Sandstone Legal Limited v Curzon Claims Limited t/a Clockwork Claims

A winding-up petition should not be used to determine a debt which is bona fide disputed on substantial grounds. The company must show a real prospect of success; a merely shadowy defence is insufficient, but the court may examine the evidence in detail. A genuine and substantial cross-claim may also prevent presentation of a petition where it exceeds the undisputed debt.

Where a contract provides for advance payments followed by assessment and agreement of accepted claims, payment of an advance does not necessarily amount to acceptance of all claims. In the absence of an express deeming provision, failure to determine a claim within the contractual period constitutes a breach, not deemed acceptance.

Sandstone Legal Limited applied to restrain Curzon Claims Limited from presenting a winding-up petition based on a statutory demand for £490,214.67 plus VAT. Sandstone disputed liability under an agreement for the supply of Plevin claims. It argued, among other matters, that claims had not been validly accepted, that its intermediary lacked authority to accept or reject claims, and that accounting and payment calculations were wrong.

The court considered whether Sandstone had shown a bona fide dispute on substantial grounds and whether injunctive relief should be granted, including in light of evidence concerning Sandstone’s solvency and subsequent insolvency proceedings.

1. Authority of the intermediary. The Company had no real prospect of establishing that CTA lacked actual or apparent authority to receive, process, accept or reject the claims. The parties’ conduct showed that the Company knew and consented to delivery of claims to CTA. The Company’s continuing relationship with CTA, the processing and reconciliation of claims, payment of invoices and absence of timely complaint supported either implied actual authority or a holding out giving rise to apparent authority.
2. Evidence. The court was entitled to examine the evidence in detail. Mr Settle’s evidence was in several respects unclear, inconsistent with the documents and inherently implausible. The court therefore assessed the documentary and witness evidence in determining whether the dispute had a real prospect of success.
3. Accepted claims. The Company had a bona fide dispute on substantial grounds concerning at least 7,000 allegedly rejected claims, 4,431 claims described as provisionally accepted, and all 2,500 claims in batch 11. The Agreement contained no deeming provision under clause 2.7. Failure to determine or agree the status of a claim within 10 business days resulted in breach of the contractual process, not deemed acceptance. Advance payments were payments on account and did not themselves establish acceptance.
4. Effect on the petition debt. The disputed sums totalled £879,390, exceeding the debt claimed in the petition. The statutory demand debt was therefore bona fide disputed on substantial grounds. It was unnecessary to decide the Company’s other grounds of dispute.
5. Injunctive relief. The later evidence concerning the Company’s liabilities did not affect the merits of the dispute, but was relevant to whether relief should be granted. A further hearing was directed on that issue. The judgment did not finally determine the grant of the injunction.

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