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In the case of King v Bar Mutual Indemnity Fund (BMIF)  EWHC 1408 (Ch), the High Court in England made a ruling on the subject of when a statutory demand can be set aside.
In this case, the Kings applied to set aside a statutory demand, for a debt of £219,700.00 relating to an order for costs made against them following an unsuccessful lawsuit against their solicitors and counsel. Mr Downes, the barrister whom the Kings brought their lawsuit against, was awarded the sum of £219,700.00 and he assigned his right to the debt to BMIF, his insurer.
In a without prejudice letter, BMIF proposed that they would not enforce the statutory demand, if the Kings agreed to withhold from perusing separate professional negligence proceedings against two other barristers, who were also insured by BMIF.
In determining if the statutory demand could be set aside, the court had to comment on whether the debt was a liquidated sum and whether a cross demand was sufficient to set aside the statutory demand.
The Insolvency Act 1986 s.267 highlights the grounds for a creditor’s petition. S.267 (2)(a) states one of the grounds as, “the debt is for a liquidated sum.” The Kings’ case was that the order was not liquidated as it was “subject to detailed assessment on the indemnity basis if not agreed.”
The Court looked at the case of Afodu v Mortgage Express  for guidance and held that as the amount of the order could change, and the fact that there was a right of assessment, this did not turn the liquidated sum into an unliquidated one.
The Kings also argued that there was a cross demand, as further professional negligence proceedings were likely to commence.
BMIF argued that they were not part of these proceedings, as these were to be brought against Mr Taylor and Mr Morcos, who were two other barristers. However, the Kings relied on BMIF’s without prejudice offer as evidence that they were material to the proceedings.
As per Hurst v Bennett , “the courts are prepared in certain situations to look at the reality of the situation.” As a result, the court held that BMIF were the real defendants in proceedings, due to a without prejudice letter being issued.
Therefore, in its final judgement, the court held that there was a cross demand which was sufficient enough to set aside the statutory demand, as the value would exceed the value of the debt.
This article has been produced for general information purposes and further advice should be sought from a professional advisor.
If you would like further information on any of the issues raised in this article, please feel free to contact our Dispute Resolution team.