Howell v Lerwick Commercial Mortgage Corporation Ltd [2015] EWHC 1177 (Ch)

[2015] EWHC 1177 (Ch)Case No CH/2013/0091IN THE HIGH COURT OF JUSTICEIN BANKRUPTCYVenue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 01/05/2015
Before
MR JUSTICE NUGEE
Between
Mark HowellClaimant and AppellantLerwick Commercial Mortgage Corporation LimitedDefendant and Respondent
Mark Howell appeared as Litigant in Person for in person for The Respondent did not appearHearing Hearing date: 21 April 2015
JudgmentMr Justice Nugee :Introduction
[1]This is an appeal from the Central London County Court (“CLCC”). The Appellant, Mr Mark Howell, appeals against an Order of DJ Smart dated 18 December 2012 in which DJ Smart dismissed an application by Mr Howell to set aside a statutory demand by the Respondent, Lerwick Commercial Mortgage Corporation Ltd (“Lerwick”).[2]By order dated 10 April 2013 David Richards J directed that Mr Howell’s application for permission to appeal be listed for an oral hearing, with the hearing of the appeal (subject to permission) to follow. I heard this on 21 April 2015 at a hearing at which Mr Howell appeared in person; there was no appearance by or on behalf of Lerwick. For reasons briefly expressed by me at the time, I granted Mr Howell permission to appeal, and also granted him an extension of time for service of his Appellant’s Notice, but I reserved the question of whether the appeal should be allowed as there was a point which I thought required further consideration. This is therefore my judgment on the substantive appeal.

Facts

[3]There is quite a long history to this matter. It starts with a claim form issued by Mr Howell in the Lambeth County Court on 5 September 2011 against Lerwick and a Mr Wright. His claim was that on 5 January 2010 he had approached Lerwick to obtain finance to develop property in Penarth; that on 8 March 2010 he had paid Lerwick £2,750 to obtain a valuation of the property; that the valuation report, provided by Mr Wright, was sub-standard; and that as a result he had experienced delay in the development, which had delayed receipt of the proceeds of sale and income from the development. There was no conventional prayer for relief but under “Value” Mr Howell put:
“£2750 plus interest thereon since March 2010 together with consequential damages.”
[4]On 20 January 2012 DJ Zimmels set aside a judgment which Mr Howell had entered against Lerwick and ordered Mr Howell to pay Lerwick its costs, summarily assessed at £2,225.[5]On 31 July 2012 HHJ Blumsdon refused Mr Howell permission to appeal that order and again ordered Mr Howell to pay Lerwick’s costs, assessed this time at £1,710.[6]Those two costs orders formed the basis of the statutory demand made by Lerwick on Mr Howell. It was dated 28 August 2012 and claimed a total of £4,736.43, made up of(i) £2,225 under the order of DJ Zimmels;(ii) £1,710 under the order of HHJ Blumsdon;(iii) £129.43 by way of interest at 8% on those sums; and(iv) £672 for the cost of preparing and serving the statutory demand. As explained below, DJ Smart in the event held that the statutory demand should not have included items (iii) and (iv) (interest and costs), and Lerwick has not disputed this, so it is now established that the statutory demand should not have been for more than £3,935 (the sum of the two costs orders).[7]On 23 September 2012 Mr Howell applied to set aside the statutory demand. Apart from the points on interest and costs, he could not dispute the amount of the debt, but claimed that he had a cross-claim equal to or exceeding the admitted sum due. This was his claim in the Lambeth County Court, and he referred to the fact that as well as seeking summary judgment in the sum of £3,300, he had applied to amend the claim form to add a further £14,736.60 by way of consequential losses “which application has yet to be determined”. The draft amendment gave particulars of extra outgoings (£3,000 + £455 interest from July 2010) and loss of income (£10,140 + £878.80 interest from May 2011).[8]In fact on 11 September 2012 DJ Worthington in the Lambeth County Court had already dismissed Mr Howell’s application to amend. I have not seen her judgment but it appears that she did so on the grounds that any such consequential losses had been sustained by a company, Penarth Residential Developments Ltd (“the Company”), of which Mr Howell was the sole director and shareholder, and not by him. Mr Howell did not reveal in his witness statement in support of the application to set aside that his application to amend had been dismissed although he had been present when she did so.[9]On 25 September 2012 DJ Clarke in the CLCC dismissed Mr Howell’s application to set aside the statutory demand on paper on the ground that the Court would not go behind judgments of another court; that the counterclaim on the issued claim form was insufficient (without the consequential losses sought by the amendment) to extinguish the debt; and that the application to amend was unstamped and (she therefore concluded) that it had not been issued.[10]Mr Howell thereupon wrote to DJ Clarke asking her to reconsider his application on the basis that his application to amend had indeed been issued. He again did not reveal that the application had not only been issued but already dismissed. DJ Clarke required him to make a formal application and it was this that came before DJ Smart on 15 November 2012. By that stage the Court had been told (by solicitors then acting for Lerwick) that Mr Howell’s application to amend in the Lambeth County Court had been dismissed but that he was seeking permission to appeal.[11]DJ Smart in a reserved judgment handed down on 18 December 2012 held, as already indicated, that the statutory demand should not have included any amount for interest or costs. This is because(a) Lerwick was not entitled to interest on costs (as no interest runs on county court orders for less than £5000 – see the County Court (Interest on Judgment Debts) Order 1991, SI 1991/1184); and(b) Lerwick had no right under the Insolvency Rules to include costs in the statutory demand as they had no right to costs until the Court awarded them. Otherwise however he declined to set it aside. By his Order he therefore ordered that the statutory demand be set aside as to £801.43, and authorised Lerwick to present a petition for £3,935. That is the Order which Mr Howell now appeals.[12]Mr Howell tried again to have the application reconsidered, on the grounds that DJ Smart’s judgment involved a misapprehension as to the basis of his claim in the Lambeth proceedings; this came before DJ Lambert on 1 February 2013 who dismissed it on the basis that to decide whether there was such a misapprehension would require her to review the judgment which she had no jurisdiction to do and that it could only be challenged on appeal. Mr Howell thereupon brought this appeal. This explains why he was out of time in doing so; and in circumstances where Lerwick has known of his attempt to challenge DJ Smart’s order and has not suggested that any prejudice has been caused by his initially adopting the wrong route in doing so, or otherwise taken any steps to oppose Mr Howell’s application for an extension of time to serve his Appellant’s Notice, I considered it appropriate to grant such an extension.[13]The appeal to this Court came initially before David Richards J on paper for a stay. By his Order dated 19 February 2013 he declined a stay saying that without permission to amend his claim in the Lambeth County Court Mr Howell had no real prospect of showing that he had a counterclaim equalling or exceeding the debt of £3,935. As a result of subsequent orders which it is not necessary to detail, a stay pending appeal was in due course granted and consideration of the appeal in effect adjourned until Mr Howell’s application to amend the Lambeth proceedings was determined.[14]That took longer than might have been expected. Mr Howell’s appeal from DJ Worthington was heard by HHJ Blumsdon on 15 April 2013. He allowed the appeal and directed that the application to amend be re-listed before DJ Worthington. Mr Howell later sought leave to appeal that out of time to the Court of Appeal (contending that HHJ Blumsdon should have granted him permission himself), but the necessary extension of time was refused by Moore-Bick LJ on 4 April 2014. In the meantime on 11 September 2013 DJ Worthington reconsidered the application to amend and again refused to allow the amendment. Although there is some suggestion in the papers before me that Mr Howell might have appealed that refusal, he told me at the hearing that he had not pursued any such appeal. Instead he had applied to amend the proceedings by joining the Company as 2nd Claimant. That was refused by DJ Desai on 7 August 2014, but Mr Howell is now pursuing an appeal against that.[15]The position that has now been reached therefore is that Mr Howell has been refused leave in those proceedings to pursue the claim for consequential losses in his own name. It may still be possible for the Company to pursue them; that remains undecided, but cannot affect Mr Howell’s own position. It follows from that that the only claim which Mr Howell has in his own right in those proceedings is the claim to the return of the £2,750 paid to Lerwick with interest and costs.[16]DJ Smart was prepared to assume that Mr Howell might recover the following sums in respect of costs:(i) issue fee of £95;(ii) allocation fee of £40;(iii) hearing fee of £165; and(iv) £95 loss of earnings. I have heard no argument as to whether he was right to allow all these items even though some of them had not then been incurred, but I will assume he was. He added “and perhaps some travel expenses” but Mr Howell has not put forward any figure for travel expenses and I will ignore them. The four sums identified by DJ Smart come to a total of £395 which added to the claim of £2,750 makes £3,145. That is obviously some way short (in fact £790) of the amount of the statutory demand of £3,935, as DJ Smart held.[17]In the remainder of his judgment DJ Smart considered whether he could take the view that there was a real prospect of Mr Howell being granted permission to amend on appeal so as to be able to claim the consequential losses. That involved him considering in some detail the principles in Johnson v Gore Wood & Co [2002] 2 AC 1, as a result of which he concluded that the prospects of the appeal succeeding were fanciful. Mr Howell in his Grounds of Appeal complained that DJ Smart had misunderstood, or misapplied, the principles in Johnson v Gore Wood but this is now irrelevant as, for the reasons I have explained, it is now clear that the only claim Mr Howell has himself is the claim to the return of the £2,750 with interest and costs.[18]However Mr Howell also said that DJ Smart had not taken account of his claim for interest. This appears to be the case. It is not clear to me why this is so, although it may well be that Mr Howell focused his submissions on the prospects of his claim being amended to include the consequential losses, and the question of interest on the £2,750 was not pressed. Nevertheless now the point has been taken it can be seen that Mr Howell’s cross-claim should include not only the principal sum and costs but also any properly arguable claim to interest.[19]Mr Howell told me that he was claiming statutory interest at 8% pa, and that the county court in his experience regularly awarded such interest. This however appears to be based on a misconception that he has a right under statute to such interest. 8% pa is of course the current rate payable on judgment debts under the Judgments Act 1838, but interest under this only applies to judgment debts and usually runs only from the date judgment is given; in any event, as already referred to, it does not apply to county court judgments unless they are for £5,000 or more.[20]Mr Howell may alternatively have been thinking of the Late Payment of Commercial Debts (Interest) Act 1998 under which qualifying debts carry “statutory interest” at a rate that is currently 8% above the official bank rate (which has been 0.5% since 5 March 2009). The Act applies (by s. 1(1)) to “any qualifying debt created by” certain types of contract, namely (by s. 2(1)) a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business. I will assume that the contract between Mr Howell and Lerwick was such a contract; I will also assume that although Mr Howell’s claim is technically a claim in restitution for total failure of consideration, it can be regarded as a “debt” and “created by the contract”. But even assuming this, the claim is in my judgment plainly not a qualifying debt. This is (by s. 3(1)) a “debt created by virtue of an obligation … to pay the whole or any part of the contract price”; and s. 4(5) provides that unless otherwise agreed in the contract, interest runs from 30 days after the day on which “the obligation of the supplier to which the debt relates is performed” or the day on which “the purchaser has notice of the amount of the debt or … the sum which the supplier claims is the amount of the debt.” I consider it clear beyond argument from these provisions taken together that interest only runs on the obligation of the purchaser of goods or services to pay the price of those goods or services to the supplier; it does not run on an obligation of the supplier to refund the price to the purchaser in the case of a total failure of consideration.[21]That leaves the Court’s discretionary power to award interest. The High Court, under s. 35A of the Senior Courts Act 1981, and the County Court, under s. 69 of the County Courts Act 1984, have power to award interest in proceedings for the recovery of “a debt or damages” and there is House of Lords authority that similar words in the Law Reform (Miscellaneous Provisions) Act 1934 (the predecessor statute) were to be given a very wide meaning so as to cover “any sum of money which is recoverable by one party from another”: B P Exploration Co (Libya) Ltd v Hunt (No 2) [1983] 2 AC 352 at 373 per Lord Brandon. If Mr Howell’s claim is a good one, he certainly therefore has an arguable claim to have discretionary interest added. As to the rate of interest, this is not specified by statute. In commercial cases, the practice is usually to award 1% over base rate, although this is only a presumption that can be displaced, and 2% or 3% over base rate has been awarded in claims by smaller businesses whose costs of borrowing are higher.[22]In fact as David Richards J observed when refusing a stay there was no evidence before DJ Smart to justify any particular level of interest, but even allowing 3% over base (that is 3.5%), and assuming that DJ Smart should have assessed the amount of interest down to the date of his judgment (18 December 2012, a period of just over 2½ years), this would amount to some 8.75% which on a principal sum of £2,750 would come to about £240. It would not therefore bridge the gap between the £3,145 referred to in paragraph 16 above and the £3,935 which was the value of the undisputed part of the statutory demand. On the other hand, it would reduce the gap to below £750, as indeed would an award of interest at the lower rate of 1% over base (ie 1.5% which for 2½ years would be just over £100).[23]In my judgment therefore the position as it stood before DJ Smart is that he should have valued Mr Howell’s arguable cross-claim not at £3,145 but at somewhere between about £3,245 and about £3,385, that is falling short of the debt of £3,935 by between about £690 and £550. That raises a short but not entirely easy point on whether a statutory demand should be set aside where a debtor appears to have a cross claim which does not equal or exceed the amount of the demand, but if set against the demand would reduce the balance to below £750.

The Insolvency Rules

[24]In order to explain the point it is necessary to refer to the Insolvency Rules 1986. Statutory demands are dealt with in Part 6 of the Rules. Rule 6.4 provides that the debtor may apply to the Court for an order setting the statutory demand aside. Rule 6.5 provides for the Court’s powers in relation to such an application. Rule 6.5(4), so far as relevant, provides as follows: “(4) The court may grant the application if –(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or(b) the debt is disputed on grounds which appear to the court to be substantial; or … (d) the court is satisfied, on other grounds, that the demand ought to be set aside. (a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand; or (b) the debt is disputed on grounds which appear to the court to be substantial; or … (d) the court is satisfied, on other grounds, that the demand ought to be set aside.[25]Rule 6.5(4)(a) clearly requires the cross claim to equal or exceed the amount of the debts specified in the statutory demand. It therefore has no application to the present case where Mr Howell’s cross claim does not. Rule 6.5(4)(b), which deals with the case where the debt itself is disputed rather than simply the subject of a cross demand, is not quite so clear on its face but it has long been established that this too only applies if the dispute goes to the whole of the debt: Re a Debtor (No 1 of 1987) [1989] 1 WLR 271 at 279E per Nicholls LJ, Re a Debtor (490-SD-1991) [1992] 1 WLR 507 per Hoffmann J (recognising that his earlier decision to the contrary in Re a Debtor (No 10 of 1988) [1989] 1 WLR 405 had been impliedly overruled).[26]However in Re a Debtor (Nos 49 and 50 of 1992) [1995] Ch 66, the Court of Appeal held that in a case where part of the debt specified in the statutory demand was disputed and the undisputed part was less than £750 (this being the minimum amount of debt which will support a bankruptcy petition) the judge had been right to set aside the statutory demand, not admittedly under r 6.5(4)(b) which in terms did not apply, but under the residual discretion given to the Court under r 6.5(4)(d). Sir Donald Nicholls V-C, giving the leading judgment, said at 70E:
“That jurisdiction [ie the jurisdiction under r 6.5(4)(d)] is properly to be exercised if, in the circumstances, the consequence otherwise would be to permit the presentation of a bankruptcy petition which is bound to fail. The scheme of the bankruptcy legislation is that substantial disputes about indebtedness are not matters to be resolved by the bankruptcy courts as part and parcel of the bankruptcy process. The bankruptcy courts are not intended to be the forum for resolving such disputes. Where such a dispute exists, the creditor should pursue his claim in the ordinary way outside the bankruptcy courts. If he does so, and he succeeds in establishing his claim, and the judgment he obtains is not satisfied, he may then use that judgment as the basis for initiating and pursuing bankruptcy proceedings against the debtor. Accordingly, where part of the debt is disputed and part is not, it is only the undisputed part which can properly form the basis of bankruptcy proceedings. Where the undisputed part is less than the prescribed bankruptcy level, that, failing more, is by itself an inadequate basis for proceeding down the bankruptcy route. Accordingly, in such a case, the demand may be set aside without further ado.”
[27]It was this decision (which I will refer to as “Nos 49 and 50”) which gave rise to the concern I had at the hearing, namely whether a similar principle should be applied by analogy where the debtor did not raise a dispute as to the debt, but raised a cross claim which, if set against the debt, would leave less than £750 outstanding. In such a case it is clear that r 6.5(4)(a) does not apply, but it might be said that the Court should equally apply the residual discretion in r 6.5(4)(d) rather than let a petition go forward. When I raised this with Mr Howell, he was unsurprisingly unable to help me, and in the absence of any argument either from him or from Lerwick, I thought I ought to reserve my judgment to consider the question more fully. That I have now done, and I have also taken the opportunity to consult with some of the Bankruptcy Registrars of the High Court (including Chief Bankruptcy Registrar Baister) whose experience in the practical workings of the Insolvency Rules is much greater than my own.[28]Having considered the point, I am satisfied that, at any rate in a case such as the present, the appropriate course is not to set aside the statutory demand under r 6.5(4)(d). I will now try and explain why.

Undisputed debts of less than £750

[29]The significance of the £750 is as follows. Bankruptcy petitions are dealt with by Chapter I of Part IX of the Insolvency Act 1986. By s. 264(1)(a) a petition for a bankruptcy order to be made against an individual may be presented by, among others, “one of the individual’s creditors or jointly by more than one of them”. The requirements for a creditor’s petition are set out in s. 267, amplified by s. 268, which, so far as material, are as follows:
“267 Grounds of creditor's petition (1) A creditor's petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed. (2) Subject to the next three sections, a creditor's petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented— (a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level, (b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured, (c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and (d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts. … (4) “The bankruptcy level” is £750… … 268 Definition of “inability to pay”, etc: the statutory demand (1) For the purposes of section 267(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either— (a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as “the statutory demand”) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or (b) execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part.” (a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level, (b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured, (c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and (d) there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts. (a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as “the statutory demand”) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules, or (b) execution or other process issued in respect of the debt on a judgment or order of any court in favour of the petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part.”
[30]The combined effect of s. 267(2)(c) and s. 268(1) is that the only immediately payable debts which will justify presentation of a petition are those which are either judgment debts where execution has been returned unsatisfied, or debts which have been the subject of a statutory demand which has not been complied with (s. 268(2) deals with debts that are not immediately payable). I will refer to debts within s. 268(1) (that is unsatisfied judgment debts and unpaid statutory demands) by the inelegant but useful term “petitionable debts”. But it can be seen that(i) a petition can be based on more than one petitionable debt (and indeed there may be more than one petitioning creditor); and(ii) there is no statutory requirement that each such debt is at least £750. Rather under s. 267(2)(a) it is enough if the aggregate amount of the petitionable debts is at least £750. It seems to me to follow that there is no rule that a debt must be at least £750 before it can be made the subject of a statutory demand. So far as I can see a creditor who is owed £600 can properly make a statutory demand for £600, and if the demand is not set aside or complied with, that will be a petitionable debt. It will not suffice on its own to justify presenting a petition, but the creditor may have another petitionable debt (for example an unsatisfied judgment for £500) and petition on the basis of both debts together; or he may join forces with another creditor with a petitionable debt so long as the aggregate of the debts equals or exceeds £750. Indeed in theory there would seem to be no reason why 750 creditors each with petitionable debts of £1 should not join forces and present a petition.[31]If that is right, it follows that a statutory demand for a debt of less than £750 is not on that basis alone bad or liable to be set aside under the residual discretion under rule 6.5(4)(d). The demand gives the creditor the ability to use the debt, if the demand is not complied with, as part of the basis for the presentation of a petition and it may be useful for the creditor to be in that position.[32]The same must be true of a statutory demand where the debt is partially disputed and the undisputed part is less than £750. As a matter of principle that too should not necessarily be set aside in its entirety under the residual discretion in r 6.5(4)(d), as the creditor ought to be entitled to rely on the undisputed part of the debt as a petitionable debt forming at least part of the basis for a petition.[33]That being my analysis of the legal position, how does it fit with the decision of the Court of Appeal in Nos 49 and 50 ? I have already set out above (paragraph 26) the part of the judgment of Sir Donald Nicholls V-C where he says that if the undisputed part of the debt statutorily demanded is less than the prescribed bankruptcy level, that “failing more, is by itself an inadequate basis for proceeding down the bankruptcy route”; but the key words here are I think “failing more” and “by itself”. If the only suggested undisputed debt is less than £750, it is undoubtedly correct to say that that by itself and without more is insufficient to justify presenting a petition. In a further passage at [1995] Ch 71A-D, Sir Donald Nicholls V-C continued:
“In the present case …, it is apparent that a bankruptcy petition cannot properly be presented on the basis of the existing statutory demand. It cannot properly be presented, because the only debt the debtor appears unable to pay is a debt which is less than the bankruptcy level. There is no question or suggestion of any other creditors or other debts. There is no suggestion that Mr. Wallace-Jarvis may be joining forces with another creditor to present a joint petition. In those circumstances it would not be sensible or just to leave the statutory demand extant. The only purpose in doing so would be for this demand to form the foundation for a bankruptcy petition. Here such a petition would be bound to fail. That being so, the very presentation of a petition would be oppressive and an abuse of process. It could be struck out summarily. Accordingly, at the earlier stage of the statutory demand the court should intervene. When able to foresee the inevitable the court will always intervene summarily to anticipate it. The court does not countenance parties proceeding to a blank wall. Hence in the case now under consideration the court ought not to permit the statutory demand to stand.”
[34]As this passage makes clear, it was a relevant consideration in that case that there was no suggestion that the creditor had other debts, or might join forces with other creditors. The debt which had been demanded was the only debt on which a petition could be based. It was in those circumstances that the Court held that any petition would be bound to fail and that to allow it to proceed would be to countenance the parties proceeding to a blank wall. But this strongly suggests that the Court would have taken a different view if there had been any suggestion that there were other debts which might be relied on. In such a case allowing the demand to stand would not be a futile exercise, and it follows that it would not be appropriate on that ground to set it aside.[35]I am of course bound by the Court of Appeal’s decision in Nos 49 and 50 but analysed in this way I see nothing inconsistent with the views I have already expressed above that a statutory demand should not necessarily be set aside under the residual discretion in r 6.5(4)(d) simply because the undisputed part is less than £750. In Muir Hunter on Personal Insolvency at §7-205, the decision in Nos 49 & 50 is referred to as authority for the proposition that where a bona fide dispute leaves an undisputed balance of less than £750, the Court “should generally dismiss the statutory demand”; but as can be seen, I think this is a slight oversimplification of the position (although to be fair to the editors they do go on to refer to the fact that a petition can be presented by more than one creditor and that the mere fact that a demand is for less than the bankruptcy level does not mean the petition will be). If there is no suggestion of any other debts, Nos 49 and 50 no doubt does suggest that the statutory demand should be set aside, but if there is, the same does not follow.

Cross-claims falling short of the debt by less than £750

[36]So far I have discussed the position where the debt itself is disputed. I can now consider the position where, as here, the debt itself is not disputed but the debtor relies on a cross-claim which does not equal the debt but falls short of it by less than £750. To simplify the facts suppose for example the debt is £4,000 and the cross-claim £3,500.[37]In such a case if the statutory demand is not set aside (and not paid) the creditor will have a petitionable debt. So far as I can see this debt will be for the full £4,000, not for the £500 difference between the debt and the cross claim (this assumes the cross claim is not a set-off which would operate as a defence to the debt). This means the position is not the same as the case where the debt itself is disputed: there the only petitionable debt is the undisputed part, and if this is less than £750 the creditor will have to rely on another petitionable debt to justify presenting a petition. In the case of the debt of £4,000 with a cross-claim of £3,500, the debt of £4,000 will by itself justify the presentation of the petition. (This I think is so even though the debtor could by paying off only £500 of the demand have put himself in a position to have the demand set aside as his cross-claim would then equal the remaining debt.)[38]The fact that the debt of £4,000 will justify the presentation of the petition does not however mean that a bankruptcy order will be made on the hearing of the petition. If at the hearing of the petition it remained the case that the only claims between the parties were a debt of £4,000 and a cross-claim of £3,500, the Court would probably dismiss the petition. But I do not need to consider if this is necessarily so, or if it follows that if there is no suggestion of any other claims, the Court should set aside the statutory demand under rule 6.5(4)(d) on the ground that it would inevitably fail, by analogy with Nos 49 and 50. What I think the analysis above shows is that if there are suggestions of other debts owed by the debtor to the creditor, then it cannot be said that any petition will inevitably fail. The creditor may very well be in a position to turn his other claims into petitionable debts (by making statutory demands) and hence rely on them in support of the petition.

Application to present case

(d) Application to present case

[39]I can now apply these principles to the present case. Neither at the time when the matter came before DJ Smart nor at the time when the appeal came before me could it be said that there was no suggestion of other debts owed by Mr Howell to Lerwick. Indeed by the time the matter came before me, leaving aside the costs order which DJ Smart made on 18 December 2012, it would appear from the material I have seen that Mr Howell had been ordered to pay to Lerwick by way of costs orders(i) £1,095 under the order of DJ Worthington dated 28 August 2012;(ii) £750 under the order of DJ Lambert dated 1 February 2013;(iii) £1,380 under the order of DJ Worthington dated 11 September 2013; and(iv) £1,360.80 under the order of DJ Desai dated 7 August 2014. He does not appear to have had any costs orders made in his favour. If therefore the matter is looked at now, I certainly cannot conclude that any petition would run into a brick wall as it is a distinct possibility that Lerwick may wish to rely on one or more of these debts in support of the petition. This does not seem at all fanciful: indeed Mr Howell in the course of the hearing told me that he had received another statutory demand (although he did not tell me in respect of which debt).[40]But even if I look at matters as they stood before DJ Smart, there was by then a further £1,095 owing by Mr Howell to Lerwick under the order of DJ Worthington of 28 August 2012. It is true that Mr Howell was seeking to appeal her order, but the Court will not in general go behind a judgment which is under appeal (and in the event the appeal did not disturb this order). Again it was far from fanciful to suppose that Lerwick might wish to rely on such a debt in support of a petition.[41]It follows in my judgment that the mere fact that if DJ Smart had taken interest into account, he should have concluded that Mr Howell’s cross claim would (if set against the debt) reduce the debt to below £750 does not mean that he should have, or that I should now, set aside the statutory demand.

Other matters

[42]Mr Howell raised a number of other matters in his grounds of appeal. None of them requires any lengthy analysis but very briefly:(1) Ground 1 is that DJ Smart handed down his judgment and made his Order on 18 December 2012 without notice to Mr Howell. This does not affect the validity of the Order that he made.(2) Ground 2 concerns minor amendments to the recitals to the Order. This does not affect the substance of the decision.(3) Ground 3 takes the point that the application was initially to be heard by DJ Clarke. This is true but does not invalidate the decision made by DJ Smart.(4) Ground 4 is in effect the ground I have discussed above.(5) Ground 5 concerns Mr Howell’s right to sue personally for the consequential losses. It falls away now that he has been refused permission to amend to claim such losses.(6) Ground 6 refers to what was said by DJ Smart about Mr Howell attempting to mislead DJ Clarke by not revealing that his application to amend had been dismissed. DJ Smart did make some comments to this effect but they seem to me to have been justified; in any event they did not form the basis of his judgment.(7) Ground 7 refers to the fact that DJ Smart paid no attention to the fact that at the time the statutory demand was served Mr Howell was pursuing his application to amend. This is true, but the relevant question for DJ Smart was the position at the time it came before him. He did not ignore Mr Howell’s outstanding appeal against the refusal of his application to amend: indeed he considered at some length whether it had any reasonable prospect of success.(8) Ground 8 asserts that the effect of Grounds 6 and 7 is that DJ Smart was biased. There is no reason to infer from the way DJ Smart dealt with these points that he exhibited, or held, any bias in favour of Lerwick.(9) Ground 9 is to the effect that although DJ Smart held that the statutory demand was overstated, he ordered Mr Howell to pay costs. But Mr Howell’s application was to set aside the statutory demand in its entirety. He failed in that attempt. It does not seem to me an impermissible exercise of DJ Smart’s discretion to order him to pay the costs. Leaving aside Ground 4 which I have discussed at length above, none of these grounds in my judgment has any substance.[43]I will therefore dismiss the appeal.

Postscript

[44]There is one loose end although it does not arise directly in the present case. Rule 6.5(6) provides:
“If the Court dismisses the application, it shall make an order authorising the creditor to present a bankruptcy petition either as soon as reasonably practicable, or on or after a date specified in the order.”
[45]The question arises what form of order the Court should make if the Court finds that the only undisputed debt included in a statutory demand is below £750, for example £500. On the face of the rule, it appears that the Court should authorise the presentation of a petition; but by itself the £500 undisputed debt will not support a petition (and indeed I am told that the Court will not issue a petition if the petition debt appears on its face to be less than £750). It is not easy to see how the apparently mandatory language of the rule can be squared with this, while still preserving the right of the creditor to rely on the £500 as a petitionable debt if he can add to it another petitionable debt of his own or of another creditor. One possibility might be to specify as the date after which a petition can be presented such time as the creditor could aggregate the debt with a sufficient other debt or debts to equal or exceed £750; alternatively it might be that the Court could authorise the presentation of a petition at the normal time but add words to the effect that nothing in the order justified the presentation of a petition where the aggregate of debts did not equal or exceed £750. I do not propose to resolve this question: in the present case the debt itself is not disputed, and since I have upheld DJ Smart’s decision not to set the statutory demand aside, the debt is a petitionable debt in the sum of £3,935 so the point does not arise. In the absence of any argument I prefer to leave the point for a case where it does have to be decided.