Simon Russell Garrow v Society of Lloyd's
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER,LORD JUSTICE BROOKE,LORD JUSTICE MORRITT |
| Judgment Date | 13 October 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J1013-10 |
| Date | 13 October 1999 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CHBKF-9905973 |
[1999] EWCA Civ J1013-10
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION) IN BANKRUPTCY
JACOB J.
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Morritt
Lord Justice Brooke
and
Lord Justice Robert Walker
Case No: CHBKF-9905973
MR EDWARD BANNISTER QC AND MISS LEXA HILLIARD (instructed by Society of Lloyd's, London EC3M 7HA) for the appellant
MR CHARLES PURLE QC and MR LAWRENCE JONES (instructed byGrower Freeman & Goldberg, London W1H 8DQ) for the respondent
(As approved by the Court
This is an appeal from an order of Jacob J made on 17 June 1999 setting aside a statutory demand dated 10 August 1998 served on Mr Simon Garrow by the Society of Lloyd's. The demand was for the sum of £196,167.13 under a judgment for £189,829.59 obtained by Lloyd's against Mr Garrow on 11 March 1998. Mr Garrow was a name at Lloyd's and the judgment debt was based on his undisputed liability to pay a reinsurance premium under the Lloyd's Reconstruction and Renewal Plan ("the R & R Plan"), a description of which can be found in the judgment of Colman J in Society of Lloyd's v Leighs [1997] CLC 759 at pp. 761–5. The amount of the reinsurance premium was £169,029.81; the balances over that amount in the judgment debt and the statutory demand were in respect of interest. Mr Garrow claims to have a counterclaim against Lloyd's for an amount at least equal to his liability to Lloyd's in respect of the premium, and it was on that ground that Jacob J set aside the statutory demand.
The judge described this as something of a test case. In autumn 1996 Lloyd's issued writs against over 600 names or former names who had declined to accept the R & R Plan. Colman J directed a number of test cases to be heard in order to determine the legal effect of clause 5.5 (which is often referred to as the "pay now, sue later" clause) of the reinsurance contract dated 3 September 1996. Colman J delivered two judgments, on 20 February and 23 April 1997 ( [1997] CLC 759 and 1012) and these were upheld by this court on 31 July 1997 ( [1997] CLC 1398). Other defences to Lloyd's claims under clause 5.5 also failed (see Society of Lloyd's v Fraser [1998] CLC 127 and 1630). The outcome is that non-accepting names are bound by the terms of clause 5.5 and cannot raise any cross-claim by way of defence or set-off. Nevertheless many non-accepting names (including Mr Garrow) have put forward cross-claims against Lloyd's alleging fraudulent misrepresentations. The lead case is Society of Lloyd's v Jaffray in which the defendant's defence and counterclaim were served on 21 November 1997, and in which Mr Garrow is a claimant by counterclaim. On 30 June 1998 Colman J directed a preliminary issue in Jaffray. This preliminary issue (often referred to as the "threshold fraud point") is in the terms
"whether Lloyd's made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false and whether such misrepresentations were communicated to the name and if so when."
The trial of the threshold fraud point was to have commenced during October or early November 1999, with an estimated duration of three months. Between 24 and 29 June 1999 Cresswell J heard an application by Lloyd's to postpone the hearing until 1 February 2000. Cresswell J treated the application as a full management directions hearing and refixed the date for trial of the preliminary issue as 11 January 2000. His order (made on 1 July 1999) contains detailed directions as to preparation for the hearing. The directions include the trial of a further issue, that is whether each of three sample names relied on the pleaded representations during the relevant period.(Mr Garrow is not a sample name.)The estimated duration of the hearing is now three to six months.
In the meantime Lloyd's has obtained summary judgment against numerous other defendants in the same position as Mr Garrow, and has served statutory demands on many of them. Since the judgment of Jacob J. Lloyd's has agreed with the solicitors for the other counterclaimants that other applications to set aside statutory demands will be held in suspense until the determination of this appeal. But the agreement (and the status of Mr Garrow's appeal as a test case) go no further than that. Since the court's power to set aside a statutory demand involves the exercise of a judicial discretion, the outcome may depend on the facts of the particular case.
The grounds on which the court may grant an application to set aside a statutory demand are set out in Rule 6.5 of the Insolvency Rules 1986, paragraph (4) of which provides,
"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 …"
The practice note Bankruptcy Court: statutory demand (No 1 of 1987) [1987] 1 WLR 119 provides guidance as to the exercise of the court's powers,
"3. Where the statutory demand is based on a judgment or order, the court will not at this stage go behind the judgment or order and inquire into the validity of the debt nor, as a general rule, will it adjourn the application to await the result of an application to set aside the judgment or order.
4. When the debtor (a) claims to have a counterclaim, set off or cross demand (whether or not he could have raised it in the action in which the judgment or order was obtained) which equals or exceeds the amount of the debt or debts specified in the statutory demand or (b) disputes the debt (not being a debt subject to a judgment or order) the court will normally set aside the statutory demand if, in its opinion, on the evidence there is a genuine triable issue."
The practice note was signed by the Chief Bankruptcy Registrar, but no doubt after consultation with the Vice-Chancellor. It has not been suggested that the practice note should be overruled or departed from. It was referred to without any disapproval by this court in TSB Bank v Platts [1998] 2 BCLC 1,7.
Before Jacob J Mr Garrow relied on rule 6.5 (4)(a) and paragraph 4(a) of the practice note, which the judge referred to as the general rule. He said that that general rule accorded with the similar position in relation to companies laid down by this court in Re Bayoil SA [1999] BCLC 62. But before going further into the judge's reasoning, and the submissions made in this court, it is appropriate to summarize the essential facts of Mr Garrow's case.
Mr Garrow was elected as an underwriting member of Lloyd's in 1976. He was then 30 years of age and working as a self-employed artist. He became a member of the Outhwaite Syndicate 317/661 and as a member of that syndicate he sustained losses for the 1982 year of account. On 26 April 1988 he was informed by his underwriting agents that he faced "a substantial cash call for the Outhwaite 1982 Open Year" (then estimated at £10,000 to £15,000). On 1 July 1988 he resigned as an underwriting member. The agents' estimate proved to be far too low and by the end of 1989 Mr Garrow owed Lloyd's Central Fund nearly £20,000, after calls on his deposited funds. At the end of 1990 he approached the Lloyd's Members' Hardship Committee ("MHC") but was dilatory in completing the necessary declaration of his personal financial position. He eventually submitted it to Lloyd's in October 1991.
In December 1992 the MHC indicated the terms which it was likely to recommend. These included taking a charge on Mr Garrow's beneficial half-share in his residence, 21 Cromwell Grove London W6, subject to a substantial building society mortgage. In June 1993 Mr Garrow wrote to the MHC to let them know that he and his wife were separating, the house was to be sold in order to pay off the mortgage, and his teaching job was coming to an end. The house was sold in May 1994 for £285,000, of which the mortgage took all but about £60,000. Mr Garrow's solicitors informed Lloyd's that the balance had been used to repay a loan from his father. On 27 February 1995 Lloyd's informed Mr Garrow that as he had chosen to repay his father in preference to Lloyd's, his hardship application had been withdrawn. Subsequently however Lloyd's reconsidered that position.
In July 1996 Lloyd's circulated to its underwriting members details of a settlement offer embodying the R & R Plan. Mr Garrow did not accept the offer. In October 1996 Equitas Ltd (the principal operating company of the Equitas Group established as part of the R & R Plan) assigned to Lloyd's the right to recover premiums payable under the plan. Lloyd's then issued over 600 writs against non-accepting names, including Mr Garrow, leading to the proceedings already mentioned before Colman J and this court.
After Lloyd's obtained summary judgment against Mr Garrow and served the statutory demand on him, he was granted an extension of time for his application to have it set aside. In an affidavit sworn on 11 September 1998 he deposed that he had paid Lloyd's over £140,000 and had assets (cash at bank and an old car) valued at only £1000. He was training to be a teacher and subsisting on a local authority grant and income support. He was living in rented accommodation with his two daughters, both of whom are students. However, Mr Philip Coldbeck (the Assistant Manager of Lloyd's Financial Recovery Department) has deposed that Mr Garrow paid only about £57,000 (including the drawing down of his deposited funds). The judge made no reference...
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