Mohammed Ghadami v Donegan (2014)
Although a judge had erred because, in refusing to set aside a statutory demand founded on a unpaid costs order, he had done so on the wrong basis, his decision was upheld because the counterclaim advanced by the subject of the demand in the underlying proceedings which had led to the making of the demand was entirely unsustainable.
The appellant (G) appealed against a decision dismissing his application to set aside a statutory demand served on him by the respondent (D).
In 2006, G and D had entered negotiations relating to a proposed joint venture agreement for the acquisition and development of certain property. The venture never proceeded. G later claimed that, in the course of negotiations, D had promised to transfer to him his own property as a non-refundable deposit, irrespective of whether the venture actually went ahead. On that basis, G registered against D's property a unilateral notice claiming that, as a result of D's promise, he had become entitled to a beneficial interest in D's property by way of proprietory estoppel. In 2007, D applied to have the unilateral notice discharged. The judge found that there had been no contract providing for the transfer of D's property to G. He also found that, although it was just arguable that D had promised to transfer his property to G, there had been no detrimental reliance on such a promise, and therefore there was no proprietary estoppel. In the transcript of discussions following his judgment, the judge stated that, on the basis of his findings, any counterclaim by G relying on contract or proprietary estoppel was unsustainable, but he did not strike out any such counterclaim. D later sought damages for G's improper registration of the notice. G filed a counterclaim in those proceedings, relying on the existence of a contract for the transfer of D's property, misrepresentation and the existence of a constructive trust. D applied to strike out G's counterclaim, and G applied to have the master hearing the application recused. The master refused to recuse himself and ordered G to pay the resulting costs. He made an interim award of £70,000, which G failed to pay. D then issued a statutory demand. The judge refused to set aside the statutory demand on G's application. In doing so, he said that he regarded G's counterclaim as irrelevant to the matters which he had to decide because there was no set-off for the counterclaim.
By reference to the relevant authorities, the judge was plainly wrong to have regarded the counterclaim as irrelevant to the matters he had to consider simply because it would not otherwise be capable of being set off against the debt on which the statutory demand was based, Popely v Popely  EWCA Civ 463,  B.P.I.R. 778 followed. Accordingly, the judge was at fault on the basis on which he dismissed G's appeal. However, it was nonetheless obvious that G's counterclaim was entirely unsustainable. To the extent that G's counterclaim alleged a contract between him and D for the transfer of D's property, it was totally unviable and inconsistent with the findings made in 2007, and as a matter of issue estoppel it was not open to G to raise those issues again. Further, any such agreement would fall foul of the Law of Property (Miscellaneous Provisions) Act 1989 s.2, which required any contract for the transfer of land to be in writing. As to any counterclaim based on misrepresentation, the judge in 2007 had plainly found that, even on the assumption that there had been a promise by D, there had been no detrimental reliance on such a promise, and accordingly any argument based on misrepresentation was hopeless. As to any argument alleging a constructive trust, such a trust could only have arisen if it was unconscionable for D not to have transferred the property. That would only be the case if there was a contract or a proprietory estoppel, which on the previous findings there was not. In those circumstances, although the judge had erred in not going into the merits of G's counterclaim, the counterclaim was hopeless in any event. Therefore, given that G did not have a counterclaim that exceeded the amount of the debt stated in the statutory demand, in accordance with the Insolvency Rules 1986 r.6.5(4), there was no ground for setting aside the statutory demand. The right course was to uphold the lower decision, albeit on different bases to those which the judge had relied on.