Re A Company (number 1299 of 2001) [2001]

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

In the absence of an s111 withholding notice, it is not possible to advance an abatement or set-off against the sum demanded (even if defective work was not apparent at the time a notice should have been given).

A winding-up petition based on a statutory demand for a sum due may be restrained where the cross-claim is genuine and serious, exceeds the sum due and is one which the company has been unable to litigate.

Deputy HHJ David Donaldson, Chancery Division

CCL was the main contractor in the construction of 4 houses and engaged a roofing sub-contractor, GAL. CCL terminated GAL's contract after about 2 months and left outstanding the sum of £9,702.47 on 2 valuations. GAL served a Statutory Demand on the alleged debt. CCL sought a final injunction to prevent GAL from presenting a winding-up petition.

CCL contended that the debt was not due on the basis of: (a) a set-off which CCL had of damages for defective work and (b) an abatement because of GAL's use of felt rather than lead gutters. CCL had not served a withholding notice, having been unaware of these defects at the material time. The court rejected CCL's case on both bases (a) and (b) as the clear intent of ss110(2) and 111 of the Housing Grants, Construction and Regeneration Act 1996 ("the 1996 Act") was to preclude the employer (in the absence of a complying withholding notice) from contending that the sum demanded by the contractor was not due. If the work was defective, the employer retained the right to recover damages for breach of contract in subsequent arbitration or litigation, and could obtain a provisional order to the same effect by adjudication under s108 of the 1996 Act. Any other construction of ss.110 and 111 would rob them of all practical significance. Therefore the absence of a withholding notice meant that GAL had an indisputable debt, which CCL was required to pay.

The court however, still retained discretion to restrain a petition to wind-up CCL. The court noted the Court of Appeal's decision in Seawind Tankers Corporation v Bay Oil S.A (1999) Lloyds Rep 210 that where a company has a genuine and serious cross claim (exceeding the petitioner's debt) which it has not been able to litigate, the petition should be dismissed or stayed unless there are special circumstances.

The court found that the fact that the debt fell within the 1996 Act could not be a "special circumstance" meaning that a winding up order should be made.

Two issues needed to be addressed to determine whether the court would restrain a winding-up petition:

Whether there was a genuine and serious cross claim in excess of the debt
Whether the cross-claim was one which the company had been unable to litigate

In the absence of substantive submissions the judge was reluctant to address (1). As to (2), since becoming aware of the defects CCL had taken no steps to litigate its cross-claim for defective work. It was possible that an adjudication award could already have been obtained (and CCL adduced no evidence to show that it could not). Therefore there was at least a significant possibility that a court hearing a petition would grant a winding-up order and CCL's requested injunction to restrain GAL from presenting a winding-up petition was refused.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

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