Sykes & Son Ltd v Teamforce Labour Ltd

Where a winding-up petition fails because the debt is genuinely disputed on substantial grounds, the petitioner should ordinarily pay the costs. This principle has added force because a petition is a coercive procedure and must not be used as a shortcut to establish liability. The court may consider the parties’ pre-petition communications when deciding whether exceptional circumstances justify a different order. Exceptionally, late production of material evidence, particularly documents whose authenticity remains unresolved, may justify adjourning costs until the underlying dispute is determined. The court should avoid rewarding fabricated defences, while ensuring that a petitioner is not penalised for a false case raised only after presentation.

Teamforce Labour Limited presented a winding-up petition against Sykes & Son Limited. In an earlier judgment, [2012] EWHC 883 (Ch), the petition was dismissed. The court held that Teamforce had standing because a relatively small undisputed debt existed when the petition was presented, but that debt was paid shortly afterwards. The larger alleged debt was genuinely disputed and unsuitable for determination in winding-up proceedings.

This judgment concerned the costs of the petition and of Sykes’s application to restrain advertisement and strike out. The central issues were whether the ordinary costs rule should apply, whether Sykes’s late disclosure and conduct created exceptional circumstances, and whether costs should be deferred pending determination of the underlying debt dispute.

1. The court applied the general rule in CPR 44.3 with added force in winding-up proceedings. Save in exceptional circumstances, a petitioner whose petition fails because the debt is genuinely disputed on substantial grounds should pay the costs of that failure. The Companies Court should discourage use of a winding-up petition as a shortcut to establish liability.

2. The court approved the general approach in Re Fernforest Limited [1990] BCLC 693. However, the court held that the parties’ communications before presentation of the petition were relevant. A company need not formulate a detailed defence before proceedings are issued, but the clarity and substance of its pre-petition response may affect the costs order.

3. The court considered and applied the principles illustrated by Re UK (Aid) Limited [2003] 2 BCLC 351 and the associated costs decision in GlaxoSmithKline Export Limited v UK (Aid) Limited [2004] BPIR 528. A petitioner who proceeds despite knowing the basis of the dispute takes the risk that the Companies Court cannot resolve irreconcilable factual assertions without disclosure or cross-examination. That risk is not necessarily assumed where the company raises a false defence supported by fabricated documents only after presentation.

4. On the facts, Sykes had not meaningfully explained its defence before the petition was presented. Its important manuscript valuations were produced only in evidence in reply and were decisive to the dismissal application. Their authenticity could not be resolved summarily. The circumstances were wholly exceptional.

5. The court therefore adjourned determination of the costs of the application and of the petition after 8 December 2011 pending proceedings determining the debt dispute, including the authenticity of the valuations. Sykes was ordered to pay Teamforce’s costs of the petition up to 8 December 2011. Either party was given permission to apply on 14 days’ written notice after the underlying proceedings were finally determined or compromised, or if none were commenced by 4 May 2012.