IPS Law LLP v Safe Harbour Equity Distressed Debt Fund 3 LP

The court will restrain presentation or advertisement of a winding-up petition where the petition debt is disputed on genuine and substantial grounds. A dispute lacks substance where it has no rational prospect of success, even if supported by extensive or complex evidence. The court may examine the evidence in detail and assess whether alleged promises, estoppels, collateral contracts or crossclaims are genuinely triable.

Unclear, unsigned or internally inconsistent commercial documents, continuing negotiations and conduct inconsistent with the alleged agreement may demonstrate that no binding contractual entitlement exists. A solicitor acting for a client cannot ordinarily claim loss from disclosure to that client of information concerning negotiations conducted on the client’s behalf.

IPS Law LLP applied to restrain Safe Harbour Equity Distressed Debt Fund 3 LP from advertising a winding-up petition based principally on a £500,000 loan under an on-demand facility agreement.

IPS relied on alleged assurances that the loan would not be enforced, giving rise to promissory estoppel, estoppel by convention or a collateral contract. It also alleged substantial crossclaims based on an asserted contractual entitlement to a share of damages from proposed personal-data litigation, including inducing breach of contract, interference with a solicitor’s lien and misuse or disclosure of confidential information.

The issues were whether the petition debt was disputed on genuine and substantial grounds and whether the alleged crossclaims raised a substantially triable issue.

1. Application dismissed. The grounds relied upon by IPS did not constitute a substantial dispute with a rational prospect of success.
2. The court applied the principles summarised in Angel Group Ltd v British Gas Trading Ltd. A winding-up petition should not be used to determine a substantial dispute, but the court must guard against a debtor creating a cloud of objections through hopeless or obfuscatory allegations. It may examine the evidence in detail, including in an exercise resembling summary judgment.
3. The alleged assurances did not raise a triable issue. The first and second assurances were not unequivocal. The alleged third assurance was unsupported by contemporaneous evidence and was inconsistent with the surrounding correspondence, the requirement that Mr Farnell obtain independent legal advice on his personal guarantee, and the late emergence of the case. There was no rational prospect of proving an intention to affect legal relations or a shared convention that the repayment terms would not be enforced.
4. The alleged crossclaims also failed. The evidence disclosed no substantially triable issue that IPS had a binding and irrevocable contractual entitlement to share in damages from the proposed Personal Data Claims. The Global Agreement was unsigned, internally defective, inconsistent with other engagement documents and plainly subject to continuing negotiation. The uncertainty over the claimants, funding structure and remuneration reinforced that conclusion.
5. Without such an entitlement, IPS could show neither actionable loss nor a crossclaim capable of set-off. In any event, the alleged disclosure or misuse of confidential information was not substantially triable. IPS had acted as GSDT’s solicitor in the funding negotiations and could not keep information about those negotiations confidential from GSDT or claim a loss caused by disclosure to it.
6. The alleged threatening telephone call did not establish abuse of process. Animosity between creditor and debtor, without more, did not show that the petition was not genuinely pursued for the benefit of creditors.