Bluebridge Ltd v S Kelly (Building Contractors) Ltd

A winding-up petition is not an appropriate means of resolving a genuinely disputed debt. The debtor need only raise a bona fide defence on substantial grounds; the court should not determine the underlying commercial dispute under the pressure of winding-up proceedings. The defence may remain arguable even if the court considers the debtor’s case improbable, particularly where the companies’ affairs have involved common control. On an application for permission to appeal, permission should be refused where the first-instance judge was entitled to reach the conclusion reached and the proposed appeal would have no real prospect of success. A costs order falls within the first-instance judge’s broad discretion where it is a reasonable exercise of that discretion.

Bluebridge Ltd v S Kelly (Building Contractors) Ltd concerned an application for permission to appeal from a judgment of Morgan J in the Chancery Division dated 18 June 2015. The High Court had restrained advertisement of Bluebridge’s winding-up petition based on an alleged rent debt of £140,000 owed by S Kelly (Building Contractors) Ltd.

The debtor disputed the rent for earlier and later periods and relied on evidence suggesting that the rent payable to Bluebridge had been reduced when both companies were under common control. Morgan J considered the defence arguable with substantial grounds. The central issues were whether that conclusion was arguably wrong and whether the costs order disclosed an appealable error.

1. Application dismissed. The application for permission to appeal was refused. The proposed appeal had no real prospect of success.
2. For the earlier rental period, Morgan J was entitled to conclude that the debtor’s account of the rent was well arguable. The relevant lease was the only document relating to that period, and it was open to the judge to find that its expressly stated rent might have applied in each of the relevant years.
3. For the later period, the debtor had raised a bona fide defence on substantial grounds. The case was improbable, but the unusual fact that both companies had been under common control, together with supporting company accounts, meant that it could not be said to lack substantial grounds. The debtor had cleared the necessary threshold.
4. A dispute of this kind should not be fought out under the threat of, or in the course of, winding-up proceedings. The existence of a genuine defence meant that the petition process was inappropriate for resolving the disputed rent liability.
5. The challenge to costs also had no real prospect of success. The order awarding the debtor its costs, assessed at £7,000, fell within the bounds of a reasonable exercise of the judge’s wide discretion.

• Court of Appeal (Civil Division): On 23 July 2015, Kitchin LJ dismissed the oral reconsideration of the paper refusal of permission to appeal and upheld the consequential restraint on advertisement of the winding-up petition.
• High Court of Justice, Chancery Division: Morgan J, on 18 June 2015, restrained advertisement of the petition presented by Bluebridge.
• Paper application: Treacy LJ refused permission to appeal on 9 July 2015.