Tallington Lakes Ltd v South Kesteven District Council

A sum due under a court order is paid by cheque only when the cheque has cleared through the payer’s account and the funds have become available. Delivery or receipt of the cheque does not stop interest accruing.

An injunction restraining a winding-up petition will not be granted where the creditor has an unpaid debt exceeding the applicable threshold which is not disputed on substantial grounds. The threshold for showing a substantial dispute is nevertheless low and may be met by a defence which would appear “shadowy” on a summary judgment application.

The company sought an injunction restraining a local authority from presenting a winding-up petition. Norris J dismissed the application, subject to a seven-day restraint, because liabilities under an April 2008 non-domestic rates order and accrued interest on an earlier costs award were not disputed on substantial grounds.

Permission to appeal was refused on paper. On the company’s oral renewal, the central issue was whether interest on the assessed costs ceased to accrue when its cheque was sent or received, rather than when the cheque cleared through the company’s account. The company also questioned whether the April 2008 liability order could be challenged following the successful judicial review of later liability orders.

1. Application for permission to appeal refused. Payment of money due under a court order, including a costs order, is effective only if and when payment is made in cleared funds. Where payment is tendered by cheque, the relevant funds become cleared funds once the cheque has cleared through the payer’s account and the money is available. Posting, delivery or presentation of the cheque does not itself satisfy the judgment debt or stop interest accruing.

2. The cheque for the assessed costs had not cleared before 11 February 2010. Interest therefore continued to accrue and exceeded £750 at the date of the hearing before Norris J. That interest was an unpaid debt which was not subject to a bona fide dispute on substantial grounds. It independently justified the refusal to restrain presentation of a winding-up petition and required the refusal of permission to appeal.

3. The threshold for establishing that a debt is disputed on substantial grounds, for the purpose of restraining a winding-up petition, is not high. It may be satisfied even where the defence might be described as “shadowy” on an application for summary judgment.

4. Although it was unnecessary to decide the point, the challenge concerning the April 2008 liability order might have had a real prospect of success on appeal. The delay in challenging that order made the case far from strong or straightforward. There were, however, unusual evidential features, including the absence of evidence that the local authority had placed any more material before the magistrates in April 2008 than it had when obtaining the later orders which were quashed.

1. Court of Appeal (Civil Division): On the oral renewal reported at [2012] EWCA Civ 443, permission to appeal was refused because unpaid accrued interest exceeding £750 provided an independently sufficient basis for Norris J’s order.

2. Court of Appeal (Civil Division): Lloyd LJ refused permission to appeal on the papers on 26 May 2011.

3. High Court, Chancery Division: Norris J dismissed the company’s application to restrain the local authority from presenting a winding-up petition, apart from a seven-day restraint allowing the company an opportunity to pay the undisputed debts.