James Dolman & Company Ltd. v Pedley

J U D G M E N T

1. LADY JUSTICE ARDEN: This is an appeal with the leave of the judge from the order dated 12th September 2003 of His Honour Judge Norris QC sitting in the Birmingham District Registry, Chancery Division. By his order the judge acceded to the respondent's application to restrain the advertisement of a winding-up petition presented against the company by the appellant.

2. The appellant and petitioner is the company's landlord and the petition is based on a statutory demand, which in turn is based on unpaid rent for the period August 2002 to July 2003 in the sum of £25,000. There is no dispute as to the amount of rent for which the company is liable, subject however to the company's claims of set-off. The appellant's purpose in presenting the petition is to forestall the trial of an action in the Dudley County Court due to begin on 13th October 2003, in which the petitioner seeks to recover rent for prior periods totalling £101,714.55 and a further sum of £31,725 for the recovery of rent received from a sub-lessee. The appellant believes that any success in his favour in the Dudley proceedings would be a pyrrhic victory for him since the company would be unable to pay. As I see it, this is not an improper motive with which to bring winding-up proceedings. The company has filed a defence in the Dudley proceedings in which it denies liability for the sums claimed, except for the month of August 2002 which it admits.

3. In support of the application to restrain advertisement, the company filed the witness statement of its managing director, Mr KP Price, who also appeared on its behalf before the judge and who appears on behalf of the company today for the appeal. The evidence of Mr Price is that the company had claims for the reduction of rent and rates on the grounds that the petitioner occupied part of the premises. Mr Price also asserts a cross claim for damages resulting from the defective removal of asbestos from the roof of the premises. In addition, Mr Price's evidence is that rent was paid to the petitioner's daughter. Mr Prior contends that these matters are in issue in the Dudley proceedings, and in addition establish a set-off of an unquantified amount against the rent claimed in the statutory demand.

4. The judge ruled that none of the matters relied on constituted a substantial or bona fide defence to the petition. He held:

"In my judgment, there is no substantial and bona fide defence to the sum claimed. A defence is raised by Mr Price in his witness statement, though not in the defence itself, but none in substance relate to the period to which the statutory demand relates.

(1) As to occupation, Mr Price alleges Mr Pedley's occupation ceased before the commencement of the Dudley claim. The statutory demand relates to rent after the Dudley claim was issued. The only relevant cross claim relates to the storage of some of Mr Pedley's property. That claim is not particularised and quantified so that I can determine that the claim will extinguish or substantially erode the claim for rent.

[I interpose that Mr Price does not purport to quantify the cross-claim for occupation by Mr Pedley but on any basis it can only affect a small part of the claim in the statutory demand.]

(2) The claim for payment of rent to Mr Pedley's daughter is a claim to be relied on in the Dudley case as reducing rent down to August 2002. This is not quantified or put in any way to lead me to conclude that it has any substantial effect on the statutory demand for rent after 2002.

(3) The claim arising out of the mishandling of the repairs to the roof arises from events that took place in 1998 and 1999. These will be relied on as a defence to the Dudley claim although they are not pleaded. The only continuing effect is the settlement of asbestos. Neither in the defence, or for the period after the Dudley claim, is any evidence provided to enable me to quantify this claim."

Mr Price then submitted to the judge that advertisement should be restrained so as to permit the trial of the Dudley proceedings to take place. The judge concurred with the submission. He held:

"Impressive as I find Mr De Waal's submissions, I have concluded that the advertisement of the petition should be restrained and the winding up petition postponed until a date after the Dudley case has been heard and the company's defence considered. That will mean that the company can put over its case on the pre August 2002 rent and that the matter can be determined by the court after submissions from the company (rather than the issue determined by a decision of any liquidator)."

5. I turn to the submissions on the appeal. Mr De Waal, who appeared below for Mr Pedley, submits in essence as follows. First, the judge had no discretion to grant the order once he had concluded that there was no bona fide or substantial dispute as to the debts claimed in the petition. It is common ground that the judge was correct to direct himself by reference to a passage from the judgment of Chadwick J (as he then was) in Re A Company No 006685 of 1996 [1997] ECC 830. At page 832 Chadwick J said this:

"It is in my view important to re-emphasise that there is no rule or practice in this court that a petition will be struck out or dismissed merely because the company alleges that the debt is disputed. The true rule, which has existed for many years, is the rule of practice that this court will not allow a winding up petition to be used for deciding a substantial dispute raised on bona fide grounds. It will not do so, as a matter of practice, because the effect of presenting a winding up petition and advertising that petition is to put upon the company a pressure to pay (rather than to litigate) which is quite different in nature from the effect of an ordinary writ action. The pressure arises from the fact that once the existence of the petition is known amongst those having dealings with the company, they are likely to withdraw credit or refuse to continue to trade with the company on the ground that, if the company is wound up on the petition, their dealings with it will be subject to the provisions of s127 Insolvency Act."

Secondly, Mr De Waal submits that there was no set-off against the £25,000 claimed in the petition, or rather that there was no bona fide or substantial dispute as to that sum, except as to the proportion of the rent attributable to the alleged continued occupation by Mr Pedley which Mr De Waal is constrained to admit may amount to a bona fide and substantial dispute. Third, Mr De Waal submits that in any event the result of the Dudley proceedings could have no effect on the petition debt since those proceedings related to rent for prior periods.

6. Mr Price has made submissions on behalf of the company. First, he submits that the company has not yet obtained full use of the premises. He relies on the fact that Mr Pedley is occupying part of the premises for the storage of equipment. He has accepted as correct in all material respects the figure of £5,715, to which I referred earlier, as being an appropriate reduction for rates and rent in respect of that equipment for the period covered by the rent claimed in the statutory demand. On that basis, that particular submission can only amount to a cross claim in respect of that sum, at best.

7. Second, Mr Price submits that there is continuing asbestos contamination as a result of the defective repair to the roof. He submits that the judge was not correct in saying that this was simply a claim for settlement of asbestos. He contends that the asbestos is continuing to affect the company's operations. However, the amount of the loss caused to the company has not yet been quantified, and until that sum is quantified, in my judgment, the judge was correct to conclude that there was no bona fide or substantial dispute. This matter has been going on for a long time, and it must surely have been possible to produce information as to the loss caused by this asbestos contamination by this stage.

8. Third, Mr Price submits that the company will wish to amend the defence in the Dudley proceedings and possibly to advance a set-off. This is very late in the day since those proceedings are set down for October 13th, and the company must have known for some time that it would need to provide those particulars if those were needed to be tried in those actions. Mr Price informs us that he has since February suffered from serious ill-health. I accept what he says on that. I understand that it will have been difficult, if not impossible, for him personally to give instructions to enable the defence to be amended or a counterclaim put forward. Be that as it may, he is now working a few hours a day. This court has to look at the matter as the judge did, on the basis of the claim as presented to the court. There is simply no evidence which quantifies the cross claim in respect of the asbestos. There are not even any particulars of the asbestos cross claim. As I have said, in my judgement, the judge was correct to say that there was no bona fide substantial dispute in respect of that matter.

9. Fourth, Mr Price submits that the company made an offer in February 2003. We have seen the terms of this offer, but it was not in respect of the full amount which the petitioner claims in the Dudley proceedings and in this action. Since we have not seen the full "without prejudice" correspondence, we cannot say whether the conduct of either party was reasonable or not. The fact remains that the company has not made an offer to settle the petition debt in full. Mr Price submits that, if the court were to grant an injunction, the company would be impeded in its defence of the Dudley proceedings. That is extraneous matter. The court has to look to see whether the petition should proceed in respect of the debt on which it was based. I do not regard it as improper to present the winding-up petition to forestall other proceedings between the parties concerning other amounts.

10. In my judgment, this appeal must succeed. A winding up petition must be advertised in accordance with Insolvency Rule 4.11. Otherwise, no winding-up order can be made on the petition. The court has jurisdiction to restrain the advertisement of a winding-up petition where the advertisement would constitute an abuse of its process (see Mann v Goldstein [1968] 1 WLR 1091 at 1093). At page 1094 it was said:

"That jurisdiction is a facet of the court's inherent jurisdiction to prevent an abuse of the process of the court. It will be exercised where a winding up application is presented or prosecuted otherwise than in accordance with the legitimate purpose of such process."

In the present case, the only basis on which the petition could be said to be an abuse of its process, based as it is on the rent for the period August 2002 to July 2003, is if that debt was the subject of a bona fide and substantial dispute. But the judge rejected each of the grounds relied on by the company as showing that there was such a dispute. He was right to do so, save with respect to part of the rent attributable to Mr Pedley's occupation of the premises, as to which there is sufficient to show a bona fide and substantial dispute for the purposes of the application. The judge having reached the conclusion that there was no bona fide and substantial dispute as to the petition debt, it was, in my judgment, inconsistent with that conclusion for him to restrain the advertisement of the winding-up petition pending the trial of the Dudley proceedings. It was also erroneous in principle for him to proceed to make that order since the jurisdiction to restrain advertisement is to be exercised to prevent a threatened abuse of the process of the court. I do not consider that the winding-up petition in this case would be an abuse of process given the debt on which it is based. Even if the Dudley proceedings were found in favour of the company, that would not affect the rent due for the later periods on which the petition was based unless the respondent establishes a set-off in the Dudley proceedings which exceeded Mr Pedley's claim. That is contrary to the pleadings as they stand. There is no conclusion for judgment in an amount which exceeds the amount claimed by Mr Pedley. On the contrary, there is an admission that rent is due for August 2002. This is tantamount to an admission that any set-off was exhausted by the rent for prior periods and the further sum of £31,725 also claimed in the Dudley proceedings.

11. The fact that the petition is advertised would not prevent the company from pursuing its claim in respect of the asbestos at a later date if it does manage to substantiate it, but as matters stand, there is no particularised claim which affects the rent relied on in this petition, save in relation to that small proportion attributable to Mr Pedley's occupation. In my judgment, the appeal must be allowed.

12. LORD JUSTICE RIX: I agree.

13. LORD JUSTICE SCHIEMANN: I agree.

ORDER: Appeal allowed; injunction discharged; petitioner to have costs below summarily assessed in the sum of £3,000 inclusive of VAT, and costs of the appeal summarily assessed in the sum of £4,500 inclusive of VAT.