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The Kings operated a family business called Kings Solution Group Ltd (‘KSG’). In 2013, they sold their shares in KSG to Primekings Holdings Limited (“Primekings”) under allegedly misrepresented conditions. This led to a series of legal proceedings, including Misrepresentation Proceedings, Conspiracy Proceedings, Professional Negligence Proceedings, and Unfair Prejudice Proceedings.
“[t]he Claimants do pay the Defendants’ costs of the Defendants’ Applications, the Claimants’ Unless Order Application and the Claim, such costs to be subject to detailed assessment on the indemnity basis if not agreed”
The court had to decide whether the statutory demand issued by BMIF against the Kings should be set aside. This decision hinged on several factors, including whether the debt was a ‘liquidated sum’, whether there was a genuine triable issue as to the existence of a cross demand, whether the debt was disputed on substantial grounds, and whether the demand should be set aside on other grounds.
The parties’ respective positions
The Kings argued that the statutory demand should be set aside. They contended (inter alia) that the debt was not a ‘liquidated sum’ capable of forming the basis of a creditor’s petition per s 267(2)(b) IA 1986 because it was subject to a ‘detailed assessment’. specifically,
BMIF argued that the statutory demand should not be set aside, contending that the debt was a ‘liquidated sum’, that there was no genuine triable issue as to the existence of a cross demand, that the debt was not disputed on substantial grounds, and that there were no other grounds for setting aside the demand. Specifically,
The judge found that the statutory demand debt was a liquidated sum pursuant to section 267(2)(b) IA 1986 because the Costs Order expressly provided that the order for payment of costs was “subject to detailed assessment on the indemnity basis if not agreed”.
“In my judgment, the mere fact that the £219,700 is subject to a right of assessment and may change in amount does not turn an otherwise liquidated sum into an unliquidated sum. The authorities cited above point towards this conclusion. This includes the authority relied upon by the Kings’ of Truex v Toll. Further and in any event, in my judgment the facts of that case can be distinguished. Truex concerned a debt arising out of an unassessed solicitor’s bill which needs to be determined by principles such as reasonableness and fairness. In this case, the Statutory Demand Debt was based on a court order. The court crystallised the amount payable on an interim basis at £219,700.”
The judge also found that the statutory demand debt was not disputed on substantial grounds by virtue of it being subject to a ‘detailed assessment’.
“The Kings say that the Statutory Demand Debt is substantially disputed on the basis that it is subject to detailed assessment. However, again, this goes behind Paragraph 11.4.4 of the Practice Direction: Insolvency Proceedings [2020] BCC 698. Moreover, the Costs Order is not even subject to any appeal or application to set it aside. It is therefore unrealistic to suggest that it is “disputed”.
“Indeed, if the Kings were right on this, then any costs order with a built-in right of assessment cannot give rise to a statutory demand debt. That cannot be right. As was said in Popely, “Either the Underlying Claim is a ‘cross demand’ within the meaning of the rule, or it is not; and whether it is or not cannot in my judgment depend on the nature of the debt which is the subject of the statutory demand”.”
Finally, the judge found that the statutory demand was not issued for an improper purpose nor that the effect of any bankruptcy order would stifle the Unfair Prejudice Proceedings against Primekings and the Professional Negligence Proceedings.
Ultimately, however, the judge concluded that the Statutory Demand should be set aside because there was a cross-demand in the form of the Professional Negligence Proceedings which exceeded the value of the debt.
STATUTORY DEMAND | INDEMNITY BASIS | DETAILED ASSESSMENT | INSOLVENCY ACT 1986 | INSOLVENCY RULES 2016 | COSTS ORDER | LIQUIDATED SUM | UNLIQUIDATED SUM
“I accept that the sum ordered by way of interim payment £219,700 might be varied in the future. The Kings’ submissions emphasised the fact that the Statutory Demand Debt is a figure based on a pre-estimate, formulated by the Court on the basis of information provided by the holder of the costs order on the basis of trust only and therefore open to challenge on assessment, where the final amount payable could go up or it could go down. There may be legitimate grounds for challenge to be made to the costs claimed in a detailed assessment on the basis of unreasonable or improper conduct of either a party or a legal representative.” [63]
“However, in my judgment, the first submission does not get to the heart of the key point, that being whether or not the interim costs order was for a liquidated sum. The Costs Order was made after an assessment by Cockerill J. It may have been that she decided the figure by taking various matters on trust. She did however decide and assess what sum should be paid on an interim basis. The interim assessment procedure has therefore been completed. The Kings’ second submission is more controversial. They assert that for a debt created by a costs order to be liquidated, a detailed assessment must have taken place such that the sum is not open to later challenge.” [64]
“I do not accept this. In my judgment, the mere fact that the £219,700 is subject to a right of assessment and may change in amount does not turn an otherwise liquidated sum into an unliquidated sum. The authorities cited above point towards this conclusion. This includes the authority relied upon by the Kings’ of Truex v Toll. Further and in any event, in my judgment the facts of that case can be distinguished. Truex concerned a debt arising out of an unassessed solicitor’s bill which needs to be determined by principles such as reasonableness and fairness. In this case, the Statutory Demand Debt was based on a court order. The court crystallised the amount payable on an interim basis at £219,700.” [65]
“The Kings’ argument effectively equates ‘liquidated’ with ‘final’. I do not accept that this is right as a matter ofprinciple. The argument conflates arguments under sections 267(2)(b) IA 1986 (liquidated sum) with rule 10.5(5)(b) IR 2016 (disputed debt). The mere fact that a sum of money is subject to change does not alter its nature as a liquidated sum.” [66]
“Further and in any event, given that most costs orders will be made subject to a detailed assessment if not agreed, the Kings’ argument would essentially rule out all interim costs orders as being capable of founding a statutory demand. In my judgment, that cannot be right.” [67]
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