Josife v Summertrot Holdings Ltd

A contract made by a person lacking capacity is not automatically void. It may be avoided where the other contracting party knew, or ought to have known, of the incapacity. On an application to set aside a statutory demand, the court may consider the evidence likely to be available at trial, but a speculative assertion that further evidence might emerge is insufficient. The applicant must identify the evidence, establish reasonable grounds for believing it will become available, and show that it could affect the outcome.

The claimant appealed against a Deputy Registrar’s refusal to set aside a statutory demand for £1.3 million due under a guarantee. The claimant had suffered a stroke before signing the guarantee and argued that he lacked capacity and that the defendant knew, or ought to have known, of that incapacity. The Deputy Registrar accepted that capacity might be a triable issue but found no reasonable prospect of proving the necessary knowledge on the defendant’s part. The appeal challenged the legal test, the assessment of the evidence, and the treatment of possible further evidence at trial.

1. The appeal was dismissed. The Deputy Registrar had reached the right answer for the right reasons.

2. Applying Imperial Loan Company v Stone [1982] 1 QB 599 and the subsequent statement of the law in Dunhill v Burgin [2014] UKSC 18, a contract made by a person lacking capacity is not void. It may be avoided if the other party knew, or ought to have known, of the incapacity. The Deputy Registrar’s reference to incapacity being obviously apparent was a correct formulation of that test and did not disclose an error of law.

3. There was no real prospect of proving the defendant’s actual or constructive knowledge. The circumstances included the involvement of the claimant’s solicitor, the independent solicitor who certified the claimant’s understanding, the claimant’s son permitting the guarantee to be given, the claimant’s continuing directorship, and the subsequent failure to challenge the guarantee.

4. On an application to set aside a statutory demand, the court may consider evidence which would or might become available at trial where there are reasonable grounds for believing that it could affect the outcome. The applicant must particularise the proposed evidence, establish reasonable grounds for its future availability, and explain its present absence. The court must scrutinise the explanation. A merely speculative suggestion that something might emerge is insufficient.

5. The potential solicitor’s files did not justify setting aside the demand. The relevant files were available to the claimant, or were unlikely to contain evidence contradicting the solicitors’ apparent acceptance that the claimant had capacity. The defendant’s solicitor’s files would also be subject to legal professional privilege.

The claimant was ordered to pay the defendant’s appeal costs, subject to detailed assessment if not agreed.

• High Court (Chancery Division): the appeal from the Deputy Registrar’s refusal to set aside the statutory demand was dismissed.