The Accessory People Limited v Rouass

This appeal concerned whether a winding-up petition should be stayed or dismissed because the company had a genuine and substantial cross-claim against the petitioning creditor. The court accepted that the respondent was a creditor for at least 3,145,000 under the loan agreement but had presented a winding-up petition. The judge below had discharged an injunction preventing advertisement of the petition; the Court of Appeal reviewed whether there was a bona fide cross-claim that could outweigh the petition debt.

The court held that, although the judge had erred to the extent of treating the companys failure to have started separate proceedings as determinative, on the merits there was insufficient evidence of (i) an oral indemnity agreement for rental payments and (ii) a solid conversion claim for the value of furniture. In particular the alleged oral rental agreement was unparticularised and unsupported by accounting records or named witnesses; invoices and a demand letter produced for the hearing lacked probative force; and there was no sensible valuation tying present value to the original invoice figure. The court found no realistic prospect that any cross-claim would exceed the petition debt and dismissed the appeal.

Background and parties: The Accessory People Limited (the appellant) obtained an injunction in July 2009 preventing the respondent, Miss Rouass, from advertising a winding-up petition she had presented based on debts arising under a loan agreement. The petition relied on a debt accepted by the parties of 3,145,000 (principal and specified interest). HHJ Brown QC discharged the injunction by order dated 11 September 2009. The appellant appealed to the Court of Appeal.

Nature of the application: The appellant sought the Court of Appeals intervention to set aside the judges order and to prevent the respondent advertising the petition, on the basis that the company had genuine and substantial cross-claims that should defeat or stay the petition.

Key facts:

• The company asserted cross-claims in respect of unpaid rentals under a licence/rental arrangement for furniture supplied to a property called Linden House and, alternatively, for the value of furniture allegedly removed by the respondent. The company said rental was paid by the respondent until July 2008 and that the goods delivered in September 2007 had an invoiced value of 124,750 (or related combined figures).
• The respondent denied having any agreement to indemnify the company for rentals, denied taking the furniture, and pointed to the absence of contemporaneous documentary evidence and the lack of litigation prior to the petition.

Issues framed: Whether there was a genuine and serious cross-claim which would justify the court exercising its discretion to stay or dismiss the winding-up petition; whether failure to have commenced separate proceedings was fatal to the cross-claim; whether the evidence supported (a) an oral indemnity for rental payments and (b) a conversion claim valuing the furniture such that it would exceed the petition debt.

Courts reasoning and outcome: The Court of Appeal accepted that the judge below had placed weight upon the companys failure to litigate, which is a factor but not necessarily determinative. The Court therefore exercised the discretion afresh. It concluded that the evidence of an oral indemnity was unparticularised, lacked named witnesses or documentary corroboration and so did not establish a genuine and substantial claim. The alleged conversion claim was undermined by lack of particularity as to items removed, invoices and schedule that did not support a contemporary valuation of the goods two years later, and a demand letter apparently written for the litigation. There was no realistic prospect that any cross-claim would exceed the petition debt. The appeal was dismissed.

Appeal dismissed. The court held that, although the judge had erred to some extent in treating the absence of prior litigation as dispositive, on an exercise of the discretion afresh there was insufficient evidence to establish a genuine and serious cross-claim for rental indemnity or for the present value of the furniture that would outweigh the petition debt; accordingly the petition should not be stayed or dismissed.

Appeal to the Court of Appeal (Civil Division) from HHJ Brown QC in the Birmingham District Registry, Chancery Division, order dated 11 September 2009; Court of Appeal decision reported as [2010] EWCA Civ 302 (appeal dismissed).