Guy v Pannone LLP

On an application to set aside a statutory demand based on a cross-claim, the debtor must show an arguable claim of sufficient substance and with a realistic prospect of success. Where the creditor provides a detailed account which, if true, defeats the cross-claim, the court may take the debtor’s silence or failure to answer material points into account. A negligence claim requires an arguable breach and causative loss. Delay in registering a protective notice cannot support substantial loss where a prior priority search already protected the mortgagee’s position. An alleged failure to disclose adverse information must be supported by evidence that the information was material to the client’s decisions and would probably have avoided loss.

Mr Guy applied to set aside a statutory demand served by Pannone for approximately £99,000 in professional charges. He relied on a professional-negligence cross-claim exceeding the debt. His application was refused by His Honour Judge Langan Q.C., and Pannone obtained permission to present a bankruptcy petition. Mr Guy paid the debt and the petition was dismissed.

The appeal concerned whether Mr Guy had an arguable and sufficiently substantial cross-claim. The permitted grounds concerned delay in protecting his interest in land after written instructions dated 28 February 2005, and whether Pannone should have acted differently because the solicitor knew of earlier allegations concerning Mr Luqman. The central issue was whether the evidence disclosed a viable claim in negligence.

Disposition. The Court of Appeal unanimously dismissed the appeal. The evidence did not establish an arguable negligence cross-claim of sufficient substance to justify setting aside the statutory demand.

1. On an application to set aside a statutory demand, the debtor bears the burden of showing a viable cross-claim. The court may not conduct a mini-trial without appropriate evidence or disclosure, but the principle in [2003] 2 AC 1 did not prevent the court from assessing detailed evidence and the debtor’s failure to answer it. A detailed account by the creditor, if unanswered on material facts, may justify finding that no serious factual dispute has been shown.
2. As to the first ground, even if Pannone should have acted immediately on the instruction to register a protective notice, Barclays already had priority following a search under the Land Registration Act 2002. The charge was executed and registered within the priority period. Immediate registration of a notice would therefore have had no useful effect and could not establish causative loss. Mr Guy’s alternative case that a search would have led to notification of Barclays and a better position on rectification was not shown to have a realistic prospect of success.
3. Mr Megaw’s detailed evidence stated that Mr Guy had withdrawn or suspended the instructions while negotiations continued and had reinstated them only on 23 March. Mr Guy did not answer the substance of that account in later statements. His silence was compelling, and his lack of legal representation did not prevent him from giving evidence about his own conduct.
4. As to the second ground, even assuming that the earlier allegations concerning Mr Luqman should have been disclosed, Mr Guy already knew that he had been defrauded and that Mr Luqman was responsible. He gave no evidence explaining what additional significance the HCW Statement would have had or how disclosure would have changed his conduct or prevented loss. No arguable breach or causation was therefore established. A passage in an earlier permission judgment concerning Barclays was not authority, particularly since Barclays had not been represented, and was relevant only as factual history.

• Court of Appeal (Civil Division): unanimously dismissed the appeal. [2009] EWCA Civ 30.
• High Court of Justice, Chancery Division, Leeds District Registry: His Honour Judge Langan Q.C. refused to set aside the statutory demand by order dated 6 March 2008 and gave Pannone permission to present a bankruptcy petition.