Winstanley v Winstanley

Where a debtor has a genuine triable cross-claim equal to or exceeding the debt in a statutory demand, the demand will normally be set aside. The bankruptcy court should not undertake a detailed assessment of the cross-claim’s value, particularly where liability has already been established and quantum is being pursued in related proceedings. The court must also consider whether exceptional circumstances make bankruptcy disproportionate or unjust. A family dispute involving reciprocal claims, agreed directions for assessing damages and severe consequences for the debtor may justify setting aside the statutory demand and discharging the bankruptcy order.

The father obtained a judgment debt against his son and served a statutory demand for approximately £35,000. The son applied to set it aside, relying on a cross-claim for damages arising from the father’s unlawful occupation of a farm which the son held under an agricultural tenancy.

The District Judge refused the application and made a bankruptcy order. His Honour Judge Behrens dismissed the son’s appeal on 15 August 2000, holding that the cross-claim was not shown to equal or exceed the judgment debt and that bankruptcy was not an abuse of process. The son appealed to the Court of Appeal. The central issues were whether the cross-claim raised a genuine triable issue and whether the circumstances justified refusing a bankruptcy order.

1. Appeal allowed. The statutory demand was set aside and the bankruptcy order was discharged. The bankruptcy petition was dismissed.
2. The son’s claim for damages raised a genuine triable issue on quantum. The Recorder had already found that the son held an agricultural tenancy and that the father had unlawfully occupied the farm. A consent order had also provided directions for valuation and evidence. It was unnecessary for the Bankruptcy Court to determine the precise value of the claim or to resolve all arguments about whether the son would ultimately recover damages.
3. The genuine-triable-issue requirement applied to quantum as well as liability. The proper forum for assessing the damages was the Doncaster County Court, in the existing occupation proceedings. The Bankruptcy Court was not the appropriate place to test the strengths and weaknesses of the parties’ competing valuation arguments.
4. The circumstances were exceptional and strongly militated against bankruptcy. The dispute was a bitter family dispute involving reciprocal claims. The parties had agreed directions for the assessment of damages but had pursued bankruptcy proceedings instead. Bankruptcy would have catastrophic and disproportionate consequences for the son, including loss of the farm tenancy and serious practical difficulty in pursuing his damages claim, whereas setting aside the demand would not materially prejudice the father.
5. The court expressed no final view on the amount of the son’s claim. The father’s argument that the son might recover nothing could be advanced in the County Court. The court also observed that disputed transfers of other land might fall within Insolvency Act 1986, Part 16, sections 423 to 425, if made with intent to defraud creditors.
6. Lord Justice Aldous agreed on the merits. He added that the remaining disputes should be resolved quickly under the Civil Procedure Rules. The order of 15 August 2000 and the order of 11 July 2000 were set aside, with costs to the appellant.

• Court of Appeal (Civil Division): Appeal allowed. The order of His Honour Judge Behrens dated 15 August 2000 and the bankruptcy order dated 11 July 2000 were set aside.
• High Court of Justice, Chancery Division (in bankruptcy): His Honour Judge Behrens dismissed the appeal from the District Judge’s refusal to set aside the statutory demand and bankruptcy order.
• District Judge: Refused to set aside the statutory demand and made a bankruptcy order.