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Overview Of Indemnity Costs For A Statutory Demand

In the case of Makki v Bank of Beirut SAL [2022] EWHC 1206 (Ch) (“Makki”) costs were awarded on the indemnity basis after a Statutory Demand had been set aside on 13 April 2022.

The Statutory Demand was set aside due to the existence of a triable issue bringing Rule 10.5(5)(a) of the Insolvency Rules 2016 into play.

This case highlights the cardinal principle that you MUST NOT, absolutely MUST NOT issue a Statutory Demand in cases where there is a real, material and live dispute between the parties which means the debt in question might not be due.

In this case, Mr Makki’s costs were so large (totalling £207,324) that a detailed assessment was ordered:

… Mr Makki’s costs exceed £100,000. They are too substantial to be dealt with summarily (as was the case in, for example, Les Abassadeurs Club Ltd v Albluewi [2020] 4 WLR 88 (QB)). In that regard, Mr Robins submitted that Mr Makki’s costs (or at least, the aggregate sum of the three costs statements) were “extraordinarily large”, that they give rise (on the Bank’s case) to a large number of issues, and that as a result, a detailed assessment is appropriate.

Why Were Costs Ordered On The Indemnity Basis?

Costs were ordered on the indemnity basis for setting aside the Statutory Demand because of what such a demand means.

Prejudice To A Party

A Statutory Demand is in effect a demand that gives rise to insolvency proceedings. It therefore follows that before moving in that direction, a triable issue (of the debt) should not be present given the likely prejudice arising from the allegation:

The courts have long emphasised (as it was put in In Re Kirkman-Moeller [2005] BPIR 1136 at [10]-[11], by Lindsay J) that prospective insolvency proceedings are “… a particular area where it is especially familiar to parties that to go ahead … without a judgment or without a truly clear debt is a risky matter. It is perhaps more emphasised in the context of company winding up petitions than it is in the similar (but not wholly similar) proceedings in bankruptcy, but the notion is a familiar one and, as I have mentioned, Mr. Registrar Nicholls warned of that risk, quite rightly, in June 2004.” Unfounded allegations of insolvency are particularly likely to cause prejudice to those against whom they are made.

Abuse Of Process

It is deemed to be an abuse of process to attempt to collect a debt using insolvency proceedings:

As was said by CICCJ Briggs in Go Capital Ltd v Phull [2020] BPIR 819, 831-2, at [50]:

“I would add that during submissions I asked Mr Lewis [counsel for the company which had served the statutory demand] why the Company had brought bankruptcy proceedings. He responded that it was a quick and inexpensive way to enforce the debt. The courts have stated many times that there are important differences between insolvency proceedings and an ordinary civil action. First, insolvency proceedings are class actions designed to secure distribution of an insolvent’s assets pari passu between all creditors. They are not merely a debt collection process. The primary purpose of the proceedings is to enable an independent person to ascertain and preserve the debtor’s assets and to achieve that pari passu distribution. Secondly, unlike ordinary civil proceedings, the presentation of a petition has the effect that any disposition of property made without the consent of the court by a person who is subsequently adjudicated bankrupt is void. Insolvency proceedings should not be used as a method of enforcement. Where they are so used the petitioner faces the prospect of an adverse indemnity costs order.”

In Makki, there was a judgment in Lebanese Proceedings in his favour involving the seizure of some bank assets. As a result, the Court here likened the Bank of Beruit’s conduct to that of debt collection and also said:

… as I have said above, the Bank’s case that Mr Makki’s claim in Lebanon is without substance was hopeless, and in the context of a prospective bankruptcy petition, ought not to have made and persisted in. That it was, is sufficient to justify the award of indemnity costs

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This page Indemnity Costs For Statutory Demand is not legal advice and should not be relied upon as such. This article Indemnity Costs For Statutory Demand is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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