Claim No. 8313 of 2010
Neutral Citation Number: [2011] EWHC 1735 (Ch)
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
Civil Justice Centre
The Prior Courts
33 Bull Street
Birmingham
B4 6DS

Date: Wednesday, 22nd June 2011

Before:

HIS HONOUR JUDGE SIMON BARKER QC
(sitting as a judge of the High Court)
______________________

Between:

LEIGHTON CONTRACTING (QATAR) WLL
Applicant
-v-

RICHARD FRANK SIMMS
First Defendant
-and-

CAROLYNN JEAN CLARK
Second Defendant
-and-

ROOFLITE LIMITED
Third Defendant
______________________
Transcribed from the Official Tape Recording by
Apple Transcription Limited
Suite 104, Kingfisher Business Centre, Burnley Road, Rawtenstall, Lancashire BB4 8ES
Telephone: 0845 604 5642 – Fax: 01706 870838
______________________

Counsel for the Applicant:	MR COOK

Counsel for the First and Second Defendant:	MISS STONEFROST

Counsel for the Third Defendant:	MR BRIGGS
______________________

JUDGMENT

1.	THE JUDGE:  This judgment concerns an application for permission to amend an application dated 16th September 2010 by which Leighton Contracting (Qatar) WLL (Leighton) applies, first, for the revocation or suspension of a CVA approved at a meeting of the creditors of Rooflite Ltd (Rooflite), formerly known as Loddon Ltd, on 20th August last year, and/or, secondly, that the chairman of the meeting’s decision to attribute a value of £1 to Leighton’s vote be reversed or varied, and thirdly and fourthly, for further or other relief and costs.
2.	The original respondents were and are Mr Richard Simms and Miss Caroline Clark as the joint supervisors under the CVA.  By the time of the hearing before me, which took place over two days in February 2011, Rooflite had also become a participant, being represented by solicitors and counsel.  The amended application notice acknowledges Rooflite as third respondent.
3.	The application was argued fully over two days, 17th and 18th February this year, with very experienced specialist counsel appearing for all parties.  The basis of the application was a challenge under section 6(1)(b) of the Insolvency Act 1986 on the basis that there had been a material irregularity at or in relation to the meeting on 20th August last year.  The material irregularity complained of was the valuation of Leighton’s claim as a creditor at £1, treating as invalid the balance of the claim in the sum of some £1,281,879 for the reason that it related to “alleged breach of contract.”  This appears from the schedule of proxies in the hearing bundle annexed to the chairman’s report.
4.	At the meeting, Leighton had been represented by solicitors, DLA Piper, who had urged the chairman to treat Leighton’s claim as a liquidated sum rather than as an unliquidated sum.  There had been a meeting between the chairman and the solicitor from DLA Piper at which Leighton’s solicitor had expressly disavowed the treatment of Leighton’s claim as an unliquidated sum and given reasons for so doing.  The chairman had considered those representations and had also had a meeting with and listened to the solicitor from Leathes Prior, representing Rooflite.  As is implicit in the value attributed to the claim, the decision was that the claim was for an unliquidated sum.
5.	Moving to the hearing before me, the case was prepared and advanced on the basis that the chairman had been wrong to reject Leighton’s contention as to its claim and therefore that his decision was materially irregular because the claim should, at least, have been admitted in full and marked objected to in accordance with the provisions of IR 1.17A(4) of the Insolvency Rules 1986, which provides that: 
“If the chairman is in doubt whether a claim should be admitted or rejected, he shall mark it as objected to and allow votes to be cast in respect of it, subject to such votes being subsequently declared invalid if the objection to the claim is sustained”.
6.	Towards, or perhaps at the conclusion of Mr Cook’s, who is Leighton’s counsel, replies and submissions on 18th February, I asked him whether his client wished to have an opportunity to consider applying to amend the application notice and to advance an alternative case that if and to the extent that Leighton’s debt was or could properly have been treated as unliquidated it should nevertheless have been valued at more than £1.  This would have been in accordance with IR 1.17(3) which provides that:
“A creditor may vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained and for the purpose of voting (but not otherwise) his debt shall be valued at £1 unless the chairman agrees to put a higher value on it”.
Upon Mr Cook indicating that that was so, I gave directions for such an application to be prepared and heard if Leighton so desired.
7.	That has given rise to the application now before me.  The original application remains concluded insofar as there has been full argument but not yet reserved for judgment.  I therefore make no substantively determinative observation in respect of that application, or any matter argued at that application, at this stage in the course of this judgment.
8.	The precise form of the amendment sought is as follows.  It is the addition of two sub‑paragraphs to paragraph 2 of the application notice.  Paragraph 2 reads:  
“Further or in the alternative that with regard to the applicant’s vote at the meeting of creditors held on 20th August 2010 in respect of the above named company the decision of the chairman be reversed or varied on such terms as shall to this honourable seem just on the footing that…” 
and then here are the amendments:  
“(a)	the applicant’s claim to the sums of US$1,299,646 and US$ 727,152 should have been marked objected to and the applicant been allowed to vote in respect of such sums” [which was the case that was argued on 17th and 18th February, so that is really an enunciation of the existing case]; alternatively, 
(b)	if and insofar as the applicant’s claim for US$727,152 is in respect of a debt for an unliquidated amount or a debt whose value is not ascertained, the chairman should not have valued it at £1 but should have valued it at £453,698.63 and at certainly no less than £94,494.80, being the sum by which the creditors’ voluntary arrangement would have been defeated”.  That, of course, is the import of the new, or amended, argument which Mr Cook, for Leighton, now seeks permission to advance.
9.	There is further evidence in support of, and in opposition to, and by way of assistance to the court on this application.  That comes from Mr Dale Burtenshaw, Leighton’s general manager, Mr Phillip Jeans, who is the chairman and director of Rooflite, and Mr Peter Ford, who was the chairman of the meeting.  
10.	Mr Ford’s evidence in his statement of 11th March this year emphasises his neutrality and includes the following, which is unchallenged.  This is at paragraphs 6 through to the end of the statement:  
“I understand that the argument raised in the March application, in addition to those already raised in the September application, is that if the applicant’s claim for $727,152 is determined to be unliquidated, or to be a debt with an unascertained value, that as chairman I should not have valued the applicant’s claim at £1 but should have valued it at £453,698.63, or at not less than £94,494.80 [That obviously is just picking up clause 2(b) of the proposed amended application notice].  
In the light of the applicant having issued the March application I wish to record that at no time during the meeting was I asked to determine that the applicant’s claim was anything other than liquidated or unliquidated.  The solicitor representing the applicant presented the scenario to me as a choice between the two alternatives, liquidated or unliquidated.  In her view, as set out in her witness statement at paragraph 9(ii), the correct decision for me to have reached was that her client’s claim was liquidated.  At no time did she suggest that her client’s claim could or ought to have been characterised as unliquidated or that the value of more than £1 ought to be attributed to it.  
At the meeting the solicitor did suggest, as set out at paragraph 26 of her witness statement, that her client’s claim could be split, using her figures, into two parts of approximately $720,000 and approximately $1.2 million respectively and that I should determine each limb of the applicant’s claim should be treated individually.  For example, I could determine that one limb was liquidated and the other unliquidated.  
At no time did the solicitor argue that if I did determine that either limb, or indeed both limbs, of her client’s claim were unliquidated that I should attribute a value to either or both limbs of more than £1 but less than the full sum claimed in respect of each limb.  She certainly did not argue that the claim for approximately $720,000 should be attributed a value of either £453,000 odd [and the precise figure is given] or £94,000 odd [and again the precise figure is given].  The solicitor argued that her client’s claim was liquidated and it should be admitted in full.
On the basis that I was never asked to consider either limb of the applicant’s claim as having a value of more than £1 but less than the full sum claimed I do not understand how there can have been a material irregularity at the meeting which would allow the applicant now to challenge my decision on the basis stated in the March application.”  
It concludes:  
“I have in a supplemental statement sought to explain how matters appeared to me as the chairman of the meeting.  If the court permits the September application to be amended, the court will continue to look at the applicant’s claim afresh and, so far as the court’s decision on the matter is concerned, the first and second respondents continue to remain neutral.”
11.	Indeed, the solicitor from DLA Piper made a witness statement on 16th September last year in which she made clear that she sought to persuade Mr Ford that Leighton’s claim was a liquidated and not an unliquidated claim.  That appears at tab 4 of the original hearing bundle before me; and, in the course of the hearing today I have been referred expressly and have been taken through paragraphs 8, 9, 10, 11, 14, 24, 29, 30 and 36, especially 36.5, by Mr Briggs, who is counsel for Rooflite.  I, of course, bear those particular paragraphs in mind.  
12.	A fair summary of this evidence also appears in the first and second paragraphs of that solicitor’s attendance note of 20th August meeting which is also in the original hearing bundle behind divider 5 at page 8.  It reads as follows.  
“[The solicitor] explaining that, as a starting point, it was irrelevant whether the claim was disputed for the purpose of today’s meeting, since it was apparent that it was.  It was also the case that [Mr Ford] would be unlikely to be able to say clearly whether the claim was a “good” or “bad” claim, therefore it should be admitted for voting purposes but marked as disputed.  [Mr Ford] agreeing with this position.  
[The solicitor] explaining that the question to determine was whether the claim was liquidated or not and, to this end, it was clear that it was a liquidated claim, since the sums involved were ascertainable and, should Leighton be able to defeat the Company’s argument and opposition, the full sum of the claim (i.e. all monies paid over to the Company) would be repayable to Leighton.
13.	At the heart of this application to amend is the claim for US$727,152, which is said presently to have an equivalent sterling value of some £450,000.  This sum – that is the dollar sum – was invoiced and insured for the purposes of drawing on an irrevocable letter of credit as the price of a mock up stall for a stable to be constructed in Qatar, which was the subject of a sub-contract between Leighton and Rooflite, then as Loddon.
14.	There is very strong prima facie evidence that in fact a very substantial part of the sum the subject of that invoice – Leighton says almost the whole of it – was a “downtime” charge not expressly provided for in the contract and made at the rate of £120,000 a month.  By reference to this, Leighton says that the draw down under the letter of credit was unlawful and unjustified. 
15.	In a nutshell, and put quite bluntly, the irregularity addressed by the proposed amendment on Mr Cook’s contention is the chairman’s failure, having - it is to be assumed - correctly rejected Leighton’s solicitor’s argument that Leighton’s claim for US$727,000 odd, or its sterling equivalent, was liquidated, to then go on and put a higher value than £1 (in practice something in the order of £95,000 or more, so as to carry the vote) on the claim as an unliquidated debt.
16.	I turn now to the timing of this application.  It is a late application to amend.  On 18th February the parties were referred to a then recent Court of Appeal decision in Claire Swain-Mason & Ors v Mills & Reeve (a firm) [2011] EWCA Civ 14 and were asked to notify the court by 11th March (it then being thought that this hearing which has taken place today would take place on 23rd March) of any additional authorities to be relied upon.  None has been cited, although there is, of course, a judgment, albeit given somewhat later in April of this year by Mr Justice Peter Smith in the case of The Nottinghamshire and City of Nottingham Fire Authority v Gladman Commercial Properties [2011] EWHC 1918 (Ch).  However, the submission from the Bar is that I am to consider myself bound by the Court of Appeal decision and no further reference need be made in this case to the first instance decision of Mr Justice Peter Smith.  That, of course, must be right.
17.	Mr Cook submits that the instant case is, however, very different from the Swain‑Mason case.  He submits that the court has always to strike a balance and not to be too dogmatic in its approach.  First of all, and having in mind paragraph 73 of the judgment in the Swain-Mason case given by Lloyd LJ, this is not a case where the other parties would not know or be clear as to the case to be met if the amendment sought is permitted.  In addition, Mr Cook submits, there has been no history of delay or breach of any rules by Leighton.  Any further court time will flow only from a permitted amendment and thus no court time has been or will turn out to have been wasted.  There is no evidence of prejudice being, or to be, suffered by any of the respondents.  The parties are all commercial entities or professional individuals who are well able to take decisions and obtain advice so that any disadvantage would be limited to costs and the application is not solely for Leighton’s benefit.  The underlying alleged conduct is such that, submits Mr Cook, there should be an independent inquiry.  Therefore, submits Mr Cook, this case is wholly different from Swain‑Mason.
18.	Though not in terms referring me to the CPR or the overriding objective, Mr Cook’s submission is that this is a case where the overriding objective, that is, the just disposal of the case, would not be served or furthered if permission is refused.  At this point, it is perhaps just briefly worth reminding myself of the provisions of the overriding objective, or some of them.
19.	Dealing with the case justly includes, so far as practicable, ensuring that the parties are on an equal footing, saving expense, dealing with a case in a way that is proportionate to the amount of money involved, the importance of the case, the complexity of the issues and the financial position of each party, ensuring that it is dealt with expeditiously and fairly, and allotting to it an appropriate share of the court’s resources while taking into account the need to allot resources to other cases.  Those are all factors which are elements of the overarching or overriding objective, which is that the court is to deal with cases justly.
20.	By reference to Her Majesty’s Revenue & Customs v Maxwell & Anor (As Joint Administrators of Mercury Tax Group Ltd) [2010] EWCA Civ 1379, and in particular to paragraphs 42 to 47, at which the function of the judge is considered and it is said that “the judge should not merely review the decision of the chairman which is sought to be impugned: the judge should form his or her own view based on the evidence and the arguments advanced in court”.  Further, citing from the decision of Blackburne J in In re a Company (No 004539 of 1993) that “in considering the matter, the court is not confined to the evidence that was before the chairman at the time he made his decision but is entitled to consider whatever admissible evidence on the issue the parties to the appeal choose to place before the court”, in respect of which, at paragraph 44, it is said that “that analysis has been applied in a number of subsequent cases”.  Then, at paragraph 45, “At first sight, it is not clear whether the Judge adopted the correct approach in this case” ~ which is that that is cited above in the view of the Court of Appeal in that case.
21.	Mr Cook reminds me that the substantive hearing before me is a fresh hearing at which the judge is to form his or her own view based on the evidence the parties have chosen to put before the court and the arguments advanced in court, and not based on a review of the material that was before the chairman.  
22.	Mr Cook submits that a creditor may therefore have a second bite at the cherry because the procedure before the chairman is subject to constraints of time and other pressures which do not affect a court conducting a hearing pursuant to statute and the Insolvency Rules.
23.	The governing policy, submits Mr Cook, underlying a material irregularity challenge must be that a creditor’s claim is to be dealt with properly.  The precise irregularity in this case, Mr Cook contends, is the incorrect decision as to the value ascribed to the vote of Leighton.  Mr Cook points out that the appeal was made within the permitted 28 days and that, if permitted, amendment would not cause any significant delay while new facts are to be investigated or more evidence is to be adduced, and therefore the criteria under CPR 17.4, especially at 17.4(2), are satisfied and there can be no objection procedurally to the granting of permission to amend the application notice.
24.	Further, and by reference to documents already in evidence, Mr Cook argues that this is a particularly strong case and here, whilst I will not revisit them in this judgment, he refers me to the invoices and insurance documents at pages 107 through to 113 of the original hearing bundle in particular.
25.	Finally, Mr Cook submits that although not pressed by the creditor, perhaps more accurately although not dissuaded by the creditor, having decided to reject the liquidated or ascertained approach, the chairman could and should have turned his mind to what value to attribute to an unliquidated debt and plainly did not do so because, as his recent evidence makes clear, as no one suggested a figure higher than £1 to him he settled for that figure.
26.	Miss Stonefrost for the supervisors submits that such a proposition is fundamentally misconceived; that the fundamental task of the chairman is to remain neutral; and, that to do other than receive and evaluate (in the context of the constraints of a meeting) the various arguments put forward by creditor and debtor would be to vitiate or jeopardise that neutrality.
27.	As to policy, Miss Stonefrost submits that Mr Cook’s contentions effectively require a chairman to second guess alternative claims that may, or might, be made.  Miss Stonefrost submits that that would not be right.  She refers me in this context to Power Builders (Surrey) Ltd v Petrus Estates Ltd & Ors [2008] EWHC 2607 (Ch), a decision of Lewison J, between pages 254 and 256, especially passages from paragraphs 11, 12 and 13.  From paragraph 11, taking the citation from a decision of Harman J in Re: A Debtor, number 222 of 1990, reported at [1992] BCLC 137, which was cited to me during the earlier hearing, where Harman J said:  
“It provides a simple and clear rule for the chairman, not a lawyer, faced at a large meeting with speedy decisions necessary to be made to enable the meeting to reach a decision.  On that basis the chairman must look at the claim; if it is plain or obvious that it is a good claim he admits it, if it is plain or obvious that it is bad he rejects it, if there is a question, a doubt, he shall admit it but mark it as objected”.
28.	Then returning to the judgment of Lewison J, at paragraph 12 he continued:  
“If the chairman decides to mark the claim as objected to he must allow the alleged creditor to vote, but the vote is subject to subsequently declared invalid if the objection to the proof is sustained.  This is expressly provided for in r 4.70(3) itself” which has its equivalent in IR 1.17.
29.	Then later in that same paragraph 12:  
“Yet the only right of appeal is that contain in r 4.70(2) which allows appeal against the chairman’s decision.  Even if the objection to the proof is subsequently sustained, with the result that the creditor’s vote is invalidated, the chairman’s decision may have been entirely correct.  It is an oddity if an appeal succeeds against an entirely correct decision that that seems to be inherent in the way in which the rule is framed”.
30.	Then at paragraph 13:  
“Be that as it may, r 4.70(2) is the mechanism by which an objection to a proof may be tested.  It is important to emphasise, however, that what is in issue at this stage is the validity of the proof for the purposes of voting; not the validity of the proof for the purposes of participating in a dividend”.
31.	Pausing there, I note that Lewison J’s reference to the “chairman’s decision”, which, as Mr Cook submits, must be the meaning of the verb “agrees” in the relevant insolvency rule in this case, which is IR 1.17A(3):  
“A creditor may vote in respect of a debt for an unliquidated amount or a debt whose value is not ascertained and for the purposes of voting but not otherwise his debt shall be valued at £1 unless the chairman agrees to put a higher value on it.”
32.	Returning to Miss Stonefrost’s submissions, she submits that there is no material irregularity if a chairman simply gets it wrong through no fault of his own, and further that there must be an anchor point for any application.  That is provided by the statute and the rules, submits Ms Stonefrost, which make it clear that the onus is on the creditor to advance his claim or debt, and if he fails to do so that it is not capable of cure as a material irregularity by a hearing before a court.
33.	Mr Briggs, for Rooflite, submits that the process is intended to be a one bite only process, being rough and ready and imposing no duty on a chairman to investigate a claim in a way not foreshadowed.  
34.	By reference to IR 8, which concern proxies and company representation, and in particular IR 8.5, Mr Briggs submits that the Insolvency Rules support the proposition that the onus is on the creditor.  Mr Briggs emphatically supports Miss Stonefrost’s submission that it is not for a chairman to improve a creditor’s case and that that could, or would, lead to abandonment of neutrality on the part of the chairman.
35.	Drawing attention to the solicitor from DLA Piper’s evidence of the meeting, Mr Briggs submits that the court’s power to intervene only arises if it considers that the circumstances giving rise to the appeal give rise to a material irregularity.  That, of course, must be right because it is the languge itself the second paragraph of the rule under IR 1.17A(5).
36.	A material irregularity is, however, not confined to the manner in which a meeting is convened or conducted.  It is a matter of weighing the facts and asking whether the gateway to a fresh consideration can properly be passed through.  There is no doubting that Mr Ford wished to remain neutral.  He was being addressed by solicitors for Leighton and for Rooflite who were specialist practitioners in the field of insolvency.  However, it is also to be borne in mind that Mr Ford is no novice in insolvency.  He is an insolvency practitioner.  It was he who had it in mind that Leighton’s claim should be characterised as an unliquidated debt.  In my judgment, neutrality does not require abstention from discussion or passivity of approach.  This may be the more so in a case where the debtor and the creditor are not represented by skilled lawyers, but it applies also to the case where they are.
37.	I am not at this stage being asked to make, nor at this stage am I making, any finding as to whether or not there has actually been a material irregularity, but it seems to me that it is at least arguable in the ‘real prospect of success’ sense that a passive approach resulting in no thought being given to the question of whether an articulated case for a quantified claim might carry over to the valuation of an unliquidated debt at a value greater than £1 would not give rise to a policy of requiring a chairman to second guess alternatives and would be squarely within the objectively reasonable expectations of creditors and, one would hope, debtors, should have of a chairman conducting such meetings.  This must be all the more so where the value to be attributed to the vote might carry the day.  
38.	As Mr Cook rightly submits, this case is distinguishable from the Swain‑Mason case and I am persuaded by the arguments of Mr Cook, notwithstanding the very powerful counterarguments of Mr Briggs and the valuable assistance from Miss Stonefrost, that permission to amend should be given as sought.
[Judgment ends]