Realstar Ltd, Re

I have before me an application for an injunction to restrain the respondent from proceeding with a winding up petition against the applicant. It is now agreed that the petition should be dismissed and the only issue before me is one of costs. The applicant asks for its costs of this application upon an indemnity basis.

The claim in issue is for alleged arrears of service charges in respect of a freehold unit at Britannia Way, Park Royal. The dispute between the parties is evidently one which has been on foot for some time. My attention has been drawn to correspondence dating back to 2004. It appears to have fallen into a period of quiescence in 2006, only to be revived again in May 2007.

On 4 May 2007, the respondent’s solicitors wrote to the applicant, again demanding alleged arrears of service charges and enclosing various unpaid invoices. On 9 May 2007, the applicant’s solicitors responded to that demand disputing that any charges were in fact due and asking for further information. On 17 May 2007, the respondent’s solicitors replied providing further information and indicating that, unless the sum requested was received within a period of seven days, a winding up petition would be issued.

Nothing having been heard from the applicant, a winding up petition was presented by the respondent on 12 June 2007, with a hearing date of 5 September 2007. The respondent’s solicitors served the petition upon the applicant on 13 June 2007.

At the same time, that is to say 13 June 2007, the applicant’s solicitors wrote to the respondent’s solicitors a full letter explaining the applicant’s position. Importantly, the letter pointed out that service charges could only ever fall due upon service of appropriate certificates. Secondly, the letter requested further information in respect of the alleged work carried out on behalf of the applicant. Thirdly, the letter expressed in clear terms the applicant’s position that the applicant had strong grounds to dispute the claim and that it was inappropriate in these circumstances to issue a winding up petition, particularly in the absence of a statutory demand or any evidence that the applicant was insolvent or unable to pay its debts. Fourthly, the letter pointed out that in all the above circumstances, winding up proceedings were not appropriate and the attention of the respondent was drawn to the case of Re A Company [1992] 1 WLR 351. Finally, the letter sought confirmation that winding up proceedings would not be issued and stated that unless such confirmation was received, an application for an injunction would be made.

On 26 June 2007, the applicant’s solicitors reiterated the applicant’s position in relation to the debt. Of course by this stage it was aware that the winding up petition had in fact been presented and accordingly indicated that the applicant had provided instructions for the issue of an application for an injunction to restrain the advertisement of the petition, unless the respondent gave an undertaking that the petition would not be advertised without the provision of seven days’ notice.

On 4 July 2007, the respondent’s solicitors provided an undertaking in the terms sought and indicated the respondent would provide a substantive response in due course.

On 15 August 2007, the respondent’s solicitors did indeed provide a substantial response, including for the first time the certificates referred to in the letter of 13 June. The letter concluded that there was no reason why payment should be withheld and that as the hearing was fixed for 5 September 2007, they looked forward to hearing from the applicant with payment.

On the following day, the respondent’s solicitors gave notice that they intended to advertise the winding up petition and that the advert would appear not less than seven days from the date of that letter, that is to say not less than seven days from 16 August 2007.

Faced with this letter, the applicant concluded that it had no alternative but to make an application to the court for an injunction, which it did on 22 August 2007. That application was successful and, as I say, this is the return day.

Apparently at the same time and without knowledge that the injunction had been obtained, the respondent’s solicitors were in the process of formulating a fax which was sent to the applicant’s solicitors at 4.25pm on 22 August and which stated:

“In order to give your client time to consider the information we have forwarded to you, our client has instructed us to withdraw the winding up petition … on the basis of each party bearing their own costs. You will of course appreciate that our client was forced to issue the petition to secure a response from your client in relation to the arrears, with which it has been corresponding for some years. That said, it is clear that the debt is still due and we look forward to hearing from you in that regard.”

I think the response to which reference is there made can only be the response contained in the letter of 13 June 2007.

As I say, it is now agreed that the petition should be dismissed. In light of all these circumstances, Mr Baldock, who appears on behalf of the applicant, submits that the applicant should have its costs of this application, not on the standard basis but on an indemnity basis, for the following reasons. First, the alleged debt has at all material times been in dispute, as the respondent must have been well aware. In my judgment, there is considerable force in this point. It seems to me that the letters of 9 May and 13 June 2007 do indeed make clear that the applicant disputed the alleged debt on genuine and substantial grounds.

Secondly, he submitted that the presentation of the winding up petition was precipitous in the absence of a statutory demand. It seems to me that this is intimately tied to his third submission, which is that the winding up petition was, in any event, an inappropriate course to take in the light of the financial position of the applicant and the fact that the respondent must have been aware by 9 May 2007, at the latest, that the debt was disputed.

Once again this is, in my judgment, a very fair point. It seems to me that it is evident from the fax of 22 August 2007 to which I have referred that the respondent issued the petition to secure a response from the applicant in relation to the alleged arrears. There is no dispute on the materials before me that the applicant is on a sound financial footing and was always in a position to pay the alleged arrears and, moreover, as I say, at the latest by 9 May 2007, the respondent must have been aware that the alleged debt was disputed on substantive grounds. In any event, the letter of 13 June 2007 elaborated the position of the applicant and yet, despite that letter, the respondent chose to notify the applicant on 16 August 2007 that it did indeed intend to advertise the petition.

The respondent contends that, despite all these circumstances, it is not appropriate to award the applicant its costs, but rather that I should make no order as to costs. Essentially the submissions in support of that contention are these, and I should say they were advanced with considerable care by Mr Gentleman on its behalf. First he submitted that, at the time the respondent presented the petition, the applicant’s solicitors had given no substantial reasons for disputing the debt. The respondent was entitled to present the winding up petition at that stage and it was not an abuse of the process of the court to do so. He also submitted that, once it became clear that there was a dispute in relation to the debt, the petitioner gave an undertaking not to advertise the petition.

For the reasons that I have given, it seems to me that the presentation of the winding up petition was always an inappropriate course for the respondent to take and moreover, following receipt of the letter of 13 June 2007, it was, in my judgment, clear or ought to have been clear to the respondent that it was inappropriate to proceed with it, and in particular to give notice of its intention to advertise it. Further, as I have indicated, there has never been any doubt about the applicant’s financial status.

What is more, I believe the applicant’s position is reinforced by the fact that the respondent apparently chose to withdraw the petition on or about 22 August 2007, with no further information as to the applicant’s position beyond that provided in the letter of 13 June 2007.

Secondly, Mr Gentleman submitted that the information provided by the respondent by its solicitors’ letter of 15 June 2007 addressed the dispute in relation to the debt in detail and that upon receipt of that letter it should have been clear that the applicant had no substantial grounds for refusing to pay the debt.

In my judgment this submission is undermined by the decision taken by the respondent itself not to pursue the petition with, as I have said, no further information beyond that provided by the applicant in its letter of 13 June 2007.

Finally, Mr Gentleman submitted that the applicant should not have made its application for an injunction to restrain advertisement without giving notice to the respondent, or at least informing the respondent prior to the hearing. Had notice or warning been given, then the expense of the hearing, and indeed the hearing today, could have been avoided.

I have some sympathy for the respondent in relation to this last submission. The letter of 16 August 2007 gave notice of the respondent’s intention to advertise not less than seven days after the date of the letter. The applicant could and I think should have given notice of its intention to apply for the injunction. On the other hand, it does seem to me that the respondent has effectively brought these proceedings upon its own head in the light of all the matters to which I have referred.

Accordingly, I have reached the conclusion that it is appropriate to award costs to the applicant. However, in the light of this last submission of the respondent I think it is right to award costs not on an indemnity basis but only upon the standard basis and that is the order I shall make.