A subcontractor, SCC Construction Ltd, raised a number of invoices against the head contractor, Medlock Projects Ltd. The invoices were not paid and SCC presented a winding-up petition against Medlock to the court. Medlock Projects applied to restrain advertisement of the winding up petition. The unpaid invoices were for £51,642 but SCC accepted that £5,803 was not properly included as a debt and therefore reduced the debt for the petition to £46,559.
The debt was based on invoices raised in respect of three sites: Congelton, Catterick and phone masts at ConvaTec. The invoices were served after Medlock had served a withholding notice in respect of the Congelton contract only.
After the withholding notice was served, the parties met to discuss the various contracts between them. The result of these discussions were two agreements where Medlock Project Developments Ltd agreed to pay SCC £75,000 in respect of the Congleton contract. The second instalment of the settlement sums under this agreement was not paid.
1 Were the debts bona fide disputed on substantial grounds;
2 Were there cross-claims that Medlock had not yet been able to litigate that would exceed the amount of the petition debt.
The application was dismissed. The agreements signed between the parties after their discussions were contracts between Medlock and SCC, although payment was to be made by a company associated with Medlock. In addition, the two agreements did not apply to the other two contracts.
The dispute as to the claim and cross-claims did not have any genuine prospect of success and it was clear that the parties were settling all their disputes in their agreements on the Congleton contract.
The contracts all fell within the Construction Act as they incorporated Medlock’s standard terms of contract. Therefore Section 111’s requirements of a withholding notice applied. Middleton was aware of the need for a withholding notice as they had served one in relation to Congleton but did not serve one under the other contracts.
The absence of a withholding notice supported the judge’s conclusion that the cross-claims were not substantial and serious claims that Medlock had in mind irrespective of the current winding-up proceedings. They had been thought of as a last resort and not advanced until the threat of winding-up proceedings were already very much to the fore.
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In order for an application to strike out a winding up petition to be successful, the dispute had to be a genuine one on substantial grounds and the cross-claim has to be one which is a bona fide cross-claim which has a genuine prospect of success. This case emphasises the importance of compliance with Section 111’s withholding notice provisions for contracts subject to the provisions of the Construction Act. If these provisions are not complied with, it will support the conclusion that any possible cross-claims will not be considered genuine.