Abbey National Plc v JSF Finance & Currency Exchange Co Ltd.

A winding-up petition should be restrained where the alleged debt is bona fide disputed on substantial grounds. The court need not determine the ultimate merits. A fairly arguable legal or factual defence, supported by prima facie evidence and advanced honestly, makes the winding-up procedure inappropriate.

Where alleged notice of fraud is material, blind-eye knowledge requires a strong suspicion approaching belief and a deliberate decision not to make enquiries for fear of confirmation. A series of proved, sufficiently similar fraudulent transactions may provide an arguable basis for that inference. The court should not require the pleading-level particulars required at trial, or compare the parties’ ultimate prospects, once substantial grounds for dispute have been shown.

JSF operated a bureau de change. It exchanged euros for a £30,000 counter cheque issued by Abbey National and paid to JSF. Abbey dishonoured the cheque after its customers alleged that an impostor had procured it. JSF served a statutory demand and proposed to present a winding-up petition.

Abbey obtained an interim injunction but the Deputy Judge dismissed its application for a final injunction. He held that Abbey’s assertion that JSF knew of, or was wilfully blind to, the alleged fraud did not constitute a bona fide dispute on substantial grounds.

Abbey appealed. It also sought to rely on new arguments concerning delivery of the counter cheque and consideration. The central issue was whether Abbey’s liability was genuinely disputed on substantial grounds so that the winding-up process should be restrained.

1. Appeal allowed. The Deputy Judge’s decision was set aside and Abbey was granted an injunction restraining presentation of a winding-up petition founded on the £30,000 claim.

2. The applicable question was whether the debt was bona fide disputed on substantial grounds. The court was not deciding the ultimate contractual or statutory liability. Abbey’s new arguments concerning ineffective delivery and want of consideration were fairly arguable and, with further evidence, could establish substantial grounds for disputing liability.

3. It was arguable that, if Abbey’s willingness to entrust the counter cheque to the person at its counter depended fundamentally on that person being the true customer, an impostor lacked authority to deliver it. That issue could not be resolved without evidence about Abbey’s procedures. The point required consideration alongside Citibank NA v Brown Shipley & Co [1991] 2 AER 690, whose delivery reasoning was not necessarily decisive on these facts.

4. On notice of fraud, actual knowledge was not alleged. Blind-eye knowledge required a strong suspicion approaching belief, coupled with a deliberate decision to avoid enquiries that might confirm it, as explained in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] UKHL 1. The earlier allegedly fraudulent transactions, their scale, and evidence that JSF might have been informed of them created a serious arguable basis for Abbey’s case. Their significance depended on proof, similarity and witness credibility at trial.

5. The Deputy Judge had erred by requiring particulars comparable with those required for a fraud defence at trial and by placing excessive weight on Abbey’s likely prospects of proving every element. Mutual disclosure and cross-examination were essential. Once substantial grounds for an honest dispute were established, a winding-up petition was not an appropriate means of resolving it.

• Court of Appeal (Civil Division) Allowed Abbey’s appeal in [2006] EWCA Civ 328 and granted an injunction restraining JSF from presenting a winding-up petition based on the £30,000 claim.
• Chancery Division (Companies Court) On 29 July 2005, Mr Bernard Livesey QC, sitting as a Deputy High Court Judge, dismissed Abbey’s application for a final injunction. The Deputy Judge’s decision is not separately cited in the judgment.