Sell Your Car With Us Ltd v Sareen

A winding-up petition will be restrained where the company shows a genuine and substantial dispute about the debt, or a genuine and substantial cross-claim or set-off which would make the petition an abuse of process. The threshold is low, but a merely speculative or unsupported cross-claim is insufficient.

A contractual term is implied only where necessary to give the contract business efficacy or so obvious that it goes without saying. A proposed term which would improve the contract is not enough. An implied statement about future conduct may amount to a misrepresentation only if the relevant intention was not genuinely held and the representation induced the contract.

A creditor may use winding-up proceedings to recover an undisputed debt.

The applicant company applied to restrain the respondent from presenting a winding-up petition based on an unpaid sum due under a sale-or-return agreement for a vehicle.

The company alleged that a third party had intercepted communications and diverted part of the sale proceeds. It advanced a proposed cross-claim based on an implied contractual term requiring the respondent to take reasonable care over email security, and alternatively on an implied representation giving rise to negligent misrepresentation.

The issues were whether either claim was genuine and substantial, and whether the respondent’s proposed petition would therefore constitute an abuse of process.

1. The application was dismissed. The company failed to establish a genuine and substantial cross-claim, and the respondent was entitled to pursue winding-up proceedings for the unpaid debt.

2. The threshold for showing a genuine and substantial dispute or cross-claim is low because a winding-up order is a draconian remedy. Nevertheless, the company must show substance in the claim; a cloud of objections or a need for factual investigation is insufficient.

3. The alleged implied term requiring reasonable care over the security of the respondent’s email account was not necessary for the contract to have business efficacy and was not so obvious that it went without saying. The contract could function without it. The fact that the term might improve the contract did not satisfy the test.

4. The alleged representation was properly characterised as an implied statement of intent concerning future conduct. Such a statement could amount to a misrepresentation only if the respondent did not hold the relevant intention when it was made, and it induced the company to enter into the contract. The evidence did not establish either requirement. The respondent represented no more than that he was contactable at the stated email address.

5. The company was responsible for sending money to an unauthorised account. It failed to act on the discrepancy between the genuine and fraudulent email addresses and did not complete its own telephone and payment-verification checks.

6. The fact that insolvency proceedings may put pressure on a company to pay does not make their use abusive where the debt is undisputed. The respondent’s debt was not subject to a substantial dispute, and there were no grounds to restrain presentation of a petition.

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