The Co-Operative Bank Plc v Desmond Victor John Phillips

An appeal court may defer determination of a proposed amendment where the proposed case must first pass the summary judgment test. An individual voluntary arrangement (“IVA”) does not generally cause limitation time to run against creditors while the arrangement prevents enforcement. The arrangement instead implies an agreement suspending time during its operation. Completion and release from debts ordinarily require a completion certificate. Expiry of the IVA by effluxion of time, without such a certificate, does not ordinarily release the debtor. A provision describing the IVA as a composition must be construed with the arrangement as a whole and does not, without clear language, create an unconditional composition.

The Bank appealed against paragraph 2 of an order made by District Judge Watkins after an application for summary judgment on the respondent’s counterclaim. The original possession claim had been discontinued, but the respondent sought to amend his counterclaim to allege that an IVA had either made the Bank’s claim unenforceable or rendered it statute-barred.

The district judge granted summary judgment on other counterclaims but directed that the IVA issues proceed to directions. The appeal concerned whether that course was procedurally permissible and whether the proposed IVA arguments had a real prospect of success. The central issues were the effect of limitation during an IVA and the consequences of expiry without a completion certificate.

1. Appeal allowed. Paragraph 2 of the district judge’s order was struck out, leaving complete judgment for the Bank on the respondent’s counterclaim.
2. The district judge was entitled to reserve judgment on the proposed IVA amendment while testing it against the summary judgment threshold. The amendment remained capable of being refused even if the proposed case had a real prospect of success. The directions order was neither wrong nor the result of a serious procedural irregularity.
3. Following Tanner v Everitt [2004] EWHC 1130 (Ch), the question whether an agreement to suspend limitation time should be implied during an IVA is fact-sensitive, but the principle applies generally to an IVA which prevents creditors from suing. The implied suspension is judged when the arrangement is entered into and does not depend on the arrangement’s intended duration being equal to the limitation period. The court therefore rejected the proposed limitation argument.
4. The court distinguished Re Leyland Printing Co [2010] EWHC 2105 (Ch), because it concerned administration rather than an IVA. An IVA is voluntary and contractual, whereas administration is compulsory and derives from a court order.
5. An IVA ordinarily provides a conditional composition. Under its standard conditions, release from debts subject to the arrangement occurs on issue of a completion certificate. If the IVA ends without completion, whether by certificate of termination or expiry of its term, the debtor is ordinarily not released and creditors may enforce their debts, subject to ordinary defences such as limitation.
6. The provision stating that the proposal was a composition in satisfaction of debts did not create an unconditional composition. Construed in the context of the standard conditions, it referred to the conditional composition inherent in the IVA. The proposed amended case therefore had no real prospect of success.

High Court (Chancery Division): On appeal from an order of District Judge Watkins, the appeal was allowed. Paragraph 2 of the order was struck out and complete judgment was entered for the Bank on the counterclaim.