Ahmed v Landstone Leisure Ltd

A statutory demand may be set aside where the debtor has a genuine and sufficiently arguable counterclaim, set-off or cross-demand equal to the debt. The relevant claim may arise indirectly through agency and indemnity arrangements. A potential circularity of obligations involving more than two parties may also constitute “other grounds” for setting aside the demand and may support a defence of circuity of action.

Where misrepresentation and the incorporation of contractual terms raise substantial factual disputes, those issues ordinarily require a trial. The court should not resolve an unresolved tension between evidential and contractual estoppel on an application to set aside a statutory demand.

The appellant had issued a £150,000 cheque as a deposit at an auction. The cheque was dishonoured. The respondent relied on it as the basis for a statutory demand.

The appellant contended that the sale and cheque had been induced by misrepresentation concerning the property and that he had an equal cross-demand, directly or through agency and indemnity. He also relied on the possible recovery of the deposit under section 49(2) of the Law of Property Act 1925.

The Birmingham County Court refused to set aside the demand. The appeal concerned whether the alleged misrepresentation and related circular claims were sufficiently arguable to justify setting it aside, and whether contractual terms excluding reliance on representations had been incorporated.

1. Appeal allowed. The statutory demand was set aside.
2. Rule 6.5(4)(a) of the Insolvency Rules 1986 permits a statutory demand to be set aside where the debtor appears to have a genuine counterclaim, set-off or cross-demand equal to the debt. If the cheque had been procured by misrepresentation, the appellant would have had at least an equal cross-demand because the property had been resold for the respondent’s account and he had received no economic value for the cheque.
3. The fact that the appellant was not the named purchaser did not prevent the claim from being relevant. He had provided the cheque as agent for the contracting party and could claim an indemnity. The resulting obligations would circulate between the appellant, the purchaser or principal, and the respondent. That was at least “other grounds” under rule 6.5(4)(d), and might also constitute circuity of action.
4. The principle of circuity was not confined to circles involving two parties. It remained relevant where the circle involved more than two parties, particularly when deciding whether a statutory demand should be set aside.
5. The auction catalogue, plans, sale signs and alleged statements by the auctioneer made it seriously arguable that the respondent had represented both that the whole site was being sold and that it comprised approximately 2.25 acres. The addendum might have corrected the acreage representation, but arguably did not correct the representation about the extent of the land.
6. The disputes about what had been said, whether the addendum had been supplied, and what the parties understood could not properly be resolved on appeal. They required a trial.
7. The court did not resolve the tension between evidential estoppel and contractual estoppel. The respondent faced the more fundamental difficulty that there was no satisfactory evidence that the Special Conditions, including the non-reliance clause, had been incorporated into the contract.
8. The possible claim for return of the deposit under section 49(2) of the Law of Property Act 1925 provided an additional reason for a trial. Whether unusual or special circumstances existed could be determined only once the facts were established.

1. High Court (Chancery Division): On appeal, the court allowed the appeal and set aside the statutory demand.
2. Birmingham County Court: The District Judge had refused on 19 November 2007 to set aside the statutory demand.