Wilson and Sharp Investments Ltd v Harbour View Developments Ltd

The Court of Appeal allowed the appellant's appeal against the refusal to restrain presentation of a winding-up petition. The court held that clauses 8.5.3 and 8.7.3 of the JCT contracts, read with the amended section 111 of the Housing Grants, Construction and Regeneration Act 1996 (as explained in the judgment), entitled the employer to withhold interim instalment payments once the contractor became insolvent, and those provisions could operate even where the contract had previously been terminated for repudiatory breach. Given the respondent's near-certain creditors' voluntary liquidation, the appellant had a bona fide dispute on substantial grounds and arguable cross-claims exceeding the petition debt, such that presentation of a petition should have been restrained.

This is an appeal from the Chancery Division (His Honour Judge Hodge QC) concerning an application for an injunction to restrain presentation of a winding-up petition based on sums certified in four interim payment certificates under two JCT building contracts. The appellant (employer/developer) sought to restrain the respondent (contractor) from presenting a petition based on alleged unpaid interim certificates totalling approximately 122.

Background and procedural posture:

• The contracts were JCT Intermediate Building Contracts (2011) with contractor's design. Interim certificates were issued in August and September 2013. The employer did not serve Pay Less Notices and paid one interim certificate in full; three remained unpaid.
• There were contested valuations: the employer alleged substantial overvaluation in the interim certificates and later instructed a new contract administrator/quantity surveyor who concluded the contractor had been overpaid.
• The parties entered short-term agreements (a November Agreement and a February Agreement) which temporarily altered payment arrangements; those agreements later fell away. The contractor sought to present a winding-up petition and, after creditor votes rejected a proposed CVA, went into creditors' voluntary liquidation on 25 July 2014.
• The employer applied for an injunction to restrain presentation of the petition; the High Court judge dismissed that application and ordered the employer to pay the respondent's costs. The employer appealed.

Issues before the Court of Appeal:

1. Whether the proposed petition debt was disputed on substantial grounds, in particular whether clauses 8.5.3 and 8.7.3 of the contract meant interim sums were not payable once the contractor became insolvent.
2. Whether established TCC practice militated against enforcement of interim payment obligations in favour of an insolvent contractor by way of winding-up petition or summary enforcement.
3. Whether the employer had serious and genuine cross-claims exceeding the petition debt justifying an injunction.

Court's reasoning and disposition:

• The court held the judge erred in construing clauses 8.5.3 and 8.7.3 as applying only when the contract remained on foot. Those provisions were intended to operate after termination and could excuse interim payment obligations once the contractor became insolvent, even where termination had previously occurred for repudiatory breach.
• Because the respondent's liquidation after the 10 July 2014 hearing was realistically inevitable, from 11 July 2014 the employer had a bona fide dispute on substantial grounds that it was not obliged to pay the interim sums but could wait for the final account. That undermined the respondent's locus standi to present a petition based on those interim certificates.
• The court explained that TCC practice refusing summary enforcement against insolvent contractors is not an absolute bar; each case depends on its facts. On that ground the appeal was dismissed, but the first and third grounds succeeded.
• The court found the employer had arguable, serious cross-claims supported by evidence (including valuation work and pre-existing factual matters) and that the judge had placed undue weight on earlier acknowledgements and related events. On a re-exercise of discretion the Court of Appeal granted the injunction restraining presentation of the petition.

Remedy: The appeal was allowed and, on re-exercise of the court's discretion, a permanent injunction was granted restraining presentation of a winding-up petition based on the interim certificates.

Appeal allowed. The Court of Appeal concluded that the judge erred in construing clauses 8.5.3 and 8.7.3 as only applying where the contract remained on foot; those clauses can operate after termination and excuse interim payment obligations once the contractor becomes insolvent. Given the respondent's near-certain creditors' voluntary liquidation, the appellant had a bona fide dispute on substantial grounds and arguable cross-claims exceeding the petition debt. The court re-exercised its discretion and granted an injunction restraining presentation of the winding-up petition.

Appeal from the High Court of Justice, Chancery Division (His Honour Judge Hodge QC), Case No. 3113 of 2014. Application below (injunction to restrain winding-up petition) heard in the High Court; appeal heard in the Court of Appeal on 16 July 2015, judgment delivered 13 October 2015 ([2015] EWCA Civ 1030).