Cosmur Construction (London) Ltd v St Lewis Design Ltd

The Companies Court should restrain presentation of a winding-up petition where the alleged debt is genuinely disputed on substantial grounds. It should also restrain presentation where the company has a genuine and substantial cross-claim exceeding the petition debt, even if the cross-claim could previously have been litigated. The “pay now, litigate later” regime under Part II of the Housing, Grants, Construction and Regeneration Act 1996 does not displace these principles. Failure to serve a timely pay less notice may make a payment immediately due, but it does not prevent a later challenge to the true value of the works. The threshold for a bona fide and substantial dispute is low; an arguable or “shadowy” defence may suffice.

St Lewis Design Ltd served a statutory demand on Cosmur Construction (London) Ltd for sums claimed under a construction subcontract. Cosmur applied to restrain presentation of a winding-up petition.

Cosmur disputed whether its standard terms had been incorporated, whether SLD had made valid payment applications, and the value of the works. It also relied on liquidated damages and a cross-claim for the cost of completing works at another site. The central questions were whether there was a genuine and substantial dispute as to the petition debt and, alternatively, whether Cosmur had a genuine and substantial cross-claim exceeding that debt.

1. Injunction granted. Presentation of a winding-up petition was restrained.
2. The Companies Court will not ordinarily permit winding-up proceedings to be used where the company genuinely disputes the petition debt on substantial grounds. The court will not normally try the disputed claim because winding-up proceedings are unsuitable for that purpose and the procedure could exert improper pressure on the company.
3. A genuine and serious cross-claim exceeding the petition debt may also defeat a winding-up petition. Although In re Bayoil SA identified inability to litigate the cross-claim as one requirement, Dennis Rye Ltd v Bolsover DC established that this was not necessary. The failure to litigate may nevertheless be relevant when assessing whether the claim is genuine and serious.
4. The “pay now, litigate later” regime in Part II of the Housing, Grants, Construction and Regeneration Act 1996 does not displace the ordinary winding-up principles. Under s 111, failure to serve a timely pay less notice may make the notified sum immediately payable, including in relation to a final account. It does not prevent the payer from subsequently challenging the true value of the works.
5. There were arguable issues concerning incorporation of Cosmur’s standard terms, compliance with the alleged condition precedent for a final account, and the validity of SLD’s interim payment application. The threshold for a bona fide and substantial dispute was low, and those issues could not properly be resolved summarily.
6. Alternatively, Cosmur’s £40,000 claim for the cost of completing works at another site was supported by evidence and was not shown to be merely speculative. Taken with the other claims, it constituted a genuine and substantial cross-claim exceeding the petition debt.

First-instance decision. No prior appellate decision is stated in the judgment.