Vaidya v Wijayawardhana

On an application to annul a bankruptcy order, the court has a wide statutory discretion, but it must exercise that discretion judicially. A debtor should not ordinarily use annulment proceedings to re-argue points already determined against him; the proper remedy is an appeal. That restriction does not arise where the earlier application to set aside the statutory demand was dismissed without a reasoned determination on the merits. A cross-demand under rule 6.5(4)(a) need not be procedurally or juridically connected with the debt in the statutory demand. The appeal was allowed because the lower court wrongly assumed that an unreasoned paper dismissal had determined the counterclaim issue. The matter was remitted for rehearing.

The appellant debtor appealed from District Judge Hudson’s dismissal of his application to annul a bankruptcy order made by Deputy District Judge Powell. The bankruptcy petition was based on costs orders in favour of the respondent creditor. The debtor relied on a substantial claim in separate proceedings, claim 4GR00811, and on procedural defects in the earlier dismissal of his application to set aside the statutory demand.

The application to set aside the statutory demand had been dismissed on paper under rule 6.5(1) of the Insolvency Rules 1986. The order stated only that no ground under rule 6.5(4) had been established. The central issue was whether the debtor could rely on the 4GR00811 claim in the annulment proceedings, or whether that issue had already been determined.

1. Appeal allowed and matter remitted. The appellate court allowed the appeal against the refusal to annul the bankruptcy order. It remitted the matter for rehearing because the question whether the 4GR00811 claim raised a genuine triable issue had not been argued before it.
2. Sections 282(1)(a) and 375(1) of the Insolvency Act 1986 confer wide powers, but those powers must be exercised judicially. Ordinarily, annulment or review should not be used to substitute a decision on the same material for the decision of a judge of co-ordinate jurisdiction. New material, changed circumstances, or a ground showing that the bankruptcy order ought not to have been made may justify reconsideration.
3. The restriction against re-arguing a failed point did not apply. The application to set aside the statutory demand had been dismissed under the paper procedure in rule 6.5(1), without reasons. There was therefore no proper basis for assuming that the 4GR00811 claim had been considered and rejected on its merits. The lower court had wrongly relied on that assumption and had failed to take relevant matters into account.
4. The principle against rehearing was not one of issue estoppel or res judicata. The court must consider whether the conditions for making a bankruptcy order are satisfied on the material before it, while asking whether arguments had already been run and failed, and why any new arguments had not been raised earlier.
5. Under rule 6.5(4)(a) of the Insolvency Rules 1986, a cross-demand need only be a demand by the debtor on the creditor. It need not relate directly to the claim supporting the statutory demand. The remaining arguments concerning assignment, the costs orders, the naming of the judge, and the absence of a date under rule 6.5(6) were rejected. The failure to give reasons for the paper dismissal breached Article 6(1) of the European Convention on Human Rights, although the other alleged procedural defects caused no injustice.

• High Court (Chancery Division): Appeal from District Judge Hudson’s dismissal of the application to annul the bankruptcy order. Appeal allowed and matter remitted for rehearing.
• Lincoln County Court: Deputy District Judge Powell made the bankruptcy order on 8 December 2008. District Judge Hudson dismissed the application to annul it on 12 January 2009.