Guy v Pannone LLP

The Court of Appeal dismissed the appeal against the refusal to set aside a statutory demand served on Mr Guy by his former solicitors, Pannone LLP. The central legal principles were that a debtor seeking to set aside a statutory demand must show a substantial cross-claim amounting to at least the sum of the demand and that, on summary procedures, the court may take account of the creditor’s detailed evidence and the debtor’s failure to contradict material parts of it. The court treated the written instruction of 28 February 2005 to protect title (by a caution/unilateral notice) and the subsequent factual account of meetings and telephone conversations as determinative: the judge was entitled to conclude that Mr Guy had countermanded or delayed those instructions and did not reinstate them until 23 March. Because Barclays had a priority search under the Land Registration Act 2002 and took its charge on 8 March 2005 (registered 23 March), any failure to register a unilateral notice earlier would in any event not have caused loss. The court also rejected the alternative contention that non-disclosure by the solicitor of adverse material (the HCW Statement) gave rise to an arguable breach causing loss.

Background and procedural posture

Mr Guy applied to set aside a statutory demand served by Pannone LLP for professional charges of about 99,000. He relied on a substantial cross-claim for damages in negligence. The judge below (His Honour Judge Langan Q.C.) refused to set the demand aside by order dated 6 March 2008 and gave Pannone permission to present a bankruptcy petition; Mr Guy paid the sum claimed to avoid bankruptcy and the petition was dismissed. Separately, Mr Guy had issued negligence proceedings; Pannone obtained judgment under Part 24. Mr Guy sought permission to appeal against the refusal to set aside the statutory demand and was granted limited permission by Stanley Burnton LJ to argue two grounds.

Nature of the claim / relief sought

• Relief sought: setting aside the statutory demand on the basis that Mr Guy had a substantial cross-claim in negligence against Pannone.

Issues framed by the court

1. Whether Pannone were negligent in failing to take prompt steps after Mr Guys written instruction of 28 February 2005 to register a caution (in practice a unilateral notice under the Land Registration Act 2002) and whether any failure caused loss.
2. Whether Pannone ought to have disclosed to Mr Guy their knowledge of allegations in the HCW Statement about Mr Luqman (potential conflict or relevant background) and whether non-disclosure was a cause of loss.

Facts and chronology (concise)

• Mr Guy alleged he had been defrauded of the Ten Acre Lane site by Mr Luqman and that a transfer had been procured to Ten Acre Ltd without payment to him. Ten Acre Ltd became registered proprietor in or about August 2004.
• Barclays, as lead lender to Lexi, conducted a priority search on 14 February 2005 under section 72 of the Land Registration Act 2002 and took a legal charge executed on 8 March 2005 and registered on 23 March 2005.
• Mr Guy faxed written instructions to Pannone on 28 February 2005 to place a caution/unilateral notice on the title. Pannones partner Mr Megaw arranged meetings and, on his account, Mr Guy did not attend the first meeting and told him to hold off acting pending negotiations with Mr Brislen; the instruction to register was, according to Pannone, not reinstated until 23 March and the unilateral notice was placed on the register on 29 March, after Barclays' priority period expired.
• There was a detailed evidential dispute as to these communications; Mr Guy did not meaningfully contradict Mr Megaws account in subsequent witness statements. The HCW Statement (auditors resignation statement) disclosed prior allegations against Mr Luqman and had been the subject of earlier proceedings.

Courts reasoning

The court held that (i) even if an immediate registration of a unilateral notice had been attempted on 28 February, Barclays priority search meant such a notice would not have protected Mr Guy against Barclays' charge; (ii) on the evidence Mr Guy had not shown an arguable cross-claim because he had not rebutted Pannones detailed account that he countermanded or delayed his instruction; silence on material points was material and the judge was entitled to treat the creditors evidence as establishing the relevant chronology; (iii) on the second ground, Mr Guy did not provide evidence as to how knowledge of the HCW Statement would have changed his conduct or caused loss, and accordingly there was no arguable breach or causation. The court therefore concluded there was no realistic prospect of success on either ground.

Wider context: The judgment emphasises the limited role of summary procedures when the debtor bears the onus of showing a substantial cross-claim and the importance of adequately addressing the creditors factual case on affidavit evidence.

Appeal dismissed. The court held that Judge Langan was entitled to refuse to set aside the statutory demand because Mr Guy had not demonstrated an arguable, substantial cross-claim: the evidence supported Pannones account that instructions were countermanded or delayed until 23 March and any earlier registration would have been ineffective because of Barclays priority; further, non-disclosure of the HCW Statement could not be shown on the evidence to have given rise to loss.

Appeal from His Honour Judge Langan Q.C. (Chancery Division, Leeds) refusing to set aside a statutory demand by order dated 6 March 2008. Permission to appeal was initially refused on the papers by Lawrence Collins LJ; limited permission was granted by Stanley Burnton LJ to two specified grounds. Related prior judgments referred to in the papers include Barclays Bank judgment in the Chancery Division [2008] EWHC 893 (Ch) and refusal of permission to appeal in the Court of Appeal [2008] EWCA Civ 452; a related judgment of Briggs J is reported at [2008] EWHC 1639 (Ch).