Nejad v City Index Ltd

To set aside a statutory demand on the basis of a counterclaim or disputed debt, the debtor must show a genuine triable issue. A disputed allegation fails where, even if proved, it could not have caused recoverable loss. A concession allowing separate betting contracts to be treated as one for margin purposes does not create a continuing contractual obligation without consideration. A credit allocation for spread betting is not necessarily credit under the Consumer Credit Act 1974. Where no debt arises until a bet is closed and its result ascertained, waiving immediate security for a possible future loss is not deferring payment of an existing debt.

City Index Ltd served a statutory demand on Fattah Nejad for losses arising from spread-betting contracts. The Registrar refused Nejad’s application to set it aside. His Honour Judge Weeks QC, sitting as a High Court judge, dismissed his appeal on 4 November 1998.

Before the Court of Appeal, Nejad relied on an alleged misrepresentation that regulatory rules prevented City Index from allowing a single margin for separate index bets. With permission, he also argued that the betting agreement was an unenforceable regulated agreement under the Consumer Credit Act 1974. The central questions were whether either contention raised a genuine triable issue and whether the credit allocation constituted credit.

1. Appeal dismissed. The statutory demand was not set aside.
2. The applicable test under rule 6.5 of the Insolvency Rules 1986 was whether the alleged counterclaim or dispute raised a genuine triable issue. That test applied both to a claimed counterclaim and to a dispute as to the existence of the debt.
3. The alleged misrepresentation did not raise such an issue. The conversation showed that City Index was unwilling, from 27 October 1997, to accept one margin for two separate contracts. Even if the representation about the rules had been false, Nejad would not have obtained the proposed margin concession and therefore could not establish loss caused by the representation.
4. The earlier concession on 23 October did not create a continuing contractual obligation. No consideration for such a new obligation was identified, and the conversations could not properly be construed as imposing one.
5. The Consumer Credit Act argument also failed. Under sections 8 and 9, credit involves financial accommodation or the deferral of payment of an existing obligation. The reasoning in Dimond v Lovell [1999] 3 All ER 1 concerned services for which charges had already been earned, with payment deferred. Here, no debt arose until the betting contract was closed and the result of the index movement was ascertained. A credit allocation merely dispensed with immediate security for a possible future liability. It did not defer payment of an existing debt.
6. The discussion of existing but unquantified debts in Grant v Watton (Inspector of Taxes) [1999] STC 330 did not alter that conclusion, because this case involved only a possibility of future indebtedness.

Lord Justice Buxton and Lord Justice Stuart-Smith agreed with Mr Justice Rattee. The appeal was dismissed with costs assessed at £20,000, and permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division) [1999] EWCA Civ 1812: appeal dismissed with costs.
2. High Court of Justice, Chancery Division: His Honour Judge Weeks QC dismissed Nejad’s appeal from the Registrar’s refusal to set aside the statutory demand on 4 November 1998.
3. Bankruptcy Court: Mr Registrar Jaques refused the application to set aside the statutory demand on 22 June 1998.