Construction Dispute and Injunction to Restrain Winding-up Petition

In the recently reported case of COD Hyde Limited and Space Change Management Limited [2016] EWHC 820 (Ch) the Companies Court had to decide whether to grant the employer (COD) an injunction restraining the contractor (Space) from presenting a Winding-up Petition against it. The intended Petition was based on a Statutory Demand which referred to three unpaid interim applications for payment totalling around £680,000. The Contract was a bespoke JCT Design and Build Contract 2011 edition.

The application was refused.

The case illustrates that there are other weapons available to a contractor who is not being paid other than adjudication, in this case suspension, termination and the winding-up route.  It also shows the drastic consequences that can follow if an Employer does not serve valid payment and payless notices. 

Following non payment of its interim applications COD followed the contract procedure and gave notice of an intention to suspend performance of its obligation. The default in payment was not remedied within the 7 days and accordingly COD wrote to give notice of suspension and notice of default and they also wrote with a Statutory Demand. 

It is worth remembering that the amendments to the Construction Act allowed a contractor to suspend part only of its obligations and gave the right to payment of costs and expenses arising out of the suspension. Exercising a right of suspension is something which contractors and sub-contractors might consider doing in the event of non payment rather than adjudicating.

Space Change then decided to terminate the contract as a result of non payment. By this stage it seems that COD had employed others to carry out their works in any event. COD attempted to argue that they were entitled to withhold payment until such time as a performance bond was put in place, but this argument was rejected and in the absence of valid payment notices or payless notices the COD were not entitled to argue that Space Change should not be paid. The Judge considered that COD did not have ‘even a shadowy case’ that there was a counter claim that exceeded the amount set out in the Statutory Demand. 

An Employer rarely has a defence to a ‘smash and grab’ adjudication and the Technology and Construction Court take a robust view to adjudication enforcement and so an adjudication would certainly have been worth doing, but there may be good reasons why in this case, COD decided to go down the winding up route. 

However in yet another case recently published, the Court dismissed the Respondent’s Winding-up Petition as it found there was a dispute between the parties over whether the statutory payment mechanism as set out in the Construction Act and implied into construction contracts by the Scheme applied to the parties contract. In that case by applying for a Winding-up Petition in circumstances where there was such a dispute the Respondent found itself with two legal bills – its own and the applicant’s bill which was summarily assessed at £13,750.00. The debt itself was only in the region of £6,500 and so whatever the tactical reasons for issuing a Winding-up Petition in this case, it may have been more cost effective to have referred it to adjudication. The case is Ro-Bal Steel Fabrications Ltd v Jones Site Services LH [2016] EWCH 292 (Ch).

David Brown can be reached at d.brown@gullands.com