Day v Refulgent Ltd [2016] EWHC 7 (Ch)

Case No BK 142A[2016] EWHC 7 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue LEEDS DISTRICT REGISTRY
The Court House
Oxford Row
Venue Leeds LS1 3BGDate 7 January 2016
Before
His Honour Judge Behrens sitting as a Judge of the High Court in Leeds
Between
STEPHEN JOHN DAYAppellantREFULGENT LTDRespondent
Stephen John Day appeared as a litigant in person. for in personEleanor Temple (instructed by Watson Burton LLP) for RespondentHearing Hearing date: 16 December 2015
JudgmentJudge Behrens:
[1]Introduction This is an application by Mr Day for permission to appeal an order made by D J Kelly on 7th August 2015 when she made a bankruptcy order against Mr Day. There are three grounds of appeal which are conveniently summarised in paragraph 2 of Mr Day’s skeleton argument: 1) Judge Kelly was wrong to make her final decision, without first awaiting the outcome of the application to the variation of the High Court Freezing Order made on the 3 August 2015. Judge Kelly had ordered it be made, at the hearing on the 17 July 2015, and then did not await the outcome which could have settled the bankruptcy; 2) Judge Kelly did not review and discuss my alternative proposals, to any great extent and thus did not appreciate the assets held and the ability to release them in order to settle a debt of £30k and insisted the case must be settled on the day of the hearing; 3) Judge Kelly did not take account of the fact there were charges of properties by the freezing order and therefore the Petitioners money was secure.[2]The application is opposed by Miss Temple on behalf of Refulgent Ltd (“Refulgent”). She submits that this was a discretionary decision of D J Kelly. She referred me to the well-known principles set out in the judgment of Lord Woolf MR in Phonographic Performance Ltd v AEI Rediffusion Music Ltd [1999] 1 W.L.R. 1507 at 1523C-D:
“Before the court can interfere it must be shown that the judge has either erred in principle in his approach or has left out of account, or has taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”
[3]She drew my attention to the recent Court of Appeal decision in Edgington v Sekhon [2015] EWCA Civ 816 where these principles had been applied in a bankruptcy situation where the Deputy District Judge refused a late application for an adjournment to enable the debtor to have time to pay. She submitted that D J Kelly’s judgment was careful and comprehensive and had taken into account all relevant factors. The decision not to adjourn was within the ambit of her discretion and that this Court should not interfere with the decision.[4]When I first saw the papers I did not have the benefit of a transcript of D J Kelly’s judgment. I took the view that the matter was urgent and accordingly directed that the application for permission and the appeal should be listed at the same time.[5]The matter was argued before me for a full half day. In the light of the matters that were argued I am satisfied that this is an appropriate case for permission to appeal to be granted. The remainder of this appeal is concerned with the appeal itself.[6]Before dealing with the merits of the appeal I should like to acknowledge with thanks the assistance I received from both Mr Day and Miss Temple in the conduct of this appeal. Both produced skeleton arguments which were full and comprehensive. Mr Day is, of course a litigant in person, and thus did not address the law in any detail. His oral submissions to me were relevant and presented with courtesy. Miss Temple’s skeleton argument contained a comprehensive analysis of the relevant law. In her oral submissions she drew my attention to a number of documents which she submitted were sufficient to justify D J Kelly’s decision.[2]The facts Background[7]In his skeleton argument Mr Day sets out what he alleges is the material background to the dispute. Much of the background is controversial and is not relevant to the issues in the appeal. I shall deal with it quite shortly.[8]Refulgent Limited is now owned and controlled by Mr Andrew Duffield. Mr Day has been associated with Mr Duffield October 2009. From 8 April 2008 to 5 June 2014 Mr Day was a Director of Refulgent Limited and from October 2009 Mr Duffield was a minority shareholder. Mr Duffield took control of Refulgent Limited on the 31 March 2014. The High Court Claim[9]On 23 May 2014 Refulgent issued proceedings against Mr Day and a company under his control (Entrusted Group Ltd) in the High Court in London. In the proceedings Refulgent claimed rescission of agreements entered into on 14 February 2013, damages for fraudulent misrepresentation and the return of monies paid by way of loan. The loss was claimed in the sum of £763,907.[10]On 31 July 2014 Mr Day served a defence denying liability.[11]On 13 August 2014 Bean J (as he then was), on a without notice application, made a freezing order against Mr Day and the Company. The injunction listed some 12 properties including Warmanbie Cottage, Annan Dumfriesshire and Tom Na Car, Aberfeldy, Perthshire. Under paragraph 9 of the order Mr Day was required to disclose all of his assets worth more than £1,000.[12]The return date for the freezing order was extended on a number of occasions. The matter was eventually listed for 10 or 11 November 2014. Shortly before the hearing date the application was compromised. It was agreed that the freezing order would continue until the date of the trial or further order. The agreement was included in a consent order made by William Davis J on 7 November 2011. The consent order provided for a CMC in the action to be listed for the first available date after 11 December 2014.[13]Meanwhile, on 22 and 27 August 2014 Mr Day served a witness statement in pursuance of paragraph 9 of Bean J’s order. Refulgent did not accept that Mr Day had made full disclosure and on 20 October 2014 made an application to commit Mr Day to prison for breach of the order. The application was listed before HH Judge Seymour QC on 12 December 2014. On 7 December 2014 Mr Day filed a witness statement in which he apologised to the Court and admitted that the witness statement contained a number of inaccuracies which he alleged were inadvertent. In the result Refulgent applied to withdraw the committal application and to apply for its costs. On 12 December 2014 Judge Seymour QC acceded to both applications. A transcript of his judgment is reported at [2014] EWHC 4760 (QB). He summarily assessed the costs in the sum of £30,000 to be paid by 24 December 2014. There was no appeal against that order.[14]It is that order for costs which forms the basis of the bankruptcy petition. The Bankruptcy Proceedings.[15]Mr Day did not pay the £30,000 by 24 December 2014. Accordingly on 29 December 2014 he was served with the Statutory Demand in the sum of £30,085.48. On 12 January he made an application to set aside the demand.[16]Mr Day was represented by solicitors who on 27 February 2015 agreed to a consent order under which the application was dismissed with costs. Mr Day agreed to pay the £30,085.48 by 19 March 2015 and to make an interim payment in respect of costs in the sum of £5,000 plus VAT by 1 April 2015.[17]The consent order contained a recital that Refulgent consented to a variation of the freezing order to permit payment of the sums of £30,085.48 and £5,000.[18]No payment was made by 19March 2015 and no application was made to vary the freezing order.[19]On 23 March 2015 the petition was presented. It was served on Mr Day on 16 April 2015.[20]On 15 May 2015 Mr Day filed a Notice of Intention to Oppose the petition relying on 6 grounds. One of the matters relied on was that he was in the process of obtaining a loan of £40,000 against the security of Warmanbie Cottage and Tom Na Car.[21]The petition came before DJ Troy on 22 May 2015 who gave directions including a direction that Mr Day file a witness statement in support of his Notice of Opposition. Mr Day duly filed a witness statement in opposition. In paragraph 39 he referred to an offer dated 21May 2015 on behalf of Save on Stock Ltd (“SOS”) to purchase Warmanbie Cottage and Tom Na Car with a £30,000 deposit which would be released to enable the bankruptcy debt to be settled. He went on to assert that Refulgent was unreasonably holding up the sale of the two properties.[22]On 9 July 2015 Mr Graham, the partner at Watson Burton responsible for overall control on behalf of Refulgent filed a witness statement in answer. The witness statement deals in detail with the assertion made by Mr Day in his witness statement.[23]On 15 July 2015 Mr Day filed a witness statement in reply. It will be necessary to summarise the matters raised in relation to the offers.[24]The matter came before D J Kelly on 17 July 2015. Mr Day was unwell on that date and presented medical evidence that he was having an operation on 29 July 2015. As a result D J Kelly adjourned the hearing until 7August 2015. She directed Mr Day to file and serve evidence by 3 August 2015 “proving that the sale of the Scottish properties is still likely to proceed, together with evidence as to the likely timescale for exchange of contracts”.[25]She also made an order that any application by Mr Day to vary the freezing order to allow the sale of the Scottish properties should be made by 4 p.m 3 August 2013.[26]Mr Day did not comply strictly with either of D J Kelly’s orders.[27]On 3 August 2015 he posted an application to vary the freezing order to the Royal Courts of Justice. As D J Kelly pointed the posting of the application to the Royal Courts of Justice was not the same as “making the application” by 3 August 2015.[28]In support of the application he made a witness statement. In paragraphs 18 – 22 he summarised what he said was the position with offers. In paragraph 23 he stated that: Save on Stock through its broker Mr Ali Khan have confirmed the offer is still available to myself {Ref SJDA page 6}[29]Exhibit SJDA page 6 was an email dated 31 July 2015 from zulfi.ali@hotmail.co.uk which was headed “Subject to Contract and final agreement” and included the following: Further to our meeting of yesterday [SOS] are still prepared to lend you the £35,000 you require to settle your bankruptcy petition on the terms previously stated on the letter of 21st May 2015. Following your approval from the High Court in relation to the variation of the Freezing Order, we will be able to settle within 4 – 6 weeks of the written agreement.[30]Mr Day did not file a witness statement with the Court in accordance with D J Kelly’s order. Instead at 9.30 a.m on the morning of 7 August 2015 he emailed to the Court in Leeds a copy of the application he had sent to the RCJ together with the supporting witness statement and exhibit SJDA. Possibly by oversight he failed to attach a complete copy of exhibit SJDA. He did not include Page 6.[31]When the matter came before D J Kelly later that morning she had before her the witness statement and exhibit SJDA without Page 6 . Mr Day did not bring a copy of Page 6 of the exhibit to Court.[32]As already noted D J Kelly refused to adjourn the application and made a bankruptcy order.[33]During the course of the appeal before me Mr Day invited me to look at the email as fresh evidence. Whilst there is no doubt that Mr Day would not be able to satisfy the strict test under Ladd v Marshall it seems to me to be in accordance with the overriding objective to take the email into account. This is not a case where there has been a trial. The omission of the document appears to have been an oversight and the consequences of a bankruptcy order are very serious. The correspondence over the Scottish Properties[34]Before considering the reasons given by D J Kelly it is necessary to summarise the position over Warmanbie Cottage and Tom Na Car[35]On 21 May 2015 solicitors for SOS sent Mr Day’s solicitors a written offer for Warmanbie Cottage and Tom Na Car. A number of points can be made: 1. The offer took into account Mr Day’s need to release the deposit on exchange. On that basis the offer was £100k for Warmanbie Cottage and £225k for Tom Na Car with deposits of £10k and £25k respectively. Completion was to take place 3 months after exchange. 2. SOS would agree to release of the deposits to Watson Burton on 2 conditions: 1) Watson Burton agree to the release of the 2 properties from the freezing order and Refulgent accept the price paid by SOS 2) Watson Burton will permit and make payments in respect of the mortgages in place in respect of the properties until completion from the monies received from the tenants and other assets controlled by them.[36]Mr Egner, the solicitor with day to day conduct of the matter at Watson Burton emailed Mr Day at 17.56 the same day. He pointed out that there was uncertainty as to when exchange and completion would take place. He also pointed out that the deposit would need to be paid to the secured creditors and that it was unreasonable to impose on Watson Burton an obligation to make payments of the debt to third parties on Mr Day’s behalf.[37]On 22 May 2015 Mr Day emailed a formal letter to Mr Egner requesting consent to the release of Warmanbie Cottage and Tom Na Car.[38]Mr Egner replied on 26 May 2015. In paragraph 1 of the email he granted the requested consent “for the sole purpose of paying the Debt”. In paragraph 2 he requested documentary evidence that the secured lenders consented to the deposit moneys being used to satisfy the debt. In paragraphs 3 and 4 he provided evidence that the buyer might not be solvent and requested an assurance that it was solvent.[39]Mr Day replied on 2June 2015. He asserted that the “lender” (presumably SOS) had been trading for a number of years. He regarded the question of solvency as irrelevant and thus he asserted that Watson Burton was not entitled to any information regarding his “lender funder”.[40]Mr Egner replied on 3 June 2015. He repeated the consent to the variation of the freezing order. He explained that if SOS entered a formal insolvency procedure there was a risk that the transfer would be reviewed. He also drew attention to the Money Laundering Regulations. He accordingly asserted that it was not unreasonable to seek assurances of SOS’s solvency.[41]Mr Day replied in a long email on 9 June 2015. He stated that SOS was not prepared to provide any further information and that they were of the opinion that they did not need to do so.[42]Mr Egner replied in a long letter on 11 June 2015. In that letter he set out in detail his concerns about the transaction. An additional concern was that the sales appeared to be sales at an undervalue and that would amount to the dissipation of assets. Drive by valuations dated 16 June 2015 and 17 June 2015 placed values of £120k and £250k on the two properties so that the proposed sales would appear to be at a figure of some £45k less than the market value of the two properties.[43]On 1 July 2015 Mr Egner wrote directly to the solicitor acting for SOS setting out his concerns and making a number of detailed requests. The solicitor provided a detailed reply on 3 July 2015. It is not necessary to set out the reply in any detail. However the final substantive paragraph is in the following terms: As mentioned above, following advice from me to my client further to due diligence carried out, I advised my client against proceeding with the transaction some two weeks ago and as far as I am concerned this has been communicated to Mr Day and the matter is no longer proceeding.[3]D J Kelly’s judgment[44]D J Kelly’s judgment extends to 29 paragraphs and just over 11 pages. In paragraph 1 she set out s 271(1) and (3) of the Insolvency Act 1986 (“the 1986 Act”). In paragraphs 2 to 8 she summarised the history of the High Court proceedings and the bankruptcy proceedings up to the hearing before DJ Troy. In my view there can be no complaint about that summary.[45]In paragraphs 9 and 10 of the judgment she deals with the offer in respect of Warmanbie Cottage and Tom Na Car. She referred to the fact that questions had been raised. In particular she referred to the fact that the sale was at an undervalue and that there were doubts about the solvency of SOS. She pointed out that Refulgent would not consent to a sale at an undervalue which made it incumbent on Mr Day to apply to the Court to vary the freezing order.[46]In paragraphs 11 – 13 she summarised the hearing on 17 July 2015 and the events following that hearing. She pointed out that there was a breach of her order in that the application to vary the freezing order had not been made by 3 August and the failure to produce the email from Mr Ali meant that there was no independent evidence that the sale would proceed.[47]In paragraphs 14 and 15 she made the point that in Mr Day’s skeleton argument he asserted that he had sufficient assets to pay the debt. She pointed out that it was then more than 8 months after the date for payment. Numerous proposals had been made for payment but nothing had materialised to enable the debt to be paid.[48]In paragraphs 16 to 18 she made the point that Mr Day did not dispute the debt but was asking for more time to pay. She summarised the offers in relation to Warmanbie Cottage, Tom Na Car and 4 other properties.[49]In paragraphs 19 to 21 D J Kelly analysed the offers She made a number of points: 1. The only real evidence to support any equity is in relation to Warmanbie Cottage and Tom Na Car. 2. The alleged equity in Warmanbie Cottage (£38k) was overstated because Mr Day’s partner had a half share. There was no evidence that his partner would sign over the half share. 3. Tom Na Car would need to be sold before any equity could be released. There would be a delay for the application to vary the freezing order in the light of the fact that the sale was at an undervalue. 4. There is no evidence that the SOS was willing to proceed or as to any timescales even assuming permission was to be granted.[50]In paragraph 22 she summarised the 2 linked questions that she had to ask: 1) Has there in fact been an offer to secure which has been unreasonably refused? 2) Should she exercise her discretion to grant an adjournment to allow the application to proceed through the High Court?[51]In paragraphs 23 to 29 she analysed those questions before making the bankruptcy order and refusing the adjournment. In so doing she made a number of points: 1. The offers that had been made were made very late in the day. She was not satisfied they were unreasonably refused. The matter has been going on for more than 8 months. 2. It was incumbent on Mr Day to provide the court with evidence to show and satisfy the court it should exercise its discretion not to make the bankruptcy order. He has failed to do this. 3. It was appropriate for Watson Burton to ask questions. Watson Burton was entitled to refuse to consent. Mr Day could at any time have made an application to vary the freezing order. He did nothing about it until 3 August 2015. 4. There is clear authority that bankruptcy proceedings should not be repeatedly adjourned.[4]Matters of law.[52]Before considering the merits of the appeal there are a number of uncontroversial matters of law that need to be considered. Freezing Order[53]A freezing order is not akin to a charge or other security. Authority for this is to be found in the speech of Lord Bingham in Fourie v La Roux [2007] UKHL 1 “Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not granted to give a claimant advance security for his claim, although they may have that effect. They are not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court proceedings, domestic or foreign ...”. Discretion on the hearing of the petition Discretion on the hearing of the petition[54]S 271 of the 1986 Act provides: (1) "The court shall not make a bankruptcy order on a creditor’s petition unless it is satisfied that the debt, or one of the debts, in respect of which the petition was presented is either— (a) a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured or compounded for,....and (3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied— (a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented, (b) that the acceptance of that offer would have required the dismissal of the petition, and (c) that the offer has been unreasonably refused; and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.” Unreasonable refusal[55]In paragraph 10 of Shrimpton (Michael) v Darbys Solicitors LLP [2011] EWHC 3796 (Ch)Mr Justice Richards explained: So far as the rejection or acceptance of offers of security are concerned, that is governed by sections 271(3). The court's discretion to dismiss the petition arises if the offer of security made by the debtor has been unreasonably refused. In relation to that requirement, in the case of In Re a Debtor (No.32 of 1993) [1994] 1 WLR 899 at 910, Mr Timothy Lloyd QC, sitting as a Deputy High Court Judge, said:
“In large part I can accept the District Judge's formulation of the appropriate test which I would express more fully but not differently in substance, as being whether a reasonable creditor in the position of this petitioning creditor, and in the light of the actually histories disclosed to the court, would have accepted or refused the offer. However I think it has to be borne in mind that there could be range of reasonable positions on the part of hypothetical reasonable creditors. In order to conclude that the refusal was unreasonable, it seems to me that the court has to be satisfied that no reasonable hypothetical creditor would have refused the offer, and that the refusal of the offer was therefore beyond the range of possible reasonable actions in the context.” (Quote unchecked).”
Discretion to adjourn Discretion to adjourn[56]In paragraph 19 of Edginton Lewison LJ summarised the law on adjournment in the following way: The court, of course, has to power to adjourn the petition, but the practice is to do so only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time. There are many statements to this effect in the cases of which the following recent ones are representative. "A debtor clearly has no right to an adjournment in these circumstances, although it may be that a court will grant one if he could produce convincing evidence that the debt would be paid within a very short period." Addison v CAS Bank NB [2004] EWHC 532 Ch, [2004] BPIR 685, David Richards J. "A petitioning creditor has a prima facie right to obtain a bankruptcy order on, as this was, a duly presented petition where the liability of the debtor for the petition debt is, as it is here, clearly established. Equally, the court hearing the petition has a discretion to adjourn the petition for payment if but only if there is a reasonable prospect of the petition debt being paid in full within a reasonable time: see Re: Gilmartin [1989] 1 WLR 513 at 516 and much subsequent authority to a similar effect. There must be credible evidence to support such a prospect if the court is to grant an adjournment for payment." Harrison v Seggar [2005] EWHC 411 (Ch), [2005] BPIR 583, Blackburne J. "There is no doubt that the court retains a discretion not to make a bankruptcy order even where the petition debt has been clearly established and any grounds of opposition have been dismissed. However, the authorities establish that in such circumstances the discretion to adjourn should only be exercised if there is a reasonable prospect of the petition debt being paid in full in a reasonable period... Furthermore, there must be credible evidence to support such a prospect if the court is to grant an adjournment for payment." Ross & Anr v HMCC [2010] EWHC 13 (Ch), [2010] 2 All ER 126, Henderson J. "If the debtor does not produce any evidence of his ability to pay, he takes the risk that the court will not accept his bare assertion as to his means and ability to pay." See Dickens v Inland Revenue [2004] EWHC 852 (Ch), [2004] BPIR 718.[5]Grounds of Appeal[57]As noted in the Introduction there are three grounds of appeal. I have set out the grounds and do not repeat them. The third ground can be disposed of quite shortly. The freezing order did not have the effect of creating charges over Mr Day’s assets. Accordingly Refulgent remained an unsecured creditor and was entitled to pursue the petition.[58]The first is the principal ground and relates to the decision not to adjourn the petition. As noted above D J Kelly treated this as linked to the question of whether Refulgent were unreasonably refusing an offer by Mr Day. The only realistic prospect of payment within a reasonable time concerned the transaction with SOS. However there were a number of problems with this deal some of which were highlighted by D J Kelly. The sales were at an undervalue and thus involved a possible dissipation of assets. The letter of May 21st imposed conditions on Watson Burton which involved Watson Burton making payments. This point was specifically raised by Mr Egner but not dealt with. There were problems over the solvency of SOS. Importantly there was no evidence before D J Kelly that the transaction would proceed. Indeed the most recent letter from SOS’s solicitors stated in terms that it would not proceed. Any application to vary the freezing order would be likely to take some time.[59]D J Kelly in her clear and comprehensive judgment took these factors into account and concluded as a matter of discretion that it was not appropriate to grant an adjournment. In my view that conclusion was well within the ambit of D J Kelly’s discretion.[60]I have indicated that for the purpose of the appeal I am willing to take into account the 31st July 2015 email. However there are a number of problems with that email. First, it is inconsistent with SOS’s solicitor’s letter of 3 July 2015. There is no explanation of the apparent change of heart by SOS. Second it is headed “Subject to Contract and Final Agreement”. Thus it clearly contemplates that there will be further negotiation. Third, it refers to a loan of £35,000 which is not the nature of the transaction described in the letter of 21st May 2015. Fourth it refers to the letter of 21st May 2015. This is the letter which included the conditions. One of the conditions required payments by Watson Burton; the other required Refulgent to accept the price. In the light of the fact that the price was an undervalue both of these conditions were unacceptable. Fifth it does not explain what authority Mr Ali had to make the assertions contained in the email. This is important in the light of the solicitor’s detailed letter of 3 July 2015. To my mind these difficulties are insuperable. They do not persuade me that there would be a realistic possibility that Mr Day would be able to pay the petition debt within a reasonable time. Thus the email of 31 July 2015 makes no difference. This ground of appeal fails.[61]It is quite clear that D J Kelly did consider the other offers being made by Mr Day. She summarised the other properties and the possible equity in paragraphs 19 to 21 of her decision. She was entitled to conclude that it was not unreasonable to accept the late offers that had been made. She was entitled to conclude that none of the other offers were sufficiently detailed. None offered a reasonable prospect of the petition debt being paid off in a reasonable period.[62]The reality is that this was a clear and careful judgment by D J Kelly. She set out the history, and the arguments in considerable detail. She took into account the factors that were relevant and did not omit any relevant factors. She reached a decision that was well open to her on the evidence. Although it is irrelevant I would probably have reached the same decision.[63]This appeal is accordingly dismissed.