Case No: GLC/99/05
Neutral Citation Number: [2005] EWHC 3241 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Thursday, 14 th July 2005
BEFORE:
MR JUSTICE WARREN
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IN THE MATTER OF PAN INTERIORS LIMITED
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MR M OUWEHAND appeared on behalf of the Appellant.
MR S ROBINS appeared on behalf of the Respondent.
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A P P R O V E D J U D G M E N T
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J U D G M E N T
1. MR JUSTICE WARREN: In this case the applicant, Pan Interiors Limited (“Pan”), seeks an injunction restraining the presentation by the respondent A & C Interiors Limited (“A & C”) of a winding-up petition against it. As will become apparent, the central issue is whether Pan is able to show that it has a good right of set off or a good cross claim against A & C exceeding the amount of the claim on which A & C based a statutory demand against Pan. Mr Ouwehand appears for Pan and Mr Robins for A & C.
2. There is a significant dispute of fact which of course I cannot resolve on this application. The main evidence comes from Mr Colin Appleby on behalf of Mr Pan and Mr Adam Bailey on behalf of A & C. I start with what is not contentious.
3. A & C’s business is the supply of labour to main contractors and subcontractors providing partition and ceiling fixes. A & C does not have anything to do with tape and jointing, a process carried on after the fixing carried out by A & C’s operatives. Pan’s business includes the refurbishment of large premises. Pan was contracted sometime in 2003 under an order by Mansell plc to work at Heathrow Airport on a construction project for BAA plc (“the project”). This contract was for the internal fit-out of partitions and ceilings, including work on what has been referred to as Piers 5 and 6. As Mr Appleby puts it:
“As is normal for projects of this size it was necessary for us to hire subcontractors to provide extra labour for the Project. Following satisfaction of the relevant security clearance processes which began in November 2003, around January 2004 I asked A & C to provide partition and ceiling fixers for the Project from May 2004 until February 2005.
There was no written agreement or order passing between the parties. I simply agreed a ‘daywork’ rate of £140 for each fixer with A & C and the fixers attended the site alongside the labour provided by other subcontractors. The practice had been for Pan supervisors to complete daily allocation timesheets setting out the date, description of work and the hours worked by each A & C operative on site. A Mansell representative would usually sign the foot of the timesheet to show that he was happy that the hours worked were accurately recorded. A & C would then raise invoices addressed to Pan based on the timesheets. To date, Pan has paid A & C approximately £330,000.”
4. He goes on to say this about defective workmanship:
“As the Project neared completion, on or about 21 st February 2005 I was informed by Mansell that it would be withholding approximately 5% of the sums owed to all its contractors, including Pan, since there were a large number of defects in the Project that BAA required to be put right. An amount of approximately £200,000 is being withheld from Pan. From the end of January onwards BAA’s Project Managers began issuing snag lists which to date stand at approximately 3,200 items together with hundreds of photographs showing the defects.
Since Pan had hired a number of labour-only subcontractors, it was imperative for us to identify which subcontractors were responsible for which defects so that the responsibility for repairs would fall to that particular company. From the allocation sheets A & C could be identified as being responsible for carrying out work on a number of defective items so Pan withheld any further payments to A & C until the defects could be addressed.”
That is at least what Mr Appleby says.
5. He then produces a long schedule running to 182 pages which he says was prepared by Pan’s solicitors setting out the defects identified so far. The first three pages is a list which cross-refers to photographs and allocation timesheets. These are daily sheets, certain rows and columns showing the name of the operative, the operations carried out and their locations, and the hours spent by each operative. There is not sufficient detail for the reader to determine either the precise location or the precise extent of the work carried out. The descriptions are more general. The photographs were not, I think, taken for Pan but for BAA’s project managers in order to prepare the snagging list referred to by Mr Appleby. Some bear quite recent dates.
6. Mr Appleby also produced some estimates. He said:
“…I have estimated the costs of rectifying the defects. For clarification the Labour costs are based on a calculation of £170 (as opposed to the £140 ‘daywork’ rate) to reflect the fact the work will need to be carried out at night.
It is difficult at this stage to give a precise estimate of how much it will cost to rectify the defects in A & C’s work because we are still identifying defects for which A & C may be responsible. The costs involved with carrying out these works would be affected by the fact that the works could only be carried out in a restricted timeframe between the last flight of the day (approximately 11.30 p.m.) and before the first flight the next morning (approximately 4.30 a.m). As such there would only be a small window of opportunity each morning to carry out the necessary works, compounded by the fact that the equipment would have to be delivered, set up, cleared and removed each session due to safety restrictions on leaving equipment on site. The cost of these works would also be increased by the fact that Mansell are duty bound to provide supervision in respect of any works and because further follow-on works will need to be carried out by Pan in respect of tape and jointing work and Mansell in respect of redecoration work. The costs of these follow-on works would fall to A & C.”
Mr Robins has a number of submissions on these estimates, which I will come to in due course.
7. Part of the exhibit to Mr Appleby’s first witness statement is a page headed “A & C Interiors Limited staff list”, and there follows a list of some 20 names. There are names in the rows on the daily allocation sheets which do not appear on the list. Indeed, some of the work listed (see for instance the allocation sheet for 5 th September 2004 at page 54 of the bundle) is work which A & C did not undertake (tape and joint), and the names of the operatives for that work unsurprisingly do not appear on the list. I also mention in relation to that page that the job number is stated to be 6391. I cannot therefore be at all confident that every item on each of the allocation sheets relied on by Pan relates to work carried out by A & C operatives.
8. Pan was notified (as appears from what I have already said) of the 5% withholding by Mansell on or about 21 st February 2005. It had not, prior to then, made any complaint to A & C, and it may be that it had no knowledge of any defects which it could attribute to A & C. Nonetheless, Pan speedily sought to pass on the 5% retention to its subcontractors, including A & C.
9. On 8 th April a letter was sent to Pan by A & C’s solicitors (part of which I will have to read) enclosing a statutory demand. The solicitors refer to the agreement for the work at Heathrow and state:
“Whilst we understand that there is no written agreement between you and our client there has been significant previous course of dealings between you and our client from May 2004. We understand that the process for our client to obtain payment from you is that our client would issue an invoice to you which you sign off or raise any queries with our client. Once the invoice has been signed off you then raise a sub-contract payment certificate to our client setting out the payment to be made.
We are instructed that you have recently sought to impose a 5% retention on the final balancing payment due from you to our client. We understand that the retention you are seeking to impose is £17,711.13.
We have carefully considered our client’s position and have advised our client that you have no entitlement to unilaterally impose a retention upon our client. There is no documentary evidence, such as a written agreement, entitling you to make such a retention and there have been no retentions made during your previous course of dealings with our client. Accordingly we have advised our client that you are not entitled to impose a retention on the final payment...
Accordingly our client expected to receive the sum of £19,786.67 from you on 8 th March 2005. We are instructed that you made a part payment of £2,810.99 and that the sum of £16,975.68 therefore remains outstanding. In this regard we enclose a Statutory Demand for this sum by way of service.” The statutory demand is attached to that letter, showing a breakdown between two invoice numbers, one for just over £7,000 and one for £12,500. As I understand, they relate to Piers 5 and 6.
10. Whether in response to that letter or not, on 12 th April Pan wrote to Mr Bailey at A & C. It is a short letter in which he says:
“Following the receipt of the comprehensive snag list and supporting photographs, I would like to offer you the opportunity to attend to the works deemed to be the works carried out by A & C Interiors’ operatives during the course of the project.
All items need to be attended to early next week [this letter was written on a Tuesday] to allow for any tape and jointing, and decoration works that may be required.
I enclose copies of the details and photographs. Can you please contact Keith Jones at the Heathrow office to arrange for you to view the snagging items.
If I fail to hear from you by 15 th April 2005 I will instruct others to carry out this work. Any costs will be deducted from your account.”
11. This would suggest that at the time Pan thought the work could be carried out speedily. It was to be attended to early the next week in order to allow taping and jointing to take place. It was described as a snagging list, but the works seemed to go beyond snagging. It is said by Mr Robins that this is an unreasonably short timescale in which to require works to be done, but I think he based his submission on the fact that there was a date of 15 th April 2005 referred to. But that was not the date for completion of the works; that was the date by which Mr Appleby expected to hear from Mr Bailey. It was the next week that the work had to be done, albeit, I accept, a short timescale.
12. On 20 th April Mr Bailey wrote to Mr Fernberg of Pan Interiors in response to that letter. He raises, in effect, many of the points which have been raised before me. I am not going to read the whole of that letter, but I would like it to be taken as incorporated in my judgment.
13. Mr Bailey paints a very different picture. I shall mention the important parts of his evidence and the response of Mr Appleby in his second witness statement.
14. Mr Bailey referred to the allocation sheets exhibited by Mr Appleby, saying that they were not used by way of recording who worked in what areas of the terminal, but rather as a general register of who was on what part of the site on what days. He exhibits examples of the more common form of labour allocation sheet which shows only the day and numbers of hours each operative worked. Mr Appleby’s response is that the allocation sheets which he had exhibited were not general registers but were used to record which personnel are on site, what they are doing, where they are doing it and how many hours have been worked. Mr Bailey’s exhibited sheets, he points out, relate to Pier 6 and not to Pier 5, and says that the vast majority of Pier 5 allocation sheets have comprehensive information indicating who was responsible for any defective works. There is no explanation to me of why different forms were used for Piers 5 and 6.
15. Counsel did not go through each and every complaint listed in the schedule produced by Mr Appleby. Instead the item numbered 1 was taken as a representative sample. It is said in the schedule prepared by the solicitors that A & C staff worked on the items described in the photographs. It is not clear to me that that is correct. There are photographs showing a defect in a grille, and the allocation sheets show that A & C operatives worked on a number of grilles. Even assuming that some of the grilles on which they worked were in the area of the grille in the photograph, it is not clear that the particular grille about which complaint was made was worked on by A & C’s operatives. But even assuming that point in Pan’s favour, there is no evidence from Pan to show that only A & C operatives worked on the item about which complaint is made.
16. Mr Appleby does not deal with it in his second witness statement of July, and yet by that time evidence had been served on behalf of A & C in the form of a witness statement from Mr Bailey’s brother, Simon. It is a very short witness statement. Paragraph 3 reads:
“It would be fair to describe the works being carried out at Terminal 3 as mayhem. There were many contractors supplying hundreds of men throughout the various Piers that were being refurbished. Pan would simply allocate men to do jobs as and when they came onto site. This meant that men from different companies and trades would start jobs and not finish them or would continue jobs where other men left off. This happened particularly where a job needed doing quickly where a night crew would be drafted in to continue with a job that say A & C operatives had begun. If the job was a particularly big job, it may well be the case that A & C operatives took over from the night crew and continued with the job when they returned to site in the morning.”
17. In paragraphs 8 and 9 of his witness statement Mr Bailey says this (and I do not see that it is disputed anywhere):
“On presentation of our invoice, Pan would consider the invoice and sign it off if acceptable. Pan would then raise a subcontract payment certificate based upon our invoice which would again be signed off by a director of Pan. The subcontract payment certificate in relation to our invoice [there are references to the bundle] is authorised by a director of Pan and dated 3 rd March 2005. Pan then proceeded to issue a further payment certificate which set out the exact payment to be made by Pan to us by BACS.”
He exhibits an original payment certificate issued by Pan which showed the certified payment over the whole of the contract as being some £354,222, “with £346,741 having already been received by us”.
18. In paragraph 12 he deals with how the retention came about.
“It was this course of dealings that had continued for the past year until just prior to the final payment was made to us by Pan. Between the issue of the payment certificates…and payment being made to us, BAA imposed a 5% retention over the whole of the main contract price with Mansell which was passed on to Pan. I heard from other subcontractors on 7 th March 2005, the day before the payment was due to be made to us by Pan, that Pan were intending on imposing a 5% retention on the total contract price of all its subcontractors.
12. Colin Appleby contacted me first to tell me that Pan were withdrawing payment until their problems with Mansell had been resolved. I managed to contact Peter Fernberg, the Managing Director of Pan, who informed me that BAA were trying to reduce his overall invoices. Peter Fernberg informed me that he did not think that what BAA were doing was legal, but that he had no option as he wanted to be given more works from Heathrow, but to pass the 5% retention on to Pan’s subcontractors. There was no mention whatsoever of there being any remedial snagging works required from A & C at that stage.”
19. That is disputed. However, Mr Bailey has been consistent in this story in correspondence and there is no suggestion of any defects by Mr Appleby prior to the letter of 12 th April. If Mr Appleby is correct, it is hard to see how he could produce a revised certificate on 8 th March effecting a 5% retention by showing an overpayment on Pier 6, i.e. resulting in a negative net position. I have not actually mentioned the contents of those certificates, and I should perhaps do so.
20. In relation to Pier 5 there is certificate of 8 th March showing figures which result in an unpaid balance of £17,000-odd. There is a column headed “Retention” but there are no figures in it. It is dated the same date, but following the retention one can see a retention inserted into the certificate which results in a negative net position of £10,000. In other words, an assertion that in relation to that invoice there had been overpayment.
21. In paragraph 13 of his witness statement Mr Bailey said:
“The retention of 5% made by Pan was applied specifically to the works carried out by our operatives and in respect of Pier 5 as shown on the payment certificate [which I have just referred to]. The retention…is exactly 5% of the total contract price... The final payment to be made to us however in relation to these works was not sufficient for Pan to deduct this sum and so Pan withheld the entire amount of our final payment certificate in relation to the entirely different works at Pier 6. No payment was made at all in respect of the payment certificate issued by Pan as shown by the payment certificates [for Pier 6].”
22. It is clear that Pan was actually applying an across the board retention of 5%, which had nothing to do with the actual defects which it had ascertained and which was attributable to the work of A & C operatives. Given that approach, I think it is highly unlikely that Mr Appleby’s response in paragraph 5 of his second witness statement can be correct when he says this:
“Mr Bailey’s version of our conversation is incorrect. I told Mr Bailey that the reason money was being withheld was because of defective works.”
23. In relation to the letter of 12 th April, Mr Appleby says that the client and the main contractor required the rectification works to proceed immediately.
“This is why A & C was given a tight deadline. Mr Bailey showed no interest in having the respondent carry out the rectification works and failed to contact Pan, as requested in the letter of 12 th April 2005.”
That last assertion is not consistent with the letter of 13 th April, to which I have referred.
24. In relation to that letter, I fear Mr Appleby is more interested in bolstering his case than in accuracy.
25. Mr Bailey takes serious issue with the quantum of Mr Appleby’s estimates. The parties could hardly be further apart. Mr Appleby’s estimate comes to over £18,000. Mr Bailey thinks that the defects could be rectified for, at most, £1,000.
26. Before turning to the schedule, I note Mr Ouwehand’s point that the schedule is not and was never intended as an exhaustive exposition of the defects of which A & C is allegedly responsible. However, I can only act on the basis of the evidence before me, and I am certainly not prepared to assume that there are more defects than are presently relied on. This is especially so since it is now some weeks since Mr Appleby said in his first witness statement that further investigations were being carried out, and yet nothing further has been produced. Mr Ouwehand also says that I should place reliance on Mr Appleby’s estimates. He says that Mr Appleby is an experienced project manager and can of his own expertise give views about what costs were being incurred and reasonable estimates of their amounts, and that the court should listen to those views. No doubt he does have some expertise in the area, but it would be difficult for him to be further than he is from a position of independence, and I must take his evidence on value with a degree of scepticism. Mr Ouwehand also says that Mr Bailey is not an expert in any sense and is not qualified to give a view on price. I think that is unfair to Mr Bailey. He runs a business concerned with the installation of panelling and ceilings and has, I would have thought, a degree of experience which tells him what type of work he undertakes should be charged at. He can similarly estimate the cost of repairs. He may, I accept, have no knowledge of what incidental expenditure it would be necessary to incur on this particular project if remedial works are necessary.
27. As to the schedule there is one general point to make at once. There is a column forming part of the claim headed “15% overhead”. This is simply a mark-up on the previous heads claimed. I will just mention the columns: “Pan labour nightshift; Pan supervision and management; plant hire; delivery of plant and materials; materials; Mansell follow-on trades; Mansell management costs; sub total.” The 15% charge is applied to that sub total. I have absolutely no idea how this figure is arrived at, and no attempt is made to explain it. It strikes me (as a gut reaction) as high, but it is not for me to speculate. But without any explanation, I am not prepared to accept this figure as one which is anything other than bare assertion, and as such it is not enough to support a suggestion that, in relation to this head, there is a genuine and substantial set off or cross claim, which is the test which I have to apply (to which I will come in a moment).
28. Even if that were not so, the 15% claim which Mr Appleby asserts in his witness statement is not what actually appears in the schedule. The figures actually insert an overhead charge of 25%. This does not inspire confidence in the accuracy of the schedule and lends weight to A & C’s submission that the defects claim is a trumped up claim designed to delay payment of what is due to it and is not a bona fide or genuine claim at all. This factor alone would reduce Pan’s alleged claim to £16,856, marginally less than the amount claimed in the statutory demand. If the overhead is eliminated altogether the claim reduces to £14,657. Mr Bailey suggests that it is fanciful to suggest that the remedial works can only be carried out at night, but I do not think that that is so. I see no reason to think that Mr Appleby is wrong on what he says about this. But even if that is not so, I could not possibly proceed in this application on the basis that he is wrong.
29. Mr Appleby also suggests that it is ridiculous to suggest that the remedial works required the supervision of Pan at all or that Mansell would incur anything like the management costs set out in the schedule. It would take no more than a few hours for someone to go round and check all the works listed in Pan’s schedule. Mr Appleby’s response is:
“As a matter of contract and I understand health and safety, a member of the Mansell site management staff needed to be present at all times during work on the project. Indeed, this was normal practice during the project.” (Quotation unchecked as source unclear) But nothing is said about Pan’s own supervision in that response, and this head of claim appears to me to be an inflated element.
30. Complaints are made by Mr Bailey that the items for plant hire, delivery and Mansell follow-on trades are also inflated. The last, he says, is entirely guesswork, but Mr Appleby responds that it is his best estimate of the costs likely to be incurred. As to that, Mr Robins submits that there is no particularisation of this head of claim, which amounts to over £7,000 in total, and that Pan does not begin to explain how A & C is liable under this head.
31. As to those submissions, I think that, if A & C is liable at all, Pan would have a strong argument for claiming this head of loss. It is the cost of work which needs to be done as a result of the defects being rectified and which would not need doing if there had been no defects. As to quantum, the issue is really the same as in relation to the other heads of claim: in other words, can Mr Appleby be relied on?
32. Mr Bailey has produced a table of comments on Mr Appleby’s schedule and estimated costs and Mr Appleby has in turn responded to those. I cannot possibly assess the rival contentions on this application. If it can be established that A & C were in fact responsible for the installation of the allegedly defective installation, then A & C cannot, on the basis of these disputed schedules exchanged in the evidence, establish that Pan’s claim is not genuine and substantial.
33. Finally, Mr Robins submits that the hours provided for in the schedule for carrying out the remedial works is grossly inflated, although he does not for the purposes of this application suggest that the nightshift rate is inappropriate. The total work time required is 36 nightshifts, taking a cost of £170 for one man nightshift. I cannot again judge on this application whether what Mr Appleby says is correct. All I can do is assess on the totality of the evidence whether Pan is making a genuine and substantial claim.
34. I turn to the law. The modern practice in relation to winding-up petitions where the alleged debt owing by the respondent company is disputed in good faith and on substantial grounds is to dismiss the petition. That practice is explained in In Re Bayoil SA [1999] 1 WLR 147 at 150. The reason is set out in the quote from the decision in Mann v Goldstein [1968] 1 WLR 1091. Mann was a case of a disputed debt where the applicant sought injunctions to restrain the petitioning creditors from advertising the petition which had already been presented. Whether the same reasoning should be applied in the case of an application to prevent the presentation of a petition, I shall come in a moment. Bayoil also clarified the modern practice where the respondent company has a genuine and substantial cross claim which exceeds the amount of the debt on which the petition is based. In the absence of any special circumstances, the court will dismiss or possibly stay the petition, although dismissal will, I think, be the usual course. In disputed debt cases, the petition is dismissed because the petitioner cannot properly claim to be a creditor at all, but there is little practical difference between that and a cross claim – see in particular the comments of Ward LJ at 156E.
35. Just as the principle applicable to the dismissal of the petition in a disputed debt was applied in Mann to the grant of an injunction to restrain advertisement, so too the court will, in the absence of special circumstances, apply the principle applicable to the dismissal of a petition in a cross claim case in the case of the granting of an injunction to restrain advertisement. Jonathan Parker J applied the principle applicable in disputed debt cases to restrain the presentation of a petition where the respondent had an arguable defence by way of equitable set off, which, if successful, would result in the respondents not being indebted to the petitioner. But in a cross claim case the position is different, since the petitioner does not have a debt and to restrain the presenting of the petition would be to interfere with what would otherwise be a legitimate approach to the seat of justice. Nonetheless, the court has power to do so provided that the proceedings sought to be restrained would be an abuse of process.
36. Abuse of the process, it is to be noted, is precisely the foundation on which the modern practice of dismissal of petitions rests where there is a genuine and substantial cross claim – see the passage in Bayoil at page 152 citing (with apparent approval) from Buckley on the Companies Acts.
37. The same principles which lead to dismissal and the grant of an injunction to restrain advertisement of a petition lead also to the grant of an injunction to restrain the presenting of a petition. I therefore reject the submission which was made to me by Mr Robins that in cross claim cases an injunction against presentation should not be granted, but the cross claim could only be raised in relation to advertisement of the petition or as a ground for dismissing the petition when it comes to be heard.
38. There is, therefore, little (if any) difference in the treatment of disputed debt cases and cross claim cases so far as concerns the restraining of the presenting of the petition. In both cases the objection must be one of substance, or (to put it another way), the cross claim of a dispute must be genuine and serious so that the dispute or cross claim must be bona fide. In the case of a cross claim, it must exceed the petitioner’s debt, just as the debt must be shown not to be established in the case of a disputed debt. There is however this difference. It is said that in a cross claim case the debt must be one which the company has been unable to litigate – see the observations of Nourse LJ at page 155.
39. This requirement has caused difficulty and concern in the past, in particular to Rimer J in Re A Debtor (No 87 of 1999) (unreported, judgment delivered on 17 January 2000), who confessed to “some uncertainty” about what the Court of Appeal in Bayoil were saying about the second aspect, i.e. the cross claim must be one which the company has been unable to litigate, and to Park J in Montgomery v Wanda Modes Limited [2002] 1 BCLC 289. Their concerns were addressed by the Court of Appeal in Popely v Popely , (Times Law Reports 15 th September 2003). The Court of Appeal in that case did not regard Nourse LJ as laying down any absolute rule but was doing no more than indicating that where there has been delay in the prosecution of a cross claim, the delay must not be such as to throw a real doubt on the genuineness of the cross claim – see Jonathan Parker LJ at paragraph 123. Although what he said did not form part of the decision, I respectfully agree with what he says.
40. Applying these principles to the facts as they appear, I need to be satisfied if Pan is to succeed (a) that the £16,975 which is claimed by A & C is not owing at all, either because the contract under which A & C asserts entitlement does not in fact give rise to that debt or because Pan has a defence to that claim, for instance by way of abatement or equitable set off; or (b) that if the £16,975 claimed is prima facie a debt owing, Pan has a genuine and serious cross claim exceeding that amount and which it has been unable to litigate (as that expression has been explained in Popely ). Mr Ouwehead submits (as I understood him) that there is no debt at all owing to A & C. He submits that the mere fact that invoices are based on the daily allocation sheets which have been signed off or that Pan has raised payment in relation to A & C’s invoices does not derogate from the defences otherwise available of abatement by showing a reduction in the value of the work by reason of A & C’s breach, or set off in the nature of a cross claim for damages. No doubt he is correct in that; and, as I understand Mr Robins, that is not contested by A & C.
41. Mr Ouwehand also suggested that the signed off sheets and invoices might be regarded as progress or interim certificates – as to which see Keating on Building Contracts 2 nd Ed section 5-10 – which are not binding upon the parties as to quantity or amount and are subject to adjustment on completion. On that basis, Pan is entitled to make a retainer pending dealing with issues arising out of alleged defects. I do not consider that there is anything in that last suggestion. There is nothing in the evidence to suggest that there is a contractual right to retain money pending some sort of final certification. Indeed, Pan’s own evidence (Mr Appleby’s first witness statement) as to the contract is that he simply agreed a day work rate of £140 for each fixer (and that is confirmed by Mr Bailey). I can well understand that, if it were alleged that the allocation timesheets did not actually record actual hours worked, contrary to their purpose as described by Mr Appleby, Pan would have a case for saying that the £16,975 was not owing at all. But such a suggestion has not been made and there is nothing in the evidence which would support such an allegation. I see no reason to doubt that the starting point is that the sum represents what is due in respect of work carried out, subject to any defence claimed by way of abatement or equitable set off.
42. On the other hand, I do not think that A & C can rely on the signing off and invoices as conclusive, and indeed they do not seek to do so. But they are entitled to rely on them (as they do in the letter of 13 th April) to support the suggestion which is made that the alleged set off or cross claim is not a genuine one but has been manufactured for the purpose of staving off the day for payment.
43. Nonetheless, for the purposes of this application, I cannot accede to the submission of Mr Robins that I should proceed on the basis that there were two contracts between A & C and Pan – one for Pier 5 and one for Pier 6. Mr Appleby’s evidence refers only to the agreement of a daily work rate for provision of labour for the project. Mr Bailey’s evidence to like effect is that there was no written agreement “but it was simply agreed verbally that we would supply operatives at a day rate of £140 per day. Over the past year we had supplied a significant number of operatives to Pan.” It is true that there were documents generated within Pan showing the state of account between Pan and A & C which referred to “Contract 6391T3 Pier 5 Segregation C/O” and “Contract 6958T3 Pier 6 Verticle Segregation”. It is said by Mr Robins that that shows clearly that there were two contracts – one for Pier 5 and one for Pier 6 – but I cannot reach that conclusion on the evidence before me. First of all, it is not explained at all in the evidence how the single oral agreement which both Mr Appleby and Mr Bailey referred to was superseded by two separate contracts. Secondly, I have no reason to assume that the contract numbers had anything to do with the contract between Pan and A & C. For all I know, the contract numbers refer to separate contracts between Pan and a third party (for instance Mansell) and that the separate contract numbers were recorded on a communication with A & C for good record-keeping purposes. I do not propose to speculate. What I do say is that those documents are insufficient for me to conclude that there was more than one contract.
44. It was accepted by Mr Robins that, if I took that view, Pan’s claim in respect of defects (if they are valid at all) give rise to a defence, so that we are in disputed debt territory rather than cross claim territory when considering whether an injunction restraining the presentation of the petition should be granted. I have already rejected his submission that the court should not grant an injunction against presenting a petition in cross claim cases, holding, as I do, that where such a petition would represent an abuse of process, its presentation should be restrained.
45. Accordingly, if there were two contracts, there is in practical terms no difference in terms of restraining presentation of the petition, depending on whether Pan has a right of set off (on the one hand) or a cross claim (on the other hand). In either case, Pan has to show that it has a genuine and serious set off or cross claim exceeding £16,975 in which (in the case of the cross claim) it has been unable to litigate.
46. I would like to deal with the unable to litigate point at this stage. There is nothing in my judgment on the facts of this case that would justify one in concluding in the light of the Popely explanation of that principle that this is a case where Pan should have litigated the matter already, and I therefore do not see anything in that point.
47. I have largely addressed the rival contentions in considering the evidence. Mr Ouwehand says that the defects listed in his schedule are established and that the evidence shows that A & C were responsible for the installation of the items which are defective as listed. He has estimated the cost of rectifying the defects and other incidental costs for that rectification. This results in a set off or cross claim which exceeds the amount specified in the statutory demand. Accordingly, the presentation of the petition should be restrained.
48. Mr Robins says, first, that there is insufficient evidence to link such defects as may be established to be the work of A & C’s operatives. Many non-A & C operatives worked on Pier 5 and there is no way of showing that it was what A & C operatives did which resulted in the defects. He does not submit, as I understand it (and if he did I would reject the submission for the purposes of this application), that the defects alleged are not established.
49. The quantum of the claim is excessive, he says. Mr Appleby’s estimates cannot be relied on, as he is so closely involved on behalf of Pan. They are self-serving figures designed to bring the claim over the amount of the statutory demand. That is shown by the indisputably inflated figures in the schedule of overhead charges. Then the claim has been trumped up to justify the 5% retention which has been applied to subcontractors in order to compensate Pan for the 5% retention imposed on it by Mansell. That shows that the claim is not a genuine or bona fide claim at all.
50. As to that last submission, I quite understand the argument that the genesis of the claim, i.e. the imposition of the 5% retention by Mansell, lends support to the assertion that there is no underlying claim against A & C at all and that it has been dreamt up in reliance on the basis of alleged facts which cannot be established. But the submission might be intended to go further to this effect. Since (a) the claim had not been made before the 5% retention was imposed and (b) the claim was made only once the statutory demand had been made and it was therefore a reaction to A & C’s rejection of Pan’s wrongful claim to retain, it follows that the claim is simply a way of imposing the retention which Pan is not entitled to impose, so that to allow the claim to proceed (at least as a defence to the petition) would be an abuse of process. Instead, the petition should be allowed to continue, leaving Pan to assert its rights in another forum.
Conclusion
51. In my judgment, the application for an injunction fails. The short reason for this conclusion is that I can place no reliance on the figures in Mr Appleby’s figures for management charges which have been provided for at 25%. Even if the figure had been 15%, there is no explanation at all for this percentage. It seems to be plucked out of the air, and it is included as an addition to items which, without explanation, I do not accept as valid. In particular, it is added to Mansell follow-on trades and Mansell management costs. On the detail of the schedule there is also the point that there does not appear to be any justification for including Pan’s supervision costs, even if one accepts (which I do for the purposes of this application but have real doubt about) that an item for Mansell’s supervision is appropriate. In other words, I eliminate the “Overhead” column from the schedule, and we are left with a debt which is, by itself, sufficient to justify the continuance of the petition. But I would not want my decision to rest on that alone, for otherwise Pan might think that I had decided that, if it paid the excess of the cross claim after deducting the overhead item, I was satisfied that it had a good claim.
52. There are two other elements of the alleged cross claim which to my mind cause serious concern. The first is the element of causation. In my judgment the evidence before the court on this application is insufficient to establish that A & C are responsible for the defective work. I accept of course that Pan does not have to prove its case on this application but only has to satisfy me that it has a genuine cross claim of substance, but on almost any view there are serious doubts that causation can be established.
53. The second is the reliability of the schedule. I have already dealt expressly with the overhead charge and with Pan’s supervision charges, in relation to which there is unfortunately no breakdown between supervision and management. The figures generally surprise me as being high, but it is not for me to speculate. I can, however, take account of Mr Appleby’s clearly partisan position and should not ignore Mr Bailey’s albeit equally partisan approach to quantum. In the absence of any independent testament of any sort, I do need to treat Mr Appleby’s figures with a great degree of circumspection, especially in the light of the inflated elements of the claim already dealt with.
54. My overwhelming impression from the totality of the evidence filed on this application is that this cross claim results from the 5% retention imposed by Mansell. Pan attempted to pass this on to A & C in relation to the work carried on by its operatives and probably other subcontractors. When met with the statutory demand, Pan asserted the cross claim which happened to just top the amount of the statutory demand and which approximates conveniently to 5% retention. If the cross claim is genuine, the fact that it was provoked by Mansell making a 5% retention does not prevent it being relied upon by Pan. But I see the claim on the evidence not simply as provoked by the 5% retention but as driven by the imperative for Pan to find a way to throw the burden of that retention so far as concerns work carried out by A & C’s operatives on to A & C and to justify its onward 5% retention. The motive for making the cross claim cannot of course be determinative in whether it is a genuine cross claim, but the motive, especially coupled with the timing of the cross claim, can, in my judgment, be brought into the equation when I answer the question: does Pan have a genuine and substantial set-off or cross claim? My answer, in the light of those factors and the two serious reservations which I have identified, is that it does not. So, quite apart from the narrow reason for my decision based on Pan’s overhead claim, this provides a more general reason for reaching the same result.
55. Accordingly, I reject Pan’s application for an injunction restraining presentation of the petition based on the statutory demand.
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