Alstom Transport v Elequip Projects Ltd

Presentation of a winding-up petition may be restrained where the alleged debtor has a bona fide and substantial cross-claim exceeding the petition debt. The court must not resolve such a dispute summarily on the petition if it raises issues unsuitable for determination in winding-up proceedings.

The court may examine whether contractual claims and cross-claims are sufficiently connected for set-off. They are not necessarily unconnected merely because one liability arises under an earlier agreement and the other under a later agreement. A claim arising from a representation inducing the later agreement may itself provide a substantial cross-claim.

Alstom applied to restrain Elequip, which was in administrative receivership, from presenting a winding-up petition for £86,631.20. The alleged debt represented the balance of £230,000 payable under an agreement dated 17 October 2003 concerning equipment removed from Elequip’s premises.

Alstom alleged that batteries included in equipment transferred under the agreement were missing and sought to rely on set-off and a misrepresentation claim. The central issues were whether the 17 October agreement incorporated terms in an earlier letter dated 16 October 2003, and whether Alstom had a bona fide and substantial cross-claim exceeding the petition debt.

1. Relief granted. The court restrained presentation of the winding-up petition because Alstom had established a bona fide and substantial dispute concerning its liability to pay the claimed £230,000 balance.
2. Following Re Bayoil SA [1999] 1 WLR 147, where a genuine and substantial cross-claim exceeds the petition debt, the court has a discretion to restrain presentation of a petition. In the absence of special circumstances, that discretion will ordinarily be exercised in favour of restraint.
3. The court accepted that, if inability to litigate the cross-claim were a requirement, it would have been unreasonable to expect Alstom to litigate against Elequip while Elequip was insolvent. It rejected the suggestion that the court should require only a real prospect that the petition judge might later reject the cross-claim.
4. The relationship between the 16 October and 17 October letters could not be resolved by textual analysis alone. Although the 16 October letter could apply to future deliveries under existing orders, the evidence that the 17 October agreement was unconditionally agreed first gave Alstom a seriously arguable case that it was a stand-alone agreement and that the no-set-off provision did not apply.
5. The claims were not necessarily unconnected. The 17 October agreement made payment of £500,000 a condition of Alstom’s right to remove the relevant equipment. Alstom entered the agreement believing that the equipment included the batteries later said to be missing. The alleged representation that the batteries were stored off site but available for collection gave rise to a potential misrepresentation claim under the later agreement.
6. The dispute was unsuitable for determination on a winding-up petition. Alstom was therefore entitled to the relief sought. The court proposed to order that Alstom recover the costs of the application.