Ch.D (Carnwath J) 2/12/98






Statutory demands against Lloyds' Names were set aside, as a triable issue was disclosed that the debts were disputed on substantial grounds.


This was an appeal from an order of Mr Registrar James dated 10 June 1998, dismissing applications by the applicants, Mr and Mrs McAllister, to set aside statutory demands served on them by the respondents, the Society of Lloyds ('Lloyds') in the amounts of 643,021 and 653,384 respectively. The McAllisters were Lloyds Names who increased their underwriting capacity with the support of bank guarantees from Barclays Bank for 100,000 each, secured on their family home. In 1991, following the failure of Mr McAllister's property development business, they applied to Lloyds for assistance under their hardship scheme and accepted a proposal letter from Lloyds. They also accepted the general settlement offer and agreement made to Lloyds' Names which included a Finality Statement providing for the total amount outstanding in respect of each Name to be off-set by amounts credited under the scheme. The net result was that the amount due from each of them was limited to about 200,000 including the value of the Barclays' guarantees. Problems arose in securing Barclays' consent to renouncing its rights as a beneficiary under a Security and Trust Deed. Lloyds set a deadline of 31 December 1996 for completion of the formal Hardship Agreement. Following a meeting in the week of 18 December 1996 between Lloyds, Barclays and the McAlisters, there was no agreement and Lloyds issued statutory demands. The court had powers to grant the application to set aside such demands if there was a genuine triable issue that either: (a) the debtor appeared to have a counterclaim, set-off or cross-demand which equalled or exceeded the amount of the debt or debts specified in the statutory demand; or (b) the debt was disputed on grounds which appeared to be substantial (r.6.5(4) Insolvency Rules 1986). Mr McAllister argued (on his own and his wife's behalf) that: (a) he was misled by Lloyds when he extended his underwriting cover in 1989; (b) he was pressurised into entering the Settlement Agreement; and (c) he was unfairly treated when Lloyds broke off negotiations on the Hardship Agreement in December 1996. On (c), Mr McAllister submitted that Lloyds' letter of 15 November 1996, having been accepted by the McAllisters by signing and returning a promissory note, imposed an implied contractual obligation to negotiate in good faith up to the time limit set by that agreement namely 31 December 1996 and that this obligation was breached when Mr Holden unilaterally broke off negotiations in the week of 18 December 1996. He argued that either: (i) this raised a cross-claim for breach of an implied contractual obligation resulting in loss of the opportunity to enter the hardship agreement; or (ii) it was grounds for disputing the debt on the basis that, by the letter of 15 November, Lloyds had assumed the McAllisters' responsibility for payments under the Finality Statements (subject only to their using best endeavours to complete by 31 December, which they had done).


HELD: (1) The Registrar was right to reject the arguments based on alleged misrepresentation in 1989 and on the circumstances surrounding the settlement agreement. The McAllisters' particular problems at that stage were not the responsibility of Lloyds. (2) The position of Lloyds was not necessarily identical to that of an ordinary party negotiating a private contract and there was room for argument that even if Lloyds was not a public body susceptible to judicial review (Society of Lloyds v Leighs (1997) CLC 759) the fact that it was performing functions in the public interest, within a statutory framework, imposed some limitation on their freedom of action, analogous to Wednesbury principles. It was also arguable that, in imposing a condition on the McAllisters of best endeavours, they impliedly accepted a corresponding obligation themselves or at least an obligation not unreasonably to frustrate the conclusion of an agreement. If the Barclays' problem had been clearly resolved by the time of the December meeting and given that the McAllisters were ready to accept the Hardship Agreement, it was inconceivable that Lloyds would have turned their back on the agreement without any reason and the judge was not persuaded that they would have been legally free to do so. (3) The judge therefore examined the evidence relating to the (undocumented) meeting in December. On the present state of the evidence, the only thing that both accounts agreed on was that the Lloyds' representative broke off negotiations. On the present state of the evidence, Mr McAllister had raised a triable issue whether the failure of the negotiations was due to unreasonable conduct on the part of the Lloyds' representative, and, contrary to the registrar's conclusion, it was at least arguable that this was a breach of an implied obligation pursuant to the letter of 15 November. (4) The other issue which arose under r.6.5(4)(a) was whether the amount of the counterclaim appeared to be equal to or greater than the claim. This was not an easy issue to analyse on the facts of the case. (5) However, there was also a triable dispute under r.6.5(4)(b) relating to the debt itself, which arose from Lloyds' apparent acceptance, in the letter of 15 November, of responsibility for the payments under the finality statements, subject only to best endeavours on the McAllisters' part and to the substitution of the obligation under the promissory notes. (6) The debts were disputed on substantial grounds under r.6.5(4)(b).

Appeal allowed. Statutory demands set aside.


The first appellant appeared in person. John Briggs instructed by Lloyds for the respondent.


LTL 4/12/98 (Unreported elsewhere)


Judgment Approved - 13 pages


Document No. AC8600303