Hayes v Hayes

Insolvency proceedings are not generally the appropriate forum for determining factual disputes about a petition debt or crossclaim. A bankruptcy petition should ordinarily be dismissed or stayed where the debtor establishes a genuine and substantial crossclaim exceeding the petition debt. The crossclaim need not be shown to be likely to succeed, but it must have more substance than a bare assertion and must not be wholly spurious. The court assesses whether the issue requires trial, rather than deciding the merits summarily. A debtor may rely on new evidence or arguments arising after an unsuccessful application to set aside a statutory demand. The court may consider the new material in exercising its discretion, although the failure to raise it earlier may be relevant. Cross-examination is not the default procedure at a petition hearing, but may be ordered where appropriate.

This was an appeal from an order of Mr Registrar Jones dated 17 December 2013 dismissing a bankruptcy petition and ordering Mrs Carol Hayes to pay the costs. The petition was based on an undisputed family-proceedings costs debt owed by Mr Timothy Hayes.

Mr Hayes relied on a pending claim under the Protection from Harassment Act 1997, alleging harassment by Mrs Hayes and another defendant. By the time of the petition hearing, the claim included substantial alleged financial loss and was supported by counsel’s advice. An earlier application to set aside the statutory demand had relied on a materially narrower claim.

The appeal concerned whether there was a genuine and substantial crossclaim exceeding the petition debt, whether Mr Hayes should have been cross-examined, and whether the registrar could consider the new material after the earlier statutory-demand application.

1. The substantive appeal was dismissed. The petition debt was undisputed, but the registrar was entitled to conclude that Mr Hayes had a genuine and substantial crossclaim which could realistically exceed it. The question was whether the claim had sufficient substance to require determination at trial, not whether it was likely to succeed.
2. The crossclaim was supported by detailed evidence, a schedule of financial loss and counsel’s advice. It was therefore more than a bare pleading. The court should remain alert to wholly spurious claims raised merely to create a cloud of objections, but the merits of a genuine disputed claim should not ordinarily be tried on the petition.
3. The practice derived from Re Bayoil SA [1999] 1 WLR 147, as applied in bankruptcy by Re a Debtor (No. 87 of 1999) [2000] BPIR 589, does not require the debtor to show that the crossclaim could not be litigated. The relevant concern is whether any delay casts real doubt on its genuineness. The approach in Popley v Popley [2004] EWCA Civ 463 was accepted.
4. The registrar was entitled to refuse cross-examination. The ordinary insolvency procedure is based on written evidence and is not designed to conduct a preliminary trial of disputed facts. Cross-examination may nevertheless be ordered by appropriate directions in an exceptional or suitable case. The registrar’s case-management decision fell within his discretion.
5. An unsuccessful statutory-demand application does not automatically prevent consideration of a later bankruptcy petition. A rerun on the same material is generally impermissible, but new evidence or new arguments may be considered. The strict criteria in Ladd v Marshall do not apply, although the failure to raise material earlier may be relevant to the exercise of discretion. The enlarged financial-loss claim and subsequent advice constituted new material.
6. The appeal against the costs order was also dismissed. The registrar was entitled to adopt a rough and ready approach and order costs on the standard basis. The appellant was ordered to pay the respondent’s appeal costs on the standard basis.

• High Court (Chancery Division): dismissed the appeal from the order of Mr Registrar Jones dated 17 December 2013, which had dismissed the bankruptcy petition and ordered Mrs Hayes to pay the respondent’s costs.
• Permission to appeal: refused by Mr Registrar Jones and granted by Birss J on 24 February 2014.