a bankruptcy order if satisfied that the statements in the petition are true, and that the debt on which it is founded has not been paid, or secured or compounded for.'

Further, paragraph 12.4 of the Practice Direction: Insolvency Proceedings provides as follows:

"Where the debtor (a) claims to have a counterclaim, set off or cross demand (whether or not he could have raised it in the action in which the judgment or order was obtained) which equals or exceeds the amount of the debt or debts specified in the statutory demand or (b) disputes the debt (not being a debt subject to a judgment or order) the Court will normally set aside the statutory demand if, in its opinion, on the evidence there is a genuine triable issue."

(ii) Issue estoppel in bankruptcy proceedings

56. Dr Vaidya's main complaint which forms the basis of his first three amended grounds of appeal is that District Judge Hudson on the hearing to annul the bankruptcy order ignored the existence of and/or failed to give proper weight to claim 0811 and decided that it had already been dealt with by District Judge Toombs at the "paper hearing" of the application to set aside the statutory demand which was the appropriate time for it to have been considered.
57. It is clear from the extract from Ahmed v Mogul Eastern Foods which I have set out and the references in Patten J's judgment to the decision of the Court of Appeal in Turner v Royal Bank of Scotland plc [2000] BPIR 683 per Chadwick LJ and Atherton v Ogulende [2003] BPIR 21 per Neuberger J at 27, that on the hearing of a bankruptcy petition or an application to annul a bankruptcy order, although the court has unlimited jurisdiction, a debtor will not be permitted to re-argue the very grounds on which he was unsuccessful when seeking to set aside the statutory demand.
58. In IRC v Lee –Phipps [2003] BPIR 803 Launcelot Henderson QC sitting as Deputy High Court Judge, (as he then was), explained again that when hearing a bankruptcy petition, the court still has the duty to decide whether the order should be made on the material before it. In discharge of that duty the court will ask itself whether the arguments have already been run and failed and why arguments run before it have not be run on previous occasions.
59. In that case, an appeal against a bankruptcy order was allowed where an adjournment of the hearing of the petition had been refused despite a medical certificate in respect of the debtor. There was also a misunderstanding about the application to set aside the statutory demand. It had been dealt with on paper under rule 6.5(1) and dismissed on technical grounds, namely that the reasons for disputing the debt had been set out in a letter rather than an affidavit. The learned deputy judge (as he then was) dealt with the issue of whether the applicant should be allowed to raise the same issues on the appeal against the bankruptcy order as he raised on the application to set aside the statutory demand. At paragraph 19 of his judgment he dealt with the matter in the following way:

"But where, as in the present case, there has been no reasoned determination at all at the earlier stage and the application has simply been struck out for a purely formal defect in the manner in which it was brought, then it seems to me that the principle referred to by Chadwick LJ [i.e. the general rule in Turner v Royal Bank of Scotland plc] is not even engaged in the first place. If there were any doubt about the ambit of the dicta in that case I think it is resolved by his own subsequent statements in the case of West Bromwich Building Society v Crammer [2002] EWCA Civ 1924 (unreported) 19 December 2002 ... the learned Lord Justice referred to his earlier observations in Turner v Royal Bank of Scotland plc [2000] BPIR 683 in response to a suggestion that there had been some concern as to the width of those observations. He then says this, at the end of para [19]:

"Buxton LJ expressly agreed with those observations; and Aldous J agreed with both judgments. Those observations were plainly obiter in that case; but will be given, no doubt, the weight which they deserve. But they do not have the effect of depriving a court exercising its functions under s271 of the duty to decide whether or not to make a bankruptcy order on the material which is then before it. Plainly, a court will ask itself whether arguments that are being run before it have already been run and failed; and it may go on to ask itself why arguments which have been run before it have not previously been run. But it is for the court to decide whether the conditions which must be satisfied before a bankruptcy order can be made are satisfied."

60. That case, together with Barnes v Whitehead [2004] BPIR 693 in which the same approach was adopted, were approved in the Court of Appeal by Chadwick LJ In Coulter v Chief Constable of Dorset Police (No 2) [2006] BPIR 10. At paragraph 20 of his judgment, Chadwick LJ drew attention once again to the passage in his judgment in West Bromwich Building Society v Crammer (unreported), referred to in IRC v Lee –Phipps. At paragraph 22 he went on to explain the principle in the following way:

"The principle is not based on estoppel, whether of a Henderson v Henderson nature or res judicata. It goes no further than this: (i) that it is indeed a waste of the court's time and the parties' money to rehearse arguments which have already been run and have failed; and (ii) that, in circumstances where it is desired to run arguments which have not already been run, then, as HHJ Maddocks pointed out in Barnes v Whitehead, the court will inquire why those arguments were not run at the time when they could and should have been run."

61. A number of the central issues in this case were considered by the Court of Appeal in Popely v Popely [2004] BPIR 779. That was an appeal to the Court of Appeal from the decision of a deputy judge allowing an appeal from the decision of a deputy district judge dismissing an application to set aside the statutory demand pursuant to rule 6.5(1) Insolvency Rules.
62. The Court considered the true meaning of r 6.5(4)(a) Insolvency Rules conferring a discretion upon the court to set aside a statutory demand based on an undisputed debt where the debtor "appears to have a counterclaim, set off or cross demand which equals or exceeds the amount of the debt . . .' and what approach to adopt where the "cross demand" relied upon was a claim in a pending action and the debt on which the statutory demand was based arose from costs orders made in proceedings closely associated with that action. It also dealt with the failure of a District Judge to give reasons when dismissing an application to set aside a statutory demand under the summary procedure in Rule 6.5(1).
63. With regard to the rule 6.5(1) procedure, Jonathan Parker LJ held at paragraph 111:

"In the instant case it is to be inferred from the mere fact that the district judge thought it appropriate to adopt the procedure prescribed by r.6.5(1) that he must have been satisfied that no sufficient cause had been shown for the application. A further possible inference is that he was so satisfied because he regarded the application as indistinguishable from the application to set aside the earlier statutory demand. But possible inferences are not good enough, in my judgment. In particular, the peremptory character of the procedure does not absolve the court from its general duty to give reasons for its decisions. Indeed, its peremptory character makes it in my judgment all the more important that the court should explain why it was satisfied that no sufficient cause had been shown for the application."

He also referred to Ruiz Torija v Spain (1995) 19 EHRR 553 in which the European Court of Human Rights said that Article 6(1) of the European Convention on Human Rights obliges courts to give reasons for their judgments although the extent of the duty will vary with the circumstances.

64. Furthermore, with regard to the nature of a cross claim for the purposes of rule 6.5(4) Jonathan Parker LJ held at paragraph 113 as follows:

"In contrast to the words "counterclaim" and "set off" the word "cross' in the expression "cross demand" does not imply any kind of procedural or juridical relationship to the debt which is the subject of the statutory demand: all it means, in my judgment, is that the "demand" is one which goes the other way, ie that is a "demand" by the debtor on the creditor."

Is the exercise of discretion by District Judge Hudson impeachable?

65. When hearing the application to annul the bankruptcy order, District Judge Hudson was exercising the discretion in s282(1) Insolvency Act 1986 and was required to do so judicially. In other words, save in exceptional circumstances he should not have made an order annulling the bankruptcy order made by a judge of co- ordinate jurisdiction, unless there was new evidence before him which would have justified him in doing so, or alternatively, the order ought not to have been made.
66. In this case, it can be seen from the extracts of Dr Vaidya's affidavits which I have set out, that the points made before District Judge Hudson, had in fact, been made before both before Deputy District Judge Powell and in the affidavit which was filed for the purposes of the application to set aside the statutory demand, dealt with on paper by Deputy Judge Toombs. Dr Vaidya had already pointed out the existence of the 0811 claim, put his arguments in relation to whether the entirety of the costs orders were recoverable by Dr Wijayawardhana and the other procedural errors on which he relies. Although the matters were put in slightly different language on each occasion, there was nothing new.
67. However, in his judgment, District Judge Hudson dealt with the 0811 claim in the following way:

"8. The final point, and the point that has troubled me a little, is the first point raised by Mr Hay, and that was that Dr Vaidya has a valid counterclaim which consists of claims against the Hospital Trust for breach of contract, negligence, conspiracy, tortious interference, breach of Data Protection Act and other claims, and those claims are in fact ready to be heard by His Honour Judge Ingles starting today. What Mr Hay says, I must confess at first instance with some force and potential merit, is that here is a man who has a counterclaim, who should be allowed to run that counterclaim, and that that counterclaim was existing at the time the bankruptcy order was made and therefore, I should annul the bankruptcy order. I have decided against that proposition and I have decided against the proposition because the time for relying upon a counterclaim was at the time that the application to set aside the statutory demand was made. The court, when considering an application to set aside a statutory demand, has a statutory duty to consider the debtor's potential counterclaim. The debtor, and I am sorry to keep going from debtor to Dr Vaidya but it is the same person, Dr Vaidya at that time filed a lengthy affidavit in support of his application to set aside the statutory demand and relied upon his potential counterclaim. District Judge Toombs, in dismissing the application to set aside the statutory demand, obviously considered that affidavit and therefore felt that under the terms of the rules the dismissal order could be made.

9. I am told that Dr Vaidya attempted to raise the counterclaim issue again at the time of the hearing of the bankruptcy petition and of course he has raised it again today. I have considered that at the time of the hearing of the petition the court, pursuant to insolvency rule 6.25(1) has to consider this, and I will read the rule:

"On the hearing of the petition the court may make a bankruptcy order if satisfied that the statement in the petition are true, that the debt on which it is founded has not been paid or secured or compounded for."

And those are the only considerations that the court has to give. It is clear that none of those exceptions were relevant and therefore that is why the bankruptcy order was made. Therefore, I am being asked today, after the court has considered the potential counterclaim on the strike out of the bankruptcy notice and raised again on the question of the hearing of the petition, to say that there is a valid counterclaim and that the order should be annulled.

10. I have read a heading in the insolvency legislation, Doyle's volume at p 1120 and there it follows from the heading "Consequence on the hearing of a bankruptcy petition of a debtor advancing arguments at the set-aside stage" that it is pretty clear from the narrative that any attempt by a debtor to raise matters raised and dealt with at the application to set aside stage will not be permitted at a later stage. Now, I know that again that refers to a hearing of an application to set aside, it does not necessarily refer to the consideration by the court on the annulment application, but it is pretty clear that once the application concerning the counterclaim has been considered and dealt with, which it was in October when there was a refusal to set the statutory demand aside, that I am in no position to grant that order today. . . ."

. . . . .

12. The other point that I am being asked to clarify is the order at p1. There, as we have established, Judge Toombs made that order and he simply made an order in theses terms:

"The application to set aside the statutory demand herein is dismissed as no grounds within the Insolvency Rules, 1986 rule 6.5(4) are established."

Mr Hay says that there is a defect in that order because Judge Toombs does not set out why Judge Toombs refused the order and I have referred back to bankruptcy rule 6.5(1) which simply says this:

"On receipt of an application under rule 6.4 . . . . ."

(that is an application to set aside),

" . . . the court may, if satisfied that no sufficient cause is shown for it, dismiss it . . ."

that is the application to set aside,

" . . .. without giving notice to the creditor."

That is only part of the rule, the rest goes on about time. I say that that is all a district judge has to do. Some district judges would set out some grounds if they are clear on the face of the order, some do not. All that the judge has to do is consider it, consider whether the debtor has any grounds to set aside the demand under 6.5(4), namely whether he has got a counterclaim, whether the debt has been compounded, the grounds, etcetera, but he does not have to say why, in that order, the reasons for refusal. I note it has been advanced by Mr Hay that it should be and he is probably right in that and that we may see later but there is nothing in the rules that say the judge has to set out the grounds and this is nothing in the commentary in Muir Hunter, that assists. So again I am not with him on that submission."

68. District Judge Hudson took the view therefore, that once the issue of the existence of a counterclaim, set off or cross claim had been dealt with at the paper hearing of the application to set aside the statutory demand, pursuant to rule 6.5(1), it could not be reconsidered as a relevant factor whether by him or by Deputy District Judge Powell on the hearing of the petition, following Turner v Royal Bank of Scotland [2000] BPIR 683. It appears from his judgment that Deputy District Judge Powell seems also to have taken that view. District Judge Hudson stated that the counterclaim had "obviously been considered" and there was nothing to say that District Judge Toombs was required to give reasons for his decision.
69. However, in my judgment the position in this case is analogous to that which was under consideration in IRC v Lee- Phipps. In that case, it was held that the principle in Turner v Royal Bank of Scotland was not engaged because there had been no reasoned determination at the statutory demand stage, the application to set aside having been dismissed on the basis of a formal defect.
70. Although District Judge Toombs was perfectly entitled to deal with the application before him under the paper procedure set out at rule 6.5(1) Insolvency Rules, in the absence of reasons for his decision, there was nothing on which to base an assumption that the issues including the 0811 claim had been dealt with on their merits and should not have been taken into consideration on the hearing of the bankruptcy petition or the subsequent application to annul.
71. In Popely v Popely the Court of Appeal, albeit in the context of a second appeal from the dismissal of an application to set aside a statutory demand under the rule 6.5(1) procedure, held that the failure to give reasons was contrary to Article 6 European Convention on Human Rights and lead inevitably to the conclusion that that decision could not stand. As Jonathan Parker LJ observed at 111, inferences are not good enough.
72. Obviously, neither Deputy District Judge Powell or District Judge Hudson at the annulment hearing were dealing with the setting aside itself and as Mr Kirtley points out, there has never been an appeal of that order. However, in my judgment, District Judge Hudson was wrong to rely upon the unreasoned decision of District Judge Toombs rather than consider the existence of the 0811 claim when exercising his discretion. Furthermore, he took no account of the fact that Dr Vaidya had only been made aware of the decision of District Judge Toombs at the hearing of the bankruptcy petition although in the light of the content of Dr Vaidya's affidavit before the court on that occasion I place little weight on this matter.
73. Adopting the test referred to by Chadwick LJ, if I ask myself the question whether the arguments raised in relation to the 0811 claim had already been run and failed, I cannot conclude that they were considered on their merits and rejected because no reasons were given and inference is not good enough.
74. In my judgment, therefore, District Judge Hudson failed to take into account all relevant matters or took into account irrelevant matters such that the exercise of his discretion should be set aside.
75. If it were necessary, I would also have held that the District Judge Hudson's failure to address the fact that Deputy District Judge Powell was led to believe that any cross claim had to relate directly to the costs orders which formed the basis for the statutory demand, rendered his decision unsound. The nature of a cross claim within r6.5(4)(a) is described in Popely v Popely at paragraph 113. It does not have to relate directly to the claim in which the costs orders were made.
76. In the light of my decision, it is unnecessary to consider Dr Vaidya's other grounds of appeal. However, for completeness sake I should add that if it were necessary I would have found that there is nothing in Dr Vaidya's "indemnity principle" or the lack of reference to an assignment in the statutory demand. The costs orders upon which the statutory demand was based were made in favour of the "claimants" of whom Dr Wijayawardhana was one. No differentiation was made. On that basis, in my judgment he was entitled to recover the entirety of those costs from Dr Vaidya even if the Trust was a co-claimant and therefore, District Judge Hudson was not wrong to reject these arguments.
77. In addition, in my judgment, there is nothing in Dr Vaidya's point as to rule 6.5(1). The rule makes no reference to the need expressly to impose a date on which the creditor may present a bankruptcy petition, as is the case under sub-rule 6.5(6). That sub-rule applies where there is a full hearing of the application to set aside the statutory demand. In fact, where the application is dealt with on paper under rule 6.5(1), that sub-rule provides that as from the date on which the application is dismissed the time limited for compliance with the statutory demand runs again and therefore, the need for a date for presentation of the petition does not arise.
78. Lastly, in all the circumstances, I do not consider that the failure to name District Judge Toombs' order led to any injustice in Dr Vaidya's case. Nor do I consider that in the circumstances of this case, the delay caused to the 0811 claim by the bankruptcy proceedings was in itself a matter which should have been taken into consideration, particularly in the light of the fact that the action had been commenced in 2004 and had been adjourned on a number of occasions at Dr Vaidya's request. However, District Judge Toombs' failure to give reasons for his decision was a breach of Article 6(1) European Convention on Human Rights.
79. In the circumstances, therefore, I allow Dr Vaidya's appeal against District Judge Hudson's refusal to annul the decision of Deputy District Judge Powell in making the bankruptcy order. However, the issue of whether there is a genuine triable issue was not the subject of submissions before me. In my judgment in the circumstances, it is inappropriate for the appellate court to seek to exercise the discretion of the bankruptcy court as to whether there is a genuine triable issue in this case. Accordingly, I remit this matter for re-hearing.