Barclays Bank v Atay [2015] EWHC 319 (Ch)

Introduction

In Barclays Bank v Atay the defendant to litigation entered a consent order agreeing to pay the claimant sums of money to meet the claim over an extended period of time. The repayment terms are breached by the defendant permitting the claimant to enter judgment for a sum greater than the sum of repayments over the agreed period. Judgment is entered. A statutory demand is served based on the judgment. The demand is not met or set aside. A petition for bankruptcy is presented. The defendant (now debtor) offers to pay the arrears of the scheduled payments in accordance with the Consent Order and maintain the instalments in the future. The petitioning creditor refuses to accept the offer. Further offers are made and refused. The question for the court is whether the petitioning creditor has unreasonably refused to compound the debt.

Going behind a judgment in bankruptcy / insolvency proceedings – The duty of inquiry

At paragraph 9 through to 11 of the judgment Registrar Briggs referred to the fourth edition of the Law of Insolvency by Ian Fletcher and a number of authorities establishing the doctrine of no res judicata within any insolvency proceeding it is be shown that there is not a debt due “in truth and realty”:

“The ability of the Bankruptcy Court to go behind a judgment where necessary was well established by a series of 19th Century cases and although this species of scrutiny is not carried out as a matter of course, it is always possible for it to be done if it is expressly requested, whether by the debtor himself or by the trustee in bankruptcy. Nor is it any obstacle to the invocation of this doctrine that the debtor has originally consented to the very judgment against himself which he is now attacking, or that his earlier appeal from the judgment was dismissed. One justification for the existence of this power is that a debtor might connive with others to allow a number of bogus default judgments to be entered against himself by his ‘allies’ who could rescue some of his estate on his behalf by pater proving for the debts in the bankruptcy. But the far more usual occasion for invoking this doctrine is when it is the debtor who will otherwise suffer injustice, and this is particularly capable of occurring when the judgment was obtained by a compromise of action or by default. A default judgment, by its very nature involves a one-sided presentation of the facts which may lack objectivity and may even be inaccurate or unfair, whilst it may equally be possible to show that the terms upon which an action was compromised were unfair or unreasonable from the debtor’s point of view. In either situation if the court accepts that the result is unfair the petition may be dismissed”.

Test for miscarriage of justice

Paragraph 12 of the judgment set out the basic test for evoking the doctrine of inquiry on the grounds of miscarriage of justice in absence of vitiating factors such as collusion, fraud, manifest error or misrepresentation and it was found in the case of the defendant, there were no grounds from which to have done so and hence the application failed:

“In my judgment the factual circumstances surrounding the 21 August 2014 judgment do not justify the exercise by the Bankruptcy Court of its extraordinary jurisdiction to go behind a judgment. Mr. Shaw accepts that there are no vitiating factors such as fraud, collusion, mistake, undue influence or misrepresentation. No particulars of miscarriage of justice have been identified. I accept that the jurisdiction may extend to compromise agreements but doubt that mere unfairness as to the terms, from the stand point of the debtor is sufficient. Absent a vitiating factor there has to be a miscarriage of justice to in order to engage the jurisdiction. To test whether there has been a miscarriage of justice the court can ask, if following a properly conducted judicial process where argument is put and tested, preferably by all parties, it would be found that nothing is in fact due.“

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Barclays Bank v Atay [2015] EWHC 319 (Ch) – The judgment (PDF – view only)

Further reading – Insolvency proceedings

Going behind a judgment in bankruptcy / insolvency proceedings.

Re Fraser ex parte Central Bank of London (1892) – Fraser was a judgment debtor, who had exhaustively challenged the imposition of a judgment debt upon him, but without success. Fraser’s application to set aside the judgment debt had failed before a Master (twice), Judge (once), Divisional Court (once) and Court of Appeal (once), yet this presented no bar in the Bankruptcy Court.

In Dawodo v American Express [2001] BPIR 983, Etherton J concluded that it is not res judicata for the insolvency court to exercise it’s duty of inquiry.