Conrad Clauson v Knowles Construction Limited

A statutory demand will not ordinarily be set aside where the debtor received it, suffered no prejudice, and any service defect is a formal irregularity capable of cure. The court must identify a genuine triable issue, equivalent to a real prospect of success, without conducting a mini-trial. A contractual payment date is not postponed merely because defects are alleged unless the contract makes payment conditional. However, an arguable contractual counterclaim or set-off may substantially reduce the debt relied upon. The residual discretion to set aside a demand exists to prevent injustice, but it should not be exercised where doing so would be pointless.

Conrad Clauson applied under rule 10.5 of the Insolvency Rules (England and Wales) 2016 to set aside a statutory demand for £3,335,962.99 issued by Knowles Construction Limited under a personal guarantee. He alleged defective service, a substantial dispute, and a counterclaim or set-off. The dispute concerned the effect of a practical completion certificate, the due date for sums under construction contracts, and whether claims belonging to Yarborough Management Limited could reduce his liability under the guarantee.

The court had to determine whether the demand was validly served, whether the guaranteed sums were presently payable, and whether the alleged claims against Knowles constituted a genuine triable issue or arguable set-off.

1. Application dismissed. The statutory demand was served, or alternatively any defect in service was a formal irregularity which could be cured. Setting it aside would have been pointless because the court could defer presentation of a bankruptcy petition under rule 10.5(8).
2. Service of a statutory demand is a jurisdictional pre-requisite to a bankruptcy petition. Rule 10.2 requires personal service where practicable, or otherwise all reasonable steps to bring the demand to the debtor’s attention. Here, Mr Clauson received the demand by email, instructed solicitors promptly, suffered no prejudice, and deliberately failed to attend an arranged appointment with the process server. Personal service was therefore not practicable in the circumstances, and the demand was served on 12 October 2023, or alternatively 18 October 2023.
3. The court applied the genuine triable issue test under rule 10.5(5), equivalent to the real prospect test in CPR 24.2(a). It was inappropriate to conduct a mini-trial, but the court had to guard against a speculative smokescreen.
4. The Payment Period under the guarantee began when the unconditional practical completion certificate was issued on 20 or 21 March 2023 and ended six months later. The alleged minor items did not relate to the original contract and did not postpone the payment date.
5. Under the varied construction contract, alleged defects did not suspend the due date for the £830,000 settlement sum. They could, however, support a right of set-off. Clause 3.4 of the guarantee was capable of reducing all amounts payable by Mr Clauson, not merely his secondary liability for the settlement sum.
6. Yarborough had an arguable counterclaim of £2,104,779.50. That amount could reduce the £3,335,962.99 demand, leaving £1,231,183.49 undisputed. The proposed personal counterclaim under the Prime Cost Contract was rejected because it contradicted Mr Clauson’s pleaded and evidential case and was insufficiently particularised.