Joanna Rich v JDDR Capital Limited

This is the judgment in relation to an application to set aside a statutory demand against Mrs Joanna Rich (Mrs Rich) and a petition against Mr Clive Rich (Mr Rich) relating to the same debt claimed under a personal guarantee provided by them in relation to a loan granted to LawBit Limited (Lawbit). Mr and Mrs Rich are directors of Lawbit.

By a statutory demand dated 23 September 2024, JDDR Capital Limited (the Creditor) demanded the sum of £920,000 from Mrs Rich pursuant to a personal guarantee she had provided to Muskoka Estates Limited (Muskoka) on 30 June 2023. That personal guarantee was provided pursuant to the terms of a loan agreement (the agreement) entered into between Muskoka and Lawbit. Under the terms of that agreement Muskoka loaned £500,000 to Lawbit. Interest was due and default interest was payable if the loan was not paid within its due date. Repament of the loan was not made and remains outstanding alongside the interest claimed. On 15 October 2024, Mrs Rich made an application to set aside the statutory demand presented against her by the Creditor.

On 2 December 2024, the Creditor presented a bankruptcy petition against Mr Rich based on the same personal guarantee. The Creditor had previously served a statutory demand on Mr Rich in identical terms as the one against Mrs Rich. Mr Rich asserts that he also made an application to set aside the statutory demand served on him by the Creditor. Before me, I do not have that application but instead I have the petition issued by the Creditor as there was no application to set aside filed and served by Mr Rich.

The grounds of opposition of the petition against Mr Rich and the grounds relied upon by Mrs Rich are essentially identical on the issue as to whether there is a debt disputed on substantial grounds (the disputed debt issue). Both of them assert that there was some understanding/ representation and/or an estoppel and/or waiver such that the agreement/personal guarantees cannot be enforced. Mr Rich raises two further grounds for the dismissal of the petition, being :-

Lawbit was a business providing legal services. It entered administration on 24 September 2024. On 30 June 2023, Lawbit entered into the agreement with Muskoka (called the lender in the various agreements) for the advance of the sum of £500,000. The loan was drawn down on 1 July 2023. In accordance with clause 7 of the agreement, the loan fell due for payment in full on 1 January 2024. Pursuant to clause 6.1 of the agreement, interest was agreed to accrue at a rate of £30,000 per month for the first six months and thereafter if the loan was not fully repaid by 1 April 2024, interest would accrue at a higher rate of £45,000 per month until full repayment occurred.

As part of the conditions precedent of the agreement set out at Clause 4, it was required that:

The Events of Default are set out in Clause 12 of the agreement and on occurrence of any of the listed events, under Clause 12.15 the Borrower could, by notice, cancel the agreement and declare the loan repayable, and/or exercise any or all of its rights, remedies, powers or discretions under the security documents, which are defined to include the guarantee.

Under Clause 17 of the agreement, the lender could, without consent of the Borrower, assign any of its rights or transfer any of its rights and obligations under the agreement.

On 30 June 2023, both Mr and Mrs Rich entered into personal guarantees as stipulated in the agreement. The first page of the joint guarantee states as follows:-

Mr and Mrs Rich were named jointly and severally as ‘guarantors’ under the parties section of the guarantee. The borrower is defined as Lawbit and also incorrectly, Mr and Mrs Rich. The agreement is referred to as the Primary Agreement. The ‘guaranteed amounts’ are defined as follows:-

Clause 2 of the guarantee sets out the guarantee provided, being :-

Clause 3.3 states:

Further relevant clauses in the agreement are as follows:-

By a letter dated 30 June 2023, Spencer West, solicitors, certified that they had provided legal advice to Mr and Mrs Rich relating to the legal nature, conditions and practical implications of the loan agreement and the guarantee.

At the same time as execution of the agreement, Mr David Russell, a director and shareholder of Muskoka, entered into a call option agreement with Lawbit. Under its terms, the option was exercisable by Mr Russell after the loan was repaid and the option was open for a 10 year period. Under its terms, there was no obligation upon Mr Russell to exercise the option to acquire shares in Lawbit.

In breach of the agreement, neither the principal sum of £500,000 under the agreement or any interest that accrued during the term of the loan or pursuant to Clause 6.5.1 has been paid by 1 January 2024, 1 April 2024 or since. Interest continues to accrue.

The evidence shows that Mr and Mrs Rich made several attempts to obtain funding from various parties for Lawbit, but the loan was not repaid in accordance with the terms of the agreement. There are an exchange of emails from October 2023 in the evidence before me. In the email dated 2 October 2023, Mr Russell stated that Mr Rich/Lawbit owed the sum of £500,000 to Mukoka plus interest of £40,000 (August ) and £30,000 (September) and then £30,000 (October). The email then continued with Mr Russell setting out potential terms for an additional loan of £80,000 which Mr Rich had sought from Mr Russell/Mukoka. In the email dated 3 October 2023, in reply, Mr Rich stated that he was grateful and happy to agree what was set out in Mr Russell’s email. In a later email dated 29 December 2023, from Mr Rich to Mr Russell, Mr Rich states that he appreciates that Mr Russell wants certainty of repayment dates and seeks to assure Mr Russell that Muskoka’s creditor claims are not effectively at the bottom of the list of those which need to be paid. As stated above, no payments were made to Muskoka under the terms of the agreement.

Demands were made against Mr and Mrs Rich for payment under the terms of the guarantee. There is in the evidence a letter dated 14 May 2024 demanding repayment by them pursuant to the guarantee. Statutory demands dated 23 May 2024 were then issued against Mr and Mrs Rich. Applications to set aside the demand were made by them. Before the hearing of those applications, by deed of assignment dated 19 September 2024, Muskoka assigned to the Creditor all its rights, interest and benefits in and to the agreement, the guarantee and the monies owing by Lawbit and each of the guarantors to Muskoka. The notice of assignment was duly served on Mr and Mrs Rich.

The Creditor served fresh statutory demands dated 15 October 2024 upon Mr and Mrs Rich. A subsequent order by this court directed that the petition and Mrs Rich’s application to set aside the statutory demand be heard at the same hearing. Both Mr and Mrs Rich rely on various witness statements which they have filed.

There is agreement between the parties as to the relevant principles. The same test applies to the application to set aside the statutory demand and the opposition to the bankruptcy petition. This test is whether the debt is disputed on grounds which appear to be court to be substantial. Obviously in a case where the debtor has already argued his disputed debt case and failed, he will not be entitled to run the same argument in opposition to the subsequent bankruptcy petition. That is not the case here. Mr Rich is able to make all the arguments relating to the debt being disputed at the hearing of the petition against him. The only difference, submitted by Mr Bowles, is that Mr Rich is deprived of his opportunity, on a failed application to set aside the statutory demand, to seek to raise the funds necessary in order to prevent a petition being issued against him in the event that he is not successful.

The relevant principles applicable to the debtors being able to establish that the debt is disputed are summarised in the following passages:-

Mr Bowles was keen to emphasise that the bar is said to be a low one (see Peterie v Eden Farm SRL Peretie [2025] EWHC 1349, although the passage I have set out above from Lady Justice Arden’s judgment in Collier was expressly quoted and relied upon by the Judge.

Mr Bowles submits that the existence of the earlier petition means that the current later petition before the court should be dismissed. It is clear that there should be only one petition as against a debtor at any one time. In cases where two petitions exist, the normal course is that the second petition is dismissed and the petitioning creditor then supports the first petition in time. Before me, Mr Rich seeks to argue that the debt is disputed and Mrs Rich raises the same argument before me. Both of them have filed evidence in support of their disputed debt issue. Dismissal of Mr Rich’s petition would mean that Mr Rich would seek to raise the disputed debt issue relating to the creditor’s debt for determination by a court on another date in the future.

In the circumstances of this case before me, I am not prepared to dismiss the petition at this stage. It is appropriate for the disputed debt issue to be determined before me when both Mr and Mrs Rich have submitted evidence in relation to their case and made submissions before me. The determination of that issue would therefore be an efficient use of court time as well as cause no injustice. In the event that I determine that there is no substance in the disputed debt issue, then when this judgment is handed down, the court can be informed as to the current position relating to the petition in Kingston County Court and then determine the appropriate course. None of this causes any prejudice to Mr Rich because he has filed his evidence and made his submissions relating to the disputed debt issue. There is really no justification in dismissing the petition now without dealing with the disputed debt issue.

In my judgment, these submissions lack any merit. As Mr Bowles accepts, the disputed debt issue which Mr Rich would raise at the hearing of the proposed application to set aside the statutory demand can all be raised before this court at the petition hearing. I accept that in the event that I determine to make a bankruptcy order, then Mr Rich may seek time to make arrangements to pay the debt and then he can argue for more time because he did not have the two stage process of the application to set aside the statutory demand as well as the petition hearing. The issue relied upon by Mr Rich is therefore one of further time to pay in the event that he fails on his disputed debt argument. That is an issue which can be dealt with once there has been a determination of the disputed debt issue. I note that the Creditor denies that Mr Rich should be given any further time to pay, but that is an issue for later.

Mr and Mrs Rich accept the express terms in the agreement and in the guarantee document. What is being relied upon by them is an ‘understanding’ which is said to be a representation that the loan under the agreement would be converted into an investment in the company once the initial funding had arrived from what Mr Rich asserts are the original funders.

At paragraph 9 of her second witness statement, Mrs Rich states :-

At paragraph 5 of his third witness statement, Mr Rich states as follows:-

There is considerable duplication in what is set out in the witness statements of Mr and Mrs Rich. Certain paragraphs have simply been duplicated from one witness statement to the other.

At paragraph 12.1 of the third witness statement Mr Rich states as follows:-

Mr Bowles did not identify any other provision in the witness statements which provide the details of the alleged representation or this understanding. Mrs Rich repeats the same assertion relating to the ‘understanding’ as set out by Mr Rich. No further details as to the alleged representations are made including any details as to who made it and when and how. No documentation is provided in support of the assertion. Mr Bowles submits that the reference by Mr and Mrs Rich to ‘the Respondent’ in their evidence is a reference to either the Muskoka or to its director, Mr Russell. Mr Bowles submits that the representations were made by Mr Russell. The evidence of Mr and Mrs Rich provide no further details of the understanding or that the reference to respondent in the written evidence is to Mr Russell.

Reliance is also made upon a call option agreement which Mr Bowles submits was the mechanism under which the understanding would be put into effect. Mrs Rich states that the reason that the call option agreement stated that the loan of £500,000 had to be repaid was that Mr Russell wanted to invest personally and obtain EIS relief and this would not occur if the loan converted automatically into shares. She maintains that the intention was that the loan did not require actual repayment but would be converted into shares. Reliance is also made on some of the terms sheets relating to various potential funders. Mr Bowles accepts that none of the terms sheets are binding on the funders whereby an obligation to provide the funding had been agreed.

Mr Bowles submits that the existence of the terms sheets was sufficient to trigger the understanding to convert the loan into an obligation to acquire the shares by Mr Russell.

As to the assertion that there was estoppel by acquiescence, Mr Rich states as follows at paragraph 14:-

Mr Rich then also relies on promissory estoppel on this basis in paragraph 16:

Mr Rich then relies on estoppel by convention at paragraph 18,:-

At paragraph 20 Mr Rich the sets out his case on waiver by estoppel :-

Mr Bowles also relies upon the agreement being an unfair creditor agreement pursuant to section 140A of the Consumer Credit Act 1974. He also relies upon a submission that the interest provisions were penalty clauses. Mr Bowles submits that the liability of Mr and Mrs Rich can only be determined after a trial of the section 140A issue once a court has determined the relief available to Mr and Mrs Rich.

He accepts that his arguments in relation to the interest provisions do not affect the principal due under the terms of the agreement which form part of the debt set out in the statutory demand and petition.

Mr Dawson relies on the written agreements and their express terms relating to the loan being repayable at a certain date with interest thereon. He submits that the evidence of Mr and Mrs Rich fall very short of establishing any dispute. He points out that there are no supporting documents in relation to the disputed issue raised by Mr and Mrs Rich. He refers to the evidence filed by Mr Russell denying the disputed debt issue but producing the emails of October 2023 and December 2023. He relies on the contemporaneous documents including the exchange of emails in October 2023 and December 2023 when Mr Rich acknowledged the debt was due and made no reference to any understanding/representation, waiver, estoppel. Moreover Mr Dawson points out that the terms sheets are all non-binding. It is simply unbelievable based on the bare assertions set out in the witness statements, that an understanding was made relating to a non binding term sheet that the loan clearly stipulated to be due after 6 months would not be due until some funding was put in place by Lawbit. He also points out the call option agreement provides no support at all. Under the terms of that agreement, which is independent from the agreement itself, Mr Russell had an option to acquire shares after the repayment of the loan.

In my judgment, on the evidence before me, Mr and Mrs Rich are seeking to rely upon a very vague and unparticularised understanding and/or representation. It is no more than a bare assertion by both of them. There is no contemporaneous documentation in support. The non-binding term sheets do not assist. This needs to be contrasted with the clear and unambiguous terms of the agreement, the personal guarantee and the separate call option agreement. Equally both Mr and Mrs Rich signed the guarantee which contained an express warning as to its terms. Spencer West provided legal advice before they signed. The contemporaneous documentation also includes the exchange of emails in October 2023 and December 2023 which essentially admit the existence of the loan as being outstanding and due.

In my judgment, the bare assertions raised by Mr and Mrs Rich are based on evidence which is insufficient to establish a disputed debt in line with the test. What they assert is unsupported by documentation and inherently implausible. This was a commercial loan which was guaranteed by Mr and Mrs Rich. There was no binding funding when the agreement was signed. The call option agreement provides no assistance to their assertions as its terms contradict their assertions. The alleged understanding/representation asserted is completely silent as to whether effectively the loan would not be repayable if Lawbit failed to obtain funding after a certain period or as here, it entered into insolvent administration. Mr Bowles submitted that the obligation to convert arose by reason of the existence of the non-binding term sheets. In my judgment, the evidence of Mr and Mrs Rich does not support this submission. It also fails to establish the disputed debt test.

In so far as it is different from the ‘understanding’, the representation is equally vague and lacks detail and fails to establish that the debt is disputed for the same reason as above. It is also inherently implausible. In his estoppel arguments set out in his witness statement (and adopted by Mrs Rich), Mr Rich asserts that the Respondent was content to wait for other funding to materialise. In my judgment, Mr and Mrs Rich have failed to establish the existence of the representation so as to satisfy the disputed debt test. In my judgment, the estoppel assertions are not only unsupported by anything more than a bare assertion, but also reflect a degree of unreality. Lawbit went into administration in September 2024 and despite this, Mr and Mrs Rich maintain that based on the understanding/representation/ estoppel/waiver, that the loan is not repayable by them under the terms of the guarantee. The evidence fails to deal with the difference between Mr Russell and the Respondent (Mukoka).

At its highest, Mr Russell on behalf of Mukoka was prepared to wait for payment. That in itself does not create a waiver on the evidence. This is clear on the terms of the agreement and the personal guarantee as well as from the exchanges in October 2023 and December 2023 between him and Mr Rich. In those emails, Mr Rich effectively accepted the loans and interest were due.

As to the Consumer Credit Act claim, in my judgment, this also fails. Mr Bowles did not explain how there could be a dispute pursuant to the Consumer Credit Act 1974 in relation to a loan obtained by directors of a company. This was a commercial agreement. Even if Mr and Mrs Rich assert that the interest claimed under the agreement is in some way unenforceable, this would not, in my judgment, apply to the loan itself of £500,000 which remains outstanding.

The argument that the interest clauses under the terms of the agreement are penalty clauses also does not entitle the statutory demand to be set aside or the petition to be dismissed. Even if such an argument has some merit, there remains the outstanding loan sum itself due and payable.

During his reply submissions, Mr Bowles raised a further argument which he sought to rely upon. This was on the basis that by its terms, the guarantee document did not create a debt capable of being included in a statutory demand. This was based on clause 2.2 of the guarantee. I allowed for written submissions to be filed. I have considered both his written submissions (including his reply even though he was not given permission to file those ) and those of Mr Dawson. In my judgment, this issue does not provide a defence to Mr and Mrs Rich as set out below.

Mr Bowles relied upon McGuinnes v Norwich and Peterborough Building Society [2011] EWCA Civ 1286. The Court of Appeal considered the different types of guarantees and set out as follows:-

The relevant clauses in the personal guarantee document are set out above at clauses 2.1 and 2.2. In my judgment, clause 2.1 is a ‘conditional payment obligation’ being a promise by the guarantor to pay the instalments of principal and interest which fall due if the debtor fails to make those payments. Under the terms of that clause, there is no requirement upon the creditor to make a demand on the debtor, being Lawbit. The question is simply whether Lawbit as borrower has failed to pay any of the guaranteed amounts. The evidence is clear that Lawbit failed to pay amounts due under the terms of the agreement so that clause 2.1 applies. There is also evidence of demand being made by the creditor for payment of those amounts which Lawbit failed to pay under the terms of the agreement, namely, the letter dated 14 May 2024 addressed to both Mr and Mrs Rich from solicitors acting on behalf Muskoka. Thereafter Muskoka issued statutory demands and thereafter the creditor issued fresh statutory demands.

In his skeleton Mr Bowles appears to argue that in some way a demand was required to be made on Lawbit. In my judgment, that is not correct under the terms of clause 2.1 of the guarantee. Mr Bowles does not deal in his written submissions with the liability pursuant to clause 2.1. His written submissions and reply deal with his legal submission relating to clause 2.2.

In my judgment, there is no defence arising in relation to clause 2.1 creating a debt. Before the assignment, demand was made of Mr and Mrs Rich to pay. Statutory demands were issued by reason of their failure to pay. After the assignment fresh statutory demands were served by the creditor.

As to clause 2.2, Mr Bowles sets out in his written submissions that clause 2.2 creates an indemnity of the nature described by the Court of Appeal in McGuiness under paragraph 7(4). Accordingly, he submits that any liability thereunder can only be a claim for damages. Mr Dawson submits that on a construction of clauses 2.2, the liability thereunder is properly construed as a liquidated debt due.

As I have rejected above the disputed debt issue based on the understanding/representation and estoppel/waiver arguments, there is no need to deal with the construction and effect of clause 2.2. Even if Mr Bowles is correct, this does not create a defence to the demand and petition. As I have dismissed the disputed debt issues, it is clear that clause 2.1 applies and is valid.

In conclusion, Mrs Rich’s application to set aside the statutory demand is dismissed. As to the petition against Mr Rich, his grounds of opposition to the petition are dismissed. However, I will hear counsel in relation to the position relating to the bankruptcy petition as against Mr Rich in Kingston County Court before determining what order should be made on the petition itself.