Appeal Against Statutory Demand Rejected – “if there was a fraud it was a good fraud”

Overview Of The Appeal Against The Rejected Statutory Demand

In the matter of Swallow v Mashreqbank PSC [2021] EWHC 3265 (Ch) an appeal against a Statutory Demand was rejected after being rather carefully dissected by Jon Turner QC, sitting as Deputy High Court Judge.

It highlighted a position adopted by the appellant that appeared incredible and the Court sliced its way through the grounds of appeal as a result seemingly with some alacrity.

The issue at large was helpfully articulated so you knew where you were going from the starting blocks:

The central issue in the appeal concerns the principles that the Court should apply when assessing evidence put forward in opposition to a statutory demand for a debt, which is intended to show that there is a substantial ground for disputing it.

The Statutory Demand Debt And ‘Incredible’ Denial

The debt in question, owed by Mr Swallow to Mashreqbank PSC (“the Bank”) in the sum of £188.098.50, related to a loan agreement. An earlier application to set aside the Statutory Demand had been rejected following an order on 5 October 2020 at a hearing in Slough County Court.

Mr Swallow disputed the debt on what he said was substantial grounds suggesting he had had no dealings “whatsoever” with the Bank.

Notwithstanding the production of bank statements and loan agreements, Mr Swallow continued to contest the matter. He said that the documents arose via “fraud” on him.

The matter initially went before a District Judge who said Mr Swallow’s denial of the debt was “no more than fanciful” and “incredible or virtually incredible“.

Amongst the other points made on his behalf, Mr Swallow suggested that his fraud proposition meant that in respect of the appeal, to be determined by Jon Turner QC, that it needed to be ironed out by way of cross-examination.

The Burden On The Appellant

At the appeal the Court said that the burden was on Mr Swallow:

1. The correctness of such an approach as a matter of judicial policy is supported by the judgment of Chadwick J. (as he then was) in Re a Company No. 006685 of 1996 [1997] BCC 830. That was a case of a company applying to restrain advertisement of a winding-up petition presented in relation to it, on the basis of a debt which the company claimed was disputed. Chadwick J. cited the earlier decision of the Court of Appeal in Re Claybridge Shipping Company SA [1981] Com LR 107, in which Oliver LJ had explained the reasons of judicial policy for requiring a party disputing a winding-up petition to show that its objections had real substance. Chadwick J concluded his judgment, at p.841B-C:

“For those reasons, I reach the conclusion that this is a case in which the dispute now said to exist is not founded on any substantial grounds. Rather, this is one of those cases in which, as Oliver LJ observed in Re Claybridge Shipping Company SA., an unwilling debtor is raising a cloud of objections on affidavit in order to claim that a dispute of fact exists which cannot be determined without cross-examination so that the petition cannot be allowed to proceed. Staughton LJ pointed out in Re Taylor’s Industrial Flooring Ltd that anything that the law could do to discourage such behaviour should be done.”

Furthermore, I consider that it is unimpeachable – indeed, it is appropriate – for the Court to assess the evidence adduced by parties in a context such as the present “in the round”, which is exactly what the District Judge did in this case. It is not good enough for a party disputing a statutory demand on grounds that are said to be substantial to claim that each factual element of the case against it should be examined in total isolation from the remainder. If there are multiple separate reasons given for finding a certain fact, they may in the particular circumstances of the case be mutually reinforcing of each other – even taking into account that there is a theoretical possibility that each of them if viewed in isolation could be undermined – and the overall picture which all of them create together may be irresistible.

It seems that the problem for Mr Swallow was that whilst he trained his sights very carefully on the Bank’s witness statement evidence and yet with respect to his own evidence it appears suggested that he was not quite so thorough and comprehensive in illuminating matters for the Court:

… he did not hesitate to contradict detailed elements in them which he said were false. For example, in paragraph 7.4 of his second witness statement, Mr. Swallow said that the loan application form contained a number of inaccuracies, such as the misspelling of his UK home address as “Holly Port Road” rather than “Holyport Road”, and a suggestion that the loan amount appeared to have been altered because there seemed to be a number beneath the second “0” that had been written over. In contrast, there are major gaps in Mr. Swallow’s account, highlighted by the District Judge, which are matters that Mr. Swallow could have been expected to deal with in his response to the Bank’s case. These include, notably: the conspicuous failure to refer to his UK home address in his second witness statement (or at all); the failure to deal in his evidence with whether his salary was 90,000 AED – as the Bank’s documentation specifically indicated; and the failure to deal anywhere in his evidence with the genuineness of the 216 account, including by asking for confirmation from his wife about it.

In my judgment, it is not the case that where a party puts forward a witness statement with a view to showing that there are substantial grounds to dispute a debt, and it is evident that the written evidence has conspicuous and serious failures to address points clearly made by the opposing party, he or she nonetheless has an entitlement to go to trial so that they can deal with those omissions orally – in other words, a second bite of the cherry.

As respects the argument that there ought nonetheless to be an opportunity to test oral evidence from Bank employees who have direct knowledge of the initial dealings in 2009 with Mr. Swallow or The UK Dental Clinics, or at least having knowledge of the Bank’s relevant protocols and checks at that time, I consider that this submission too is wrong. The opposing party has a choice as to what evidence they decide to lead at a trial. If the Bank chose not to adduce such evidence at a trial, this would not mean that the Bank was bound to lose. In the circumstances of this particular case, it does not appear at all likely that useful oral evidence concerning these detailed events in 2009, capable of affecting the outcome of the dispute in view of the evidence looked at in the round, would necessarily even be available at trial from the relevant (but currently unknown) individuals employed by the Bank.

Fanciful

The Judge hearing this appeal considered the case when looked at overall ‘in the round’, to be one where Mr Swallow was liable for the Bank’s debt. He considered it fanciful to suggest that fraud had arisen in accordance with the discrete facts of the case:

Standing back, I differ from the District Judge in my own assessment mainly in that I consider the most important elements to be (i) the fact that both the credit card and loan were regularly serviced over around a full year-and-a-half; (ii) the fact that this pattern sharply changed at the very time Mr. Swallow moved back to the UK, and (iii) the fact that thereafter the spend on the credit card in November 2010 was of a nature, and was carried out in a geographic area, that make it fanciful to suggest that anyone other than Mr. Swallow was responsible for it. I observe that Mr. Swallow’s criticism in relation to his UK home address on the loan application form was that the street name was misspelled, not that it was wrong, and I also note that the details of the UK home address given in the loan application form were more complete than those found in the accompanying copy passport, meaning that a fraudster could not simply have copied them across.

I consider it equally fanciful to suggest that senior individuals within the Bank or an unconnected fraudulent third party could have engineered such an elaborate fraud. In this regard, I discount at the outset as entirely fanciful the possibility that someone in the Bank could have ingeniously manufactured the entire set of documentation in the year 2018 in order to frame Mr. Swallow. As Mr. Smith pointed out, the elaborate fraud on Mr. Swallow would therefore have necessarily involved servicing all the credit card and loan facilities over around a full year-and-a-half, then tracking Mr. Swallow’s physical movements both to and within the UK, and then falsifying modest grocery and charity spending in November 2010. This is also not capable of belief. Against this context, Ms Dixon’s argument that something may nonetheless turn up via disclosure in a trial context that could affect the outcome, seems to me to be insubstantial.

Credibility

Counsel for Mr Swallow said that the judge at Slough County Court should not have decided Mr Swallow had lied in his evidence without cross-examination having taken place. Jon Turner QC disagreed.

He said:

I do not accept either the premise or the conclusion of this point. As mentioned at paragraph 71 above, the issue decided was that Mr. Swallow’s account was not credible, as a matter of objective assessment of the case in the round. It was not that he was deliberately lying. (This distinction was made by the District Judge himself, in the course of refusing to give permission on this sub-ground, and was not contradicted by anything in Fancourt J’s reasons for deciding subsequently to grant permission compendiously on Ground 3 in the written grounds). The case authorities are also clear that the fact that a witness’ written evidence concerning significant primary facts is disputed by the opposing party, in a context such as the present, does not automatically trigger the need for cross-examination at a trial. In Long v. Farrer [2004] EWHC 1774 (Ch) at [57]-[61], Rimer J. (as he then was) discussed the principles. At [60], he quoted with approval the judgment of Chadwick J. (as he then was) in In re a Company (No. 006685 of 1996) stating:

“I accept that any court, and particularly the Companies Court, should not seek to resolve issues of fact without cross-examination where there is credible evidence on each side. But I do not accept that the court is bound to hold that there is a need for a trial in circumstances in which, on a proper understanding of the documents, the evidence asserted in the affidavits on one side is simply incredible.”

In the present case, the evidence asserted in Mr. Swallow’s witness statements was, on a proper understanding of the documents, not credible. Ms Dixon urged in her oral submissions that Mr. Swallow’s essential case was that he had been a victim of a fraud – and this proposition was by no means incredible. If one puts the case only at that high level of abstraction, that is true but uninformative: the real point is that Mr. Swallow’s specific denials were not believable in view of the overwhelming documentary evidence against them.

“… A Good Fraud”

There were various other grounds of appeal which were rejected but an unusual approach to challenging a judicial decision appears to have been to say that it was not open to the first judge in Slough County Court to reason a decision on the basis of “a good fraud”:

This final point of appeal raises essentially the same issue as has already been addressed under heading (f) above. It mischaracterises what the District Judge was saying. His point was not that “if there was a fraud it was a good fraud”. He was drawing attention to the inherent implausibility of what would need to be assumed in order for Mr. Swallow’s case to be accepted.

Oliver Elliot Comment: Appeal Against Statutory Demand

This case highlights some of the key ingredients on how to set aside a Statutory Demand. The nature of the burden on the party appealing the Statutory Demand suggests that it is the type of application where you need to put your cards on the table and furthermore you conceivably should not necessarily expect that suggesting that you are the victim of fraud will mean you will have your day in Court giving oral evidence under cross-examination.

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