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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Dunhill v Hughmans (a firm) [2017] EWHC 2073 (Ch) (12 June 2017) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2017/2073.html Cite as: [2017] EWHC 2073 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building, 7 Rolls Building, Fetter Lane, London, EC4A 1NL
		12 June 2017

MR JUSTICE BARLING:

Introduction

1. This is an appeal against an order of Mr Registrar Baister ("the Chief Registrar") on 29 November 2016 refusing to award the appellant the costs of her application to set aside a statutory demand served by the respondent, her former solicitors, on the basis of a money judgment of the High Court which has since been overturned on appeal. Permission to appeal has not yet been granted in the present case, and by my order of 18 January 2017, the appeal and the application for permission to appeal came on for hearing together. By the same order I stayed, pending this appeal, the respondent's application for costs against the appellant, which by the order appealed against the Chief Registrar had directed to be heard. On 7 June 2017 I heard full argument on the issues in the present appeal. The appellant is represented in the appeal by Mr Gee QC, the respondent by Mr Shaw of counsel.

The background

2. I need to set out briefly the history of what has been, and remains, a complex and protracted litigation, in order to explain how the application to set aside the statutory demand arose.
3. As I have said, there are ongoing proceedings in the Chancery Division of the High Court between the appellant and the respondent. The claim in those proceedings is by the respondent for unpaid fees against the appellant, their former client. The respondent, in the person of Mr Peter Black, a partner in the firm, was instructed by the appellant in 2010 in connection with an ongoing dispute with her husband, Mr Charles Turner. That dispute was mainly concerned with the level of periodical payments he was making under a judicial separation. The appellant claims that Mr Black was negligent in handling her case and that she has a set off and counterclaim for losses which she has suffered as a result. These alleged losses include legal fees incurred both before and after the respondent's retainer was terminated in 2012 and the loss of her house in Eaton Square, which was where she lived with her children. In addition there are claims in contract and tort by the children, some of which at least have been assigned to the appellant.
4. In the proceedings the appellant alleges that the respondent's breaches of contract amounted to a fundamental breach and repudiation of contract. The two headline allegations of professional negligence are that the respondent made fundamental errors in advising her in the ancillary relief proceedings against her husband in (1) misdescribing the Eaton Terrace house as being one hundred per cent beneficially owned by the appellant rather than advising her (as was the case) that it was a trust asset, and (2) failing to investigate properly, and to focus sufficiently upon, the material and (it is alleged) fraudulent non-disclosure by her husband of his interest in two valuable properties in Wales. The appellant alleges that as a result the judge in the ancillary relief proceedings acquitted her husband of dishonesty, obtained an entirely false impression of the appellant's financial position, and made orders which were largely in favour of her husband, effectively requiring the sale of the house and bringing her to the verge of bankruptcy. The respondent's retainer was terminated. The appellant alleges that their negligence led to further expensive litigation in which she sought to challenge the ancillary relief judge's orders, culminating in an unfavourable settlement with her husband in 2014.
5. Before me there has been some debate about the quantum of the counterclaim and whether the appellant had established to the required extent for the purposes of set aside of the statutory demand that it equalled or exceeded the debt which was the subject of the statutory demand. I will return to this in due course. Suffice to say at this stage that the respondent's claim for unpaid fees amounted to some £179,000 plus interest. One head of the counterclaim in respect of costs of the "retrieval" litigation is said to amount to about a million pounds, and the overall counterclaim has been said by Mr Gee to be in the order of £4 million.
6. In September 2014 the respondent applied for summary judgment on the claim and also sought to strike out the defence and counterclaim. On 3 October 2014 the appellant sought summary judgment on part of the counterclaim and also applied to amend her pleadings. The matters eventually came before Arnold J who, after a four-day hearing, gave a detailed reserved judgment on 20 March 2015. In his order of 11 May 2015 he granted summary judgment in favour of the respondent in the sum of c.£187,000, and dismissed the appellant's application for summary judgment on her counterclaim. He also refused permission to appeal but granted a stay of the judgment and costs orders "until final determination by the Court of Appeal of the application for permission to appeal".
7. On 26 May 2015 the appellant filed a notice of appeal. Permission was then refused on the papers by Rafferty LJ on 29 June 2015. The "decision" section of her order simply said "Refused" by reference to the application for permission to appeal. However, in the last sentence of the "reasons" section she stated: "The lower court stay is thus no longer necessary and is lifted".
8. The same day (that is, 29 June 2015) the appellant, with the help of leading counsel, wrote to the Court of Appeal requesting an oral hearing of her renewed application for permission to appeal, to which she was entitled. This request was copied at the same time to the respondent.
9. On the next day, 30 June 2015, a statutory demand for £189,000 (namely the judgment sum plus interest up to date) was served on the appellant. The statutory demand was signed by Mr Black and was dated 29 June 2015.
10. On the following day, 1 July 2015, the appellant applied to the Court of Appeal for an order that the original stay by Arnold J remain in place pending the oral renewal of the permission to appeal application, alternatively for a stay on the same terms pending that application. This application for a stay was also copied to the respondent.
11. A day later, on 2 July, the appellant filed an application for the statutory demand served on 30 June to be set aside.
12. The same day Mills & Reeve, acting for the respondent firm, wrote to the Civil Appeals Office enquiring whether the effect of Rafferty LJ's order was to lift the stay, as they did not wish to incur costs in recovery of the debt without that confirmation. Confirmation came on 13 July when the Court of Appeal replied to both parties that the stay had indeed been lifted by Rafferty LJ, and that the appellant's application for a further stay would be referred to the Court of Appeal as soon as possible. In fact, the Court of Appeal had already notified a date in December 2015 for the permission to appeal application to be heard.
13. In the meantime, the Bankruptcy Court had fixed 12 October 2015 as the hearing of the set-aside application. The appellant made representations to the Court of Appeal, and on 10 September a further stay of the order of Arnold J was granted by Patten LJ until the disposal of the permission to appeal application fixed for December 2015. On 15 September the appellant wrote to the Bankruptcy Court, copied to the respondent, asking for the statutory demand to be set aside in the light of the stay that had been granted by Patten LJ. By a letter of 16 September, the respondent stated that the set-aside application should be listed seven days after the Court of Appeal decision. It also indicated that it would not withdraw the statutory demand at that stage but would have to do so if permission to appeal was granted. The appellant wrote to the court and to the respondent, stating that the statutory demand should be set aside immediately as there was no enforceable debt in the light of the Court of Appeal's stay, and referring to the case of Garrow v Society of Lloyd's, a Court of Appeal decision apparently reported at [1999] WC 819070. That request did not appear to make any progress. Further, the Bankruptcy Court, which had at some stage re-fixed the set-aside hearing for a date in December 2015 which was very close to the date that the Court of Appeal was due to hear the permission to appeal application, declined to move it again.
14. On 9 December the Court of Appeal heard the oral application for permission and reserved its judgment. In the light of that the parties agreed a consent order to vacate the set-aside hearing from December and to relist it in January 2016. The draft consent order was prepared by the respondent and included "costs in the application". Patten LJ gave judgment on 17 December and by his order of 18 December granted the appellant permission to appeal, both on the claim and on the counterclaim, and ordered the appeal to be listed with a time estimate of two days before a constitution including a Chancery Lord Justice and a Family Lord Justice. Meanwhile he continued the stay.
15. In the meantime, the set-aside application had remained listed for 11 December despite the parties' requests and despite their draft consent order. As a result it appears that leading counsel for the appellant attended the Bankruptcy Court on or just before that date, in the light of the uncertainty as to whether the hearing would be effective. In the event, it was not.
16. On 28 January 2016, the appellant wrote to the Bankruptcy Court stating that a 15-minute hearing, now listed for 9 March 2016, was not enough and that between one and two hours would be needed. She therefore asked for the hearing to be relisted. On 29 January the appellant wrote to the respondent asking for their agreement to set aside the statutory demand and for payment of her costs. On 3 February the appellant wrote to the Chief Registrar stating that she had not received any response to her request that the respondent agree to set aside the demand and pay her costs, and she asked the court to relist the hearing for an hour rather than the 15 minutes allotted.
17. On 11 February 2016 the respondent wrote to the appellant stating that there was "merit" in having the statutory demand set aside, as the time period for which it had been extant was "too long", but that they could see no reason to give her her costs as there had been no stay in place at the time the demand was served. The respondent stated that if she did not agree, the respondent would appear with counsel at the hearing and seek its own costs. The respondent enclosed with that letter a consent order reflecting the proposal. The appellant did not agree to this, and the case proceeded to a hearing on 9 March 2016.
18. The respondent's counsel lodged a skeleton argument for that hearing asking the court to dismiss the set-aside application. In the event, when the matter came before Deputy Registrar Schaffer on 9 March, it was (or had already been) agreed that the statutory demand should be set aside, and that the only issue for the court was costs. At that stage the respondent was seeking its own costs relating to the period February 2016 to March 2016 and no order for costs as to the period before February.
19. At the hearing, leading counsel for the appellant proposed that the issue of costs be stood over to be dealt with after the outcome of the appeal to the Court of Appeal, permission to appeal having been granted. The respondent rejected that proposal and therefore, the 15 minutes allowed being inadequate for the matter, it was adjourned to be relisted. By a letter sent a day or two later, the appellant repeated the proposal to reserve the costs issue until the Court of Appeal had disposed of the appeal. This letter, dated 11 March, referred to the legal arguments and to the fact that the appellant had a counterclaim which "vastly overtops your claim and includes the fees you have charged including those you have been paid". No reply to that letter was apparently received by the appellant. As a result, the costs issue proceeded to a hearing after further abortive fixtures due to, amongst other reasons, certain notices apparently not being received. Further witness statements were filed by the appellant.
20. Eventually the matter came before the Chief Registrar on 2 November 2016. The respondent was then seeking all its costs from February 2016 to November 2016 and no order for costs as to the rest. The appellant was seeking all her costs of the set-aside application. The Chief Registrar reserved his judgment, which was delivered on 16 November 2016. He declined to order the respondent to pay the appellant's costs of the set-aside application. His order also provided for the respondent to pursue its own application for costs against the appellant at a further hearing.
21. Thereafter, the Court of Appeal heard the substantive appeal against Arnold J's judgment on 21 and 22 February 2017. On 8 March 2017, the Court of Appeal allowed the appellant's appeal against the summary judgment on both claim and counterclaim, and also allowed her appeal against the judge's refusal of her application to amend her pleadings. The Court of Appeal dismissed the appellant's appeal against the judge's dismissal of her own application for summary judgment on the counterclaim. Therefore, save in relation to that last issue, the appellant was largely successful in her appeal, and the case is now held fit for trial on both claim and counterclaim.

The judgment below

22. Before the Chief Registrar the respective arguments of Mr Gee and of counsel for the respondent (who was not on that occasion Mr Shaw) took a similar path as they have taken before me. I shall therefore not recite them twice but summarise the Chief Registrar's main findings. He concluded:

(1) that the appellant had "a bona fide appeal" against the summary judgment on the claim and dismissal of her counterclaim; (NB at the stage before the Chief Registrar, as before Deputy Registrar Schaffer, the appellant had been granted permission to appeal on both aspects.)

(2) that it was wrong to start from the proposition that the appellant had won and so costs should follow that event. This was because, although she had achieved the result she desired, namely the setting aside of the statutory demand, there had been no determination on the merits, and the offer of the respondent in its 11 February 2016 letter to set aside the demand was made for pragmatic reasons;

(3) that the issues he had to decide were (a) whether service of the statutory demand was appropriate, and (b) whether the respondent's offer to set it aside with no order for costs was reasonable in all the circumstances;

(4) that in respect of the first of those questions, the respondent was entitled to serve the statutory demand, since Arnold J had given summary judgment in favour of the respondent and Rafferty LJ had removed the stay, leaving a debt on which it was entitled to proceed subject to any further stay;

(5) that the respondent's offer to consent to the demand being set aside with no order for costs was reasonable and the appellant was unreasonable to refuse it; the Chief Registrar considered that the costs must then have been minimal, as she appeared to be acting as a litigant in person at the offer stage; he considered that she should have accepted the offer, as it would have given her what she wanted and saved a dispute about what must have been "modest" costs but had raised disproportionate argument before Deputy Registrar Schaffer and himself;

(6) that the appellant's own offer to reserve the costs issue until the outcome of the appeal to the Court of Appeal "had much to commend it but was made much later in the day", namely on 9 March and again on 11 March, by which time more costs had been incurred; it should have been made more quickly in response to the respondent's 11 February offer;

(7) that the appellant's unreasonable conduct was underscored by her increasing costs unreasonably in making two witness statements in an application where only costs were in issue;

(8) that had the appellant made clear in her set-aside application that the stay had been lifted by Rafferty LJ, he would have dismissed it summarily on the papers and no costs order would have been made.

This appeal

23. In their submissions both parties referred to the relevant provisions of the Insolvency Rules 1986 and the Insolvency Proceedings Practice Direction. Rule 6.5(4) sets out the grounds upon which the court may grant an application to set aside a statutory demand. The Rule provides as follows, so far as relevant:

"(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."

24. The Practice Direction so far as relevant provides:

"13.3 Setting aside a statutory demand

…

13.3.3 Where the debt claimed in the statutory demand is based on a judgment, order, liability order, costs certificate, tax assessment or decision of a tribunal, the court will not at this stage 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, order decision, costs certificate or any appeal.

13.3.4 Where 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, order, liability order, costs certificate or tax assessment) the court will normally set aside the statutory demand if, in its opinion, on the evidence there is a genuine triable issue."

25. Mr Gee's overall submission was that by serving the statutory demand the respondent opened up a second front at a time when matters relevant to the judgment debt and counterclaim were already before the Court of Appeal and that this gave rise to unnecessary costs in circumstances where the statutory demand was bound to be set aside - certainly once Patten LJ had reimposed the stay originally granted by Arnold J, as the debt was not immediately due and payable after that. In this regard he relied upon the dicta of Dyson LJ (as he then was) in RBS v Fielding [2003] EWCA Civ 988. That case related to an application for a stay of execution of a High Court judgment until after an appeal had been heard. A stay had initially been granted by the first instance judge along with permission to appeal, but only until the time for filing an appeal had expired, and not until the hearing of the appeal itself. At paragraph 9 of his judgment Dyson LJ said:

"The notes to the White Book make clear, and I accept, that there is a practice in the Bankruptcy Court that normally a bankruptcy order will not be made while a stay is in force, but the court will normally adjourn the petition if necessary from time to time so long as the stay exists. If however a general stay of execution, for example, pending appeal, is in existence at the date of the presentation of the petition, this will be regarded as an obstacle to the acceptance of the petition or as grounds for immediate dismissal of the petition because there will not in those circumstances be any debt payable in existence at the date of the petition."

26. Mr Gee criticised the Chief Registrar's judgment in a number of respects. In particular, he was wrong not to take as the starting point, pursuant to the general rule in CPR 44.2, the fact that the appellant had achieved everything that she wanted, albeit by concession, and was the successful party. Instead the Chief Registrar had formulated the issues he had to decide without including that factor.
27. In addition to his argument based on the stay, Mr Gee submitted that the demand was also liable to be set aside on the merits, because there was a counterclaim for a much larger amount than the alleged debt. In this regard Mr Gee relied upon a number of authorities. Everard v The Society of Lloyd's [2003] EWHC 1890 (Ch) related to applications issued by former names at Lloyd's in which the primary relief sought was an order setting aside statutory demands based on judgment debts. The judgment debts had been obtained by Lloyd's against these former names as a result of their refusal to pay compulsory reinsurance premiums arising out of liabilities for losses suffered by their syndicates. The names wished to set aside the statutory demands on the basis that they had outstanding permission to appeal to the Court of Appeal in relation to amendments to include cross-claims that they wished to make. In relation to the stage of bankruptcy proceedings at which the judgment debts forming the basis of such proceedings should be challenged, and any impact on the applicable assessment, Laddie J stated as follows at paragraph 59:

"[59] The other major refinement is that a different regime applies where the debtor's attempt to demonstrate net zero indebtedness involves attacking a judgment debt … This is expressly provided for in the 1999 Practice Direction, para 12.4. Thus, the procedure applied to these proceedings ensures that most challenges have to be mounted at the set aside stage. This includes all challenges based on the existence of an alleged counterclaim and most challenges to the existence of the debt itself. It is only one particular category of debt, namely judgment debts, which have to be challenged at the petition stage.

[60] Although this means that different challenges are to be considered at different stages, there is nothing in the 1986 Rules or authority to suggest that the court's assessment of the seriousness of the challenge should differ from one stage to the other. On the contrary, there is every reason why the height of the hurdle the debtor has to negotiate should be substantially the same at whichever stage he mounts his challenge. There can be no doubt, for example, that challenges to the debt which have to be brought at the set aside stage (r 6.5(4)(b)) have to demonstrate a genuine triable issue (1999 Practice Direction, para 12.4). There is no reason why the debtor's challenge should have to reach a different level of substantiality when he challenges the debt (that is, in the form of a judgment debt) at the petition stage."

28. In relation to the issue of the notion of a triable issue in relation to (at least) Rule 6.5(4)(a) (the counterclaim provision), Laddie J stated as follows:

"[62] The question to ask at the set aside stage is whether the debtor has raised a genuine triable issue. The fact that at first instance a judge has held the issue to be too insubstantial to be allowed to be pleaded is an important factor in deciding whether the issue is genuinely triable but it is not determinative. If an appeal process is on foot, the court must decide whether it is a real, as opposed to a frivolous, appeal. Once again, the fact that the first instance judge refused permission to appeal is a factor to take into account in deciding whether the appeal is real, but it cannot be determinative.

...

[65] Mr Callman provides an answer to this point of construction. It is not in dispute that were the Court of Appeal to give permission to appeal and to allow the subsequent appeal on points of substance, at that stage it would be clear and determined once and for all, ignoring the possibility of appeals to the House of Lords, that the counterclaim is triable. If it is triable at that stage, it has always been triable even though at earlier stages that may have been less easy to discern. The position after the decision at first instance is that the judge's decision to refuse permission to plead the counterclaim is a major factor in determining whether the counterclaim is triable but is not the final word.

[66] For these reasons, I have come to the conclusion that Mr Callman is correct in saying that Cooke J's judgment and his decision not to give permission to appeal are not determinative of whether the Names' proposed counterclaims raise a genuine triable issue. It is necessary to take into account the fact that an application for permission to appeal has been lodged with the Court of Appeal and to assess whether the appeal which the Names wish to pursue is a real bona fide and non-frivolous one. In these circumstances it is not necessary to consider Mr Callman's argument that the construction of the 1986 Rules should be modified to accommodate HRA 1998 considerations."

29. I have already referred to the case of Garrow, relied upon by the appellant. It deals with the setting aside of one of the initial statutory demands served by Lloyd's on the relevant names in the same overall litigation. In Garrow the statutory demand was based on a summary judgment, and Mr Gee drew my attention principally to the following passage from the judgment of Robert Walker LJ (as he then was). I should point out that that was a case in which the judge had set aside the statutory demand on the basis that the defendant had a triable counterclaim:

"Although Lloyd's has a judgment against Mr Garrow, it has chosen to proceed by way of a statutory demand and the statutory demand is crucial to the making of a bankruptcy order. It would be contrary to the scheme of the legislation, and to the practice of the bankruptcy court, to allow a doubtful statutory demand to stand on the ground that the debtor would still have the opportunity of opposing a bankruptcy petition, once presented."

30. Mr Gee also referred to Lloyd's v Bowman [2003] EWCA Civ 1886, an appeal against the Everard decision. In this case Chadwick LJ made the following observations on the dicta of Laddie J at first instance:

"11. Nevertheless, before addressing the question whether the statutory demands should now be set aside – in the light of our decision on the appeal from Mr Justice Cooke's order - we think it appropriate to make three observations on the matters which were before Mr Justice Laddie. First, we think that the judge was right to reject Lloyd's contention that the effect of Mr Justice Cooke's order was determinative of the question whether there was a genuine triable issue. In particular, he was right to reject the submission that there could be no genuine triable issue unless and until this Court gave permission to appeal and allowed the appeal on a point of substance.

12. Second, we do not find it helpful to pose the question in terms which require consideration whether the appeal which the applicant seeks to pursue against the rejection of his counterclaim is "real, bona fide and non-frivolous". We are not at all surprised that counsel for Lloyd's did not feel able to argue before Mr Justice Laddie that the Names' application for permission to appeal from the order of Mr Justice Cooke should be dismissed as "frivolous" or as not "real" – if, by that, it was to be understood that the application was not pursued in good faith. If it is necessary to translate the concept of "genuine triable issue" into the context of an appeal, then it seems to us that the appropriate test is the one familiar under CPR 52.3(6)(a) and explained by this Court in Tanfern Ltd v Cameron MacDonald (Practice Note) [2000] 1 WLR 1311, at paragraph 21 – does the appeal have a realistic, as opposed to fanciful, prospect of success.

13. Third, where a judge of the High Court has decided – say, on an application for summary judgment or on an application to amend - that the applicant's counterclaim has no prospect of success and has refused permission to appeal from his decision on the ground that an appeal would have no prospect of success, a judge sitting in the bankruptcy court should be slow to hold that the requirement in rule 6.5(4)(a) of the Insolvency Rules 1986 can be satisfied. We do not intend to suggest that the decision of the first judge precludes the bankruptcy judge from giving effect to his own, different, view - for the obvious reason that the bankruptcy judge cannot be required to ignore the possibility that this Court may take a different view from the first judge. But, unless the bankruptcy judge feels confident that this Court will take a different view and will give permission to appeal from the order of the first judge – on the ground, perhaps, that there has been a change in the law, or that some compelling fact or authority appears to have been overlooked – it seems to us that the bankruptcy judge should normally refuse to set aside a statutory demand under rule 6.5(4)(a). We may add that, if the bankruptcy judge knows that there is an application for permission to appeal from the first judge pending before this Court, it is, of course, open to him (in a proper case) to give permission to appeal from his own order, with an indication that this Court may wish to hear that appeal at the same time as it hears the application for permission. In such a case he can postpone the presentation of a bankruptcy petition until after the hearing of the application for permission by an appropriate order under rule 6.5(6) of the Insolvency Rules."

31. Finally, and at the reply stage of his submission, Mr Gee also relied upon the ground for setting aside a statutory demand set out in Rule 6.5(4)(d). In that regard I was referred to Remblance & Anor v Octagon Assets Ltd [2009] EWCA Civ 581, as referring to some of the relevant principles in relation to that ground. The case was concerned with an application by a tenant's guarantor to set aside on that ground a statutory demand served by the landlord as a result of the failure on the part of the guaranteed tenant to pay rent and insurance. Relevant to the case was that the tenant also had a cross-claim against the landlord. The first instance judge had refused to set aside the statutory demand, and on appeal Mummery LJ agreed with the first instance judge, but Dyson and Ward LJJ disagreed, and the statutory demand was set aside on the basis of Rule 6.5(4)(d). The judges set out some of the criteria relating to this ground. At paragraph 24 Mummery LJ said:

"24. Of course, the judge was required to exercise his judicial discretion justly, taking account only of relevant factors. I agree with … that the relevant factors include the fact that [the tenant] could use its cross claim for damages to fend off Octagon's insolvency proceedings against it as tenant and principal debtor. The secondary nature of Mr Remblance's liability is also a relevant factor.

25. They are not, however, the only relevant factors nor, in my view, are they necessarily the determinative factors. The judge had to look at the entire situation in the round, considering all the relevant circumstances and weighing the consequences of exercising his discretion under Rule 6.5 against the consequences of his not doing so."

Dyson LJ in his judgment said:

"33. The discretion to set aside a statutory demand under rule 6.5(4)(d) is a residual discretion which will normally be exercised in 'circumstances which would make it unjust for the statutory demand to give rise to [bankruptcy] consequences in the particular case. The court's intervention is called for to prevent that injustice': see per Nicholls LJ in Re a Debtor [1989] 1 WLR 271, 276D."

And Ward LJ at paragraph 58 said:

"The language of para (d) does not on its face lend any support for the construction of limiting the application of that paragraph to instances referred to by Jacob J. [the statutory demand being defective to the point of being unfair to the debtor or evidence that the debt would paid immediately]. Indeed, it is quite impossible, I would have thought, to foresee all the circumstances which may arise and which may justify the proper application of that sub-paragraph. But, consistently with the views expressed by Nicholls LJ [in Re a Debtor], it is appropriate when considering whether to set aside a statutory demand under that paragraph to consider the consequence if one does set it aside. … there is no point in setting aside a statutory demand and requiring a creditor to litigate his claim that he is owed money by the debtor if it cannot be foreseen that there will be any ground on which the creditor will be denied his claim were the matter to be litigated. That would only be to increase costs to no purpose whatsoever. …

The real question, as it seems to me, in this case is whether Mr Budge can show a substantial reason comparable to the sort of reason one sees in paras (a) (b) and (c) of r 6.5(4), why the demand ought to be set aside."

32. In the light of these authorities, Mr Gee submits that by the time of the hearing before Deputy Registrar Schaffer in March 2016, the stay was in place and permission to appeal had been given and the statutory demand was liable to be set aside on the grounds in 6.5(4)(a), (b) and/or (d). The learned Chief Registrar, it is submitted, misdirected himself on the effect of CPR 44.2 and the Insolvency Rules, and was in error in exercising his discretion to refuse the appellant her costs.
33. In his able and succinct argument, Mr Shaw submits that the Chief Registrar was right in his decision for the reasons he gave and that there is no ground on which to interfere with his exercise of discretion. Summary judgment was given by Arnold J against the appellant. The stay the judge imposed was lifted by Rafferty LJ. The statutory demand was served the next day for a debt then due and payable. Reimposition of a stay by the Court of Appeal did not extinguish the debt but simply prevented further action to enforce it, for example by presentation of a bankruptcy petition. The stay itself, he submitted, was not a statutory ground for setting aside a statutory demand. Even where a statutory demand was served after the imposition of a stay, it would not have been liable to be set aside. The statutory demand would simply be invalid, and any petition based on it would be liable to be dismissed. RBS v Fielding, he submitted, did not assist the appellant, as that simply referred to the situation where there was a bankruptcy or winding up petition. In any event, it referred to an adjournment rather than to a set-aside of the statutory demand, and so in his submission the ground relied upon in reference to the stay is of no assistance to the appellant.
34. As far as the counterclaim argument is concerned, Mr Shaw accepted that following permission to appeal by the Court of Appeal on 17 December 2015, the appellant had a triable issue on the counterclaim, but not before. According to the Court of Appeal in the Bowman case, where permission to appeal had been refused by the first instance judge, a bankruptcy judge should be "slow to hold" that the criteria in Rule 6.5(4)(a) are satisfied. That was the position here in light of Arnold J's and Rafferty LJ's refusal of permission to appeal.
35. However, although the appellant satisfied the triable issue criterion after permission to appeal, Mr Shaw submitted that she failed to establish the second limb, namely that the counterclaim exceeded or equalled the debt. To find that the appellant had "won" her application, the Chief Registrar would have had to find this established, which he clearly did not and could not. Further, although there was admittedly a triable issue on the counterclaim after permission to appeal was granted, the position was different so far as the triability of the judgment debt issue was concerned. Although the test was the same in the light of Everard ...paragraph 60), nevertheless paragraph 59 of that judgment makes clear that this is not a ground for the set-aside of a statutory demand under Rule 6.5(4)(b), and the judgment debt can therefore only be impugned on this ground at the bankruptcy petition stage. Nor did it make any difference that after the Chief Registrar's judgment the Court of Appeal allowed the appellant's substantive appeal, thus making clear that on both claim and counterclaim there must be a trial.
36. As to the reliance of Mr Gee on the residual ground in Rule 6.5(4)(d), Mr Shaw submitted that this was of very limited application. He did not however address me on the dicta in the Octagon case. He pointed out that once the permission to appeal renewal application was lodged, his client cooperated in several adjournments of the bankruptcy proceedings with the aim that the latter should await the outcome of the Court of Appeal permission to appeal application.
37. Mr Shaw relies in addition upon the respondent's letter of 16 September 2015 to which I have referred, which stated that the respondent would withdraw its statutory demand if the permission to appeal was granted by the Court of Appeal. He submits that from that point there was very limited pressure on the appellant and that her costs were then only in the region of £2,300. The appellant was not therefore, in his submission, justified in seeking her costs which, by February 2016 when the drop-hands offer was made by the respondent, were said to be between £6,000 and £12,000.
38. The Chief Registrar was therefore right to find that the appellant was unreasonable in rejecting that offer, and in any event there was no basis for interfering with the exercise of his discretion in the circumstances. The Chief Registrar was also right to point to the appellant's misleading failure to refer in her original set-aside application to Rafferty LJ's lifting of the original stay.
39. Mr Shaw reminded me that the discretion to award costs under section 51 of the Senior Courts Act 1981 is a broad one. CPR 44.2 provides guidance on the exercise of that discretion. The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order. The Rule also provides that in deciding whether or not to make a costs order, the court will have regard to all the circumstances including the conduct of the parties.
40. Mr Shaw referred me to the helpful guidance in the decision of the Court of Appeal in Johnsey Estates (1990) Ltd v Secretary of State for the Environment, Transport and the Regions [2001] EWCA Civ 535 where the court said at paragraph 21:

"The principles applicable in the present case may, I think, be summarised as follows: (i) costs cannot be recovered except under an order of the court; (ii) the question whether to make any order as to costs - and, if so, what order - is a matter entrusted to the discretion of the trial judge; (iii) the starting point for the exercise of discretion is that costs should follow the event; nevertheless, (iv) the judge may make different orders for costs in relation to discrete issues - and, in particular, should consider doing so where a party has been successful on one issue but unsuccessful on another issue and, in that event, may make an order for costs against the party who has been generally successful in the litigation; and (v) the judge may deprive a party of costs on an issue on which he has been successful if satisfied that the party has acted unreasonably in relation to that issue; (vi) an appellate court should not interfere with the judge's exercise of discretion merely because it takes the view that it would have exercised that discretion differently."

Discussion

41. The trial judge, without question, has a wide discretion on costs. That principle has been summarised by Lloyd LJ in Taylor v Pace Developments Ltd [1991] ECC 406 as:

"There is only one immutable rule in relation to costs, and that is that there are no immutable rules".

42. An appellate court, it is trite law, should not interfere with the trial judge's decision unless it finds that it is flawed. The trial judge's decision will only be flawed if

"he has erred in principle, taken into account matters which should have been left out account, left out of account matters which should have been taken into account; or reached a conclusion which is so plainly wrong that it can be described as perverse".

(See Johnsey Estates (above)).

43. In some cases, as in the present matter, the substantive issue between the parties may be resolved without a trial, leaving the question of costs to be determined. In the case of Brawley v Marczynski (Nos 1 and 2) [2003] 1 WLR 813, Longmore LJ set out some of the principles that should guide the court as to costs in such a situation:

"21. For my part, I find most helpful the principles which Scott Baker J deduced from the authorities in the case of Boxall v London Borough of Waltham Forest. He set out those principles as follows:

'(i) the court has power to make a costs order when the substantive proceedings have been resolved without a trial but the parties have not agreed about costs.

(ii) it will ordinarily be irrelevant that the Claimant is legally aided;

(iii) the overriding objective is to do justice between the parties without incurring unnecessary court time and consequently additional cost;

(iv) at each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been fought to a conclusion. In between, the position will, in differing degrees, be less clear. How far the court will be prepared to look into the previously unresolved substantive issues will depend on the circumstances of the particular case, not least the amount of costs at stake and the conduct of the parties.

(v) in the absence of a good reason to make any other order the fall back is to make no order as to costs.

(vi) the court should take care to ensure that it does not discourage parties from settling judicial review proceedings for example by a local authority making a concession at an early stage.'"

44. I also take it to be clear that that last comment is not restricted to judicial proceedings, and that the court should not discourage the parties from making sensible settlement arrangements in other sorts of litigation as well.
45. I have described the parties' legal arguments in relatively brief form because in view of my conclusions it is not strictly necessary for me to resolve the points argued in order to determine this appeal. However, out of deference to the arguments, I will comment very briefly on them.
46. In relation to stay, I approach the issue on the basis that the respondent was entitled to serve a statutory demand, since this was done in the window between Arnold J's stay being lifted and a similar stay being reimposed by the Court of Appeal. I am inclined to the view that the stay reimposed by Patten LJ would not of itself have justified the setting aside of the statutory demand which was otherwise validly served. The Fielding case provides the appellant with little if any assistance, referring as it does to an adjournment in the context of a petition rather than a statutory demand. It was not a setting-aside case. Stays are granted in all kinds of circumstances, usually to hold the ring pending some further consideration, as was the case here.
47. In relation to the counterclaim argument, in my view the appellant was on rather stronger ground. Mr Shaw accepts that with effect from the grant of permission to appeal by the Court of Appeal, there was a triable issue on the counterclaim, but he argues that the quantum limb of Rule 6.5(4)(a) was not satisfied by the appellant. On that point I do not agree. I have not actually been shown the pleadings, but I note that in her offer letter of 11 March 2016, the appellant referred to and relied upon the counterclaim as "vastly overtopping" the claim and as including recovery of all fees paid to and charged by the respondent. Further, in a letter to the respondent and the court of 17 September 2015, the appellant enclosed the Garrow case, which related, as I have said, to setting aside a statutory demand on the counterclaim ground. More particularly, she also enclosed her skeleton argument of May 2015 in the Court of Appeal, which refers in some detail to various heads of claim of herself and of her children substantially in excess of the judgment debt. For example, one item relates to the costs of allegedly fruitless litigation said to have been caused by the alleged breach of contractual duty of the respondent, and that is said to amount to £700,000. Reference is also made to other particulars of loss which had been supplied to the respondent.
48. In these circumstances, like Jacobs J at first instance in Garrow, and whilst having full regard to the admonitions of the Court of Appeal in Bowman, I would have been prepared to assume that the counterclaim in respect of which permission to appeal was given by the Court of Appeal in December 2015 was well in excess of the judgment debt. In the circumstances of this case, I do not regard a full and detailed quantification to be necessary for this purpose, and with all due regard to the admonition in Bowman, I consider that, had the substance of the set-aside application been contested after permission to appeal had been granted by the Court of Appeal, it would be likely to have succeeded on the ground in Rule 6.5(4)(a).
49. As for the ground in 6.5(4)(b) relating to a genuine dispute as to the judgment debt, this as I have already indicated is more complex. One can see why the courts have placed additional restrictions on the ability to set aside a statutory demand based on such a debt. In the absence of authority, and in circumstances where it is not necessary for my determination, I would be reluctant to hold that at the stage where permission to appeal has been granted, the Bankruptcy Court would be entitled without more to set aside under Rule 6.5(4)(b) a statutory demand based on a judgment debt, as distinct from, for example, adjourning the application.
50. On the other hand, there may be circumstances, such as contemplated perhaps in cases such as Garrow, where it would simply not make sense to allow a "doubtful" statutory demand to stand, thus requiring it to be challenged later at the petition stage. It would in my view clearly be inappropriate to allow it to stand where the Court of Appeal had overturned a summary judgment on which the statutory demand was based. In such a case the debt would no longer exist, and the statutory demand would be liable to be set aside under the second limb of the Practice Direction 13.3.4.
51. At the time of the judgment of the Chief Registrar, there was permission to appeal but the appeal had not yet been allowed, so it appeared that the judgment debt still existed. It could be said that after permission to appeal the debt was clearly disputed on substantial grounds. On the other hand, at that stage what was before the Court of Appeal was the question whether there was a matter fit to go to trial or whether the summary judgment on the claim should stand, and that had not been determined. Mr Shaw suggested that there was some authority on the issue but was not in a position to identify it. In the circumstances of the present case, I would not, at the stage when permission to appeal had been granted, have set aside the statutory demand under Rule 6.5(4)(b) on the facts then available.
52. As to the 6.5(4)(d) ground, having heard little argument from either party on this aspect, it is unnecessary and inappropriate to express any view on its merits here.

My determination on the appeal

53. I have referred to the issues as formulated by the Chief Registrar, namely (1) whether service of the demand was "appropriate" and (2) whether the respondent's drop-hands offer was reasonable. However, in answering the first question, the Chief Registrar restricted himself to considering whether the respondent was entitled to serve the statutory demand, and held that the respondent was.
54. Yet appropriateness is not necessarily the same as entitlement. It is not clear whether the Chief Registrar also intended to ask whether it was reasonable of the respondent to serve a statutory demand at that point. In any event, he did not appear to consider that question. In my view, the question formed a very material aspect of any consideration of how matters proceeded thereafter, and in particular how the parties' respective conduct is to be regarded for the purposes of the appellant's costs application.
55. It is to be borne in mind that the parties had been engaged in protracted, complex and hard-fought litigation, a token of which is that the summary judgment application before Arnold J took four days, and his judgment extended to some 254 paragraphs. When the appellant filed her notice of appeal, it would have been clear to all concerned, and in particular to the respondent, that the appellant would pursue her legal options timeously, vigorously and exhaustively.
56. When Rafferty LJ refused permission to appeal on the papers, the timing of what then happened is significant. The very same day the appellant wrote to the Court of Appeal exercising her right to have an oral renewal hearing, and she copied this communication to the respondent. Notwithstanding this, the respondent prepared and served the statutory demand the very next day. The respondent did this despite the fact that its own solicitors, Mills & Reeve, were apparently not entirely sure of the effect of Rafferty LJ's order, and sought clarification from the Court of Appeal, as did the appellant herself in her application for a further stay, lodged with the court the next day, 1 July. The appellant followed this up with an application to set aside the statutory demand the day after that.
57. While the respondent was entitled to act as it did, it set in motion parallel bankruptcy proceedings which were almost inevitably going to lead to wasted time and costs such as has in fact occurred. There was no need to serve a statutory demand before the renewed oral application for permission, which the respondent knew or should have realised would be pursued, had been determined. Nothing was to be gained by doing so, and the appellant was bound to apply to set the statutory demand aside.
58. The respondent is, of course, a firm of solicitors and it was advised by solicitors. The respondent must have appreciated that by acting as it did before the determination of the renewed oral application for permission to appeal, further costs would inevitably be incurred by the appellant, and also by the responndent, as a result of the service of the statutory demand based on the summary judgment.
59. Parties have an obligation to conduct litigation reasonably as well as within the CPR. I consider that in all the circumstances the respondent acted unreasonably in the way that it proceeded. The Chief Registrar did not appear to consider this aspect, but only the strict entitlement of the respondent and the validity of the statutory demand. In my view the reasonableness of the respondent's conduct in that regard was a very material consideration. In those circumstances, I consider that I am entitled to consider the question of costs and to exercise discretion afresh.
60. No significant criticism of the appellant's conduct is made until the drop-hands offer in February 2016, nor in my view could she reasonably be criticised in relation to that period. All she did was, in effect, request the court to set aside the statutory demand in the light of the stay reimposed by Patten LJ in September 2015 and of the permission to appeal granted by the Court of Appeal in December that year.
61. I do not consider that the respondent's letter of 16 September 2015 indicating it would "have to withdraw" the demand in the event of permission to appeal being granted is as helpful to the respondent as Mr Shaw submitted. If it could be said to contain an assurance then it was not, in the event, complied with, as the respondent did not withdraw the statutory demand on permission to appeal being granted. Thereafter, on the Court of Appeal reserving judgment on the application for permission to appeal, the respondent prepared a draft consent order directing the set-aside application to be relisted in January 2016. As the parties could not persuade the Bankruptcy Court to vacate the hearing date in December 2015, further costs were incurred by the appellant, in my view through no fault of her own.
62. At any stage after permission to appeal was granted, it was open to the respondent to withdraw the statutory demand in accordance with the statement in its September 2015 letter. It did not do so.
63. When the appellant wrote to the respondent on 29 January 2016 asking the respondent to withdraw it and pay her costs, the respondent appears not to have replied at all, as a result of which the appellant wrote to the Bankruptcy Court asking for a one-hour hearing of the application rather than 15 minutes as listed. This produced the drop-hands offer of 11 February 2016, a conditional offer arguably contrary to the respondent's September letter. This offer was combined with a threat, that if it was not accepted the respondent would instruct counsel and seek their own costs at the hearing.
64. In all the circumstances, I do not agree that the appellant was unreasonable in refusing this offer, nor do I accept Mr Shaw's submission that the respondent acted consistently throughout. When the matter came before Deputy Registrar Schaffer on 9 March 2016, the respondent was apparently content to withdraw the statutory demand and leave the costs to be argued separately.
65. In the light of these considerations, I consider that in the court below insufficient weight was placed on the appellant's own offer to reserve the costs issue until after the appeal had been heard by the Court of Appeal; that offer was made at the hearing before Deputy Registrar Schaffer and rejected by the respondent, and made again later in correspondence. In my view the respondent acted unreasonably in not accepting that offer. Its refusal increased the costs considerably, and led to a much more substantial hearing before the Chief Registrar in November 2016.
66. This sorry saga exemplifies what happens when litigants set in motion satellite proceedings prematurely, in the face of circumstances which render almost inevitable the unnecessary expenditure of the parties' and the court's time and resources. None of this need have happened if the respondent had waited until the outcome of the oral renewal application for permission to appeal, as in my view the respondent ought reasonably to have done. No prejudice to it would have resulted had it taken that course.
67. By contrast, I find that the appellant has not in the circumstances acted unreasonably at any stage, including in pursuing her costs of the application to set aside the statutory demand. I would respectfully discount the allegation that the appellant's original application to set aside was misleading. Having read the material, and the decision of Rafferty LJ, it is not at all clear that the omission to refer to the lifting of the stay was intentional. Further, the respondent's own solicitors were not certain that the stay had in fact been lifted, and only received confirmation from the Court of Appeal approximately two weeks after the statutory demand had been served.
68. In considering the matter afresh, in the light of all the circumstances referred to in CPR 44.2, and the overriding consideration, I find that the appellant should have the costs of her application to set aside the statutory demand. The appellant did achieve what she sought to achieve. The fact that this was by a pragmatic concession by the respondent (which would have necessarily been the result had the respondent awaited the successful outcome of the appeal to the Court of Appeal) does not materially affect that finding.
69. Further, in the event, and although not necessary for my decision, it was relatively straightforward to reach the conclusion that the appellant would probably have succeeded on the ground in rule 6.5.(4)(a) if the set-aside issue had not been resolved by concession at the hearing before Deputy Registrar Schaffer.
70. I therefore grant permission to appeal and allow the appeal.
71. Although the respondent's own application for costs, which is currently stayed pending this hearing, is not strictly before me, it seems clear, albeit without having heard counsel on the point, that it is very unlikely to succeed. I have, in reality, heard the arguments which would be deployed on that application, and my conclusions would seem to preclude an order for costs in the respondent's favour. I would of course hear counsel further if desired.
72. In any event, I invite the parties to agree an order reflecting this judgment.