Court will not permit rehearing of matters decided on the merits in bankruptcy cases

March 7, 2017

In its judgment in Harvey v Dunbar Assets plc [2017] EWCA Civ 80 the Court of Appeal held that where an issue is disposed of on the merits against a debtor in a bankruptcy proceeding, it is not open to the debtor to run the same point again at a later stage in the proceedings. The principle is grounded in preventing the court’s time being wasted and its process being abused rather on any rule of law which stops the party raising the point for a second time.

The facts in Harvey were unusual. Mr Harvey entered into a limited guarantee in favour of Dunbar which guaranteed the liabilities of a company of which he was not a director or shareholder under a loan. The company defaulted on the loan and the bank sought to enforce the guarantee. The bank presented a statutory demand, which Mr Harvey applied to set aside on the basis that he had been assured by the bank’s representative that the guarantee would never be enforced. The judge heard and dismissed the application on the grounds that the defence had no real prospect of succeeding.

Following his defeat Mr Harvey sought to re-open the application and introduce a new ground, namely that one of his co-guarantors had not in fact signed up to the guarantee (the co-guarantor alleged in separate proceedings that his signature had been forged). The judge refused to deal with the point as part of the initial application but granted leave to appeal so that the new point could be taken. The new point was taken and succeeded on appeal and the statutory demand was set aside, but there was no appeal against the judge’s finding that Mr Harvey’s defence based on what he was told by the bank’s representative about enforcing the guarantee.

The forgery point was subsequently decided against the co-guarantor, meaning that the guarantee could once again be enforced against Mr Harvey; the bank duly presented a second statutory demand. Mr Harvey applied to set this second statutory demand aside on the same grounds as he had relied on in his application to set aside the first statutory demand, except this time he put forward additional evidence, obtained from other guarantors, which spoke to the bank’s alleged practice of representing to guarantors that it did not and would not enforce guarantees given by individuals.

The judge hearing the application (who was the same judge who had heard the application to set aside the first statutory demand) dismissed the application to set aside the second demand. He did so on the basis that the decision on the first application was res judicata and gave rise to an estoppel which prevented Mr Harvey running the same point again. But the judge also said that if he was wrong about that then he would have dismissed the application because the defence Mr Harvey was running this time around had not changed and still did not have a real prospect of success. That decision was upheld on appeal. Permission was obtained for a second appeal to the Court of Appeal.

The Court of Appeal dismissed the appeal. It held that while Mr Harvey was not prevented from running his defence again by reason of res judicata (as the order which had been made dismissing his first application had been vacated on appeal), he was prevented from doing so under the principle established by the Court of Appeal in 2000 in Turner v Bank of Scotland, namely that it was a form of abuse of process because it would be a waste of the court’s time and the parties’ money and defeat the purpose of the statutory scheme to allow a debtor to continue to dispute a debt at the hearing of the bankruptcy petition if the court had already decided that there was no real defence to the claim when the debtor had applied to set aside the statutory demand. The Court of Appeal in Harvey said however thatthe principle applied to each of the different stages in the bankruptcy process and, as here, even to different sets of bankruptcy proceedings commenced in respect of the same debt.


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