The Accessory People Ltd. v Rouass [2010] EWCA Civ 302

Case No A2/2009/2010[2010] EWCA Civ 302
IN THE COURT OF APPEAL (CIVIL DIVISION )
Venue ON APPEAL FROM BIRMINGHAM DISTRICT REGISTRY
(HIS HONOUR JUDGE BROWN QC)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Wednesday 24th February 2010
Before
LADY JUSTICE ARDENLORD JUSTICE JACKSONLORD JUSTICE SULLIVAN
Between
THE ACCESSORY PEOPLE LIMITEDAppellantLAILA ROUASSRespondent
( DAR Transcript ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court )
Mr Simon Clegg (instructed by JR Champkin LLB Solicitors ) appeared for Appellant.Miss Dawn McCambley (instructed by Lewis Cutner and Co Solicitors ) appeared for Respondent.
Judgment
[1]This is an appeal by the Accessory People Limited (“Accessory”) against the order dated 11 September 2009 of HHJ Brown QC sitting in the Birmingham District Registry of the Chancery Division of the High Court.[2]By his order the judge discharged an injunction which he had granted without notice earlier in July 2009 prohibiting the respondent, Miss Rouass, from advertising a winding-up petition which she had presented against Accessory. The winding-up petition was based on a debt of £162,260 comprising as to £145,000 the principal and interest due under the loan agreement together with further interest.[3]There is no dispute but that the parties entered into a loan agreement for this principal sum plus a certain amount of specified interest. It is unnecessary for me to go into the details of that loan agreement because the judge was satisfied that there was a debt of £145,000, and the company, Accessory, does not challenge that figure. It is sufficient for me to work on that basis and to record that there is a claim for further interest due but that the specified sum of £145,000 is accepted to be due. That means, of course, that the respondent, Miss Rouass, is a creditor for the purposes of the Insolvency Act 1986 in respect of that sum at least.[4]The moving light behind Accessory was a Mr Khan. He and Miss Rouass lived together until February 2008. There are now family proceedings between them in the Epsom County Court. It is relevant to note that in those proceedings Miss Rouass refers to the loan agreement, and she says that the respondent as guarantor owes her the amount due under the loan agreement, and she says that the sum is disputed by the respondent but that she does not accept this position. Thus, in this document Miss Rouass referred to the existence of a dispute but rejected it.[5]Miss Rouass also commenced proceedings in the Birmingham District Registry to recover some £60,000. The defendants were Accessory and Mr Khan, but neither of those defendants filed any defence. Miss Rouass discontinued the proceedings shortly after presenting the petition so that they are no longer relevant. Miss Rouass says that she considered that a claim defence that would have been put forward would not have been genuine or substantial.[6]In his judgment the judge recorded that Accessory raised a large number of cross-claims, which the judge went on to reject. We are concerned with only two of the cross-claims so that I need not deal with those which the judge rejected and which are no longer pursued on this appeal. Those two cross-claims are that Miss Rouass was responsible for the value of certain furniture at a property known as Linden House where she lived and that she was also responsible, pursuant to a borrowing agreement, to indemnify Accessory for the amount of rentals which it was obliged to pay for renting that furniture.[7]The evidence before the judge is contained in a number of witness statements. Certain passages in those witness statements are now relevant for the purposes of the present appeal. The first witness statement of Mr JR Champkin, solicitor for Accessory, dated 1 July 2009 states that Miss Rouass between June 2007 and June 2009 resided at Linden House, Woodland Way, Kingswood, Surrey, a property owned by Mr Khan. He further states that in that period Miss Rouass had the benefit of furniture rented by Accessory for her use. The value of that furniture, Mr Champkin was instructed, was £124,750. Accessory paid a rental deposit on that furniture in the sum of £25,000 and thereafter monthly rental payments in the sum of £30,000. Mr Champkin states that Accessory continues to be responsible for the rental payments and for the safeguarding of the furniture. He records that Miss Rouass paid the rental payments up till July 2008. Accessory's claim on account of rental is £36,000. It does not of course claim for the rental and the deposit, and that is the sum on which it relies in answer to this petition together with the value of the furniture as shown, by an invoice of 3 September 2007 on delivery of the furniture to Linden House.[8]Mr Champkin states in his witness statement that Miss Rouass made an oral agreement with officers of Accessory that she would indemnify the rental payments, which, as I said, she did until July 2008 according to the witness statement. Therefore Accessory claims the cross-claim of £36,000 and there are continuing rentals. He also says that Miss Rouass is also responsible for the value of the furniture which she had taken and Mr Champkin asserted that the combined value at the date of his witness statement was £185,750.[9]Miss Rouass made a witness statement, also in August 2009. She rejected the contention that she had had the benefit of furniture rented by Accessory or that the company paid a rental deposit of £25,000 or the monthly payments of £3,000. She pointed out that there is no documentary evidence to support the existence of any rental agreement to which Accessory was party. She also denies that there was any oral agreement between herself and Accessory for indemnifying Accessory against the rental payments. She also denies that she took furniture from Linden House when she left there in July 2008.[10]On 8 September 2009 Mr Champkin produced a further witness statement. He exhibited a bundle of invoices provided to him by Accessory and by Mr Khan. Among those documents are invoices to Accessory from Lakhani Group, which Mr Champkin says evidenced first the value of the furniture which was installed in Linden House and then the monthly invoices in respect of rental and an invoice for the deposit. There is no separate invoice for the deposit, but, as I have explained, we are not concerned with that sum. The value of the furniture was said in the invoice to be £124,750, the figure I have already given. Mr Champkin also produces a licence agreement between Lakhani as licensor and Accessory as licensee, providing for Accessory to pay a monthly rental of £3,000 and to return the goods at the end of the period of rental in the same condition. Accessory agreed to indemnify the licensor for any damage to the property. I shall have to refer to that agreement further below.[11]The judge dealt with these matters in paragraph 10 of his judgment. He said that there was some evidence, first, that the evidence was supplied to Linden House and that the furniture actually went there and, second, as to what happened to the furniture, although that was in dispute. There was evidence from Mr Khan, for instance, that he had seen furniture being removed by the respondent in June or July 2008, but no claim had been made or litigation commenced for the value of the furniture. The judgement does not actually say “or litigation” but it does record that no claim had been made for the value of the furniture. The judge held that what had become of the furniture was a matter for Accessory. There was no claim, and so there could be no cross-claim. He held that there was a debt of at least £145,000 owed by Accessory to Miss Rouass. He held that the fact of that claim was a material matter in deciding whether the petition should be advertised.[12]As I read the judgment, the judge did not deal with the alleged oral promise to indemnify Accessory for the rental. He did deal with the cross-claim for the value of the furniture and held that there was no cross-claim because no claim had been made. That is the point that I have already dealt with.[13]I now turn to the appellant's submissions, and the appellant appears by Mr Simon Clegg. The appellant submits that the judge was wrong to hold that there was no genuine cross-claim and that there was no bona fide dispute on substantial grounds. The judge was also wrong to say that because a cross-claim had been commenced there was no basis on which it could be said there was a dispute for the purposes of the application. For that purpose Mr Clegg relies among other authorities on Re Bayoil SA [1998] BCC 988 and the more recent authority, Bolsover District Council v Dennis Rye Limited [2009] 4 All ER 1140.[14]Mr Clegg submits that, insofar as the judge did so, he was wrong to say that there were special rules for departing from the usual rule that a winding-up petition should not be permitted where there was a genuine cross-claim. It was also wrong to say that the removal of the furniture was simply a matter between Accessory and Lakhani. Accessory was entitled to maintain a claim for the value of the furniture because it was a bailee. Moreover there was evidence as to the value of the furniture. In addition there was also evidence as to an agreement to indemnify Accessory for the rent, with which the judge did not deal, but it was not open for the judge to hold that there was no cross-claim on substantial grounds.[15]The respondent, Miss Rouass, appears by Miss Dawn McCambley. In her written skeleton argument she submits that there was no genuine cross-claim, no proceedings had been started and no defence had been filed in the Birmingham District Registry. She submits that the judge was right to take into account the failure to instigate proceedings against Miss Rouass. In any event there was no bona fide dispute on substantial grounds. The appellant had to demonstrate that there was a genuine and substantial counterclaim which exceeded the value of the petition debt. As to the removal of furniture, Miss McCambley submits that, by virtue of section 8(1) of the Torts (Interference with Goods) Act 1977, the defendant in a claim for damages for interference with goods is entitled to show that a third person has a better right than the claimant as regards all or any part of the interest claimed by the claimant. She further submits that the judge was not satisfied as to the bona fides of the cross-claim as to the furniture, as that was the tone of what he had said in his judgment. As to the agreement to indemnify the appellant for monthly rental instalments, no particulars of that agreement were given. Miss McCambley relies on the weakness of the evidence about the rental payments. The invoices simply came off a word processor. The respondent submits that the judge was not convinced by the accuracy of the invoices or the alleged rental agreement. The judge would also have had in mind that Accessory had raised a number of other defences which he had rejected, those being defences with which this court is not concerned. The judge also found that Accessory was in "dire financial straits" and this was relevant to the exercise of discretion.[16]The first point with which I must deal was the starting point by Mr Clegg in his submissions that the judge was wrong to hold that, because there had been no claim asserted for the value of the furniture, that claim could not constitute a cross-claim which could be taken into account in deciding whether to stay or dismiss the petition. The judge said: "There is no such claim, there is no cross claim and so therefore the law in this area, which is obviously fairly trite; namely if there is a debt which I so find that there is of at least £145,000, that in the circumstances where there is a cross claim against that debt, then obviously that would be a matter of import as to whether or not the petition should be exercised.”[17]What the judge said is not entirely clear, but I am content to proceed on the basis, as Mr Clegg submits, that the judge was in effect saying that if no claim had been asserted then there could be no genuine and serious cross-claim. It is to be recalled that in this situation, as I have already made clear, the respondent, Miss Rouass, is accepted to be a creditor for the sum of at least £145,000 and so there is then the question of whether the court should exercise its discretion to dismiss or stay the petition on the grounds that there is a genuine and serious cross-claim which exceeds the amount of the petition debt, and of course it is on different grounds from the debt on which the petition is based. That particular law is established in Re Bayoil, which I need not go into.[18]As to the point whether or not the failure to litigate a claim is a ground on which a cross-claim can be said to be not serious or genuine or not taken into account by the court, Mr Clegg cited a passage from the judgment of Mummery LJ in the Dennis Rye case to which I have already referred, and it is sufficient for me to set out that paragraph: 19. Cases familiar to practitioners in the Companies Court were cited: Re Bayoil SA [1999] 1 WLR 147 at 155 per Nourse LJ; Re a Debtor (No 87 of 1999) [2000] BPIR 589 at 592H- 594G (Rimer J in a bankruptcy case); Montgomery v. Wanda Modes Ltd [2003] BPIR 457 at paragraphs 28 to 36 (Park J). The authorities are illustrations of the well established practice of the Companies Court that, if a company has a genuine and serious cross-claim, which is likely to exceed the petition debt, the court will normally exercise its discretion by dismissing the winding up petition and allowing the Company the opportunity to establish its cross-claim in ordinary civil proceedings. A company is not prevented from raising a cross-claim in winding up proceedings simply because it could have raised or litigated the claim before the presentation of the petition or it has delayed in bringing proceedings on the cross-claim. The failure to litigate the cross-claim is not necessarily fatal to a genuine and serious cross-claim defeating a winding up petition. However, in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim, or that there are reasons why it has not done so.”[20]In my judgment, what Mummery LJ said clearly supports what Mr Clegg submits on this point, that the fact that there has been a failure to litigate a claim is simply a matter to be taken into account in deciding whether or not the cross-claim is a genuine one and one which would cause the court to exercise its discretion positively to stay or to dismiss the petition. In the present case the claim for conversion only arose in June 2009 and thus, submits Mr Clegg, it was not reasonable to expect any proceedings to be started before the petition was presented. Likewise in relation to the rental, that was paid up to July 2008, but of course the parties have been busy in other proceedings in Birmingham and in the Epsom County Court; and thus, he submits, it is not reasonable to hold against it the fact that the company has not started proceedings already. As to that point, it seems to me to be rather diminished by the fact that the company has had plenty of time to bring proceedings to establish the liability of the respondent for the rental and for the value of the furniture since those claims arose and that this court can look at the period of time up to the date of this appeal, but it is not necessary for me to rest my judgment on that point alone.[21]I should say, however, that, having accepted Mr Clegg's submission on that that the judge took into account an irrelevant consideration, namely the fact that there had been a failure to litigate and of course that the judge failed to take into account that there was a cross-claim for rental payments, that this court should set aside the exercise of discretion and exercise it afresh. That means that this court must now look at the question of whether there is a serious cross-claim based on the agreement regarding the rental or the value of the furniture removed afresh as at today's date.[22]I start with the agreement to pay the rental. This is as I have already explained is dealt with in the first witness statement of Mr Champkin but very, very little detail is given of it. It is said that Miss Rouass made this agreement with an officer of Accessory but that officer is not named and we do know who it is. Likewise we do not know where the agreement was made. Those facts are important because it is said the agreement was made orally. We likewise are shown no documents to record it. We are told that the rentals were paid by Miss Rouass up to July 2008, but there is no documentary evidence of those papers and one would expect that the company keeping accounting records would be able to produce some evidence to that effect. Nor is there any evidence of any subsequent demand by the company under the agreement. In sum, as I see it, there is nothing to connect Miss Rouass with the agreement which Accessory itself made with Lakhani to pay rental of £3,000 a month for the furniture supplied.[23]As to the documents produced in support of that agreement, there is a bundle of invoices. We are told that they are the very invoices that were supplied to Accessory but they do not bear the letterhead of Lakhani, and we see from a later letter of Lakhani, produced in court today, of 11 September 2009, which we are informed was shown to the judge, that Lakhani has got a logo, and I assume would have had one at the date when the invoices were issued. So there are invoices for each of the monthly statements, but there is no invoice for the £25,000. It is stated that the price of the furniture supplied was supplied for a sum of £128,750. The invoices are stated not to be VAT invoices though one would assume that some other document had to have been produced.[24]But in sum what Accessory has to show is that there is something to link the respondent to this agreement and, as I see it, the evidence which has been produced in relation to that really amounts to nothing more than that the single statement by Mr Champkin, on instructions which I have explained, is simply unparticularised with information which must clearly be in Accessory's possession; and so in those circumstances, in my judgment, it cannot be said that there is a genuine and serious cross-claim for the amount of the rental.[25]That takes me to the second claim which is for the value of the furniture removed. There are two points here. Firstly, Accessory has to show that it has a genuine and substantial case for saying that Miss Rouass removed the furniture which had been supplied by Lakhani . There is clear evidence from Mr Khan and from Mr Isles that some furniture was removed by her, but there are no particulars given of any single item of furniture which she removed, although Mr Khan apparently witnessed her taking furniture away, and so there is nothing to link the furniture removed with that which was supplied by Lakhani. There is also only one communication that we have seen, which amounts to a demand by Lakhani to be reimbursed the value of the furniture and the continuing rental and that is the letter of 11 September 2009. This letter was clearly written after the start of the winding up proceedings. It says "Dear Sir" and it is addressed to Accessory:
"As you are aware, this matter has been outstanding for some time. While we understand you are having dispute with the occupier of the property of Linden House where the goods were installed, the goods need to be returned to us nevertheless. Please note that in case of loss or damage to our goods the sum of £124,750 is due and payable. We further understand that there has been some question of the veracity of the invoice and the schedule of the goods. We are a company of some considerable reputation and standard providing a wide range of services and furniture is only one of them. We look forward to hearing from you. Yours faithfully, Mr S. Lakhani, Managing Director"
[26]That letter was clearly written for the purposes of being shown to the court in these proceedings. The second paragraph is absolutely consistent with that, and thus it appears that this letter of demand was only made in the context of these proceedings. We have seen no other document to suggest that a demand has been made for the value of the goods supplied and I would anticipate, in view of the sum, that there would have been repeated demands for that and indeed for outstanding rental. Thus this document does not indicate that there is a genuine and substantial cross-claim for the value of the furniture.[27]Even, however, leaving that point aside, I must deal with Mr Clegg's submission to us that the value of the damages claim in conversion would be the value of the goods as supplied in September 2007. The goods that were supplied by Lakhani are listed in a schedule annexed to the license agreement between Lakhani and Accessory. The schedule consists of a number of items listed under rooms in the house. So, to take the example of master bedroom, we see “king size bed with miscellaneous linen, pillows, blankets and throws, bedside cabinet x 2, bedside lamp x 2, chest of drawers x 2, folding mirror, TV entertainment stand” and so on, and so there is very little particularity in that list, which is not suggestive that any of those items have unique value. On the contrary, the reference to linen, pillows, blankets and throws (and that is repeated in relation to all the other bedrooms) would suggest that some at least of the items supplied were consumable items, which one would expect to have no value at all two years later.[28]Looking at the list as a whole, in my judgment this court could not make an assumption that the value of the furniture two years after the date of supply was anywhere near £124,750, the value given to it when it was supplied, and it is really for Accessory to produce a sensible valuation of that furniture for the purposes of the cross claim. It would have to have a value which overtopped the amount of the petition debt, and in my judgment there is no prospect of that being the case, indeed that that would be so in my judgment even if there was a serious cross-claim in respect of the rental payments, which I have already held was not the case.[29]In my judgment, therefore, this court should not exercise its discretion to stay or dismiss the winding-up petition. I have of course considered all the circumstances of this case, but in my judgment it does come down to the agreement and the value of the claim for the furniture. It is not necessary to take into account against Accessory the fact that it has not litigated nor need I deal with the submission based on Section 8 of the 1977 Act or with the submission made on the basis of the financial position of Accessory. It simply turns on those two points which I have referred to already. Those additional points could not assist Accessory.[30]In those circumstances the appropriate order in my judgment is to dismiss this appeal.[31]I agree.[32]I also agree.

Order

Appeal dismissed