R & S Fire and Security Services Ltd v Fire Defence Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Newey |
| Judgment Date | 26 November 2012 |
| Neutral Citation | [2013] EWHC 4222 (Ch),[2012] EWHC 4222 (Ch) |
| Docket Number | Case No: HC 8066 of 2012 |
| Court | Chancery Division |
| Date | 26 November 2012 |
[2013] EWHC 4222 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London, EC4A 1NL
Mr Justice Newey
Case No: HC 8066 of 2012
MR GERARD VAN TONDER (instructed by IS Headley LLP) appeared on behalf of the Applicant
MR MICHAEL WHEATER (instructed by Matthew Arnold and Baldwin LLP) appeared on behalf of the Respondent
Digital Transcript of Wordwave International Ltd (a Merrill Corporation Company) 8th Floor, 165 Fleet Street, London, EC4A 2DY Tel No: 020 7421 4036 Fax No: 020 7404 1424 Web: Email: (Official Shorthand Writers to the Court)
The application before me relates to a winding-up petition that Fire Defence plc has presented against R&S Fire and Security Services Limited. By the application, R&S asks that Fire Defence be restrained from advertising the petition and for the petition to be removed from the file of proceedings.
The petition arises out of work that Fire Defence has carried out at premises in Newcastle upon Tyne. R&S, which is a specialist in the field of fire detection and suppression, was employed to install systems at the site by a company called NG Bailey Limited. R&S, in turn, sub-contracted the installation of sprinkler systems to Fire Defence.
Between June and September of this year, Fire Defence submitted four written applications for payment in respect of its work for R&S. The petition is founded on the first three applications. On 21 September 2012, Fire Defence served a statutory demand on R&S claiming that it was owed £155,322.64 plus accruing interest pursuant to the three applications. No payment having been forthcoming from R&S, Fire Defence presented the petition with which I am concerned on 18 October. The petition puts the amount outstanding to Fire Defence, taking account of interest, at £156,299.23.
R&S asks that the petition should be struck out, and its advertisement restrained, on the basis that the debt on which it is founded is disputed by R&S in good faith and on substantial grounds. In the alternative, R&S claims to have a genuine and serious cross-claim against Fire Defence for more than the petition debt.
It is common ground between the parties that, where the debt on which a winding-up petition is based is genuinely disputed on substantial grounds, the petition will generally be dismissed or struck out. A petition can also be struck out if the company has a genuine and serious cross-claim of an amount in excess of such (if any) of the petition debt as is otherwise undisputed. The decision of the Court of Appeal in Re Bayoil SA [1999] 1 WLR 147 illustrates that "there is a practice that the company should not be wound up where there is a serious and genuine cross-claim save in special circumstances" (per Ward LJ at 156H).
The first question, then, is whether the petition debt itself is genuinely disputed on substantial grounds. Mr Michael Wheater, who appears for Fire Defence, argued that provisions of the Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009, mean that there is no scope for such a dispute.
The 1996 Act adopted a "pay now, litigate later" approach. It introduced a fast-track, temporarily-binding method of dispute resolution called adjudication; the decision of an adjudicator is to be "binding until the dispute is finally determined by legal proceedings, by arbitration … or by agreement" (see section 108(3)). The Act also includes provisions relating to interim payments to contractors. In broad terms, it stipulates that a construction contract has to give a contractor a right to interim payments and to provide for the service of notices in respect of such payments. In the absence of appropriate provisions in a construction contract, the "Scheme for Construction Contracts" for which the Scheme for Construction Contracts (England and Wales) Regulations 1998 provides will apply.
The key provisions of the 1996 Act for present purposes are to be found in sections 110A-111, which emanate from the 2009 Act. Section 110B specifies circumstances in which a contractor can give (or is to be regarded as having given) notice to his employer that he considers that a sum is due to him ("a Default Notice"). Section 111(3) allows the employer to give the contractor notice that he intends to pay less than the notified sum ("a Pay Less Notice"). In the absence, however, of a Pay Less Notice, "the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment": see section 111(1).
It is appropriate at this point to say a little more about the applications for payment made by Fire Defence. The first application, dated 15 June 2012, was for £9,600, and R&S has paid the amount claimed. The next application, dated 16 July, proceeded on the basis that Fire Defence had carried out further work to the value of £123,220. On this occasion, R&S told Fire Defence in an email of 27 July that it valued its application at just £25,820, some 21% of the amount claimed. The third application, dated 15 August, put the value of the work now carried out at £173,688. R&S did not make any further payment to Fire Defence, but, for whatever reason, neither did it give Fire Defence notice that it intended to pay less than the sum claimed.
Mr Wheater argued that, in the circumstances, R&S has become liable to pay Fire Defence the amount outstanding under the third application. I accept that submission. Fire Defence's applications will have stood as Default Notices. Not having issued any Pay Less Notice in respect of the third application, R&S is required by section 111(1) of the 1996 Act to pay the amount notified in that application to the extent that it has not done so. It must be irrelevant in this context whether R&S's email of 27 July 2012 represented a valid Pay Less Notice. Since R&S did not challenge the third application, it is obliged to pay the amount claimed in that application, regardless of whether it took issue with any previous application.
This conclusion is supported by the decision of Mr David Donaldson QC, sitting as a Deputy High Court Judge, in Re a Company (1299 of 2001) [2001] Adj.L.R. 05/15. That case pre-dated the amendments made to the 1996 Act in 2009, so section 111(1) of the 1996 Act then took the following form:
"A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment".
An employer having failed to issue any notice under section 111(1) in relation sums specified in interim valuations, Mr Donaldson concluded that the contractor had locus standi to present a winding-up petition against it. He said:
"12. Emphasising the words 'payment of a sum due …' in section 111(1), Counsel for [the employer] argued that the section only applies where the monies are in fact due, and that this requires the court to consider whether the sum demanded...
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