Bankruptcy - Statutory Demands, Petitions and Annulment - Same Disputed Debt Test?

Author: Simon Hill
In: Bulletin Published: Sunday 24 May 2020

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Where an alleged creditor seeks to make an alleged debtor bankrupt, the alleged debtor can object on the basis that the alleged debt is genuinely disputed (in essence, claiming ‘he is not my creditor’) either (i) when applying for an order setting aside any statutory demand served (should he elect to make such an application), or (ii) at the hearing of the bankruptcy petition itself. When deciding when to deploy the objection, at (i) or (ii)[1], the alleged debtor may be concerned to know whether the Court requires the creditor’s status as creditor to be established to the same 'level of substantiality'[2] (i.e. degree of certainty), or whether the test, the 'height of the hurdle'[3], is lower at one stage than the other. In a separate scenario, where a bankruptcy order has been made, and the bankrupt applies for an order annulling the bankruptcy order, the issue may arise as to whether the Court applies the same disputed debt test as at (i) and (ii)?

These questions were considered, and the position reaffirmed, in the case of Go Capital Limited v Jagdeep Singh Phull [2020] EWHC 1235 (Ch) (‘Go Capital’), a decision of Chief Insolvency and Companies Court Judge Briggs ('Chief ICCJ Briggs'), handed down on 13.5.20.

Before considering the facts and decision of Go Capital, it is useful to note some relevant provisions:

(1) Where an application is made for an order setting aside a statutory demand, Insolvency Rules 2016 r.10.5 applies; r.10.5(1) reads:

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 specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.

(2) At the hearing of a bankruptcy petition, section 271(1) of the Insolvency Act 1986 applies, which reads:

‘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, or

(b) a debt which the debtor has no reasonable prospect of being able to pay when it falls due.

As there is an incorrect reference to section 271(4) in the Go Capital judgment, section 271(4) is quoted (so it can be discounted):

‘In determining for the purposes of this section what constitutes a reasonable prospect that a debtor will be able to pay a debt when it falls due, it is to be assumed that the prospect given by the facts and other matters known to the creditor at the time he entered into the transaction resulting in the debt was a reasonable prospect.’

(3) On an application for an order annulling a bankruptcy order, section 282 of the Insolvency Act 1986 applies, wherein section 282(1) reads:

‘The court may annul a bankruptcy order if it at any time appears to the court

(a) that, on any grounds existing at the time the order was made, the order ought not to have been made, or

(b) that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court.’

While not addressed in Go Capital it is noted here that there is jurisdiction under section 375 of the Insolvency Act 1986, to rescind a bankruptcy order (see Yang v Official Receiver [2017] EWCA Civ 1465).

The Facts

In Go Capital, the alleged creditor served a statutory demand on the alleged debtor. No application was made for an order setting the statutory demand aside. The alleged creditor presented a bankruptcy petition. At the hearing of the petition, the alleged debtor denied that any sum was due from him to the alleged creditor - the petition basis, that the alleged debtor had guaranteed the debt owed by the principal debtor to the alleged creditor. Disputing his liability, the alleged debtor argued that:

(1) the purported liability was based on a sham transaction;

(2) the alleged debtor's signature had been forged; and

(3) the ‘guarantee’ was not in the form of a deed and no consideration had moved from the alleged creditor to the alleged debtor for it. The ‘guarantee’ therefore created no obligation upon the alleged debtor to pay the alleged creditor.

Same Test - Is there a Genuine Dispute?

Chief ICCJ Briggs addressed the issue, at paragraphs 24 to 26:

‘Section 271(4) (sic) of the Insolvency Act 1986 provides that no bankruptcy order may be made on a creditor's petition unless the court is satisfied (1) the debt in respect of which the petition has been presented was payable at the date of the petition or has subsequently become payable and (2) the debt has not been paid secured or compounded for. In this matter a statutory demand has been served but no application was made to set it aside. Consequently, no decision was made under r10.5 of the Insolvency Rules 2016 on the merits of the case. One of the grounds to set aside a statutory demand under the rule is if the debt is disputed on grounds which appear to the court to be substantial.

In Guinan III v Caldwell Associates [2004] BPIR 531, ChD Neuberger J (as he then was) held that there is no distinction between the test to be applied whether on an application to set aside a statutory demand, or on the hearing of a petition, or on an application to annul on the ground that it ought not to have been made. The test is whether there is a genuinely disputed debt. Neuberger J's reasoning is as follows [16]:

"I turn then to what at least to my mind is the central point in the case, which is whether or not Mr Caldwell has an arguable case. In this connection it is I think common ground, and consistent with what was said by Laddie J in para [60] of his judgment in Everard v The Society of Lloyd's [2003] EWHC 1890 (Ch), [2003] BPIR 1286, that:

"The court's assessment of the seriousness of the challenge should [not] differ from one stage to the other."

In other words, if there is what he called "a genuine triable issue" then, whether it is raised at the statutory demand stage, the petition stage, or the annulment stage, it is an equally valid point. However, as I mentioned, that is not the end of the matter in this case, because, even if there is a genuine triable issue, that does not automatically mean that I should annul the bankruptcy; I still have a discretion. But, subject to that, as I think [Counsel for the Petitioner], albeit sub silentio has accepted, the test is the same: is there a genuine dispute?”.

Decision on the Facts

On the facts in Go Capital, the Court found there was:

(1) no substantial dispute on sham; but

(2) a substantial dispute on whether the alleged debtor’s signature on the guarantee was forged; and

(3) a substantial dispute that the document was not a deed and no consideration was given and so no binding obligation arose to bind the alleged debtor.

Chief ICCJ Briggs concluded, on the facts in Go Capital, at paragraph 48:

‘At the hearing of a bankruptcy petition the court may make an order for bankruptcy if satisfied that the statements in the petition are true and that the debt on which it is founded has not been paid, or secured or compounded. I am not satisfied that the statements in the petition are true. There is at best a substantial dispute as to whether the debt claimed on the petition is due and at worst there is no debt. There is a substantial dispute regarding the signature of the Debtor and there is no contractual obligation for the debt stated on the petition.

Legal History

While Go Capital affirms the position, those interested in legal history may be interested to note that the law was not always so settled - the annulment stage might have had a different test to: (i) the statutory demand; and (ii) the petition stages. In Flett v. HMRC and Daly [2010] BPIR 1075; [2010] EWHC (Ch) ('Flett'), Mr Anthony Elleray QC (sitting as a deputy High Court judge) '...held that, on an application to annul, the burden of proof was on the debtor to demonstrate that, on the balance of probabilities, he did not owe the petition debt. It was not enough for a debtor to say at the time of an application for annulment that he had an arguable defence to the petition debt; he had to establish that he did not in fact owe the money.' (paragraph 17 of Re Payne [2015] B.P.I.R. 933 ('Payne')). This directly conflicted with the earlier Guinan III v Caldwell Associates [2004] BPIR 531 ('Guinan') judgment of Neuberger J (which had not, regrettably, been cited to Mr Anthony Elleray QC in Flett). In Payne, John Males QC (sitting as a deputy High Court judge) had to resolve the conflict, holding, at paragraphs 21-24:

'...I consider that I should adopt the approach taken by Neuberger J in Guinan.

First, while it does appear that the point was not argued by the parties in Guinan, so far as I can see the same applies to Flett. Secondly, neither Guinan nor Everard is referred to in the judgment of Mr. Elleray QC. Thirdly, the decision of Neuberger J drew on the reasoning of Laddie J in Everard. While I accept that Everard concerned a narrower point, it seems to me that what Laddie J said in that case in paragraph [60] was sound in principle and applies equally to the issue before me. He said “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” and there is “no reason why the debtor's challenge should have to reach a different level of substantiality when he challenges the debt … at the petition stage”. I respectfully agree. Fourthly, I agree with [Counsel for the Respondents] that what Mr Elleray QC says is ambiguous. Mr Elleray said “It may not be enough … for a debtor to say at the time of an application for an annulment: I had an arguable defence … ” I have added the emphasis because, as [Counsel for the Respondents] argued, Mr Elleray seems not to have been entirely sure of the position. Fifthly, the application of different tests to the different stages could, as [Counsel for the Respondents] argued, produce strange results. This case illustrates that very point in that the application of different tests to the same basic issue might lead to [the 1st Respondent Statutory Demandee] succeeding in setting aside the statutory demand, but [the 2nd Respondent Bankrupt] failing to set aside the bankruptcy order.

As to [Counsel for Appellant Petitioning Creditor's] points about the order operating against the world and the effect of the passage of time, in the case of an application to annul the Court has a discretion in that “The Court may annul … ”. If the passage of time or the operation of the order against third parties was shown in a particular case to have caused the sort of practical problems which [Counsel for Appellant Petitioning Creditor] referred to in her oral argument, then that is a matter which I expect that the Court would bear in mind in exercising its discretion and which might incline the Court against making an order.

Finally, I struggle to see how, on what will often be a summary procedure which could raise conflicting witness statements (and I appreciate, as [Counsel for Appellant Petitioning Creditor] reminded me, that an application could be made to cross-examine under rule 7.7A(2) of the IR) the Court might actually be able to decide disputed issues on the balance of probabilities.'[4]

Common Level of Substantiality - Where is that Threshold

Given the level of substantiality, the degree of certainty, is the same in each of the three circumstances, what then is the level of substantiality. 

In Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2018] 1 WLR 643, Arden LJ considered rule 6.5(4) to the Insolvency Rules 1986 - the predecessor to rule 10.5(5) of the Insolvency Rules 2016 - that a court may set aside a statutory demand in bankruptcy if 'the debt is disputed on grounds which appear to the court to be substantial'. Arden LJ expressly disapproved an earlier case which had held that the threshold under the rule was lower than the threshold required to resist summary judgment under CPR Part 24. Arden LJ said at paragraph 21:

"If the test in [that] case …were applicable, the court would have to apply a lower threshold than real prospect of success, and that would mean that it would be enough on an application to set aside a statutory demand if the dispute were merely arguable. However, that approach would give no real weight to the word "substantial" in the rule 6.5(4); nor would it give any meaning to the word "genuine" in para 12.4 of the practice direction. In my judgment, the requirements of substantiality or (if different) genuineness would not be met simply by showing that the dispute is arguable. There has to be something to suggest that the assertion is sustainable. The best evidence would be incontrovertible evidence to support the applicant's case, but this is rarely available. It would in general be enough if there were some evidence to support the applicant's version of the facts, such as a witness statement or a document, although it would be open to the court to reject that evidence if it were inherently implausible or if it were contradicted, or were not supported, by contemporaneous documentation… But a mere assertion by the applicant that something had been said or happened would not generally be enough if those words or events were in dispute and material to the issue between the parties. There is in the result no material difference on disputed factual issues between real prospect of success and genuine triable issue."[5]

For a case on summary judgment/the real prospect of success test, see Easyair Ltd v Opal Telecom Ltd [2009] EWHC 539 (Ch)[6].

Conclusion

Go Capital applies and affirms the position set down by Neuberger J in Guinan and consistent with Laddie J in Everard v The Society of Lloyd's [2003] EWHC 1890 (Ch), [2003] BPIR 1286, that at each of the 3 stages: (i) setting aside a statutory demand, (ii) on the hearing of the bankruptcy petition, and (iii) on an annulment of a bankruptcy order, the degree of certainty that the debt relied upon by the alleged creditor is well founded, is the same. The 'height of the hurdle', the 'level of substantiality' is the same. The debt must not be subject to substantial dispute (be a genuinely disputed debt), for in such circumstances, the alleged creditor's status as creditor is not sufficiently established, for the alleged creditor to initiate and pursue the bankruptcy process. Where the alleged debtor's challenge is successful, the alleged creditor's status as creditor/petitioning creditor '...would be undercut...' to use Marcus Smith J's phraseology in Gertner v CFL Finance Ltd [2020] EWHC 1241 (Ch), paragraph 3(1).

SIMON HILL © 2020

BARRISTER

33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

[1] Absent special or exceptional circumstances, arguments cannot be run repeatedly at separate stages of the bankruptcy procedure. See Harvey v Dunbar Assets Plc [2017] B.P.I.R. 450 and Turner v Royal Bank of Scotland Plc (Relitigation) [2000] B.P.I.R. 683, [2000] 6 WLUK 832 ('Turner'). The Turner Doctrine was considered by Marcus Smith J in Gertner v CFL Finance Ltd [2020] EWHC 1241 (Ch) ('Gertner'). In summary, where an application to set aside a statutory demand is made, the debtor will be prevented from running arguments in defence/objection to a subsequent petition, which he: (i) did run on the application to set aside the statutory demand; or (ii) could have run on the application to set aside the stautory demand (though did not). Marcus Smith J said in Gertner, at paragraph 51: 

'...the principle applies both where an argument was run on an application to set aside a statutory demand and where, on such an application, it could have been run.' [underlying in original]

In Coulter v. Chief Constable of Dorset Police (No 2) [2005] EWCA Civ 1113.  Chadwick LJ articulated the principle, at paragraph 22:

"The principle is not based on estoppel, whether of a Henderson v. Henderson nature or res judicata . It goes no further than this: (i) that it is indeed a waste of the court's time and the parties' money to rehearse arguments which have already been run and have failed; and (ii) that, in circumstances where it is desired to run arguments which have not already been run, then, as His Honour Judge Maddocks pointed out in Barnes v. Whitehead, the court will inquire why those arguments were not run at the time when they could, and should have been run." 

Marcus Smith J referred, at paragraph 50 of Gertner, to this passage in Coulter as one of the cases that made clear the true extent of the rule. Marcus Smith J said, to similar effect, is Adams v. Mason Bullock, [2004] EWHC 2910 (Ch) at [29] and EDF Energy Customers Ltd v. Re-Energised Ltd [2018] EWHC 652 (Ch) at [63].

Where no application to set aside the statutory demand is made, the Turner Doctrine has no application on the hearing of the petition. Marcus Smith J in Gertner said, at paragraph 48:

'...given that a debtor is not obliged to challenge a statutory demand... it seems to me to go too far to say that a debtor is precluded from raising a point in objection to a bankruptcy petition simply because he or she could have, but did not, apply to set aside the statutory demand that preceded the petition.'

Later, Marcus Smith J in Gertner said, at paragraph 51:

'...there is nothing to suggest that a debtor who simply declines to make an application, which he or she is under no obligation to make, is by that fact alone precluded from taking a point on the hearing of the petition.'

[2] Laddie J in Everard v The Society of Lloyd's [2003] BPIR 1286; [2003] EWHC 1890 (Ch) used this phraseology, when he said, at paragraph 60: “no reason why the debtor's challenge should have to reach a different level of substantiality when he challenges the debt … at the petition stage”.

Under rule 10.5 (5) of the Insolvency (England and Wales) Rules 2016 a court may set aside a statutory demand in bankruptcy if "the debt is disputed on grounds which appear to the court to be substantial".Another phrase that might prove useful, is to ask of '...the well-foundedness, or otherwise, of these other grounds...' - as used in a completely different context by Fordham J in Hendron v Bar Standards Board [2020] EWHC 1255 (Admin), paragraph 28.

[3] Laddie J in Everard v The Society of Lloyd's [2003] BPIR 1286; [2003] EWHC 1890 (Ch) used this phraseology, when he said, at paragraph 60: “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".

[4] In Re Payne [2015] B.P.I.R. 933, John Males QC (sitting as a deputy High Court judge) concluded, at paragraph 83:

'In summary, my decision is as follows. On the first ground, I follow the approach of Neuberger J (as he then was) in Guinan.'

[5] In Smith v Gregory [2002] EWHC 190, HHJ Stephen Davies sitting as High Court Judge said, at paragraph 5:

'As held in Ashworth v Newnote [2007] EWCA Civ 793 at [31] - [34] there is no difference between expressions such as "substantial grounds", "genuine triable issue" or "real prospect of success"...'

Separately, whether the phrase 'the debt is disputed on grounds which appear to the court to be substantial' in rule 10.5(5) to the Insolvency Rules 2016, set a threshold of sustainability at the same level as summary judgment under Part 24 of the CPR, was recently considered in Global 100 Ltd v Laleva [2021] EWCA Civ 1835 ('Global 100') by the Court of Appeal (Lewison LJ, with whom Macur LJ and Snowden LJ agreed), for the purpose of discerning the meaning of a certain phrase in CPR r.55(8)(2) in relation to possession claims.

To give this context, it is helpful to quote paragraph 7 of Lewison LJ's judgment in Global 100:

'...When the claim is issued the court will fix a hearing date. Part 55.8 provides:

"(1) At the hearing fixed in accordance with rule 55.5(1) or at any adjournment of that hearing, the court may—

(a) decide the claim; or

(b) give case management directions.

(2) Where the claim is genuinely disputed on grounds which appear to be substantial, case management directions given under paragraph (1)(b) will include the allocation of the claim to a track or directions to enable it to be allocated." [bold added]

The question arose: what is the test to be applied under rule 55.8 (2) (paragraph 8); in other words, what test is to be applied in evaluating a defence (paragraph 11), to decide whether the directions should be given towards trial, or the matter could be dealt with summarily (i.e. a possession order made) because the defence lacked sufficient merit.

At paragraph 11, Lewison LJ said:

'11. I turn, then, to the phrase used in the rule: "genuinely disputed on grounds which appear to be substantial". The judge emphasised the word "appear" but does not seem to have given any weight to the word "substantial". Under rule 10.5 (5) of the Insolvency (England and Wales) Rules 2016 a court may set aside a statutory demand in bankruptcy if "the debt is disputed on grounds which appear to the court to be substantial". That phrase is strikingly similar to that which is used in CPR Part 55.8 (2). The predecessor of rule 10.5 was considered by this court in Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2018] 1 WLR 643. Arden LJ discussed the meaning of the phrase in some detail. She expressly disapproved an earlier case which had held that the threshold under the rule was lower than the threshold required to resist summary judgment under CPR Part 24. She said at [21]:

"If the test in [that] case …were applicable, the court would have to apply a lower threshold than real prospect of success, and that would mean that it would be enough on an application to set aside a statutory demand if the dispute were merely arguable. However, that approach would give no real weight to the word "substantial" in the rule 6.5(4) ; nor would it give any meaning to the word "genuine" in para 12.4 of the practice direction. In my judgment, the requirements of substantiality or (if different) genuineness would not be met simply by showing that the dispute is arguable. There has to be something to suggest that the assertion is sustainable. The best evidence would be incontrovertible evidence to support the applicant's case, but this is rarely available. It would in general be enough if there were some evidence to support the applicant's version of the facts, such as a witness statement or a document, although it would be open to the court to reject that evidence if it were inherently implausible or if it were contradicted, or were not supported, by contemporaneous documentation… But a mere assertion by the applicant that something had been said or happened would not generally be enough if those words or events were in dispute and material to the issue between the parties. There is in the result no material difference on disputed factual issues between real prospect of success and genuine triable issue."

Later, at paragraph 14, Lewison LJ said:

14. In my judgment the test for summary judgment is the same test as that which applies to the required threshold under CPR Part 55.8 (2). Were the test to be a lower test, it would be a waste of resources (both the parties' resources and the court's resources) to give directions for trial on the basis of a defence (whether pleaded or not) that would not survive an application for summary judgment. Were it to be a higher test, it is difficult (if not impossible) to formulate it with any precision. The question, then, is whether the defendant has shown a real prospect of success in defending the claim. The principles applicable to an application for summary judgment are well-settled (see for example Easyair Ltd v Opal Telecom Ltd [2009] EWHC 539 (Ch)); and I need not set them out here.'

[6] In Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), Lewison J formulated the following principles as applicable to applications for summary judgment, at paragraph 15:

'...the court must be careful before giving summary judgment on a claim. The correct approach on applications by defendants is, in my judgment, as follows:

(i) The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91;

(ii) A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];

(iii) In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman;

(iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];

(v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

(vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

(vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.'

The Court of Appeal in AC Ward & Sons Ltd v Catlin (Five) Ltd [2009] EWCA Civ 1098; [2010] Lloyd’s Rep. I.R. 301 approved the above principles, at paragraph 24:

'There is no dispute as to the proper approach to be taken by the court on an application for summary judgment, and that the relevant principles were correctly identified by the Judge. They are conveniently summarised by Lewison J in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at para. [15].'

More recently, in Re Coniston Hotel (Kent) LLP (In Liquidation) [2014] EWHC 1100 (Ch)('Coniston Hotel'), at paragraph 32, Morgan J said,

'The court's approach to an application for a summary judgment is well known. The principles which apply, particularly in relation to a claim by a defendant or by a respondent, as here, were summarised by Mr Justice Lewison in the case of Easyair Limited -v- Opal Telecom Limited [2009] EWHC 339 (Ch) at paragraph 15.'

After quoting paragraph 15, Morgan J in Coniston Hotel added this, at paragraph 33:

'I also take the view that it is a strong thing for a judge to strike out a case or give summary judgment, particularly in a case where there is an allegation of serious wrongdoing. Conversely, it would be wrong to allow such an allegation to go forward to a trial when there is no proper basis for it. Although the case was not cited to me, I think that I ought to take note of what was said by Lord Hope of Craighead in Three Rivers District Council -v- The Bank of England No. 3 [2003] 2 AC 1. The passages in the judgment of Lord Hope on which I particularly rely are paragraphs 94 and 95 and paragraph 106. I will not read those reasonably long passages into this judgment, but the warnings given by Lord Hope about judges being over confident that they know the rights and wrongs of the case I take fully into account. However, it remains the case that, when it is clear that the case is fanciful, when it is clear that there is no real prospect of success, then it is the responsibility of the judge to prevent the case going forward, subjecting the opposite party to costs, possibly unrecoverable costs, and taking up time with a trial that should never have happened at all.'

In Three Rivers District Council -v- The Bank of England No.3 [2003] 2 AC 1 ('Three Rivers No.3'), Lord Hope said, at paragraphs 94-95 (under the subheading 'Whether the claim should be summarily struck out'):

'...the question is whether the claim has no real prospect of succeeding at trial and that it has to be answered having regard to the overriding objective of dealing with the case justly. But the point which is of crucial importance lies in the answer to the further question that then needs to be asked, which is - what is to be the scope of that inquiry?

I would approach that further question in this way. The method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule there are some well-recognised exceptions. For example, it may be clear as a matter of law at the outset that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case the easier it is likely to be to take that view and resort to what is properly called summary judgment. But more complex cases are unlikely to be capable of being resolved in that way without conducting a mini-trial on the documents without discovery and without oral evidence. As Lord Woolf said in Swain v Hillman, at p 95, that is not the object of the rule. It is designed to deal with cases that are not fit for trial at all.'

Later in Three Rivers No.3, Lord Hope said, at paragraph 106:

'...the overriding objective of dealing with cases justly includes dealing with them in a proportionate manner, expeditiously, fairly and without undue expense. As he says, each case is entitled only to an appropriate share of the court's resources. Account has to be taken of the need to allot resources to other cases. But I do not believe that the course which I favour offends against these important principles. The most important principle of all is that which requires that each case be dealt with justly. It may well be that the claimants, on whom the onus lies, will face diffculties in presenting their case. They must face the fact that each and every allegation of bad faith will be examined rigorously. A trial in this case will be lengthy and it will be expensive. There is only so much that astute case management can do to reduce the burdens on the parties and on the court. Nevertheless it would only be right for the claim to be struck out if it has no real prospect of succeeding at trial. I do not think that one should be influenced in the application of this test by the length or expense of the litigation that is in prospect. Justice should be even-handed, whether the case be simple or whether it be complex. It is plain that the situation in which the claimants find themselves was not of their own making, nor are they to be blamed for the volume and complexity of the facts that must be investigated. I would hold that justice requires that the claimants be given an opportunity to present their case at trial so that its merits may be assessed in the light of the evidence.'

In Smith v Gregory [2002] EWHC 190, HHJ Stephen Davies sitting as High Court Judge said, in an application to set aside a statutory demand, at paragraph 5:

'...the court should not conduct a mini-trial on disputed evidence but the court is entitled to reject evidence where inherently implausible or contradicted or not supported by the documents.'