Barker v Baxendale-Walker

In bankruptcy proceedings founded on an unpaid judgment debt, a debtor cannot ordinarily avoid adjudication by advancing a fresh cross-claim arising from the same factual matrix. The rule in Henderson v Henderson applies to all parties and requires their whole case to be brought forward. A pending application for permission to appeal is not itself a pending appeal for the purposes of rule 10.24(2) of the Insolvency Rules 2016. The court may nevertheless consider the application when exercising its separate discretion under rule 10.24(1). A debtor has no entitlement to an adjournment merely because permission to appeal is sought. The relevant consideration is whether there is credible evidence that the petition debt will be paid in full within a reasonable time, together with the interests of the creditor class and the risk of asset dissipation.

The petitioner sought the respondent’s bankruptcy on an unpaid judgment debt exceeding £16 million, arising from earlier professional-negligence proceedings concerning an employee benefit trust and the construction of section 28(4) of the Inheritance Tax Act 1984. The Court of Appeal had reversed the first-instance judgment and entered judgment against the respondent. Permission to appeal had been refused by the Court of Appeal, while an application for permission remained before the Supreme Court.

The respondent opposed the petition on the basis of a newly issued cross-claim and the outstanding permission application. The central issues were whether the cross-claim was genuine and serious, whether the petition could be stayed or dismissed under rule 10.24(2) of the Insolvency Rules 2016, and how the court should exercise its discretion under rule 10.24(1).

1. The cross-claim was an abuse of process. The rule in Henderson v Henderson is not confined to claimants. It requires parties to bring forward their whole case and prevents a party from opening fresh litigation concerning the same subject matter, save in special circumstances. The respondent’s claim arose from the same factual matrix, would involve substantial overlap of witnesses, issues and evidence, and should have been raised in the original proceedings or addressed at case management. The failure to do so also failed the requirement identified in Aldi Stores Ltd v WSP London Ltd.
2. The proposed contractual and tortious claims were not genuine and serious. No express or implied representation term was adequately pleaded or supported by the retainer. The March 1999 letter did not impose a positive obligation on the petitioner to employ the respondent to negotiate with HMRC. A duty of care based merely on a special relationship between client and specialist tax adviser was also insufficiently explained. The reasoning in Williams v Natural Life Limited required an assumption of responsibility capable of creating the relevant relationship.
3. Rule 10.24(2) did not confer jurisdiction to stay or dismiss the petition. An application for permission to appeal is not an appeal and is not a pending appeal. The distinction drawn in Rehman v Boardman was preferred. Rule 10.24(1) and (2) confer separate powers, and an outstanding permission application may be considered under rule 10.24(1).
4. The respondent admitted that he could not pay, secure or compound the judgment debt. The petitioner was therefore prima facie entitled to a bankruptcy order. The court’s discretion had to be exercised in the context of bankruptcy as a class remedy, preserving assets for creditors and avoiding dissipation. The outstanding permission application, lack of a stay, the speculative cross-claim, the respondent’s conduct and the absence of credible evidence of payment all weighed against adjournment.
5. The petition was allowed and a bankruptcy order was made.

The judgment describes earlier proceedings but does not determine an appeal from them.

• High Court (Chancery Division): Roth J initially found no negligence in the construction of section 28(4) of the Inheritance Tax Act 1984.
• Court of Appeal: The first-instance judgment was reversed and judgment was entered against the respondent. The Court of Appeal refused permission to appeal. An application for permission to appeal to the Supreme Court remained outstanding.
• High Court (Chancery Division): The bankruptcy petition was granted.