The court granted the applicant’s application for an order to restrain the respondent from presenting a winding up petition. This was on the basis that the applicant had a genuine cross-claim which exceeded the sum demanded.
It was held that the applicant had met the minimum evidential threshold to establish a genuine, strongly arguable cross-claim in contract and misrepresentation. The court rejected the respondent’s proposition that evidence of cross claims had been raised to stave off winding up proceedings.
The applicant provided electrical services to a sub-contractor employed by the main contractor on building projects. The respondent was an agency sourcing and supplying vetted labourers.
The respondent and applicant worked on two building projects together. The applicant did not have enough electrically qualified operatives, so the respondent agreed to offer additional operatives on an agency basis.
There was a dispute between the parties. The respondent demanded payment for unpaid invoices and issued a statutory demand in February 2023 in the sum of £16,889.25. The applicant responded, claiming that the sums demanded by the respondent did not accurately reflect the hours worked by agency staff and that some of the work was defective due to the operatives not being qualified as they should have been under the contract.
The applicant sought an injunction preventing the presentation of a winding-up petition and in its evidence in reply the applicant changed its position to state that the debt was largely disputed, and any undisputed sum was insignificant compared to the cross-claims in respect of under-qualified operatives.
The respondent accepted the debt was disputed, however argued the cross-claims did not meet the minimum evidential threshold to show that the applicant had real prospects of success.
Delay
Although the applicant put forward its cross-claims as evidence in reply, the court found that it would not be legitimate to infer from the timing of the evidence that the cross-claims were put forward in bad faith, as a pretext to stave off winding up proceedings.
The letter sent by the applicant to the respondent had referred to a cross-claim before the applicant issued the injunction application.
The court held that it was clear why the applicant initially focussed on over-charging. This was readily accessible and at the outset it appeared the debt was entirely disputed arithmetically which would result in a nil balance in favour of the applicant and removed the issue of addressing the cross-claims.
The applicant was missing evidence for a cross-claim in relation to breach of contract or misrepresentation. Evidence that several operatives provided by the respondent were underqualified was only given by the respondent in its response to the application.
Minimum evidential threshold
The judge concluded that the evidence crossed the minimum evidential threshold as the applicant had provided evidence which showed real prospects of success.
The applicant had not exhibited records in support of the managing director’s claim that it was the respondent’s operatives who were responsible for the electrical defective works at the projects. However, the court held that his written testimony was not manifestly incredible nor inherently implausible or contradicted by any documents in evidence.
However, the managing director’s statement also had photos of the defective works. The judge also considered the respondent’s ‘long-standing reluctance’ to disclose evidence of the qualifications of its operatives, even though the applicant had repeatedly asked for this.
Respondents should try to resolve issues with a company without relying on taking it to court in relation to a statutory demand.
The respondent ignored the correspondence before the statutory demand and after the without notice interim injunction was granted.
The respondent declined an open offer to accept an undertaking not to present and a modest contribution to the applicant’s costs. This contributed towards the award of indemnity of costs against the respondent.
The judge provided a useful summary of the applicable legal principles. For example, delay in issuing a cross-claim may lead to an inference that it is not put forward in good faith, but only as a pretext in order to stave off insolvency proceedings. If a delay is alleged the reasons need to be analysed.
The nature and extent of evidence put before the court in order to cross the minimum evidential threshold for a cross-claim should be considered. Written testimony may be sufficient, even if there may be corroborating documentary evidence, as long as it is not manifestly incredible or inherently implausible.
Should you wish to discuss any of the issues raised in this article, please contact Sacha Pickering.
