The Court of Appeal in Harvey v Dunbar Assets plc  EWCA Civ 60 has confirmed that parties cannot re-litigate failed arguments that have previously been presented in bankruptcy proceedings.
This will be welcome news for creditors in situations where debtors rehearse the same arguments at several stages of the bankruptcy process in an attempt to deter enforcement by driving up legal costs and drawing out proceedings.
In March 2008 John Spencer Harvey (“Mr Harvey”) agreed personally to guarantee the liabilities of Vision Development Ashbrooke Limited (“Vision”) in respect of monies it owed to Dunbar Assets plc (the “Bank”), limited to £720,000 together with specified interest charges, costs and expenses (the “Guarantee”). The Guarantee was entered into, jointly and severally, by Mr Harvey and three others.
Vision collapsed during the financial crisis of 2008/09 and the Bank called in its loan to Vision in the sum of approximately £4.8million and made formal demand on Mr Harvey for £720,000 plus interest. No payment was received and the Bank served a statutory demand (“SD1”) on Mr Harvey.
Mr Harvey applied to have SD1 set aside on the basis of promissory estoppel. He claimed that he had been induced to enter the Guarantee by a regional manager of the Bank who Mr Harvey claimed had told him that the Bank had never enforced a personal guarantee and would not do so in the future. Mr Harvey therefore argued that he had a defence to the sum claimed under the Guarantee and that SD1 should be set aside.
The district judge disagreed with Mr Harvey and held that the probability of the promissory estoppel argument succeeding was ‘no more than a fanciful prospect’ and therefore rejected the application to set aside SD1.
Shortly after the hearing, Mr Harvey discovered that one of his co-guarantors (Mr Lenney) denied ever signing the Guarantee which raised a technical argument that the Guarantee may have failed to bind any of the guarantors, including Mr Harvey. Mr Harvey appealed to the High Court on a secondary ground that the Guarantee was not binding on him. The High Court dismissed his appeal, however on subsequent appeal to the Court of Appeal, the appeal was allowed and SD1 was set aside on this secondary ground.
The Bank subsequently brought proceedings and successfully proved that Mr Lenney had, in fact, signed the Guarantee. This nullified Mr Harvey’s secondary argument and led to the Bank serving a second statutory demand (“SD2”) on Mr Harvey in 2014. Mr Harvey again applied to the court to set SD2 aside based on the promissory estoppel argument he had raised in respect of SD1.
In the absence of any previous authority directly on the point, the Court of Appeal was asked to decide whether Mr Harvey was entitled to raise the same argument in respect of SD2 as he had (unsuccessfully) raised in respect of SD1 or whether this was an abuse of process.
The Court of Appeal’s decision
Lord Justice Henderson in the Court of Appeal accepted that the nature of bankruptcy proceedings meant that a debtor may have several opportunities to challenge a debt, for example when applying to:
- set aside the statutory demand
- review, rescind or vary any order, or
- annul a bankruptcy order.
In this respect, the bankruptcy procedure lends itself to arguments being repeated.
However, Henderson LJ applied the Turner principle, stemming from Turner v Bank of Scotland plc  BPIR 683, which states that, unless there is a change in circumstances or another special reason, it was a waste of the court’s time and the parties’ money to rehearse arguments which had previously been unsuccessfully raised.
Here, the Court held that even though Mr Harvey was successful in setting aside SD1 on a point not involving the failed promissory estoppel argument, it did not mean that the promissory estoppel argument had “disappeared into some kind of black hole and thereafter had to be disregarded for all purposes”. To this end it would be an abuse of process for Mr Harvey to raise the same the argument which had already been rejected in earlier proceedings. Mr Harvey’s appeal was dismissed and his debt to the Bank remained.
The Court of Appeal’s decision is a welcome clarification that the Turner principle will apply during the different stages of the bankruptcy process to stop debtors re-litigating the same point(s) at different stages. This will be particularly relevant in cases where debtors seek to frustrate proceedings by vexatiously raising frivolous arguments at multiple stages to make enforcement of a debt difficult for creditors.