High Court: Bankruptcy summons set aside due to alleged duress and harassment by bank
The High Court has set aside a bankruptcy summons where the respondent claimed to have suffered a “bombardment of calls” to his work by a Middle Eastern bank. The court held that the debtor had raised an arguable defence that the bank had harassed him after threatening to imprison him for non-payment of the loan.
About this case:
Citation: IEHC 451
Judge:Mr Justice Richard Humphreys
The court said that these threats, if acted upon, would be a “serious violation of accepted standards of fundamental human rights”. Further, the court also ruled that it would exercise its discretion to dismiss the summons in circumstances where there was an absence of a judgment for the sum allegedly due to the bank.
The respondent to the bankruptcy summons had taken out a loan for AED 1,250,000 with the National Bank of Ras Al-Khaimah trading as Rakbank in 2014. In 2016, the respondent made an application for bankruptcy, but failed to include the Rakbank loan in his statement of affairs.
The respondent was adjudicated bankrupt in June 2016. In October 2016, the respondent made a further loan application to Rakbank for AED 1,260,000. Most of the money was used to pay the 2014 loan and the remaining money was used to pay off interest on the loan, which was running at AED 9000 per month.
The respondent was discharged from bankruptcy in 2017. Around the same time, the bank began to seek the repayment of the money. The respondent had to contact the gardaí in Kilkenny after his employer’s switchboard had been jammed by calls from the bank.
The bank eventually made formal demand through an English solicitor in December 2018 and an application was made in June 2020 for a bankruptcy summons. Although the court had difficulty with issuing a summons where there was no judgment against the respondent, a bankruptcy summons later issued in December 2020.
The respondent later brought an application seeking to set aside the summons.
Delivering judgment in the case, Mr Justice Richard Humphreys began by outlining the test for setting aside a summons under section 8(6) of the Bankruptcy Act 1988. The court held that there were two issues on an application to dismiss, being 1) whether a real, substantial issue would arise for trial and 2) whether the court should exercise a discretion to set aside the summons.
The court also stated that an application to challenge the validity of a summons on wide grounds would be allowed. Accordingly, a debtor should not have to consent to adjudication of bankruptcy and then show cause against that adjudication to challenge the validity of a summons, the court said.
The court then considered the possible defences which arose in the case. The court held that it was clear that the 2016 loan was used to pay off the 2014 debt, which gave rise to a number of scenarios. First, it was possible for the respondent to argue that the 2014 debt was discharged by his previous adjudication and accordingly the 2016 restructuring loan was an impermissible attempt to revive the 2014 debt.
Further, the court said that the “new money” made available under the 2016 loan may have amounted in reality to less than €20,000, which would have been below the minimum statutory threshold. Finally, the court noted that it was open to the respondent to say that the claimed liability in the summons was an overstatement by the bank (Minister for Communications v. M.W.  IEHC 413,  3 I.R. 1).
Considering the allegations of harassment, the court said that the respondent had provided sufficient prima facie evidence of “excessive contact” by the bank which raised the issue of duress/harassment. It was claimed that the respondent was being phoned constantly from a debt collection agency in Dubai or India and that the demands were affecting his health and work.
Further, his solicitors were told that they were “harbouring a criminal” and that he would be imprisoned in the UAE for failing to pay the debt. The court held that, based on the limited evidence before it, a prison sentence for unpaid debt in the UAE was not automatic and required the creditor to make a criminal complaint.
The court rejected the bank’s submission that they were merely informing the respondent of his legal position and the seriousness of the situation. It was implicit within the demands that the bank would seek to imprison the respondent if he failed to pay. The court determined that this would be a “serious violation of accepted standards of fundamental human rights” (see An Taisce v. An Bord Pleanála (No. 2)  IEHC 422).
The court also referred to Article 11 of the International Convention on Civil and Political Rights, which stated that no individual should be imprisoned for failure to comply with a contractual obligation. This gave rise to an arguable defence as “it would be unconscionable to allow a creditor to recover in circumstances where it had inflicted such a threat on the respondent, or engaged in any other harassment or unacceptable debt recovery tactics”, the court said.
Finally, the court held that it would exercise its discretion to set aside the summons on the basis that there was no judgment against the respondent. A court could consider the issue of whether a judgment was required before a bankruptcy summons could issue, which could give rise to enforceability issues if the judgment was obtained in the UAE. The court held that a judgment should have been obtained prior to the issuance of the summons.
The court dismissed the bankruptcy summons.