John Forster Emmott v Michael Wilson & Partners Ltd

A statutory demand may be set aside where the alleged debt is substantially disputed, including where the creditor has failed to prove an alleged assignment. A judgment debt owed by the creditor may constitute a cross-demand, even though it arose in different proceedings, and may justify setting aside the demand where it exceeds the demand debt. A statutory demand is not an action for the purposes of limitation legislation and is not itself a proceeding capable of constituting an abuse of process. Other claims by the creditor should not generally be brought into account against the cross-demand unless they amount to an equitable set-off.

John Forster Emmott applied to set aside a statutory demand served by Michael Wilson & Partners Ltd for £165,374. The demand relied on costs orders and a default costs certificate arising from earlier litigation involving Arduina Holdings BV.

Mr Emmott argued that the debt was not owed to MWP, was statute-barred, was defeated by a judgment debt owed to him, and that the demand was an abuse of process. The court also considered whether the application was out of time, whether MWP had established any equitable set-off against Mr Emmott’s judgment debt, and whether the statutory demand had been properly served.

1. Application allowed. The statutory demand was set aside because there was a substantial dispute about whether the alleged debt had been assigned to MWP and because Mr Emmott had a cross-demand exceeding the demand debt.
2. Service had not been effected on 31 March 2021. MWP had made no attempt at personal service and had not followed the procedure contemplated by the Insolvency Proceedings Practice Direction. Receipt of the demand by email on 4 May 2021 amounted to service. If necessary, time for the application was extended under section 376 of the Insolvency Act 1986, because the delay was only two days, caused no prejudice, and dismissal would lead to the same issues being raised on a bankruptcy petition.
3. Under rule 10.4(5)(b) of the Insolvency (England and Wales) Rules 2016, a substantial dispute was established. MWP’s evidence consisted only of a bare assertion that the Arduina costs debt had been assigned. No assignment document or evidence of notice was provided. The court could not be satisfied that MWP had indisputable title.
4. The judgment debt in Mr Emmott’s favour could not be treated as a set-off without an order under CPR 44.12. It nevertheless constituted a cross-demand under rule 10.4(5)(a). Following Popely v Popely, a cross-demand is simply a demand by the debtor against the creditor; it need not have a procedural or juridical relationship with the statutory-demand debt or arise from the same proceedings.
5. Following the reasoning in TSB Bank plc v Platts, further claims by MWP could not be taken into account unless they amounted to equitable set-offs. The alleged Australian partnership claims and the alleged claims assigned by Mr Sinclair had not been shown to have the necessary substantial connection with the judgment debt.
6. The limitation argument failed. Section 24 of the Limitation Act 1980 did not apply to a statutory demand or bankruptcy petition. Nor could service of a statutory demand itself be an abuse of process, because a statutory demand is not a proceeding.