Patrick Leahy v Schneider Investment Associates LLP

On an application to set aside a statutory demand, the applicant need not prove the underlying defence on the balance of probabilities. The court must conduct a proportionate investigation and decide whether the debt is disputed on genuine and substantial grounds.

Consistent written evidence, supported by contemporaneous documents and not inherently implausible, may be sufficient to establish a triable issue. Where the evidence concerns representations, reliance and inequity, the court should generally avoid resolving contested credibility issues without cross-examination. A genuine dispute may arise from promissory estoppel or misrepresentation where the evidence supports an arguable agreement or representation that strict contractual rights would not be enforced.

Patrick Leahy applied to set aside a statutory demand served by Schneider Investment Associates LLP in respect of sums claimed under an unlimited personal guarantee. The guarantee secured financing provided to a company of which Mr Leahy was a director.

Mr Leahy contended that correspondence and a telephone conversation gave rise to a promissory estoppel, misrepresentation or collateral contract. He argued that the guarantee would be enforced only if the company paid subordinated debt ahead of SIA, and not merely because the subordinated creditor demanded payment.

The central issue was whether those defences disclosed a genuine and substantial dispute requiring determination at trial.

1. The application succeeded. The statutory demand was set aside because the debt was disputed on genuine and substantial grounds.
2. Rule 10.5 permits an individual to apply to set aside a statutory demand. The applicant bears the onus of establishing the relevant ground. The court must conduct a proportionate investigation of the points advanced.
3. Applying Crossley-Cooke v Europanel (UK) Ltd [2010] EWHC 124 (Ch), Dowling v Promontoria (Arrow) Ltd [2017] 9 WLUK 135 and Collier v P & M J Wright (Holdings) Ltd [2008] 1 WLR 643, the court held that evidence supported by documents, presenting a consistent case and not being inherently implausible may establish a genuine triable issue. It was inappropriate to disbelieve Mr Leahy’s sworn evidence without cross-examination.
4. There was a substantial and genuine issue as to whether SIA represented, or agreed, that limb 1 of the guarantee’s Effective Date would not be relied upon. The correspondence supported Mr Leahy’s case that the unlimited guarantee was intended principally to protect SIA against payment of the junior debt ahead of SIA, rather than against a demand by the junior creditor alone.
5. The evidence raised triable issues on all elements of promissory estoppel, including representation, reliance and whether it would be inequitable for SIA to resile. The same evidence raised substantial issues as to actionable misrepresentation, including inducement. It was unnecessary to decide the collateral-contract argument.
6. The claim was not suitable for final determination on the application evidence. The Demand was set aside, and counsel were invited to agree an order.