Payless Notices and Insolvency
By Victoria Russell, Fenwick Elliott
Wilson and Sharp Investments Ltd v Harbour View Developments Ltd  EWCA Civ 1030 (Court of Appeal – 13 October 2015)
In this case, four interim certificates had been issued, totalling £1.2 million. Wilson, the Employer, only paid one. Further, it had not issued pay less notices for the other three, which remained outstanding.
Harbour View suspended its work and both parties served notices of termination. Harbour View then issued a winding up petition and Wilson sought an injunction to restrain presentation of the petition, claiming that it was disputed on substantial grounds and that Wilson had serious and genuine cross claims which exceeded the sums allegedly due.
Before the first hearing, Harbour View gave notice that a meeting of creditors was to be held for the purposes of appointing a liquidator.
The contract between the parties was the JCT Intermediate Building Contract with Contractor’s Design, 2011 Edition. Clause 8.5.3 of that contract provided that as from the date a contractor became insolvent, whether or not the Employer had given notice of termination, clause 8.7.3 would apply as if such notice had been given. Clause 8.7.3 noted that an Employer need not pay any sum that had already become due if the Contractor, after the last date upon which a pay less notice could have been given, had become insolvent.
The Court of Appeal agreed that this meant that the proposed petition debt, based on the sums set out on the interim payment certificates, was genuinely disputed as, given the provisions of clause 8.7.3, such sums were no longer payable after the contractor had entered into the creditors’ voluntary liquidation.
Lady Justice Gloster noted that an employer who accepts that interim payments have become due because of the failure to serve pay less notices is not prejudiced by this when it seeks to raise a serious and genuine cross claim. The fact that interim payments had fallen due under the Housing Grants, Construction and Regeneration Act 1996, because of the failure to issue pay less notices, did not prevent Wilson from challenging the valuation at a later date or raising a cross claim in response to a winding up petition, provided that it could demonstrate that its cross claims were reasonably arguable and sufficiently strong to be tested in court proceedings.
The Court of Appeal held that the Judge at first instance should have granted the injunction sought by Wilson, restraining the issue of a winding up petition. Their appeal was therefore successful.