Sykes & Son Ltd v Teamforce Labour Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeRichard Snowden
Judgment Date18 Apr 2012
Neutral Citation[2012] EWHC 1005 (Ch)
Docket NumberCase No: 10662 of 2011

[2012] EWHC 1005 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

IN THE MATTER OF SYKES & SON LIMITED

AND IN THE MATTER OF THE INSOLVENCY ACT 1986

Royal Courts of Justice

Strand. London, WC2A 2LL

Before:

Mr. Richard Snowden QC

(Sitting as a Deputy Judge of the High Court)

Case No: 10662 of 2011

Between:
Sykes & Son Limited
Applicant
and
Teamforce Labour Limited
Respondent

Jennifer Meech (instructed by DAC Beechcroft LLP) for the Applicant

Tiran Nersessian (instructed by QualitySolieitors Redferns) for the Respondent

Hearing date: 3 April 2012

Richard Snowden QC:

1

I gave a reserved judgment in this matter on 3 April 2012, dismissing the winding up petition presented by Teamforce Labour Limited against Sykes & Son Limited: [2012] EWHC 883 (Ch). I shall use the same abbreviations herein as in that judgment.

2

For reasons which I explained, I took the view that when the Petition was presented, the Petitioner had a relatively small undisputed debt which was not subject to a serious cross-claim. It therefore had locus standi to present the Petition. The undisputed debt was paid shortly after the Petition was presented, and the much larger part of the debt claimed in the Petition was subject to a dispute which it was not appropriate to resolve in the Companies Court.

3

I now have to deal with the costs of the Petition and of the Application by the Company to restrain advertisement and to strike out.

The Arguments

4

For the Company, Miss Meech did not seriously contest the proposition that by reason of the fact that there was an undisputed debt due at the date upon which the Petition was presented, the Company ought to pay the costs of the presentation and service of the Petition itself. On the Company's case as to when the labour hire invoices were payable, that debt was paid on 8 December 2011, two days after presentation of the Petition and before the Application was launched. Even on the Petitioner's case as to when the labour hire invoices fell due for payment, the undisputed debt was paid on 14 December 2011.

5

Apart from those costs, however, Miss Meech submitted that the general rule under CPR 44.3 that costs follow the event should be applied and that all of the costs of the Application and in relation to the Petition after 8 December 2011 should be paid by the Petitioner on the basis that the Petition has been dismissed. Miss Meech supported that submission by reference to two authorities which she suggested set out the practice of the Companies Court in relation to costs where a petition has been dismissed on the basis that the company has raised a genuine and substantial dispute.

6

The first of those authorities, Re Fernforest Limited [1990] BCLC 693, was a pre—CPR decision of Warner J. Though the details in the report are brief, it would seem that the company in question had indicated in correspondence before the petition was presented that the petition debt was disputed; though as Warner J observed, the grounds were not set out in any very convincing manner. A petition was presented and an application was made to restrain advertisement. Evidence was exchanged which led to the petitioner agreeing to the petition being dismissed on the basis that there was a dispute which could not be determined in the winding up proceedings. The petitioner commenced a writ action to recover its alleged debt, and contended that since the real basis on which the company disputed the debt only became clear in the company's evidence in reply, the costs of the petition should be costs in the action.

7

Warner J held,

"In my view as a matter of general approach to this type of case a claimant against a company who chooses to take the short cut of a statutory demand followed by a winding-up petition instead of the procedure of first issuing a writ to establish his claim, does so at his own risk that the claim will be disputed and that the petition will be dismissed or will have to be abandoned. It is no part of the duty of a person against whom a claim is made to formulate in detail, before proceedings are taken against him to enforce the claim, what his defence to those proceedings may be. Instructing solicitors to do that can be costly and the costs of doing it if as a result proceedings do not eventuate will be irrecoverable. That is a consideration which to my mind is material. Another material consideration is that experience in this court shows that if in every case of the withdrawal or dismissal of a winding-up petition the court is to go into the whole history of the case to assess whose conduct at which stage was reasonable and whose unreasonable, an enormous amount of the court's time and consequent costs will be spent on disputes of this kind. I think the principle should be adhered to that, unless there be exceptional circumstances, a petitioner whose petition fails on the ground that the debt is bona fide disputed on substantial grounds should pay the costs of that failure."

8

Warner J concluded that if he adopted the course urged by the petitioner,

"…I would really be saying that someone who has a claim against a company can always try first to enforce that claim by serving a statutory demand and presenting a petition; if he succeeds he will be paid or the company will go into liquidation; if he fails the costs of the winding-up proceedings will simply be added to the costs of the writ action that he will then have to bring to establish his claim. It seems to me that that cannot be a proper view of the winding-up procedure."

9

Re Fernforest was referred to with approval by Blackburne J in GlaxoSmithKline Export Limited v UK (Aid) Limited [2004] BPIR 528. Blackburne J had heard and dismissed the winding up petition on the basis that the company had advanced a dispute of substance as to the petition debt. His judgment on the petition is reported as Re UK (Aid) Limited [2003] 2 BCLC 351. The gist of his decision is encapsulated in the following passage:

"74. Although GSK advances a very powerful case against the company based upon the unpaid invoices, especially given the company's failure to respond in any substantive way to GSK's demands for payment until after being served with a statutory demand; I entertain sufficient doubts about the matter to causes me to feel unable to say with confidence that there is no substance to the disputes which the company has raised. To reject the company's claim that the prices agreed were not those appearing from the face of the invoices involves not just a rejection of Mr Mitchell's repeated and detailed assertions that, for reasons, he says, concerned with Mr Jones's wish to increase GSK's turnover in its dealings with the company in eastern Europe, the parties had agreed to make retrospective (downward) adjustments to the higher levels at which the goods were being invoiced to the company to reflect the various discounts, rebates and other terms which they had agreed, but also a conclusion that the documents to which Mr Mitchell refers, admittedly all of them internal to the company, evidencing what he says were the terms actually agreed (notably the typed note of the meeting on 3 October 2000) are false, ie that they have been produced with a view to presenting a false account of the company's dealings with GSK. That is not a conclusion that I feel I should reach on what is, after all, a summary proceeding where there has been no cross—examination of either Mr Jones or Mr Mitchell unless it is perfectly plain that that is what has happened or, as Mr Lopian endeavoured to persuade me, because those documents and Mr Mitchell's assertions cannot stand in the face of subsequent documents or conduct on the part of the company. Although I entertain doubts about the genuineness of some of those documents and about the accuracy of some at least of Mr Mitchell's assertions, I cannot say simply from a reading of a series of witness statements and from an examination of the invoices and other documents, that they are to be dismissed as either false or, if genuine, that they have been overtaken by subsequent events."

10

The petitioner then sought an order that the costs should be reserved either to, or to await the outcome of, a summary judgment application in a separate action that the petitioner indicated that it was intending to commence. The argument for the petitioner was recorded by Blackburne J in his judgment at [2004] BPIR 528 as follows:

"[2] The basis for such an order is that, as Mr. Lopian put it, my decision was as close to the line as it could get in the sense that I was strongly minded to make a winding-up order but felt unable on the basis of various assertions set out in the judgment to go that far. He submits that in the light of that, and in the light particularly of the fact that claims by Mr. Mitchell based upon documents which he produced may, when this matter is investigated, be disbelieved and, indeed, that some of these documents may be found to be wanting in one respect or another, fairness would suggest that his client's narrow failure in these proceedings should not carry with it the ordinary consequence where a petition is dismissed. That is that the petitioner should bear the successful respondent company's costs."

11

Blackburne J rejected that argument. He said,

"[6] ….In my experience, very often where there is a contested winding up petition, there is an issue of credibility: one side is telling the truth and the other side is probably telling lies. It is only when the matter comes to trial and its is possible for the witnesses in the case to be cross-examined that the court is in a position to say where the truth lies and in particular who is telling the truth and who is not. That is in my experience fairly common in the case of contested winding-up proceedings. But it is a risk the petitioner runs when without the benefit of...

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