The Society of Lloyd's v Bowman & Ors

On an application to set aside a statutory demand founded on a judgment, a counterclaim must present a genuine triable issue and must equal or exceed the debt demanded. In an appellate context, the relevant question is whether the appeal has a realistic, as opposed to fanciful, prospect of success. A first-instance refusal to plead the counterclaim, or refusal of permission to appeal, is an important factor but is not conclusive. The bankruptcy court should normally refuse relief where the earlier decision is unlikely to be displaced, unless it is confident that the appellate court may take a different view. Where the issue cannot properly be resolved on the material before the appellate court, the court may allow a properly particularised case to be considered below before bankruptcy proceedings continue.

Seven former Names applied under rules 6.4 and 6.5(4)(a) of the Insolvency Rules 1986 to set aside statutory demands served by the Society of Lloyd’s in respect of judgment debts. The High Court had set the demands aside, holding that a counterclaim rejected at first instance could still constitute a genuine triable issue while an appeal process remained genuinely arguable.

The appeal arose against the background of the Commercial Court’s decision in The Society of Lloyd’s v Laws & others [2003] EWHC 873 (Comm), which had refused amendments advancing misrepresentation claims. By the time this appeal was heard, the Court of Appeal had considered the related appeal and permission application. The central issues were the proper test for a genuine triable issue in an appellate context, and whether the respondents’ possible counterclaims could equal or exceed the amounts demanded.

1. Appeal allowed in part. The Court of Appeal allowed the appeal against the order setting aside the statutory demands, refused permission to appeal to the House of Lords, and made protective directions concerning any bankruptcy petitions.
2. Under rule 6.5(4)(a) of the Insolvency Rules 1986, the question is whether the debtor appears to have a counterclaim, set-off or cross-demand equal to or exceeding the debt. Where the underlying debt is established by judgment, the bankruptcy court does not ordinarily reopen that judgment.
3. In the appellate context, the proper translation of a genuine triable issue is whether the appeal has a realistic, rather than fanciful, prospect of success. This is the test associated with Tanfern Ltd v Cameron MacDonald (Practice Note). The first-instance decision and refusal of permission are important considerations, but neither is determinative.
4. A bankruptcy judge should be slow to set aside a statutory demand where a High Court judge has rejected the counterclaim and refused permission to appeal. Relief should normally be refused unless the bankruptcy judge is confident that the Court of Appeal may take a different view, perhaps because the law has changed or a compelling fact or authority was overlooked. A pending appellate process may justify a stay or coordinated hearing.
5. For the Category 1 respondents, no counterclaim could be relied upon for this purpose because the relevant point had no realistic prospect of success. For the Category 2 respondents, the material did not establish whether the possible claims could equal or exceed the demands. They were given an opportunity to present properly particularised claims, including the date loss was first suffered, to the judge dealing with the related proceedings. Bankruptcy petitions were not to be presented while the directions were complied with and, if amendments were allowed, the demands were to be set aside.

• Court of Appeal (Civil Division): [2003] EWCA Civ 1886. Appeal from the order of Mr Justice Laddie dated 18 July 2003. Appeal allowed in part; permission to appeal to the House of Lords refused.
• High Court, Chancery Division (in Bankruptcy): Mr Justice Laddie set aside the statutory demands, holding that a counterclaim rejected at first instance might still raise a genuine triable issue while a real appeal process was on foot.