Two more conundrums for the keen legal minds at Berwin Leighton Paisner: the first on the topical subject of statutory demands and winding up, the other on what happens when a client moves in before practical completion
Do I have to pay my builder?
I have received a statutory demand from a builder, and I have some questions about it. First, the builder is one of three brothers who are partners in the firm, and the demand makes no mention of the other two partners. If I am to counterclaim, should their names be on the form? Second, the contract ruled out legal proceedings – only adjudication and arbitration. Can the builder still issue proceedings through the county court? Third, the demand is sent to me as an individual and makes no mention of my company name – does this invalidate it?
I dispute the bill and have previously stated that he owes me liquidated damages for delays and defective work – should I counterclaim on the form or issue a statutory demand to the three brothers’ partnership?
The builder says the claim is for works outside the original contract. In fact, they were variations to the contract – the contract administrator did not issue any forms. Should they be dealt with in relation to the dispute over the entire contract?
If the statutory demand relates to a disputed debt, the demand should not have been served. The correct procedure is to issue proceedings for the recovery of the debt. This would enable both parties to present their arguments and for the debt to be determined by the court.
A statutory demand assumes that the debt is undisputed and overdue. It is a cheap and effective tool to use in these circumstances as an unsatisfied statutory demand (that is, one that has not been paid within three weeks of service), is sufficient to show that a company can’t pay its debts. This is then grounds on which a creditor can have it wound up.
Therefore, the first step you should take is to inform the creditor that the debt is disputed and that you will apply to the court to have the statutory demand set aside on those grounds.
The technical deficiencies in the statutory demand may not be fatal to it so long as you have not been prejudiced by the errors and it is clear whom it is addressed to. It remains a statutory demand until it is set aside by the court. However, the identity of a party is a fairly fundamental issue and you should mention this in your application for set aside.
Further, in light of the arbitration clause, if
- the debt is in relation to the contract (as opposed to additional works)
- and the contract provides that disputes are to be referred to arbitration, this is an additional ground on which to seek a stay of the insolvency petition from the court.
An application by an individual to have a statutory demand set aside must be made within 18 days of the service of the statutory demand. If three weeks have passed and no application to get the demand set aside has been made, and the creditor has made a bankruptcy petition, there is no way to withdraw the petition and so the matter will go to a hearing.
At the hearing, the judge has discretion to dismiss the petition if there are grounds to do so – such as the fact that the debt is disputed. The court may also award costs (including indemnity costs) against the creditor in these circumstances. The courts often penalise creditors in when a debtor has good reason for refusing to pay a statutory demand – which you have.
Possession is nine points of the law
If a client takes occupation of a building, can the architect refuse to issue a certificate of practical completion on the grounds that the works are not complete to the standard set out in the specification? Surely, if beneficial occupation has taken place, liquidated damages cannot be imposed and the defects liability period must run from when the client occupied the building?
We are assuming for the purposes of this answer that you have contracted using the JCT Building Contract With or Without Quantities, and that the relevant provision is clause 18.
Clause 18 states that at any time before the issue of the certificate of practical completion, the client may take possession of any part of the works with the contractor’s consent. The architect then gives the contractor a written statement identifying what has been taken into possession, and when.
For the purposes of the defects liability period, practical completion will be deemed to have occurred in these parts on the date of possession. This means that the defects liability period for the parts of the building which the client has taken occupation will run from the date of this occupation.
With regard to liquidated damages, there is no need to prove actual loss, as they are pre-estimates assessed at the time of contract. However where the client takes possession of a part of the completed works before the completion of the whole, clause 18.1.4 provides that the liquidated damages should be pro-rated accordingly.
If your contract does not contain provisions similar to clause 18, and if the client moves in without practical completion being granted, it will normally have waived its right to insist on the building being complete prior to the issue of a Practical Completion certificate. Accordingly from the date of occupation liquidated damages will no longer run. The contractor is still liable for defects, though.