Levi Solicitors LLP v David Frederick Wilson
| Jurisdiction | England & Wales |
| Judge | Mr Justice Fancourt |
| Judgment Date | 14 January 2022 |
| Neutral Citation | [2022] EWHC 24 (Ch) |
| Docket Number | Case No: 721 of 2016 |
| Year | 2022 |
| Court | Chancery Division |
[2022] EWHC 24 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN LEEDS
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF FARRAR CONSTRUCTION LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
The Combined Court Centre
1 Oxford Row
Leeds
LS1 3BG
THE HON. Mr Justice Fancourt
Vice-Chancellor of the County Palatine of Lancaster
Case No: 721 of 2016
Neil Berragan (instructed by Levi Solicitors LLP) for the Applicant
Amie Boothman (instructed by Carrick Read Solicitors LLP) for the First Respondent
Cristín Toman (instructed by Addlestone Keane Solicitors) for the Second Respondent
Hearing date: 2 December 2021
Approved Judgment
I direct that pursuant to CPR PD 39A 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.
The Vice-Chancellor:
Introduction
This is an application by Levi Solicitors LLP (“Levi”), as creditor of the company Farrar Construction Limited (“the Company”), for relief in relation to a proof of debt of the Second Respondent, JKR Property Development Limited (“JKR”). The proof was admitted by the First Respondent, David Wilson, who is the supervisor of the Company's Company Voluntary Arrangement (“CVA”), No. 721 of 2016. The CVA proposal was approved by the creditors at a meeting on 1 September 2016 and filed in court.
The proof of JKR relates to a JCT minor works fixed price building contract signed on 20 June 2014, under which JKR was the employer and the Company was the contractor.
JKR claimed that it substantially overpaid the Company and that, following the issue of a final certificate by the contract administrator (in the form of “Interim Report No 8 — Final” dated 20 December 2019), a sum of £125,921.70 was repayable to JKR, and, further, that the Company owed JKR £30,000 in liquidated damages for delayed completion of the works.
Levi is the major creditor of the Company and submitted a proof of over £760,000 as long ago as 30 August 2016.
Levi's case is that the supervisor, Mr Wilson, was wrong to have admitted the proof of JKR in the sum of £185,921.07, as he did. By the application, it seeks a direction from the court that JKR's proof should be rejected on the ground that it is not sufficiently established, and further directions to the supervisor in that regard.
The reason for the delay in the progress of the CVA is that in January 2017 the Company and its principal director, Mr Farrar, issued proceedings against JKR claiming that JKR held the property to which the minor works contract related on trust for itself and the Company equally. The claim was rejected by HHJ Raeside QC in November 2017 and the Company's appeal against that decision was rejected by the Court of Appeal in November 2019.
The contract administrator, Greenoak Development Consultancy Limited, acting by its director, Mr Tate, also considered that the final certificate under the contract should await the outcome of the legal proceedings. It was therefore only on 20 December 2019 that he issued the so-called eighth interim and final valuation, in which the final cost of the works done was certified as £430,921.71 (ex VAT) and the eighth valuation was in the sum of £80,619.66 (ex VAT). It stated that the total payments to date (presumably meaning before the eighth certificate) were £350,302.05 but made no reference to the fixed price of £305,000.
Mr Wilson has made a short witness statement in response to the application of Levi, to provide the relevant facts as he saw them when he made his decision on the proof. However, although represented at the hearing, he takes a neutral position on the outcome of the application.
As originally brought, Levi's challenge to the decision to admit JKR's proof was that it was unclear how a claim to £185,921.70 could be made, given the history of the works; and that in any event it should have been brought, if it was to be brought at all, by way of a counterclaim to the Company's proceedings against JKR.
Until a second skeleton argument of Levi was filed on 29 November 2021, three days before the hearing, these remained grounds on which admission of the proof was opposed by Levi. However, they have now been abandoned as grounds. Levi has also abandoned an argument that JKR's claim to repayment is statute-barred.
After the first witness statement in support of the application, the issues proliferated, first as a result of the filing of evidence by JKR and evidence in response from Levi, and then in skeleton arguments prepared for the originally scheduled hearing on 1 November 2021. That hearing was adjourned and there were then supplementary, nonsequential skeleton arguments filed by each side raising further points.
The Issues
In light of the confusion about the issues, I made a direction that the parties must agree and file a list of the issues required to be decided on the application. The List of Issues agreed and filed included one issue on the incidence of the burden of proof relating to JKR's proof; six issues of interpretation of the JCT contract; and three issues said to arise under Part II of the Housing Grants, Construction and Regeneration Act 1996, as amended (“the 1996 Act”). The List of Issues is set out in a schedule to this judgment. For reasons that will appear, it is unnecessary to decide each numbered Issue.
What is no longer in issue is that the amount for which the proof was admitted by Mr Wilson is on any view wrong. Mr Wilson now accepts that the proof was overstated by £30,000. Further, Levi and JKR now agree that only one month's liquidated damages, at £3,000, can be claimed on the true interpretation of the contract. So the amount in which JKR contends that the proof should have been admitted is now £128,921.70.
As regards that amount, Levi now contends that:
i) The insolvency terms of the contract applied as from 1 September 2016, when the creditors of the Company approved the CVA, so that JKR can only claim repayment of sums paid to the Company if the procedure in c.6.7 of the standard terms of the contract was followed. Levi says that it was not followed and so no sum is due from the Company to JKR.
ii) Alternatively, since JKR advances its claim on the basis of the eighth interim and final valuation, JKR has failed to satisfy the contractual requirements of c.4.8 of the standard terms of the contract because a final certificate is a strict condition of liability under cl. 4.8 and no valid certificate has been issued.
JKR contends that c.4.8 applies and was complied with, and that it also has a statutory right under s.110B of the 1996 Act to payment, following a payment notice given under s.110B(2) (in the form of the proof of debt); alternatively, that in any event it has a contingent claim, dependent only on service of a valid notice under s.110B(2), which it can serve at any time and therefore it is to be treated as a creditor of the Company in the adjusted amount now claimed.
JKR's skeleton arguments also raised a procedural question, namely whether the application is to be regarded as made under s.7(3) of the Insolvency Act 1986 or under rule 4.83 of the Insolvency Rules 1986, or both. It was argued by JKR that a more onerous test applies under s.7(3) and that before the court will interfere with a supervisor's decision it has to be satisfied that no proper supervisor correctly directing themselves could have reached the conclusion that they did about JKR's proof.
This issue was not, however, included on the agreed List of Issues. Ms Cristín Toman, on behalf of JKR, sought to add it as an additional issue for decision towards the end of her oral submissions, following Mr Neil Berragan's submissions on behalf of Levi. I refused permission to add that issue at such a late stage. The purpose of the List of Issues was to define and bring clarity to the matters in dispute. The only relevant issue raised in the List of Issues was on whom the burden lay of proving that JKR does or does not have a valid claim. That is a separate point from what test applies. I therefore proceed on the basis that the only issue here is about the burden of proof. (In any event, had it been necessary to decide it, the answer seems clear that, formally, the application has to be made under s.7(3) of the Act, because the Insolvency Rules 1986 are no longer in force; but nevertheless, by the terms of the CVA, the creditors have agreed inter se and with the Company that rules 4.73 to 4.94 of the 1986 Rules shall be deemed to apply under the CVA, and so the test that is appropriate under those Rules should be applied (with the necessary amendments to apply them to the case of a CVA) in determining this application.)
Under rule 4.83(2), a creditor who is dissatisfied with a liquidator's decision on another creditor's proof may apply to the court for the decision to be reversed or varied. On such an application, the court conducts a rehearing rather than a review of the liquidator's decision. The court is not confined to addressing the matter on the basis of the evidence that the liquidator had. The court's task is to examine all relevant evidence and decide whether, on balance, the claim against the company is established, and if so in what amount: Re a Company (no. 004539 of 1993) [1995] BCC 116 at 120, per Blackburne J.
Where the challenge is made by the creditor whose proof has been rejected, it is clearly established that the burden of proving that the claim is established lies on that creditor: McCarthy v Tann [2015] EWHC 2049 (Ch) at [13]; Re JPF Clarke (Construction) Limited [2020] BPIR 194 at [24]. No authority has established on whom the burden of proof lies where one creditor...
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...property that could be protected by the grant of a receivership order. Levi Solicitors LLP v. (1) Wilson (2) JKR Property Development [2022] EWHC 24 (Ch) In a judgment handed down on 14 January 2022, Mr Justice Fancourt was faced with a novel question, for which no authority apparently exis......
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