Mohammed contracted with Dr Michael Bowles in order to carry out work to Dr Michael Bowles’ residence. The contract contained in Article 6 a clause providing for the resolution of disputes by way of adjudication. The works did not progress in a timely fashion and there were also questions about the quality of some of the work that had been done. Dr Bowles became concerned about the solvency of Mohammed and therefore Mohammed’s ability to complete the work. An exchange of letters dated 6 and 10 October 2001 recorded arrangements for completing the work. The work was not completed satisfactorily, and Dr Bowles instigated adjudication in accordance with the contract. Mohammed challenged the jurisdiction of the adjudicator. The adjudicator awarded Dr Bowles the sum of £26,495.54. Mohammed refused to pay. Dr Bowles served a statutory demand under section 268(1)(a) of the Insolvency Act 1986. In this application Mohammed sought to set aside the statutory demand on the basis of two grounds set out in the insolvency rules 1986. Rule 6.5(4) states that the court may set aside a statutory demand if “(b) the debt is disputed on grounds that appear to the court to be substantial and… (d) the court is satisfied on other grounds that the demand ought to be set aside”.
The main question before the court was whether the adjudicator’s decision created a debt that could form a basis of the statutory demand, and if so what was the nature of that debt.

The applicant raised four main reasons for setting aside the statutory demand. First, that the adjudicator could not determine his or her jurisdiction, as that was a matter for the court. Second, the Act stated that adjudication did not apply to construction contracts with a residential occupier (section 106). Third, the original contract was superseded by a later contract contained in the exchange of letters, which did not contain a contract of adjudication clause. Finally, the use of a statutory demand was an abuse of process, as it was settled law that the appropriate way to enforce a decision was by way of court proceedings. Therefore, Dr Bowles should have taken that further step before issuing a statutory demand.

  

Reference

Ms Derrens held that while the construction contract was in respect of a residence, the parties had agreed in the contract to resolve their dispute by way of adjudication. In respect of jurisdiction, the adjudicator had determined that issue and it was not for the bankruptcy court to look behind that decision. More importantly, the judge noted that the applicant could have applied to the court to set aside the adjudicator’s decision or seek a declaration in respect of the point on jurisdiction. She noted that the applicant had taken no steps to adopt that course of action. Ms Derrens therefore concluded that the adjudicator’s decision was a debt that was sufficient to form the basis of a statutory demand.

For further information, call Tony Francis or Nicholas Gould on 0207 956 9354

Postscript

This is an interesting case because Dr Bowles used a statutory demand to enforce the adjudicator’s decision, and attempts by Mohammed to set it aside were refused. The registrar, Ms Derrens, decided that the nature of that debt was the binding contractual obligation on Mohammed to pay the sum quantified by the adjudicator’s decision, unless and until varied by arbitrational legal proceedings. She did not accept that the debt was disputed on substantial grounds, or any other kind. As a result she dismissed the application to set aside the statutory demand, ordered Mohammed to pay Dr Bowles’ costs and confirmed that Dr Bowles may petition the Court forthwith.