Business Online Group Plc v MCI Worldcom Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 15 November 2002 |
| Neutral Citation | [2002] EWHC 2436 (Ch) |
| Court | Chancery Division |
| Docket Number | 006689 of 2002 |
| Date | 15 November 2002 |
[2002] EWHC 2436 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION COMPANIES COURT
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Lawrence Collins
006689 of 2002
In the Matter of
MCI Worldcom Limited
Mr Philip Marshall (instructed by DLA) for the Applicant
Mr James Potts (instructed by Jeffrey Green Russell) for the Respondent
Approved by the Court for handing down
I direct that pursuant to CPR PD 39 para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
I Introduction: parties
MCI WorldCom Ltd ("MCI") is a subsidiary of WorldCom Inc, the US corporation which has been the subject of a widely reported financial scandal involving it restating its accounts by US$9 billion. WorldCom Inc is now in Chapter 11 bankruptcy in the United States. MCI has applied for an order that a winding-up petition presented by Primus Telecommunications Ltd ("Primus") on 11 October 2002 be struck out as an abuse of the Court's process and/or that Primus be restrained from advertising or otherwise proceeding with its petition.
MCI and Primus are both engaged in the provision of telecommunications services on an international basis. This has included the provision of national voice telephony and international direct dialled voice telephony services to each other by the connection of their telephony systems.
Two agreements governed the provision of services between the parties: The first was a Telecommunications Services Agreement dated 14 January 1998 ("the Interconnect Agreement") which set out each party's obligations regarding the connection of their respective systems and the provision of voice telephony services between them. There are provisions for each party to invoice the other where such services have been provided and for those invoices to be paid within 30 days (clauses 3.1–3.3). In the event of a dispute regarding any invoice there was detailed provision for the matter to be referred to an expert for determination (clause 3.7 and clause 15). Such determination was to be final and binding in the absence of manifest error (clause 15.4).
The second was the Wholesale Master Services Agreement ("WMSA") executed on 27 March 2000. Whereas the Interconnect Agreement regulated the mutual provision of services between the parties, the WMSA only set out the basis upon which MCI provides a service to Primus. It regulated a variety of services provided to Primus after it had issued service order forms in a format prescribed by MCI. There was provision for payment of invoices within 30 days (clauses 4.7 and 4.8) as well as provision for informal dispute resolution in connection with any invoice (clause 24).
The services to be provided under the two agreements between the parties were potentially extensive. It could therefore be anticipated that there would be a large number of invoices and charges some of which might be disputed from time to time. The parties provided for dispute resolution by expert determination under the Interconnect Agreement or for alternative dispute resolution under the WMSA.
II Winding-up Petition
On 17 September 2002 solicitors for MCI pressed for payment from Primus of a number of outstanding invoices amounting to £2,621,811.09 under the WMSA. The invoices related to the supply of voice and data services to Primus. In the absence of payment, or proposals for payment, by 23 September, they threatened winding up proceedings against Primus. On 23 September 2002 Primus replied contending that many invoices were not properly due or not properly due from it as opposed to its parent or other associated companies, and also claimed various sums were due to it under the Interconnect Agreement which it was entitled to set off against any debt due to MCI under the WMSA or otherwise. Primus contended that after such set-off there was a net debt due to it under four invoices of £634,353.41, and said that if it were not paid by 27 September, Primus' solicitors would take the necessary action on 30 September.
On 11 October 2002 those acting for Primus applied in writing, without notice, for permission to present a winding-up petition. The application was necessary as a result of a refusal by the Court on 7 October 2002 to allow Primus to present a petition given that there was an outstanding petition presented by another creditor, Mitie Technology Ltd, although this petition had not been advertised and was unlikely to be advanced by the petitioner concerned as a result of the petition debt being discharged. Instead of applying for substitution under r.4.19(2) of the Insolvency Rules 1986 Primus sought permission to present a petition of its own. The letter to the Registrar said that "Primus' justified apprehension is that the income stream of [MCI] is being funnelled up to prop up the insolvent American parent at the expense of the English creditors" and to stop this it was important that the petition be advertised as soon as possible. Permission was granted on the basis of this letter.
The present application by MCI is made on the basis that: (1) the alleged petition debt is disputed on substantial grounds or alternatively MCI has a bona fide cross-claim which exceeds the petition debt; (2) the alleged petition debt is the subject of a dispute which is covered wholly or partly by a contractual expert determination provision; and (3) permission to present the petition was wrongfully obtained by Primus by a written without notice application made by letter to the Court which failed to disclose material matters and otherwise misrepresented the position.
MCI says that if all the potential set-offs are taken into account, MCI is the net creditor. For present purposes the most important question in contention relates to a large set-off which MCI claims in the amount of £426,864.85. This is the largest of the alleged set-offs by MCI and relates to the provision of transmission capacity relating to "E1 circuits" between London and Frankfurt. If there were a genuine dispute over whether this item was due that arguable debt would be enough on its own to over-top the alleged petition debt.
MCI also says that Primus should have followed the expert determination route, and finally that the permission to present a winding up petition should be set aside since it was obtained following material non-disclosure.
III The applicable principles
A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed: Stonegate Securities Ltd. v Gregory [1980] Ch 576, 579. It is an abuse of the process of the court to present a winding-up petition against a company based on the non-payment of a debt which is bona fide disputed on substantial grounds, even if the company is otherwise shown to be insolvent: Mann v. Goldstein [1968] 1 WLR 1091; Re a Company (No. 0012209 of 1991) [1992] 1 WLR 351. It is also sometimes said that where the debt is disputed, the alleged creditor has no locus standi to present a petition: Mann v Goldstein, at 1098–1099, approved in Stonegate Securities Ltd. v Gregory, at 580; Re Bayoil SA [1999] 1 WLR 148, 150. But this is a rule of practice only which may have to give way to circumstances which make it desirable for the petition to proceed: Re Claybridge Shipping Co. SA [1997] 1 BCLC 572 (decided in 1981); Alipour v. Ary [1997] 1 WLR 534.
Where a company asserts genuine and serious cross-claims (whether they are counterclaims or set-offs)...
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