About this case:

• Citation:
  [2022] NICh 5
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Madam Justice McBride

In addition, the debtor’s request for an extension of time to set aside the statutory demand upon which the bankruptcy order was based was found to be groundless.

Background

A farmer named Mr Elliott was declared bankrupt in 2018. A trustee sought to take possession of his herd of beef cattle but Alan McFarland, the debtor in this case, claimed ownership of the herd. As a result of this dispute the trustee had to apply to the court to determine title to the cattle.

On 12 March 2019 the court ordered the debtor to deliver up the cattle to the trustee. The debtor failed to comply with this court order, and instead asserted that he had a lien on the cattle for the cost of feeding and caring for them.

The trustee issued contempt proceedings against the debtor. When these were listed for hearing on 5 April 2019 the parties entered into terms of settlement, which required the debtor to pay the trustee a sum of £70,000, and thereafter the herd would pass to the debtor.

The debtor paid three £10,000 instalments but failed to pay the final instalment of £40,000. He argued that he could not make the final payment because he was unable to sell the cattle, because KMCC Livestock Ltd were asserting title to some of the cattle.

On 19 August 2019 the trustee served a statutory demand personally on the debtor. The court in this case was tasked with determining whether there should be an extension of time to set aside the statutory demand, as the deadline had long passed.

Consideration

The court noted that in Davis v Northern Ireland Carriers [1979] NI 19, the test comprises two main elements: (a) the duration and reasons for the delay and (b) the merits of the application specifically and more generally.

(a) The duration and explanation for delay

The debtor submitted emails that indicated that he always refuted the debt claimed in the statutory demand on the grounds that he had a counterclaim based on the costs of housing and feeding the cattle.

He believed the dispute over the statutory demand “had been resolved”, and argued that he should not be held responsible for the default of his former solicitors in failing to apply to set aside the statutory demand within the time limit.

Thereafter, he argued that any additional delay on his part was a result of the pandemic. He submitted that the delay did not arise as a result of any default on his part.

The court found that there had been substantial delay in the case, and was satisfied that the debtor was responsible for part of the delay.

The judge did not accept his claim that the dispute over the statutory demand “had been resolved.” The debtor’s former solicitors advised him by email on 9 September 2019 that the statutory demand had not been set aside.

The court also noted that key hearings had been ignored in the debtor’s affidavit, and this gave the impression that the debtor was being “less than frank and honest with the court”.

The court did, however, accept that the pandemic has caused some of the later delay complained of.

(b) Merits of the Application

The debtor’s claim was that he had a point of substance which could not otherwise be put forward if time was not extended. The debtor would be prejudiced in a way that could not be compensated whilst any prejudice to the trustee could be compensated in costs.

His central argument was that he only failed to make his final payment on time because he could not sell the cattle, as KMCC made a claim to some of the cattle. Until the court ruled on this point, he had to feed and house the cattle, and the trustee, as owner of the cattle, was therefore liable for his costs.

These costs were equal or above the debt of £35,000, and so he claimed that he had a counterclaim which was a complete defence to the statutory demand. He argued that everyone understood that the sale of the cattle was required to raise the necessary funds to make the final payment of £40,000

The court found that the debtor’s counterclaim had no real prospect of success and was “a hopeless case”.

Firstly, KMCC’s claim for the cattle was initiated on 8 May 2019, but the final payment was due on or before 3 May 2019. Therefore, the third-party claim occurred 5 days after the date when the final instalment was due.

Second, the debtor did not provide any proof for his claim that he had spent in excess of £35,000 on feeding and housing the cattle. Further, his affidavit did not suggest he sustained any loss when the cattle were sold.

Conclusion

The court found that the debtor was obliged to pay £70,000 by way of instalments on or before certain specified dates. There was no express or implied term that payment of the instalments was conditional on the debtor selling cattle.

The judge was satisfied that the debtor failed to demonstrate that his counterclaim had any real prospect of success. Justice did not require the exercise of discretion to extend time to set aside the statutory demand.

Finally, the Master did not err in making a bankruptcy order, and that appeal was dismissed.