Deluxe Property Holdings Ltd v SCL Construction & Anor (Injunction Continuance)

On an application to continue an interim injunction, the court applies the American Cyanamid principles. There must be a serious issue to be tried; damages must be assessed for each party; and the balance of convenience must favour preservation of the position pending trial. A real risk that the defendant cannot satisfy a judgment may make damages inadequate, particularly where the claimant seeks to preserve specifically identified funds. The injunction is protective and does not determine the underlying proprietary or contractual dispute. The court may also require information about the location and use of the assets so that the final dispute can be effectively determined.

The claimant employer had paid VAT to the first defendant contractor on interim payments under construction contracts. After advice that most works were zero-rated, the contractor claimed reimbursement from HMRC under section 80 of the Value Added Tax Act 1994 and undertook to pay any reimbursement to the claimant without deduction. HMRC repaid £435,555.95. The contractor later withdrew the section 80 claim and substituted a VAT rebate claim, issuing the claimant a credit rather than paying cash.

The claimant commenced Part 8 proceedings seeking declarations that the claims and proceeds were held on trust. An injunction had been granted on 7 October 2020. The issue was whether it should continue pending determination of the trust and accounting disputes.

1. Injunction continued. The court continued the order requiring the first defendant to preserve and provide information about VAT monies received from HMRC, including monies received under the substituted rebate claim.
2. There was a clear issue to be tried. The parties disputed whether a constructive or Quistclose trust arose in relation to the section 80 claim, its proceeds or the substituted rebate claim, and whether the contractor had to pay the sums in cash or could give credit against alleged contractual liabilities. Those issues were suitable for Part 8 determination.
3. Damages would not be an adequate remedy for the claimant. Although the contractor remained trading and was not technically insolvent, the financial information showed very limited net assets and a real risk that it could not satisfy a judgment. Damages would be an adequate remedy for the contractor because the claimant was solvent and had assets within the jurisdiction.
4. The balance of convenience favoured continuation. The contractor had provided incomplete information and had disclosed receipt and timing of the VAT repayment only shortly before or during the hearing. Preservation of the funds and further disclosure were therefore appropriate.
5. The court expressly made no determination on the merits of the trust claims, the status of the VAT claims, or the contractor’s entitlement to give a credit rather than make direct payment. The injunction was continued to preserve the position pending final resolution.

On 7 October 2020 the High Court granted an interim injunction. On the return date, this court continued the injunction and required additional information concerning the substituted VAT rebate claim.