England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION IN BANKRUPTCY
ON APPEAL FROM THE SLOUGH COUNTY COURT

		Rolls Building. Fetter Lane London EC4A 1NL
		11 January 2013

1. This is an application by Mr Kevin Francis for permission to appeal from the Decision of District Judge Jones in the Slough County Court dismissing Mr Francis' application for an order that the Statutory Demand issued by the Respondent, Solomon Taylor & Shaw on 14^th December 2011 be set aside.
2. There have been unfortunate delays in bringing this case to a hearing, some of which have been due to confusion within the courts as to the proper forum for hearing this appeal. In addition, Mr Francis has sought a number of adjournments due to the difficulty in finding solicitors to represent him. The original difficulty was caused by the fact that his original solicitors became insolvent and ceased to practise. Mr Francis has also been in ill health which has made it difficult to attend hearings.
3. At the original hearing before the District Judge, Mr Francis was unrepresented. Having been unsuccessful at that hearing he instructed solicitors and counsel. Counsel prepared a skeleton argument for the appeal but has now dropped out of the proceedings, apparently because of the difficulty with solicitors being instructed.
4. The hearing for permission to appeal was listed in the High Court for hearing on 19^th October 2012. That was adjourned by Newey J on 17^th October, on the application of Mr Francis, to 30^th November 2012. On 29 November, Mann J adjourned the hearing, again on Mr Francis' application, to be heard not before 13^th December but to be heard before close of business on 21^st December 2012. On 30^th November the date was fixed for 13^th December 2012.
5. On 11 December 2012 Mr Francis made an application to Norris J to adjourn the hearing further. Norris J refused to go behind the window that Mann J had imposed and was only prepared to adjourn the hearing to 17 - 18 December 2012. Mr Francis was not happy with this and proposed to make a further application on14^th December. In the event, he did not make such application
6. On the morning of 17^th December, the hearing having been fixed to be heard by me at 2:00 that afternoon, I received a faxed letter from Mr Francis, which had been received by the Chancery office in the early hours of the morning. In this letter Mr Francis once again asked for an adjournment of the hearing to a date in January, not before the 15^th.
7. The basis for Mr Francis' application is that, although he has a firm of solicitors who are prepared to act for him and go on the record, they are not prepared to do so unless they are given time to read in to the papers and to instruct counsel. Mr Francis further stated that he would be unable to attend the hearing on the 17^th December. He stated: "Having been discharged from hospital on 7^th December 2012, as a result of bronchitis and pleurisy, I am confined to bed with the latter, together with remains of a virus still in my system. I am having tests, and as soon as the aforesaid are clear, I am to be re-admitted to hospital for major surgery - which has already been postponed on a number of previous occasions and, I am told, cannot be postponed any longer. The aforesaid is entirely separate from the fact that I am a disabled person. I draw the aforesaid to your attention, not just in connection with what follows, but to ensure that you are not led to believe I am demonstrating any discourtesy by my non-attendance."
8. Mr Sheehan, counsel for the Respondent, opposed any further adjournment of the hearing. He pointed out that, although this was at least the third application for an adjournment, it was not supported by any evidence. He pointed out that the case was only listed for 1 ½ hours and that it should not take more than half a day to get up to speed on the case. This is supported by the skeleton argument prepared on behalf of Mr Francis which gives a time estimate of 1 ½ hours and a reading time of 1 hour. I was given 2 hours to read the papers in preparation for the hearing. Mr Sheehan referred to the fact that there was not even a letter from solicitors who were prepared to act for Mr Francis but needed more time to prepare, let alone a solicitor or counsel attending to make the application for an adjournment.
9. Mr Sheehan told me that the bankruptcy petition was currently stayed pending the resolution of the appeal and that it was due to be heard on 14^th January 2013 if the stay were lifted. Mr Sheehan said that his clients were concerned at the substantial delay which had already occurred. He accepted that some of this was not of Mr Francis' making but the end result is that other creditors would be able to proceed whilst his clients could not.
10. Although I was reluctant to proceed with the hearing in Mr Francis' absence and without him being represented I believe that the prejudice to the Respondent caused by a further adjournment in this matter with the consequent adjournment of the bankruptcy petition outweighs the prejudice to Mr Francis. I do not take this decision lightly but I do have the advantage of a detailed skeleton argument prepared by Mr Francis' counsel for the original hearing for permission to appeal and the merits of the appeal before it was adjourned. Accordingly I refuse the application for an adjournment and I shall consider Mr Francis' application for permission to appeal.
11. As I have already said above, Mr Francis was not represented at the hearing before the District Judge. The Respondent was represented by Mr Sheehan. Mr Sheehan produced a skeleton argument for that hearing and faxed it to Mr Francis. Unfortunately, Mr Francis did not receive that fax, although it was sent to a number that Mr Francis had received faxes on previously. Mr Sheehan handed Mr Francis a copy of his skeleton about 5 or 10 minutes before the hearing was due to begin. In the event the hearing did not start on time but Mr Francis, not believing that he had time to read it properly, did not attempt to read it. Accordingly, when the hearing started Mr Francis had not read the skeleton argument and made that clear to the District Judge.
12. I have seen a transcript of the hearing before the District Judge and a transcript of the Judgment. From these it is apparent to me that Mr Francis was not fully aware of the procedure adopted for the hearing. One of Mr Francis' complaints is that he was not given an opportunity to answer Mr Sheehan's arguments. I appreciate that the procedure before a District Judge is rather more informal than in the High Court and that there is no rigorous demarcation into opening by the applicant, answer by the respondent and reply by the applicant but, when there is counsel on one side and litigant in person on the other side, it is important to ensure that the litigant in person is given every chance to put his or her case. I understand that Mr Francis did not apply for an adjournment to read and deal with the skeleton argument but, in my view, he should have been offered that opportunity. The District Judge made it clear that she had read and understood the skeleton argument and, for this reason, Mr Sheehan was not required to go through the argument it contained in any detail.
13. In the present case, I believe that a combination of the fact that Mr Francis received Mr Sheehan's skeleton argument late (through no fault of Mr Sheehan) and that he was not allowed to put arguments to the District Judge that he clearly wanted to, means that Mr Francis has a valid complaint that the hearing of his application was unfair. Accordingly, I give Mr Francis permission to appeal from the decision of the District Judge and shall now consider the merits of the appeal. Since I have found that the hearing below was unfair I shall consider the merits afresh myself rather than looking to see whether the District Judge made any errors of law or principle.
14. I shall take the summary of the Background as set out in the Applicant's Skeleton Argument:

5 On 24^th December 2010 A entered into a deed of guarantee (the Guarantee) with R. Under clause 2.1 of the Guarantee:

"the Partners [of R] continuing to provide the legal services to the Clients and to defer demanding immediate payment of the Guaranteed Liabilities the [A] guarantees to the Partners [of R] to pay the Guaranteed Liabilities by 28^th February 2011 in respect of which time is of the essence

6 The Guaranteed Liabilities were defined as:

"all present and future monies of any nature from time to time due owing and incurred by the Clients to the Partners which as at the date hereof are set out in the Schedule hereto

7 The Clients were defined as:

"Arrowfield Services Limited, Arlington Productions Limited, Tyburn Film Productions Limited and The Estate of the late Gladys Francis

8 The Schedule referred to a list of invoices totalling £46,138.20 and "unbilled third party disbursements" totalling £13,300.14.

9 On 14^th December 2011 a statutory demand was issued by R claiming £34,949.24 (being the alleged unpaid balance of the sums claimed under the Schedule) plus a further invoice dated 15^th May 2011 in the sum of £1,118.00.

10 On 16^th January 2012, A applied to set aside the statutory demand, disputing the extent of liability due and asserting that R had breached the very commitments which had induced him to enter into a personal guarantee over such liabilities, namely, that R would continue to provide legal services to the Clients and would take a flexible approach to the 28^th February 2011 payment date.

11 A's case is that the latter was an important collateral warranty from R because it was anticipated that R would be recovering sums for the Clients to be offset against the underlying indebtedness. Whilst this is not controversial, it is clear (from R's own evidence [Taylor ¶5-6]) that R did, in fact, receive a total of £9,968.00 from Steeles Law by tranches on 9^th march 2011 and 10^th May 2011 on behalf of the Client Arrowfield Services Ltd, and that this was, in fact, applied by agreement to reduce the indebtedness. It is A's case that this represents only some of the payments received.

12 On 28^th March 2012 the application came before District Judge Jones. She rejected A's application to set aside the statutory demand.

13 On 10^th April 2012 A lodged the present appeal.

15. The Skeleton Argument then, having addressed the unfairness of the hearing to justify permission to appeal, identifies the three errors it is alleged that the District Judge made in reaching the conclusion that the application to set aside the statutory demand should dismissed. The first of these is headed "Triable issues on condition precedent/ collateral warranty/ implied term". I shall set out the relevant paragraphs from the Appellant's Skeleton Argument:

33 A applied to set aside the statutory demand, disputing the extent of liability due and asserting that R had breached the very commitments which had induced him to enter into a personal guarantee over such liabilities, namely, that R would continue to provide legal services to the Clients and would take flexible approach to the 28^th February 2011 payment date.

34 The learned Judge misdirected herself in law in that she did not find that there was a genuine triable issue as to whether A was discharged by R's failure to satisfy a condition precedent for A's liability, namely, R's continued provision of legal services to the Clients. Instead she found that A breached the Guarantee by failing to make all payments on 28^th February 2011 and R was entitled to treat itself as no longer bound by it.

35 If the learned Judge was correct in such a finding, she ought to have found that R's acceptance of A's repudiatory breach also operated to discharge the Guarantee as the promises wee mutual and interdependent.

36 Moreover A's case is that there was a collateral warranty that R would be flexible over timing of the payment, because it was anticipated that R would be recovering sums for the Clients to be offset against the underlying indebtedness, which was not merely commercially probably but the sort of term that a Court hearing the case at trial might well be prepared to imply in the absence of such agreement.

37 Indeed, it should have been clear to the learned Judge from R's own evidence that R did, in fact, receive a total of £9,968.00 from Steeles Law by tranches on 9^th March 2011 and 10^th May 2011 on behalf of the Client, Arrowfield Services Ltd, and that this was, in fact, applied by agreement to reduce the indebtedness [Taylor ¶5-6] as, A says, were other sums totalling "18,766.30.

16. The Respondents deny that the promises are mutual and interdependent. Moreover, they point out that the Guarantee is a deed requiring no consideration. They point out that, on Mr Francis' own evidence, they continued to provide legal services after the 28^th February 2011 resulting in the receipt of money from Steeles Law in March and May of 2011. They point out that the reliance of Mr Francis on acceptance by them of a repudiatory breach by Mr Francis is misconceived since there was no evidence that the Respondents had accepted the repudiatory breach and, in any event, such a breach would not affect payment rights unconditionally acquired prior to the repudiation.
17. In paragraph 6 of his witness statement in support of his application Mr Francis stated that the Respondents' senior partner "volunteered that the date provided in Clause 2.1 of the Guarantee would be wholly 'flexible' provided that the indebtedness was reduced prior to that date and continued to be reduced thereafter - with which condition the companies have complied" (underlining in the witness statement). Mr Francis produced a document entitled "Financial Status between the parties at 28.03.2012" which shows that there was no reduction in indebtedness between the date of the Guarantee and the 28^th February 2011. Therefore, even on Mr Francis' case that there was a warranty/ collateral agreement, he failed to comply with his obligations under that. If Mr Francis is correct that thee was such an agreement then it removes the possibility for there to be a further implied condition.
18. I do not find that this argument provides a triable issue.
19. The second alleged error by the District Judge is headed "Statutory demand not based on a liquidated debt". I shall set out the relevant paragraphs from the Appellant's Skeleton Argument.

38 The learned Judge further misdirected herself in law in that she found that the statutory demand should not be set aside whereas she ought to have found that unassessed and undetermined solicitors fees was not a claim for a liquidated sum which could be subject of a bankruptcy petition under section 267 Insolvency Act 1986.

39 The Guarantee rendered A liable for "all present and future monies of any nature from time to time due and owing and incurred by the Clients

40 The Clients were only liable for reasonable fees and, until assessed or agreed as reasonable, such fees were not liquidated.

41A reference to sums claimed on invoices in a schedule to a guarantee between a surety and solicitor simply cannot, on any sensible construction, amount to an "express agreement" to waive the client's right to seek assessment.

20. There is a footnote to the Skeleton Argument in respect of these paragraphs which refers to the case of Truex v Toll [2009] 4 All ER 419. This was a case where a solicitor presented a bankruptcy petition based on some invoices for solicitor's fees. Some of the invoices had been paid without query. The other invoices had not been paid but had not been challenged. The Court held that these invoices did not represent a liquidated claim. In her judgment Proudman J made the following comments:

[26] Mr Macpherson, counsel for the appellant (defendant), submitted that it was insufficient to find a bare admission, agreement or acknowledgment that Mr Truex's invoices were correct. Where a debt is of an unliquidated sum because it has not been judicially assessed or determined that sum can only become liquidated if the client is bound by the admission, agreement or acknowledgment relied upon. Thus Mr Macpherson said that one must look for a waiver of the right to assessment of determination. In order to constitute such a waiver, the client's conduct must be supported by consideration or give rise to an estoppel.

....

[30] It seems to me that there is logic in Mr Macpherson's submission that an agreement converting an unliquidated debt into a liquidated one must be a binding agreement. That would mean an agreement for consideration, that is to say an agreement as to a fixed amount, or an agreement as to hourly rates and time spent in consideration of future services, or a compromise agreement or conduct giving rise to an estoppel according to established principles.

[31] I turn to the authorities to see whether this conclusion is reflected in them. In the Turner case [1999] 4 All ER 353 at 366, [200] 1 WLR 37 at 51, Evans LJ said:

'44. ...Nothing [in the Solicitors Act 1843], or its successors, takes away the need for the solicitor to prove that his fees are reasonable, if they are challenged, absent any express agreement as to what they should be ...'

[32] Despite Mr Preston's submissions to the contrary, it seems to me that the kind of agreement that the Court of Appeal had in mind was a prospective agreement. I derive this from the example considered on the following page of the report ([1999] 4 All ER 353 at 367), namely where the hourly rate has been agreed and where the client expressly agreed to pay for as many hours as the solicitor in fact worked. Where an agreement of that kind, or an agreement to pay a fixed sum, is made at the outset, or where further work is only undertaken on condition that the client agrees to pay outstanding invoices, there is consideration for the agreement and the client cannot resile from it.

21. In my opinion, the Guarantee does represent precisely the second type of agreement referred to in the last sentence above so far as the invoices set out in the schedule to the Guarantee. Mr Francis is correct that the reference to "future monies ... from time to time due and owing" is a reference to unliquidated debts, but that does not make the sums in the detailed invoices unliquidated. The Guarantee is clear on its face as an agreement to pay the sums set out in the schedule by 28^th February 2011. That agreement cannot be resiled from and the debt is a liquidated debt in so far as it has not been paid.
22. I do not find that this argument provides a triable issue.
23. The third error alleged by the District Judge is "Wrong test applied". I shall set out the relevant paragraphs from the Appellant's Skeleton Argument.

42 The learned Judge misdirected herself in law in that in determining the case she applied a standard of proof to A's evidence of the "balance of probabilities " [judgment para 8].

43 In fact the learned Judge ought to have found that in order for A to persuade her to set aside the statutory demand he merely needed to demonstrate that he had a dispute which appeared to be substantial; that is to day whether or not there was a genuine triable issue.

24. It is unclear exactly what standard of proof the District Judge was applying. Although she referred to the balance of probabilities in paragraph 8 of her judgment in paragraph 9 she states that "it seems to me that Mr Francis has come nowhere near being able to mount any sort of attack on it..". This lack of clarity is another reason for giving Mr Francis permission to appeal. However, my assessment of Mr Francis' arguments for setting aside the statutory notice is that none of them demonstrate a triable issue.
25. Accordingly I dismiss the appeal and lift the stay on the petition.
26. In his letter to the Court Mr Francis asked that, if I went ahead and heard the case in his absence I would stay any order I might make that was not in his favour for 28 days. I am not prepared to stay the order in this case for the same reasons that I was not prepared to grant an adjournment of the hearing.
27. Mr Francis also asked for permission to appeal if my decision required such permission. Since any such appeal would be a "second appeal" permission to appeal can only be granted by the Court of Appeal. See CPR 52.13.