COD Hyde Ltd v Space Change Management Ltd

An injunction restraining presentation of a winding-up petition is not justified where the alleged debt is not disputed on substantial grounds. Under a construction contract with prescribed payment-notice machinery, an employer that fails to serve a valid Payment Notice or Pay Less Notice remains liable for the interim sum stated in the contractor’s application, subject to later adjustment. The employer cannot rely on unparticularised allegations of contractor default where it served no relevant default notice before the contractor suspended and terminated the contract. A counterclaim must be supported by evidence showing at least an identifiable minimum amount; a bare assertion that it may exceed the debt is insufficient.

COD Hyde Ltd applied to restrain Space Change Management Ltd from presenting a winding-up petition based on a statutory demand for unpaid interim payments under a JCT Design and Build Contract 2011. The claimed debt principally concerned Applications Nos 6 and 7, for which the employer had served payment notices out of time and no Pay Less Notices. The contractor had suspended performance and purported to terminate the contract after non-payment. The employer alleged substantial disputes concerning the contractor’s progress, the termination of the contract and a counterclaim exceeding the debt.

The central issues were whether the debt was disputed on substantial grounds, whether the contractor was entitled to suspend and terminate, and whether the asserted counterclaim justified injunctive relief.

1. Application refused. The court refused the injunction and dismissed the application. On the evidence, there was not even a shadowy claim concerning the employer’s liability for the sums claimed under Applications Nos 6 and 7.
2. The contract imposed a prescriptive payment procedure. The employer had the opportunity to challenge the applications by serving timely Payment Notices or Pay Less Notices. Its notices for Applications Nos 6 and 7 were late, and no Pay Less Notices were served. The contractual consequence was that the sums stated in those applications became payable, without prejudice to later adjustment or other remedies such as adjudication.
3. The employer’s general allegations that the contractor had failed to progress the works did not establish a substantial dispute. No default notices had been served in respect of those matters before the contractor relied on the contractual provisions for suspension and termination. Nor had the alleged defaults been accepted as repudiatory breaches before the contractor terminated.
4. The contractor was therefore entitled to rely on the contractual machinery for suspension and termination. The contract had been terminated by the contractor before the employer purported to terminate it. The employer could not rely on the later termination or clause 8.7 to defeat the accrued payment claims.
5. The asserted counterclaim was unsupported. The evidence gave no identifiable minimum amount, let alone a basis for concluding that it exceeded the statutory demand. The court did not need to decide whether Application No 8 had been effectively served, because the amounts due under Applications Nos 6 and 7 were sufficient.